fbp20230930Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

____________

FORM

10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2023

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ___________________ to

___________________

COMMISSION FILE NUMBER

001-14793

FIRST BANCORP

(EXACT NAME OF REGISTRANT AS SPECIFIED

IN ITS CHARTER)

Puerto Rico

66-0561882

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1519 Ponce de León Avenue

Stop 23

San Juan

Puerto Rico

(Address of principal executive offices)

00908

(Zip Code)

(

787

)

729-8200

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.10 par value per share)

FBP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed

all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject

to such filing requirements for the past 90

days.

Yes

☑

Indicate by check mark whether the registrant has submitted electronically

every Interactive Data File required to be submitted pursuant

to Rule 405 of Regulation S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for

such shorter period that the registrant was required

to submit such files).

Yes

☑

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2 of

the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to

use the extended transition period for complying with any

new or revised

financial accounting standards provided pursuant to Section 13(a)

of the Exchange Act.

Indicate by check mark whether the registrant is a shell company

(as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☑

Indicate the number of shares outstanding of each of the

issuer’s classes of common stock, as of the latest practicable date.

Common stock:

172,552,186

shares outstanding as of November 1, 2023.

FIRST BANCORP.

INDEX PAGE

PART

I. FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements:

Consolidated

Statements

Financial

Condition

(Unaudited)

September

30,

2023

and

December 31, 2022

Consolidated

Statements

Income

(Unaudited)

–

Quarters

and

Nine-Month

Periods

ended

September 30, 2023 and 2022

Consolidated

Statements

Comprehensive

Income

(Loss)

(Unaudited)

–

Quarters

and

Nine-

Month Periods ended September 30, 2023 and 2022

Consolidated

Statements

Cash

Flows

(Unaudited)

–

Nine-Month

Periods

ended

September

30, 2023 and 2022

Consolidated Statements

of Changes in

Stockholders’ Equity (Unaudited)

– Quarters and

Nine-

Month Periods ended September 30, 2023 and 2022

Notes to Consolidated Financial Statements (Unaudited)

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

134

Item 1.

Controls and Procedures

134

PART

II. OTHER INFORMATION

Item 1.

Legal Proceedings

135

Item 1A.

Risk Factors

135

Item 2.

Item 5.

Unregistered Sales of Equity Securities and Use of Proceeds

Other Information

137

Item 6.

Exhibits

138

SIGNATURES

Forward-Looking Statements

This Quarterly Report on Form 10-Q

(“Form 10-Q”) contains forward-looking statements

within the meaning of Section 27A

of the

Securities Act

of 1933,

as amended (the

“Securities Act”),

and Section

21E of

the Securities Exchange

Act of 1934,

as amended

(the

“Exchange Act”), which are subject

to the safe harbor created by

such sections. When used in this

Form 10-Q or future filings by

First

BanCorp.

(the

“Corporation,”

“we,”

“us,”

“our”)

with

the

U.S.

Securities

and

Exchange

Commission

(the

“SEC”),

the

Corporation’s press

releases or in other public or

stockholder communications made by

the Corporation, or in oral statements

made on

behalf of the Corporation by,

or with the approval of, an

authorized executive officer,

the words or phrases “would,” “intends,”

“will,”

“expect,” “should,”

“plans,” “forecast,”

“anticipate,” “look forward,”

“believes,” and other

terms of similar

meaning or import,

or the

negatives of

these terms

or variations

of them,

in connection

with any

discussion of

future operating,

financial or

other performance

are meant to identify “forward-looking statements.”

The Corporation cautions readers

not to place undue reliance on

any such “forward-looking statements,” which

speak only as of the

date

hereof,

and

advises

readers

that

any

such

forward-looking

statements

are

not

guarantees

future

performance

and

involve

certain risks,

uncertainties,

estimates, and

assumptions by

us that

are difficult

to predict.

Various

factors, some

of which

are beyond

our control, could cause actual results to differ materially from

those expressed in, or implied by,

such forward-looking statements.

Factors

that

could

cause

results

differ

materially

from

those

expressed

in,

implied

by,

the

Corporation’s

forward-looking

statements include, but are not

limited to, risks described or

referenced in Part I, Item 1A,

“Risk Factors,” in the Corporation’s

Annual

Report on

Form 10-K

for the

fiscal year

ended December

31, 2022,

as amended

on October

13, 2023

(the “2022

Annual Report

Form

10-K”),

Part

II, Item

1A, “Risk

Factors”

the

Corporation’s

Quarterly

Report

on Form

10-Q

for

the

quarterly

period

ended

June 30, 2023, and the following:

●

the

impacts

elevated

interest

rates

and

inflation

the

Corporation,

including

decrease

demand

for

new

loan

originations

and refinancings,

increased

competition

for borrowers,

attrition

in deposits,

a reduction

in the

fair value

of the

Corporation’s

debt

securities

portfolio,

and

adverse

effects

the

Corporation’s

results

operations

and

its

liquidity

position;

●

volatility in the

financial services industry,

including failures or

rumored failures of

other depository institutions,

and actions

taken

governmental

agencies

stabilize

the

financial

system,

which

could

result

in,

among

other

things,

bank

deposit

runoffs, liquidity constraints, and increased regulatory

requirements and costs;

●

the

effect

continued

changes

the

fiscal

and

monetary

policies

and

regulations

the

United

States

(“U.S.”)

federal

government,

the Puerto

Rico government

and other governments,

including those

determined by

the Board

of the Governors

of the Federal Reserve System (the

“Federal Reserve Board”),

the Federal Reserve Bank of New York

(the “New York

FED”

the

“FED”),

the

Federal

Deposit

Insurance

Corporation

(the

“FDIC”),

government-sponsored

housing

agencies

and

regulators in Puerto

Rico, the U.S., and

the U.S. Virgin

Islands (the “USVI)

and British Virgin

Islands (the “BVI”),

that may

affect the future results of the Corporation;

●

uncertainty as

to the

ability of

the Corporation’s

banking subsidiary,

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), to

retain its core

deposits and

generate sufficient

cash flow through

its wholesale funding

sources, such as

securities sold under

agreements

repurchase,

Federal

Home

Loan

Bank

(“FHLB”)

advances,

and

brokered

certificates

deposit

(“brokered

CDs”), which may require us to sell investment securities at a loss;

●

adverse

changes

in general

economic

conditions

in Puerto

Rico, the

U.S., and

the USVI

and

BVI, including

in the

interest

rate

environment,

unemployment

rates,

market

liquidity,

housing

absorption

rates,

real

estate

markets,

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

portfolio

performance

and

credit

quality,

market

prices

investment

securities,

and

demand

for

the Corporation’s

products

and services,

and which

may

reduce

the

Corporation’s

revenues and

earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

Rico, and the timing and pace of disbursements of funds earmarked for disaster

relief;

●

the ability

of the

Corporation,

FirstBank,

and

third-party

service providers

to identify

and prevent

cyber-security

incidents,

such

data

security

breaches,

ransomware,

malware,

“denial

service”

attacks,

“hacking,”

identity

theft,

and

state-

sponsored

cyberthreats,

and

the

occurrence

and

response

any

incidents

that

occur,

such

April

2023

security

incident

one

our

third-party

vendors,

which

may

result

misuse

misappropriation

confidential

proprietary

information, disruption,

or damage

to our

systems or

those of

third-party service

providers, increased

costs and

losses or

adverse effect to our reputation;

●

general competitive

factors and other

market risks as

well as the

implementation of

strategic growth opportunities,

including

risks, uncertainties, and other factors or events related to any business acquisitions

or dispositions;

●

uncertainty as

to the

implementation of

the debt

restructuring plan

of Puerto

Rico (“Plan

of Adjustment”

or “PoA”)

and the

fiscal plan

for Puerto

Rico as

certified

on April

3, 2023

(the “2023

Fiscal Plan”)

by the

oversight

board established

by the

Puerto Rico

Oversight, Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions to

it, on

our clients

and

loan portfolios, and any potential impact from future economic or political

developments and tax regulations in Puerto Rico;

●

the

impact

changes

accounting

standards,

assumptions

applying

those

standards,

and

forecasts

economic

variables considered for the determination of the allowance for credit

losses (“ACL”);

●

the ability of FirstBank to realize the benefits of its net deferred tax assets;

●

environmental, social, and governance matters, including our climate-related

initiatives and commitments;

●

the impacts of

natural or man-made

disasters, the emergence

or continuation of

widespread health emergencies,

geopolitical

conflicts

(including

the ongoing

conflict

in Ukraine,

the conflict

in Israel

and

surrounding

areas,

the possible

expansion

such

conflicts

and

potential

geopolitical

consequences),

terrorist

attacks,

other

catastrophic

external

events,

including

impacts

such

events

general

economic

conditions

and

the

Corporation’s

assumptions

regarding

forecasts

economic variables;

●

the effect of

changes in the interest

rate environment, including

any adverse change

in the Corporation’s

ability to attract

and

retain

clients

and

gain

acceptance

from

current

and

prospective

customers

for

new

products

and

services,

including

those

related to the offering of digital banking and financial services;

●

the

risk

that

additional

portions

the

unrealized

losses in

the

Corporation’s

debt

securities portfolio

are

determined

credit-related, or the need of

additional credit losses that could emerge

from the downgrade of the United

States of America’s

Long-Term

Foreign-Currency Issuer

Default Rating

(“IDR”)

to ‘AA+’

from ‘AAA’

in August

2023, resulting

in additional

charges to the provision for credit losses on the Corporation’s

debt securities portfolio;

●

the impacts of applicable legislative, tax, or regulatory changes on

the Corporation’s financial condition

or performance;

●

the

risk

possible

failure

circumvention

the

Corporation’s

internal

controls

and

procedures

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the risk that the FDIC may

further increase the deposit insurance

premium and/or require further special assessments,

causing

an additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill, and other intangible assets;

●

the risk

that the

impact

of the

occurrence

of any

of these

uncertainties on

the Corporation’s

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors (the “Board”) from declaring dividends; and

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

quality,

liquidity

plans,

maintenance

capital

levels,

and

compliance

with

applicable

laws,

regulations

and

requirements.

The Corporation does not undertake, and

specifically disclaims any obligation to update any

“forward-looking statements” to reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities

laws.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

September 30, 2023

December 31, 2022

(In thousands, except for share information)

ASSETS

Cash and due from banks

583,913

478,480

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

700

1,725

Total money market investments

1,000

2,025

Available-for-sale debt securities, at fair value:

Securities pledged with creditors’ rights to repledge

81,103

Other available-for-sale debt securities

5,175,803

5,518,417

Total available-for-sale debt securities, at fair value (amortized cost of $

6,021,072

as of September 30, 2023, and

6,398,197

as of December 31, 2022; ACL of $

465

as of September 30, 2023 and $

458

as of December 31, 2022)

5,175,803

5,599,520

Held-to-maturity debt securities, at amortized cost, net of ACL

of $

2,250

as of September 30, 2023 and $

8,286

as of December 31, 2022 (fair value of $

342,851

as of September 30, 2023 and $

427,115

as of December 31, 2022)

356,919

429,251

Equity securities

48,683

55,289

Total investment securities

5,581,405

6,084,060

Loans, net of ACL of $

263,615

as of September 30, 2023 and $

260,464

as of December 31, 2022

11,687,317

11,292,361

Mortgage loans held for sale, at lower of cost or market

8,961

12,306

Total loans, net

11,696,278

11,304,667

Accrued interest receivable on loans and investments

68,783

69,730

Premises and equipment, net

144,611

142,935

Other real estate owned (“OREO”)

28,563

31,641

Deferred tax asset, net

150,805

155,584

Goodwill

38,611

Other intangible assets

15,229

21,118

Other assets

285,410

305,633

Total assets

18,594,608

18,634,484

LIABILITIES

Non-interest-bearing deposits

5,440,247

6,112,884

Interest-bearing deposits

10,994,990

10,030,583

Total deposits

16,435,237

16,143,467

Short-term securities sold under agreements to repurchase

75,133

Advances from the FHLB:

Short-term

475,000

Long-term

500,000

200,000

Total advances from the FHLB

500,000

675,000

Other long-term borrowings

161,700

183,762

Accounts payable and other liabilities

194,603

231,582

Total liabilities

17,291,540

17,308,944

Commitments and contingencies (See Note 22)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value,

2,000,000,000

shares authorized;

223,663,116

shares issued;

174,386,326

shares outstanding as of September 30, 2023 and

182,709,059

as of December 31, 2022

22,366

Additional paid-in capital

963,791

970,722

Retained earnings, includes legal surplus reserve of $

168,484

1,790,652

1,644,209

Treasury stock (at cost),

49,276,790

shares as of September 30, 2023 and

40,954,057

shares as of December 31, 2022

(622,378)

(506,979)

Accumulated other comprehensive loss, net of tax of $

8,468

as of each September 30, 2023 and December 31, 2022

(851,363)

(804,778)

Total stockholders’ equity

1,303,068

1,325,540

Total liabilities and stockholders’ equity

18,594,608

18,634,484

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands, except per share information)

Interest and dividend income:

Loans

227,930

191,740

656,632

544,788

Investment securities

24,519

26,289

77,887

76,027

Money market investments and interest-bearing cash accounts

10,956

4,654

23,486

8,347

Total interest and dividend income

263,405

222,683

758,005

629,162

Interest expense:

Deposits

54,298

9,978

125,787

25,324

Securities sold under agreements to repurchase:

Short-term

359

2,756

Long-term

1,993

6,147

Advances from the FHLB:

Short-term

4,776

Long-term

5,675

529

14,123

2,667

Other long-term borrowings

3,345

2,273

10,135

5,304

Total interest expense

63,677

14,773

157,577

39,442

Net interest income

199,728

207,910

600,428

589,720

Provision for credit losses - expense (benefit):

Loans and finance leases

10,643

14,352

47,669

10,028

Unfunded loan commitments

(128)

2,071

488

2,705

Debt securities

(6,119)

(640)

(6,029)

(749)

Provision for credit losses - expense

4,396

15,783

42,128

11,984

Net interest income after provision for credit losses

195,332

192,127

558,300

577,736

Non-interest income:

Service charges and fees on deposit accounts

9,552

9,820

28,380

28,649

Mortgage banking activities

2,821

3,400

8,493

12,688

Gain on early extinguishment of debt

1,605

Insurance commission income

2,790

2,624

10,384

10,845

Card and processing income

10,841

9,834

32,894

29,815

Other non-interest income

4,292

4,015

17,329

11,495

Total non-interest income

30,296

29,693

99,085

93,492

Non-interest expenses:

Employees’ compensation and benefits

56,535

52,939

167,271

153,797

Occupancy and equipment

21,781

22,543

64,064

66,434

Business promotion

4,759

5,136

12,901

12,641

Professional service fees

11,022

12,549

34,591

35,179

Taxes, other than income taxes

5,465

5,349

15,701

15,056

FDIC deposit insurance

2,143

1,466

6,419

4,605

Net gain on OREO operations

(2,153)

(1,064)

(6,133)

(3,269)

Credit and debit card processing expenses

6,779

6,410

18,637

16,374

Communications

2,219

2,272

6,427

6,401

Other non-interest expenses

8,088

7,589

24,945

22,956

Total non-interest expenses

116,638

115,189

344,823

330,174

Income before income taxes

108,990

106,631

312,562

341,054

Income tax expense

26,968

32,028

89,187

109,156

Net income

82,022

74,603

223,375

231,898

Net income attributable to common stockholders

82,022

74,603

223,375

231,898

Net income per common share:

Basic

0.47

0.40

1.25

1.20

Diluted

0.46

0.40

1.25

1.19

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(LOSS)

(Unaudited)

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Net income

82,022

74,603

223,375

231,898

Other comprehensive loss, net of tax:

Available-for-sale debt

securities:

Net unrealized holding losses on debt securities

(1)

(78,976)

(270,937)

(46,585)

(778,694)

Other comprehensive loss for the period

(78,976)

(270,937)

(46,585)

(778,694)

Total comprehensive income (loss)

3,046

(196,334)

176,790

(546,796)

(1)

Net unrealized holding losses on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an International Banking Entity (“IBE”), or have a full deferred tax asset valuation

allowance.

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Nine-Month Period Ended September 30,

2023

2022

(In thousands)

Cash flows from operating activities:

Net income

223,375

231,898

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

15,274

16,810

Amortization of intangible assets

5,889

6,689

Provision for credit losses

42,128

11,984

Deferred income tax expense

5,539

42,382

Stock-based compensation

5,898

3,994

Gain on early extinguishment of debt

(1,605)

Unrealized gain on derivative instruments

(464)

(1,502)

Net gain on disposals or sales, and impairments of premises

and equipment and other assets

(235)

(897)

Net gain on sales of loans and loans held-for-sale valuation adjustments

(1,422)

(4,827)

Net amortization of discounts, premiums, and deferred loan fees

and costs

839

(7,532)

Originations and purchases of loans held for sale

(125,886)

(184,544)

Sales and repayments of loans held for sale

126,800

204,182

Amortization of broker placement fees

216

Net amortization of premiums and discounts on investment securities

3,836

2,648

Decrease in accrued interest receivable

3,545

Increase (decrease) in accrued interest payable

13,729

(1,467)

Decrease in other assets

6,077

663

(Decrease) increase in other liabilities

(39,810)

14,097

Net cash provided by operating activities

283,723

334,752

Cash flows from investing activities:

Net disbursements on loans held for investment

(485,198)

(308,386)

Proceeds from sales of loans held for investment

6,663

39,069

Proceeds from sales of repossessed assets

40,384

31,638

Purchases of available-for-sale debt securities

(5,458)

(512,327)

Proceeds from principal repayments and maturities of available-for-sale

debt securities

393,958

515,602

Purchases of held-to-maturity debt securities

(289,784)

Proceeds from principal repayments and maturities of held-to-maturity

debt securities

79,889

23,320

Additions to premises and equipment

(19,938)

(15,442)

Proceeds from sales of premises and equipment and other assets

578

1,138

Net redemptions of other investments securities

6,520

6,988

Proceeds from the settlement of insurance claims - investing activities

133

Net cash provided by (used in) investing activities

17,531

(508,184)

Cash flows from financing activities:

Net increase (decrease) in deposits

275,825

(1,221,614)

Net repayments of short-term borrowings

(550,133)

Repayments of long-term borrowings

(19,795)

(300,000)

Proceeds from long-term borrowings

300,000

Repurchase of outstanding common stock

(126,918)

(227,256)

Dividends paid on common stock

(75,825)

(65,766)

Net cash used in financing activities

(196,846)

(1,814,636)

Net increase (decrease) in cash and cash equivalents

104,408

(1,988,068)

Cash and cash equivalents at beginning of year

480,505

2,543,058

Cash and cash equivalents at end of period

584,913

554,990

Cash and cash equivalents include:

Cash and due from banks

583,913

552,933

Money market investments

1,000

2,057

584,913

554,990

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

(Unaudited)

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands, except per share information)

Common Stock

22,366

Additional Paid-In Capital:

Balance at beginning of period

962,229

968,217

970,722

972,547

Stock-based compensation expense

1,901

1,414

5,898

3,994

Common stock reissued under stock-based compensation plan

(351)

(302)

(13,490)

(7,304)

Restricted stock forfeited

661

133

Balance at end of period

963,791

969,370

963,791

969,370

Retained Earnings:

Balance at beginning of period

1,733,497

1,541,334

1,644,209

1,427,295

Impact of adoption of Accounting Standards Update (“ASU”) 2022-02 (See

Note 1)

(1,357)

Net income

82,022

74,603

223,375

231,898

Dividends on common stock ($

0.14

per share and $

0.12

per share for the quarters ended

September 30, 2023 and 2022, respectively; $

0.42

per share and $

0.34

per share for the

for the nine-month periods ended September 30, 2023 and 2022, respectively)

(24,867)

(22,653)

(75,575)

(65,909)

Balance at end of period

1,790,652

1,593,284

1,790,652

1,593,284

Treasury Stock (at cost):

Balance at beginning of period

(547,706)

(382,245)

(506,979)

(236,442)

Common stock repurchases (See Note 14)

(75,011)

(75,010)

(128,228)

(227,723)

Common stock reissued under stock-based compensation plan

351

302

13,490

7,304

Restricted stock forfeited

(12)

(41)

(661)

(133)

Balance at end of period

(622,378)

(456,994)

(622,378)

(456,994)

Accumulated Other Comprehensive Loss, net

of tax:

Balance at beginning of period

(772,387)

(591,756)

(804,778)

(83,999)

Other comprehensive loss, net of tax

(78,976)

(270,937)

(46,585)

(778,694)

Balance at end of period

(851,363)

(862,693)

(851,363)

(862,693)

Total stockholders’ equity

1,303,068

1,265,333

1,303,068

1,265,333

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Basis of Presentation and Significant Accounting Policies

Note 2 –

Debt Securities

Note 3 –

Loans Held for Investment

Note 4

–

Allowance for Credit Losses for Loans and Finance Leases

Note 5 –

Other Real Estate Owned

Note 6

–

Goodwill and Other Intangibles

Note 7 –

Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets

Note 8 –

Deposits

Note 9 –

Securities Sold Under Agreements to Repurchase (Repurchase Agreements)

Note 10 –

Advances from the Federal Home Loan Bank (“FHLB”)

Note 11 –

Other Long-Term Borrowings

Note 12 –

Earnings per Common Share

Note 13 –

Stock-Based Compensation

Note 14 –

Stockholders’ Equity

Note 15 –

Accumulated Other Comprehensive Loss

Note 16 –

Employee Benefit Plans

Note 17 –

Income Taxes

Note 18

–

Fair Value

Note 19

–

Revenue from Contracts with Customers

Note 20 –

Segment Information

Note 21 –

Supplemental Statement of Cash Flows Information

Note 22 –

Regulatory Matters, Commitments, and Contingencies

Note 23 –

First BanCorp. (Holding Company Only) Financial Information

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

(Unaudited)

NOTE 1 – BASIS

OF PRESENTATION AND

SIGNIFICANT

ACCOUNTING

POLICIES

The Consolidated

Financial Statements

(unaudited) for

the quarter

and nine-month

period ended

September 30,

2023 (the

“unaudited

consolidated financial

statements”) of

First BanCorp.

(the “Corporation”)

have been

prepared in

conformity with

the accounting

policies

stated

the

Corporation’s

Audited

Consolidated

Financial

Statements

for

the

fiscal

year

ended

December

31,

2022

(the

“audited

consolidated financial

statements”) included

in the

2022 Annual

Report on

Form 10-K,

as updated

by the

information contained

in this

report.

Certain

information

and

note

disclosures

normally

included

the

financial

statements

prepared

accordance

with

generally

accepted accounting principles in the United States of America

(“GAAP”) have been condensed or omitted from these statements pursuant

the

rules

and

regulations

the

SEC

and,

accordingly,

these

financial

statements

should

read

conjunction

with

the

audited

consolidated financial statements, which are included in the 2022 Annual Report on Form 10-K. All adjustments (consisting only of normal

recurring adjustments) that are, in the opinion of management,

necessary for a fair presentation of the statement of

financial position, results

of operations and cash flows

for the interim periods have

been reflected. All significant

intercompany accounts and transactions

have been

eliminated in consolidation. The Corporation evaluates subsequent events through

the date of filing with the SEC.

The results of operations for the quarter and nine-month period ended September 30, 2023 are not necessarily indicative of the results to

be expected

for the

entire

year.

Adoption of New Accounting Requirements

ASU 2022-02,

“Financial

Instruments

– Credit Losses

(Topic 326): Troubled

Debt Restructurings

(“TDR”) and

Vintage Disclosures”

Effective

January

2023,

the

Corporation

adopted

ASU

2022-02,

which

removed

the

existing

measurement

and

disclosure

requirements

for

TDR

loans,

added

additional

disclosure

requirements

modifications

provided

borrowers

experiencing

financial difficulty regardless of

whether the modification

is accounted for

as a new

loan, and amends

the guidance on vintage

disclosures

to require disclosure of gross charge-offs by year of origination. Prior to adoption, modifications given to borrowers experiencing financial

difficulty

for which

concession

was

granted

were required

to be

disclosed as

a TDR,

whereas now

modifications given

to borrowers

experiencing financial difficulty for

which there has

been a direct

change to the

timing or amount

of contractual cash flows

in the form

principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, a term extension, or any combination of these types

of loan modifications in the current period need to

be disclosed. ASU 2022-02 did not amend the

definition of financial difficulty.

ASU 2022-02 also eliminated the requirement to

only use a discounted cash

flow method for TDRs for

the determination of the ACL,

and

allows

the

option

non-discounted

cash

flow

portfolio-based

approach

for

modified

loans

borrowers

experiencing

financial

difficulties.

The

Corporation

elected

apply

non-discounted

cash

flow,

portfolio-based

ACL

approach

for

modified

loans

borrowers

experiencing financial difficulties for all

portfolios, using a modified retrospective

transition method. As such, the

ACL for modified loans

within

the

scope

ASU

2022-02

determined

manner

consistent

with

the

methodology

for

the

respective

class

and

risk

characteristics of

such loans.

The adoption resulted

in a

net increase

to the

ACL of approximately

2.1

million and

a decrease to

retained

earnings of approximately $

1.3

million, after tax, predominantly driven by residential mortgage loans. The amount of

defined modifications

given to borrowers experiencing financial difficulty

is disclosed in Note 3

– Loans Held for Investment,

along with the financial impact

those

modifications.

Modifications

that

not

impact

the

contractual

payment

terms,

such

covenant

waivers,

and

any

modifications

made to loans held-for-sale and leases are

not included in the disclosures.

The Corporation was not impacted by the adoption

of the following ASUs during 2023:

●

ASU 2022-01, “Derivatives and Hedging

(Topic 815): Fair Value Hedging – Portfolio Layer Method”

●

ASU 2021-08, “Business

Combinations (Topic 805):

Accounting for

Contract Assets and

Contract Liabilities

From Contracts

With Customers”

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

The Corporation does not expect to be impacted by the following ASUs

issued during 2023 that are not yet effective

or have not yet been

adopted:

●

ASU

2023-06,

“Disclosure

Improvements:

Codification

Amendments

Response

the

SEC’s

Disclosure

Update

and

Simplification Initiative”

●

ASU 2023-05, “Business Combinations – Joint Venture

Formations (Subtopic 805-60): Recognition and Initial Measurement”

●

ASU

2023-02,

“Investments

–

Equity

Method

and

Joint

Ventures

(Topic

323):

Accounting

for

Investments

Tax

Credit

Structures Using the Proportional Amortization Method”

●

ASU 2023-01, “Leases (Topic

842): Common Control Arrangements”

For

other

issued

accounting

standards

not

yet

effective

not

yet

adopted,

see

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, to the audited consolidated financial

statements included in the 2022 Annual Report on Form 10-K.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 2 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of September 30, 2023 were

as follows:

September 30, 2023

Amortized cost

(1)

Gross

ACL

Fair value

(2)

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

47,585

1,313

46,272

0.54

After 1 to 5 years

100,671

6,220

94,451

0.74

U.S. government-sponsored entities (“GSEs”) obligations:

Due within one year

271,134

7,334

263,800

0.73

After 1 to 5 years

2,225,242

201,084

2,024,213

0.84

After 5 to 10 years

10,097

1,158

8,939

2.95

After 10 years

10,621

10,638

5.65

Puerto Rico government obligations:

After 10 years

(3)

3,204

1,374

382

1,448

United States and Puerto Rico government obligations

2,668,554

218,484

382

2,449,761

0.84

Mortgage-backed securities (“MBS”):

Residential MBS:

Freddie Mac (“FHLMC”) certificates:

After 1 to 5 years

21,356

1,205

20,151

2.06

After 5 to 10 years

160,407

18,393

142,014

1.55

After 10 years

1,013,862

211,720

802,142

1.40

1,195,625

231,318

964,307

1.43

Ginnie Mae (“GNMA”) certificates:

After 1 to 5 years

19,559

1,207

18,352

1.27

After 5 to 10 years

28,587

3,127

25,460

1.59

After 10 years

212,835

33,476

179,359

2.58

260,981

37,810

223,171

2.38

Fannie Mae (“FNMA”) certificates:

After 1 to 5 years

35,343

1,992

33,351

2.11

After 5 to 10 years

307,379

35,138

272,241

1.70

After 10 years

1,072,667

207,428

865,239

1.36

1,415,389

244,558

1,170,831

1.45

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

After 10 years

280,056

62,888

217,168

1.54

Private label:

After 10 years

7,311

2,310

4,918

7.73

Total Residential MBS

3,159,362

578,884

2,580,395

1.54

Commercial MBS:

After 1 to 5 years

44,111

8,631

35,480

2.18

After 5 to 10 years

25,522

4,067

21,455

2.13

After 10 years

123,523

34,811

88,712

1.36

Total Commercial MBS

193,156

47,509

145,647

1.65

Total MBS

3,352,518

626,393

2,726,042

1.55

Total available-for-sale debt securities

6,021,072

844,877

465

5,175,803

1.24

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

10.8

million as of September 30, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

521.3

million (amortized cost - $

587.0

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.8

billion (amortized cost - $

3.2

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (“PRHFA”) that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico

government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of December 31, 2022

were as follows:

December 31, 2022

Amortized cost

(1)

Gross

ACL

Fair value

(2)

Unrealized

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

7,493

309

7,184

0.22

After 1 to 5 years

141,366

9,675

131,691

0.70

U.S. GSEs’ obligations:

Due within one year

129,018

4,036

124,982

0.32

After 1 to 5 years

2,395,273

227,724

2,167,571

0.83

After 5 to 10 years

56,251

7,670

48,594

1.54

After 10 years

12,170

12,206

4.62

Puerto Rico government obligations:

After 10 years

(3)

3,331

755

375

2,201

United States and Puerto Rico government obligations

2,744,902

250,169

375

2,494,429

0.83

MBS:

Residential MBS:

FHLMC certificates:

After 1 to 5 years

4,235

169

4,066

2.33

After 5 to 10 years

201,072

18,709

182,363

1.55

After 10 years

1,092,289

186,558

905,731

1.38

1,297,596

205,436

1,092,160

1.41

GNMA certificates:

Due within one year

1.73

After 1 to 5 years

15,508

622

14,886

2.00

After 5 to 10 years

45,322

3,809

41,514

1.31

After 10 years

232,632

27,169

205,514

2.47

293,467

31,600

261,919

2.27

FNMA certificates:

After 1 to 5 years

9,685

521

9,164

1.76

After 5 to 10 years

358,346

31,620

326,726

1.68

After 10 years

1,186,635

124

186,757

1,000,002

1.38

1,554,666

124

218,898

1,335,892

1.45

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

After 10 years

302,232

56,539

245,693

1.44

Private label:

After 10 years

7,903

2,026

5,794

6.83

Total Residential MBS

3,455,864

176

514,499

2,941,458

1.52

Commercial MBS:

After 1 to 5 years

30,578

4,463

26,115

2.43

After 5 to 10 years

44,889

5,603

39,286

1.89

After 10 years

121,464

23,732

97,732

1.23

Total Commercial MBS

196,931

33,798

163,133

1.56

Total MBS

3,652,795

176

548,297

3,104,591

1.52

Other

Due within one year

500

0.84

Total available-for-sale debt securities

6,398,197

247

798,466

458

5,599,520

1.22

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

11.1

million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

250.6

million (amortized cost - $

286.5

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.4

billion (amortized cost - $

2.8

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual

status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Maturities

available-for-sale

debt

securities

are

based

the

period

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

available-for-sale

debt

securities

based

amortized

cost

and,

therefore,

does

not

give

effect

changes

fair

value.

The

net

unrealized

gain

loss

available-for-sale

debt

securities

presented

part

accumulated

other

comprehensive

loss

the

consolidated statements of financial condition.

The

following

tables

present

the

fair

value

and

gross

unrealized

losses

the

Corporation’s

available-for-sale

debt

securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of September 30, 2023 and December 31, 2022. The tables also include debt

securities for which an ACL was recorded.

As of September 30, 2023

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

3,204

2,430,083

217,105

2,433,287

217,110

Puerto Rico government obligations

1,448

1,374

(1)

1,448

1,374

MBS:

Residential MBS:

FHLMC

964,295

231,317

964,307

231,318

GNMA

22,811

1,220

200,360

36,590

223,171

37,810

FNMA

9,195

191

1,161,636

244,367

1,170,831

244,558

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

217,168

62,888

217,168

62,888

Private label

4,918

2,310

(1)

4,918

2,310

Commercial MBS

11,509

202

134,138

47,307

145,647

47,509

46,731

1,619

5,114,046

843,258

5,160,777

844,877

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of September 30, 2023, the

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

298,313

18,057

2,174,724

231,357

2,473,037

249,414

Puerto Rico government obligations

2,201

755

(1)

2,201

755

MBS:

Residential MBS:

FHLMC

260,524

45,424

831,637

160,012

1,092,161

205,436

GNMA

74,829

3,433

179,854

28,167

254,683

31,600

FNMA

405,977

49,479

920,200

169,419

1,326,177

218,898

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

45,370

6,735

200,323

49,804

245,693

56,539

Private label

5,794

2,026

(1)

5,794

2,026

Commercial MBS

30,179

2,215

132,953

31,583

163,132

33,798

1,115,192

125,343

4,447,686

673,123

5,562,878

798,466

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2022, the

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

the U.S.

Treasury,

including

notes and

MBS, accounted

for

substantially

all

the

total

available-for-sale

portfolio

September

30,

2023,

and

the

Corporation

expects

credit

losses

these securities, given

the explicit and

implicit guarantees

provided by

the U.S. federal

government. Because

the decline

in fair

value

is attributable to

changes in interest

rates, and not

credit quality,

and because,

as of September

30, 2023, the

Corporation did not

have

the intent to sell these U.S. government

and agencies debt securities and determined

that it was likely that it will not be

required to sell

these

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

these

securities

credit

related. The Corporation’s

credit loss assessment was

concentrated mainly on

private label MBS and

on Puerto Rico government

debt

securities, for which credit losses are evaluated on a quarterly basis.

Private label MBS

held as part

of the Corporation’s

available for sale

portfolio consist of

trust certificates issued

by an unaffiliated

party

backed

fixed-rate,

single-family

residential

mortgage

loans

the

U.S.

mainland

with

original

FICO

scores

over

700

and

moderate

loan-to-value

ratios (under

%), as

well

as moderate

delinquency

levels.

The interest

rate

these

private label

MBS is

variable, tied

to 3-month

CME Term

Secured Overnight

Financing Rate

(“SOFR”) plus

a tenor

spread adjustment

0.26161

% and

the

original

spread

limited

the

weighted-average

coupon

the

underlying

collateral.

The

Corporation

determined

the

ACL

for

private

label

MBS

based

risk-adjusted

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

instruments.

The

Corporation

utilized

probability

default (“PDs”)

and

loss

given

default

(“LGDs”)

that

considered,

among

other

things, historical

payment performance,

loan-to-value attributes,

and relevant

current and

forward-looking

macroeconomic variables,

such as

regional unemployment

rates and

the housing

price index.

Under this

approach, expected

cash flows

(interest and

principal)

were discounted

at the

U.S. Treasury

yield curve

as of

the reporting

date.

See Note

18 –

Fair Value

for the

significant assumptions

used in the valuation of the private label MBS as of September 30, 2023 and December

31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

For the residential

pass-through MBS issued by

the PRHFA

held as part of

the Corporation’s

available-for-sale portfolio

backed by

second

mortgage

residential

loans

Puerto

Rico,

the

ACL

was

determined

based

discounted

cash

flow

methodology

that

considered the structure and

terms of the debt security.

The expected cash flows were

discounted at the U.S. Treasury

yield curve plus

a spread as of

the reporting date and

compared to the

amortized cost. The

Corporation utilized PDs and

LGDs that considered,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables, such as

regional unemployment

rates, the housing

price index,

and expected recovery

from the PRHFA

guarantee. PRHFA,

not the

Puerto Rico

government, provides

a guarantee

in the event

of default

and subsequent

foreclosure of

the properties underlying

the

second

mortgage

loans.

the

event

that

the

second

mortgage

loans

default

and

the

collateral

insufficient

satisfy

the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’s

ability

honor

such

guarantee

will

depend

on,

among

other

factors,

its

financial

condition

the

time

such

obligation

becomes

due

and

payable.

Deterioration

the

Puerto

Rico

economy

fiscal health of the PRHFA

could impact the value of this security,

resulting in additional losses to the Corporation.

The following

tables present

a roll-forward

by major

security type

for

the quarters

and nine

-month periods

ended September

30,

2023 and 2022 of the ACL on available-for-sale debt

securities:

Quarter Ended September 30,

2023

2022

Private label

MBS

Puerto Rico

Government

Obligations

Total

Private label

MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

350

433

290

386

676

Provision for credit losses - expense (benefit)

(12)

ACL on available-for-sale debt securities

382

465

290

374

664

Nine-Month Period Ended September 30,

2023

2022

Private label

MBS

Puerto Rico

Government

Obligations

Total

Private label

MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

375

458

797

308

1,105

Provision for credit losses - expense (benefit)

(501)

(435)

Net charge-offs

(6)

ACL on available-for-sale debt securities

382

465

290

374

664

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Held-to-Maturity Debt Securities

The

amortized

cost,

gross

unrecognized

gains

and

losses,

estimated

fair

value,

ACL,

weighted-average

yield

and

contractual

maturities of held-to-maturity debt securities as of September 30, 2023

and December 31, 2022 were as follows

September 30, 2023

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

3,159

3,151

9.30

After 1 to 5 years

51,133

1,052

1,111

51,074

1,320

7.71

After 5 to 10 years

35,831

3,540

271

39,100

605

7.05

After 10 years

16,595

212

16,807

279

8.75

Total Puerto Rico municipal bonds

106,718

4,819

1,405

110,132

2,250

7.70

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

17,580

1,131

16,449

3.03

After 10 years

18,740

1,689

17,051

4.34

36,320

2,820

33,500

3.70

GNMA certificates:

After 10 years

16,786

1,414

15,372

3.35

FNMA certificates:

After 10 years

68,388

5,902

62,486

4.17

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA

After 10 years

29,156

1,898

27,258

3.49

Total Residential MBS

150,650

12,034

138,616

3.84

Commercial MBS:

After 1 to 5 years

9,489

516

8,973

3.48

After 10 years

92,312

7,182

85,130

3.15

Total Commercial MBS

101,801

7,698

94,103

3.18

Total MBS

252,451

19,732

232,719

3.57

Total held-to-maturity debt securities

359,169

4,819

21,137

342,851

2,250

4.80

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

2.8

million as of September 30, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

179.9

million (fair value - $

174.9

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

December 31, 2022

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

1,202

1,187

5.20

After 1 to 5 years

42,530

886

1,076

42,340

656

6.34

After 5 to 10 years

55,956

3,182

360

58,778

3,243

6.29

After 10 years

66,022

1,318

64,704

4,385

7.10

Total held-to-maturity debt securities

165,710

4,068

2,769

167,009

8,286

6.62

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

21,443

746

20,697

3.03

After 10 years

19,362

888

18,474

4.21

40,805

1,634

39,171

3.59

GNMA certificates:

After 10 years

19,131

943

18,188

3.35

FNMA certificates:

After 10 years

72,347

3,155

69,192

4.14

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA

After 10 years

34,456

1,424

33,032

3.49

Total Residential MBS

166,739

7,156

159,583

3.78

Commercial MBS:

After 1 to 5 years

9,621

396

9,225

3.48

After 10 years

95,467

4,169

91,298

3.15

Total Commercial MBS

105,088

4,565

100,523

3.18

Total MBS

271,827

11,721

260,106

3.55

Total held-to-maturity debt securities

437,537

4,068

14,490

427,115

8,286

4.71

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

5.5

million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

190.1

million (fair value - $

189.4

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

the

Corporation’s

held-to-maturity

debt

securities’

fair

value

and

gross

unrecognized

losses,

aggregated

category

and

length

time

that

individual

securities

had

been

continuous

unrecognized

loss

position,

September 30, 2023 and December 31, 2022, including debt securities for

which an ACL was recorded:

As of September 30, 2023

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

34,244

1,405

34,244

1,405

MBS:

Residential MBS:

FHLMC certificates

33,500

2,820

33,500

2,820

GNMA certificates

15,372

1,414

15,372

1,414

FNMA certificates

62,486

5,902

62,486

5,902

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

27,258

1,898

27,258

1,898

Commercial MBS

94,103

7,698

94,103

7,698

Total held-to-maturity debt securities

266,963

21,137

266,963

21,137

As of December 31, 2022

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

98,797

2,769

98,797

2,769

MBS:

Residential MBS:

FHLMC certificates

39,171

1,634

39,171

1,634

GNMA certificates

18,188

943

18,188

943

FNMA certificates

69,192

3,155

69,192

3,155

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

33,032

1,424

33,032

1,424

Commercial MBS

100,523

4,565

100,523

4,565

Total held-to-maturity debt securities

260,106

11,721

98,797

2,769

358,903

14,490

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

GSEs and

Puerto Rico

municipal bonds.

The Corporation

does not

recognize an

ACL for MBS

issued by

GSEs since

they are

highly

rated by major rating agencies

and have a long history

of no credit losses. In the

case of Puerto Rico municipal bonds,

the Corporation

determines

the

ACL

based

the

product

cumulative

and

LGD,

and

the

amortized

cost

basis

the

bonds

over

their

remaining expected

life as

described in

Note 1

– Nature

of Business and

Summary of

Significant Accounting

Policies, to

the audited

consolidated financial statements included in the 2022 Annual Report on

Form 10-K.

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

scheduled contractual payments as of

September 30, 2023. A security is

considered to be past due once

it is 30 days contractually past

due

under the terms of the agreement. The ACL of Puerto Rico municipal bonds decreased to $

2.3

million as of September 30, 2023, from $

8.3

million as of December 31, 2022, mostly driven by the refinancing

of a

46.5

million municipal

bond into

a shorter-term

commercial

loan structure and, to a lesser extent,

a reduction in qualitative reserves

driven by updated financial information

of certain bond issuers

received during the third quarter of 2023.

The following tables present

the activity in the

ACL for held-to-maturity debt

securities by major security

type for the quarters

and

nine-month periods ended September 30, 2023 and 2022:

Puerto Rico Municipal Bonds

Quarter Ended September 30,

2023

2022

(In thousands)

Beginning Balance

8,401

8,885

Provision for credit losses - benefit

(6,151)

(628)

ACL on held-to-maturity debt securities

2,250

8,257

Puerto Rico Municipal Bonds

Nine-Month Period Ended September 30,

2023

2022

(In thousands)

Beginning Balance

8,286

8,571

Provision for credit losses - benefit

(6,036)

(314)

ACL on held-to-maturity debt securities

2,250

8,257

During the

second quarter

of 2019,

the oversight

board established

by PROMESA

announced

the designation

of Puerto

Rico’s

municipalities

covered

instrumentalities

under

PROMESA.

Municipalities

may

affected

the

negative

economic

and

other

effects

resulting

from

expense,

revenue,

cash

management

measures

taken

the

Puerto

Rico

government

address

its

fiscal

situation, or measures included

in its fiscal plan or

fiscal plans of other

government entities. Given the inherent

uncertainties about the

fiscal situation of the Puerto

Rico central government and

the measures taken, or to

be taken, by other government

entities in response

economic

and

fiscal

challenges,

the

Corporation

cannot be

certain

whether

future charges

the ACL

these

securities will

required.

From

time

time,

the

Corporation

has

held-to-maturity

securities

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition. As of September 30, 2023 and December 31, 2022, the

Corporation had no outstanding held-to-maturity securities that were

classified as cash and cash equivalents.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Credit Quality Indicators:

The

held-to-maturity

debt

securities

portfolio

consisted

MBS

issued

GSEs

and

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form.

previously

mentioned,

the

Corporation

expects

credit

losses

GSEs

MBS.

The

Puerto

Rico municipal bonds are accounted

for as securities but are underwritten

as loans with features that are typically

found in commercial

loans. Accordingly,

the Corporation monitors the credit quality of these

municipal bonds through the use of internal

credit-risk ratings,

which are

generally updated

on a

quarterly basis.

The Corporation

considers a

municipal bond

as a

criticized asset

if its

risk rating

Special

Mention,

Substandard,

Doubtful,

Loss,

which

are

asset

quality

categories

defined

regulatory

authorities.

These

assets

have an

elevated level

of risk

and may

have a

high probability

of default

or total

loss. Puerto

Rico municipal

bonds that

do not

meet

the criteria

for classification

as criticized

assets are

considered

to be

Pass-rated securities.

For additional

descriptions of

the internal

credit-risk ratings,

see Note

3 –

Debt Securities,

to the

audited consolidated

financial statements

included in

the 2022

Annual Report

on Form 10-K.

The

Corporation

periodically

reviews

its Puerto

Rico

municipal

bonds

evaluate

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews is

assess accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

a sound credit process. The Loan Review Group reports the results of the credit

process reviews to the Risk Management Committee.

As of September 30, 2023 and December 31, 2022,

all Puerto Rico municipal bonds classified as held-to-maturity were classified

Pass.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 3 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about

the

loan

portfolio held

for

investment by

portfolio segment

and

disaggregated by

geographic locations

as of the indicated

dates:

As of September 30,

As of December 31,

2023

2022

(In thousands)

Puerto Rico and Virgin Islands region:

Residential mortgage loans, mainly secured by first mortgages

2,353,679

2,417,900

Construction loans

102,327

34,772

Commercial mortgage loans

1,780,008

1,834,204

Commercial and Industrial ("C&I") loans

2,088,274

1,860,109

Consumer loans

3,582,001

3,317,489

Loans held for investment

9,906,289

9,464,474

Florida region:

Residential mortgage loans, mainly secured by first mortgages

458,952

429,390

Construction loans

100,447

98,181

Commercial mortgage loans

536,105

524,647

C&I loans

942,680

1,026,154

Consumer loans

6,459

9,979

Loans held for investment

2,044,643

2,088,351

Total:

Residential mortgage loans, mainly secured by first mortgages

2,812,631

2,847,290

Construction loans

202,774

132,953

Commercial mortgage loans

2,316,113

2,358,851

C&I loans

(1)

3,030,954

2,886,263

Consumer loans

3,588,460

3,327,468

Loans held for investment

(2)

11,950,932

11,552,825

ACL on loans and finance leases

(263,615)

(260,464)

Loans held for investment, net

11,687,317

11,292,361

(1)

As of September 30, 2023 and December 31, 2022, includes

807.6

million and $

838.5

million, respectively, of commercial loans that were secured by real estate

and for which the primary source of repayment at origination was

not dependent upon such real estate.

(2)

Includes accretable fair value net purchase discounts of $

25.8

million and $

29.3

million as of September 30, 2023 and December 31, 2022, respectively.

Various

loans

were

assigned

collateral

for

borrowings,

government

deposits,

time

deposits

accounts,

and

unused

commitments.

The carrying

value of

loans pledged

as collateral

amounted

to $

4.4

billion and

4.3

billion as

of September

30, 2023

and December

31, 2022,

respectively.

As of

each of

September 30,

2023 and

December 31,

2022, loans

pledged as

collateral include

1.8

billion that were pledged

at the FHLB as

collateral for borrowings and

letters of credit; $

2.4

billion that were pledged

at the FED

Discount

Window

collateral

for

borrowings,

compared

2.2

billion

December

31,

2022;

and

68.2

million

serve

collateral for the uninsured portion of government deposits, compared to $

123.7

million as of December 31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL,

portfolio classes as of September 30, 2023 and December 31, 2022 are as follows:

As of September 30, 2023

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

69,175

2,754

32,167

104,096

Conventional residential mortgage loans

(2) (6)

2,633,303

31,328

11,958

31,946

2,708,535

1,910

Commercial loans:

Construction loans

(6)

199,293

1,834

1,640

202,774

973

Commercial mortgage loans

(2) (6)

2,290,012

930

1,166

2,373

21,632

2,316,113

5,458

C&I loans

2,998,999

441

1,956

10,749

18,809

3,030,954

1,523

Consumer loans:

Auto loans

1,826,679

52,755

10,648

13,103

1,903,185

102

Finance leases

816,251

10,421

2,346

2,522

831,540

Personal loans

367,428

5,708

2,840

1,874

377,850

Credit cards

308,519

4,563

3,230

5,638

321,950

Other consumer loans

148,251

2,399

1,647

1,638

153,935

Total loans held for investment

11,657,910

79,051

57,915

62,892

93,164

11,950,932

9,967

(1)

It is the Corporation's policy to report delinquent Federal Housing Authority (“FHA”)/Veterans Affairs (“VA”)

government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed

to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances

include $

17.4

million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of September 30, 2023.

(2)

Includes purchased credit deteriorated ("PCD") loans previously accounted for under ASC Subtopic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC Subtopic 310-30") for which

the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement.

These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of

such loans contractually past due 90 days or more, amounting to $

8.9

million as of September 30,

2023 ($

8.0

million conventional residential mortgage loans and $

0.9

million commercial mortgage loans), is presented

in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

8.5

million as of September 30, 2023. Under the GNMA program, the Corporation has the option but not the obligation to

repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.7

million as of September 30, 2023, primarily nonaccrual residential mortgage loans and C&I loans.

(5)

There were

nonaccrual loans with no ACL in the Florida region as of September 30, 2023.

(6)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of September 30, 2023 amounted to $

6.9

million, $

65.5

million, $

1.0

million, and $

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of December 31, 2022

Days Past Due and Accruing

Current

30-59

60-89

90+

(1)(2)(3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

67,116

2,586

48,456

118,158

Conventional residential mortgage loans

(2) (6)

2,643,909

25,630

16,821

42,772

2,729,132

2,292

Commercial loans:

Construction loans

130,617

128

2,208

132,953

977

Commercial mortgage loans

(2) (6)

2,330,094

300

2,367

3,771

22,319

2,358,851

15,991

C&I loans

2,868,989

1,984

1,128

6,332

7,830

2,886,263

3,300

Consumer loans:

Auto loans

1,740,271

40,039

7,089

10,672

1,798,071

2,136

Finance leases

707,646

7,148

1,791

1,645

718,230

330

Personal loans

346,366

3,738

1,894

1,248

353,246

Credit cards

301,013

3,705

2,238

4,775

311,731

Other consumer loans

141,687

1,804

1,458

1,241

146,190

Total loans held for investment

11,277,708

58,718

46,181

80,283

89,935

11,552,825

25,026

(1)

It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to

nonaccrual loans. The Corporation continues

accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $

28.2

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent as of December 31, 2022.

(2)

Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption

of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing

and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $

12.0

million as of December 31, 2022 ($

11.0

million conventional

residential mortgage loans and $

1.0

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

10.3

million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to

repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.3

million as of December 31, 2022, primarily nonaccrual residential mortgage loans.

(5)

Includes $

0.3

million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022.

(6)

According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required

by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2022 amounted to $

6.1

million, $

65.2

million, and $

1.6

million,

respectively.

When

loan

is placed

nonaccrual

status,

any

accrued

but uncollected

interest

income

is reversed

and

charged

against interest

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

against interest

income

totaled $

0.9

million and $

2.0

million for the quarter

and nine-month period ended

September 30, 2023, respectively,

compared to $

0.5

million

and

1.2

million

for

the

quarter

and

nine-month

period

ended

September

30,

2022,

respectively.

For

the

quarter

and

nine-

month period

ended September

30, 2023,

the cash interest

income recognized on

nonaccrual loans amounted

to $

0.4

million and $

1.4

million,

respectively,

compared

0.3

million

and

1.0

million

for

the

quarter

and

nine-month

period

ended

September

30,

2022,

respectively.

As of

September 30,

2023, the

recorded investment

on residential

mortgage loans

collateralized by

residential real

estate property

that

were

the

process

foreclosure

amounted

43.8

million,

including

18.4

million

FHA/VA

government-guaranteed

mortgage

loans,

and

6.1

million

PCD

loans

acquired

prior

the

adoption,

January

2020,

CECL.

The

Corporation

commences

the

foreclosure

process

residential

real

estate

loans

when

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures may be delayed due to, among other reasons, mandatory

mediations, bankruptcy,

court delays, and title issues.

Credit Quality Indicators:

The Corporation

categorizes loans

into risk

categories based

on relevant

information

about the

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

economic

trends,

among

other

factors.

The

Corporation

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction

loans

individually

classify

the

loans’

credit

risk.

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

evaluate

they

are

properly

classified.

The

frequency

these

reviews

will

depend

the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal and

annual

review process of

applicable credit facilities, the

Corporation evaluates the

corresponding loan grades.

The Corporation uses

the same

definition

for

risk

ratings

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities,

discussed in

Note 3

– Debt

Securities, to

the audited

consolidated financial

statements included

in the

2022 Annual

Report on

Form

10-K.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

For residential mortgage and consumer loans, the Corporation also evaluates credit

quality based on its interest accrual status.

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and

origination year

based on

the internal

credit-risk category

as of

September 30,

2023, the

gross charge

-offs for

the nine-month

period

ended September

30, 2023

by portfolio

classes and

by origination

year,

and the

amortized cost

of commercial

and construction

loans

by portfolio classes based on the internal credit-risk category as of December

31, 2022, were as follows:

As of September 30, 2023

Puerto Rico and Virgin Islands region

Term Loans

As of December 31, 2022

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

44,895

36,361

14,939

3,824

100,019

31,879

Criticized:

Special Mention

Substandard

2,308

2,893

Doubtful

Loss

Total construction loans

44,895

36,361

14,939

6,132

102,327

34,772

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

118,701

382,403

138,404

318,372

278,814

355,823

1,153

1,593,670

1,655,728

Criticized:

Special Mention

4,438

33,670

112,829

150,937

145,415

Substandard

127

2,825

31,639

34,591

33,061

Doubtful

810

Loss

Total commercial mortgage loans

118,701

386,968

138,404

352,042

281,639

501,101

1,153

1,780,008

1,834,204

Charge-offs on commercial mortgage loans

107

C&I

Risk Ratings:

Pass

216,614

293,433

165,637

171,386

284,636

188,691

697,937

2,018,334

1,789,572

Criticized:

Special Mention

546

492

2,469

33,448

36,955

43,224

Substandard

385

617

13,439

18,178

365

32,985

27,313

Doubtful

Loss

Total C&I loans

217,161

293,433

166,022

172,003

298,567

209,338

731,750

2,088,274

1,860,109

Charge-offs on C&I loans

218

275

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of September 30, 2023

Term Loans

As of December 31, 2022

Florida region

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

787

54,329

39,004

236

94,356

98,181

Criticized:

Special Mention

6,091

Substandard

Doubtful

Loss

Total construction loans

787

54,329

45,095

236

100,447

98,181

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

22,043

185,268

63,924

40,330

50,661

119,451

29,008

510,685

503,184

Criticized:

Special Mention

13,080

11,172

24,252

20,295

Substandard

1,168

Doubtful

Loss

Total commercial mortgage loans

22,043

185,268

63,924

41,498

63,741

130,623

29,008

536,105

524,647

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

80,515

271,894

172,186

57,897

135,159

54,973

122,583

895,207

979,151

Criticized:

Special Mention

19,532

11,878

11,169

42,579

17,905

Substandard

632

191

3,185

4,008

29,098

Doubtful

886

Loss

Total C&I loans

80,515

271,894

191,718

58,529

147,228

70,213

122,583

942,680

1,026,154

Charge-offs on C&I loans

6,202

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of September 30, 2023

Total

Term Loans

As of December 31, 2022

Amortized Cost Basis by Origination Year (1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

45,682

90,690

53,943

3,824

236

194,375

130,060

Criticized:

Special Mention

6,091

Substandard

2,308

2,893

Doubtful

Loss

Total construction loans

45,682

90,690

60,034

6,132

236

202,774

132,953

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

140,744

567,671

202,328

358,702

329,475

475,274

30,161

2,104,355

2,158,912

Criticized:

Special Mention

4,438

33,670

13,080

124,001

175,189

165,710

Substandard

127

1,168

2,825

31,639

35,759

34,229

Doubtful

810

Loss

Total commercial mortgage loans

140,744

572,236

202,328

393,540

345,380

631,724

30,161

2,316,113

2,358,851

Charge-offs on commercial mortgage loans

107

C&I

Risk Ratings:

Pass

297,129

565,327

337,823

229,283

419,795

243,664

820,520

2,913,541

2,768,723

Criticized:

Special Mention

546

19,532

12,370

13,638

33,448

79,534

61,129

Substandard

385

1,249

13,630

21,363

365

36,993

56,411

Doubtful

886

Loss

Total C&I loans

297,676

565,327

357,740

230,532

445,795

279,551

854,333

3,030,954

2,886,263

Charge-offs on C&I loans

6,420

6,477

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual

status as

September

30,

2023,

the

gross charge

-offs

for

the

nine-month

period

ended

September

30,

2023 by

origination

year, and the amortized cost of residential mortgage

loans by portfolio classes based on accrual status as of December 31, 2022:

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

220

686

1,455

660

1,104

99,007

103,132

117,416

Non-Performing

Total FHA/VA

government-guaranteed loans

220

686

1,455

660

1,104

99,007

103,132

117,416

Conventional residential mortgage loans:

Accrual Status:

Performing

114,791

168,507

69,903

30,088

44,999

1,797,010

2,225,298

2,265,013

Non-Performing

174

25,040

25,249

35,471

Total conventional residential mortgage loans

114,791

168,507

69,938

30,088

45,173

1,822,050

2,250,547

2,300,484

Total:

Accrual Status:

Performing

115,011

169,193

71,358

30,748

46,103

1,896,017

2,328,430

2,382,429

Non-Performing

174

25,040

25,249

35,471

Total residential mortgage loans in Puerto Rico

and Virgin Islands Region

115,011

169,193

71,393

30,748

46,277

1,921,057

2,353,679

2,417,900

Charge-offs on residential mortgage loans

2,619

2,622

(1)

Excludes accrued interest receivable.

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

964

742

Non-Performing

Total FHA/VA

government-guaranteed loans

964

742

Conventional residential mortgage loans:

Accrual Status:

Performing

71,543

78,806

47,891

29,868

27,387

195,796

451,291

421,347

Non-Performing

257

6,424

6,697

7,301

Total conventional residential mortgage loans

71,543

78,822

47,891

29,868

27,644

202,220

457,988

428,648

Total:

Accrual Status:

Performing

71,543

78,806

47,891

29,868

27,387

196,760

452,255

422,089

Non-Performing

257

6,424

6,697

7,301

Total residential mortgage loans in Florida region

71,543

78,822

47,891

29,868

27,644

203,184

458,952

429,390

Charge-offs on residential mortgage loans

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

220

686

1,455

660

1,104

99,971

104,096

118,158

Non-Performing

Total FHA/VA

government-guaranteed loans

220

686

1,455

660

1,104

99,971

104,096

118,158

Conventional residential mortgage loans:

Accrual Status:

Performing

186,334

247,313

117,794

59,956

72,386

1,992,806

2,676,589

2,686,360

Non-Performing

431

31,464

31,946

42,772

Total conventional residential mortgage loans

186,334

247,329

117,829

59,956

72,817

2,024,270

2,708,535

2,729,132

Total:

Accrual Status:

Performing

186,554

247,999

119,249

60,616

73,490

2,092,777

2,780,685

2,804,518

Non-Performing

431

31,464

31,946

42,772

Total residential mortgage loans

186,554

248,015

119,284

60,616

73,921

2,124,241

2,812,631

2,847,290

Charge-offs on residential mortgage loans

2,625

2,628

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables present

the

amortized

cost

consumer

loans

portfolio

classes

and

by origination

year

based on

accrual

status as

of September

30, 2023,

the gross

charge-offs

for the

nine-month period

ended September

30, 2023

by portfolio

classes and

by origination year, and the amortized

cost of consumer loans by portfolio classes based on accrual status as of December 31,

2022:

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Region:

Auto loans:

Accrual Status:

Performing

483,036

567,954

414,852

195,698

149,360

77,639

1,888,539

1,783,782

Non-Performing

1,271

3,122

2,654

1,407

2,472

2,141

13,067

10,596

Total auto loans

484,307

571,076

417,506

197,105

151,832

79,780

1,901,606

1,794,378

Charge-offs on auto loans

630

5,420

3,412

1,391

1,811

1,237

13,901

Finance leases:

Accrual Status:

Performing

243,524

258,990

162,169

70,224

60,539

33,572

829,018

716,585

Non-Performing

741

466

434

305

569

2,522

1,645

Total finance leases

243,531

259,731

162,635

70,658

60,844

34,141

831,540

718,230

Charge-offs on finance leases

172

1,182

921

419

446

579

3,719

Personal loans:

Accrual Status:

Performing

133,568

133,763

37,159

19,132

33,558

18,492

375,672

351,664

Non-Performing

162

1,146

196

161

138

1,874

1,248

Total personal loans

133,730

134,909

37,355

19,203

33,719

18,630

377,546

352,912

Charge-offs on personal loans

242

5,765

2,137

892

1,812

1,077

11,925

Credit cards:

Accrual Status:

Performing

321,950

311,731

Non-Performing

Total credit cards

321,950

311,731

Charge-offs on credit cards

13,294

Other consumer loans:

Accrual Status:

Performing

69,063

40,513

11,921

6,396

6,377

4,442

9,071

147,783

139,116

Non-Performing

323

671

184

160

1,576

1,122

Total other consumer loans

69,386

41,184

12,105

6,448

6,468

4,602

9,166

149,359

140,238

Charge-offs on other consumer loans

662

5,418

1,853

446

851

297

354

9,881

Total:

Performing

929,191

1,001,220

626,101

291,450

249,834

134,145

331,021

3,562,962

3,302,878

Non-Performing

1,763

5,680

3,500

1,964

3,029

3,008

19,039

14,611

Total consumer loans in Puerto Rico and Virgin

Islands region

930,954

1,006,900

629,601

293,414

252,863

137,153

331,116

3,582,001

3,317,489

Charge-offs on total consumer loans

1,706

17,785

8,323

3,148

4,920

3,190

13,648

52,720

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans:

Accrual Status:

Performing

187

1,356

1,543

3,617

Non-Performing

Total auto loans

187

1,392

1,579

3,693

Charge-offs on auto loans

263

286

Finance leases:

Accrual Status:

Performing

Non-Performing

Total finance leases

Charge-offs on finance leases

Personal loans:

Accrual Status:

Performing

231

304

334

Non-Performing

Total personal loans

231

304

334

Charge-offs on personal loans

Credit cards:

Accrual Status:

Performing

Non-Performing

Total credit cards

Charge-offs on credit cards

Other consumer loans:

Accrual Status:

Performing

225

451

2,295

1,441

4,514

5,833

Non-Performing

119

Total other consumer loans

225

451

2,315

1,483

4,576

5,952

Charge-offs on other consumer loans

Total:

Performing

286

296

453

187

3,651

1,441

6,361

9,784

Non-Performing

195

Total consumer loans in Florida region

286

296

453

187

3,707

1,483

6,459

9,979

Charge-offs on total consumer loans

263

286

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of September 30, 2023

As of

December 31,

2022

Term Loans

Amortized Cost Basis by Origination Year

(1)

2023

2022

2021

2020

2019

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans:

Accrual Status:

Performing

483,036

567,954

414,852

195,698

149,547

78,995

1,890,082

1,787,399

Non-Performing

1,271

3,122

2,654

1,407

2,472

2,177

13,103

10,672

Total auto loans

484,307

571,076

417,506

197,105

152,019

81,172

1,903,185

1,798,071

Charge-offs on auto loans

630

5,420

3,412

1,391

1,834

1,500

14,187

Finance leases:

Accrual Status:

Performing

243,524

258,990

162,169

70,224

60,539

33,572

829,018

716,585

Non-Performing

741

466

434

305

569

2,522

1,645

Total finance leases

243,531

259,731

162,635

70,658

60,844

34,141

831,540

718,230

Charge-offs on finance leases

172

1,182

921

419

446

579

3,719

Personal loans:

Accrual Status:

Performing

133,799

133,763

37,230

19,134

33,558

18,492

375,976

351,998

Non-Performing

162

1,146

196

161

138

1,874

1,248

Total personal loans

133,961

134,909

37,426

19,205

33,719

18,630

377,850

353,246

Charge-offs on personal loans

242

5,765

2,137

892

1,812

1,077

11,925

Credit cards:

Accrual Status:

Performing

321,950

311,731

Non-Performing

Total credit cards

321,950

311,731

Charge-offs on credit cards

13,294

Other consumer loans:

Accrual Status:

Performing

69,118

40,560

12,146

6,847

6,377

6,737

10,512

152,297

144,949

Non-Performing

323

671

184

180

137

1,638

1,241

Total other consumer loans

69,441

41,231

12,330

6,899

6,468

6,917

10,649

153,935

146,190

Charge-offs on other consumer loans

662

5,418

1,853

446

851

297

354

9,881

Total:

Performing

929,477

1,001,267

626,397

291,903

250,021

137,796

332,462

3,569,323

3,312,662

Non-Performing

1,763

5,680

3,500

1,964

3,029

3,064

137

19,137

14,806

Total consumer loans

931,240

1,006,947

629,897

293,867

253,050

140,860

332,599

3,588,460

3,327,468

Charge-offs on total consumer loans

1,706

17,785

8,323

3,148

4,943

3,453

13,648

53,006

(1)

Excludes accrued interest receivable.

As of September 30, 2023 and December 31, 2022, the balance of revolving

loans converted to term loans was

t material.

Accrued interest receivable

on loans totaled $

55.2

million as of September

30, 2023 (as

compared to $

53.1

million as of December

31,

2022),

was

reported

part

accrued

interest

receivable

loans

and

investment

securities

the

consolidated

statements

financial condition,

and is excluded from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of September 30, 2023 and December

31, 2022

As of September 30, 2023

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

27,341

1,596

27,409

1,596

Commercial loans:

Construction loans

956

Commercial mortgage loans

12,525

1,651

44,722

57,247

1,651

C&I loans

12,062

2,105

6,649

18,711

2,105

Consumer loans:

Personal loans

Other consumer loans

162

52,118

5,369

52,395

104,513

5,369

As of December 31, 2022

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

36,206

2,571

36,206

2,571

Commercial loans:

Construction loans

956

Commercial mortgage loans

2,466

897

62,453

64,919

897

C&I loans

1,513

322

17,590

19,103

322

Consumer loans:

Personal loans

120

Other consumer loans

207

40,448

3,820

81,063

121,511

3,820

The allowance related

to collateral dependent loans

reported in the tables

above includes qualitative

adjustments applied to

the loan

portfolio

that

consider

possible

changes

circumstances

that

could

ultimately

impact

credit

losses

and

might

not

reflected

historical

data

forecasted

data

incorporated

the

quantitative

models.

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans

consisted

single-family

residential

properties,

and

for

commercial

and

construction

loans

consisted

primarily

office

buildings,

multifamily

residential

properties,

and

retail

establishments.

The

weighted-average

loan-to-

value coverage

for collateral dependent

loans as of

September 30, 2023

was

%, compared to

% as of

December 31, 2022,

which

was not considered a significant change in the extent to which collateral secured

these loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Purchases and Sales of Loans

the

ordinary

course

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs, such as FNMA and

FHLMC. During the first

nine months of 2023,

loans pooled into GNMA MBS

amounted to approximately

102.9

million, compared

to $

115.7

million during the

first nine months

of 2022,

for which the

Corporation recognized

a net gain

sale

2.2

million

and

3.2

million,

respectively.

Also,

during

the

first

nine

months

2023,

the

Corporation

sold

approximately

28.6

million

performing

residential

mortgage

loans

FNMA

and

FHLMC,

compared

90.8

million

during

the

first

nine

months

2022,

for

which

the

Corporation

recognized

net

gain

sale

0.7

million

and

4.0

million,

respectively.

The

Corporation’s

continuing involvement with the

loans that it sells consists

primarily of servicing

the loans. In addition,

the Corporation

agrees

repurchase

loans

breaches

any

the

representations

and

warranties

included

the

sale

agreement.

These

representations

and

warranties

are

consistent

with

the

GSEs’

selling

and

servicing

guidelines

(i.e.,

ensuring

that

the

mortgage

was

properly underwritten according to established guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or

after January 1,

2003 when certain

delinquency criteria are

met. This option

gives the Corporation

the unilateral ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

have

regained

effective

control

over

the

loans,

required

recognize

the

loans

and

corresponding

repurchase

liability

regardless of its

intent to repurchase

the loans. As

of September

30, 2023 and

December 31, 2022,

rebooked GNMA delinquent

loans

that were included in the residential mortgage loan portfolio amounted

to $

8.5

million and $

10.4

million, respectively.

During

the

first

nine

months

2023

and

2022,

the

Corporation

repurchased,

pursuant

the

aforementioned

repurchase

option,

2.5

million and $

8.2

million, respectively,

of loans previously pooled

into GNMA MBS. The

principal balance of these

loans is fully

guaranteed,

and the

risk of

loss related

to the

repurchased loans

is generally

limited to

the difference

between the

delinquent interest

payment advanced

to GNMA, which

is computed at

the loan’s

interest rate,

and the interest

payments reimbursed

by FHA, which

are

computed

at a

pre-determined

debenture

rate.

Repurchases

of GNMA

loans allow

the

Corporation,

among

other

things, to

maintain

acceptable

delinquency

rates

outstanding

GNMA

pools

and

remain

seller

and

servicer

good

standing

with

GNMA.

Historically, losses

on these repurchases of

GNMA delinquent loans have

been immaterial and no provision has

been made at the time

of sale.

Loan sales to FNMA and FHLMC are without recourse in relation

to the future performance of the loans.

The Corporation’s risk of

loss

with

respect

these

loans

also

minimal

these

repurchased

loans

are

generally

performing

loans

with

documentation

deficiencies.

During

the first

nine

months of

2023

and

2022,

the

Corporation

purchased

C&I

loan

participations

the Florida

region

totaling

61.3

million and $

135.4

million, respectively.

There were

significant sales of

commercial loan

participations during the

first nine

months of 2023. Meanwhile, during the first nine months

of 2022, the Corporation sold a $

35.2

million commercial and industrial loan

participation in the Puerto Rico region.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Loan Portfolio Concentration

The Corporation’s

primary

lending area

is Puerto

Rico. The

Corporation’s

banking subsidiary,

FirstBank, also

lends in

the USVI

and BVI markets

and in the

United States (principally

in the state of

Florida). Of the

total gross loans

held for investment

portfolio of

12.0

billion as of

September 30,

2023, credit risk

concentration was

approximately

% in Puerto

Rico,

% in the

U.S., and

% in

the USVI and BVI.

As of

September

30,

2023,

the Corporation

had $

185.0

million outstanding

in loans

extended

to the

Puerto

Rico government,

its

municipalities

and

public

corporations,

compared

169.8

million

December

31,

2022.

September

30,

2023,

approximately

115.8

million consisted

of loans

extended

to municipalities

in Puerto

Rico that

are general

obligations supported

assigned

property

tax

revenues,

and

25.6

million

loans

which

are

supported

one

specific

sources

municipal

revenues. The

vast

majority

revenues

the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary subsidies provided by the Puerto Rico central

government. These municipalities are required

by law to levy special property

taxes in such amounts as are required to satisfy the

payment of all of their respective general obligation

bonds and notes. In addition to

loans extended

to municipalities,

the Corporation’s

exposure to

the Puerto

Rico government

as of

September 30,

2023 included

8.9

million in

loans granted to

an affiliate of

the Puerto Rico

Electric Power Authority

(“PREPA”)

and $

34.7

million in loans

to agencies

or public corporations of the Puerto Rico government.

addition,

September

30,

2023,

the

Corporation

had

79.3

million

exposure

residential

mortgage

loans

that

are

guaranteed by the

PRHFA, a

government instrumentality

that has been designated

as a covered entity

under PROMESA, compared

84.7

million

December

31,

2022.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties and the guarantees serve to cover shortfalls in collateral in the event

of a borrower default.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

September

30,

2023,

the

Corporation

had

87.5

million in

loans to

USVI government

public corporations,

compared to

38.0

million as

of December

31, 2022.

As of September

30,

2023, all loans were currently performing and up to date on principal

and interest payments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Loss Mitigation Program for Borrowers Experiencing

Financial Difficulty

Effective January 1, 2023, the Corporation adopted

ASU 2022-02. For additional information on the adoption, see Note 1 –

Basis of

Presentation and Significant Accounting Policies.

The Corporation provides assistance to

its customers through a loss mitigation

program. Depending upon the

nature of a borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

well

other

restructurings

individual

C&I,

commercial

mortgage,

construction,

and

residential

mortgage

loans.

The

Corporation

may

also

modify

contractual

terms to comply with regulations regarding the treatment of certain bankruptcy

filings and discharge situations.

The

loan

modifications

granted

borrowers

experiencing

financial

difficulty

that

are

associated

with

payment

delays

typically

include the following:

Forbearance plans –

Payments of either interest

and/or principal are

deferred for a pre-established

period of time, generally

not

exceeding

six

months

any

given

year.

The

deferred

interest

and/or

principal

repaid

either

lump

sum

payment

maturity date or by extending the loan’s

maturity date by the number of forbearance months granted.

Payment

plans

–

Borrowers

are

allowed

pay

the

regular

monthly

payment

plus

the

pre-established

delinquent

amounts

during a period generally not exceeding

six months.

At the end of the payment plan, the

borrower is required to resume making

its regularly scheduled loan payments.

Trial modifications

– These types of loan

modifications are granted for

residential mortgage loans. Borrower

continue making

reduced monthly payments during

the trial period, which is

generally of up to six

months. The reduced payments

that are made

by the

borrower during

the trial

period will

result in

a payment

delay with

respect to

the original

contractual terms

of the

loan

since

the

loan

has

not

yet

been

contractually

modified.

After

successful

completion

the

trial

period,

the

mortgage

loan

contractually modified.

Modifications

the

form

reduction

interest

rate,

term

extension,

other-than-insignificant

payment

delay,

any

combination

these

types

loan

modifications

that

have

occurred

the

current

reporting

period

for

borrower

experiencing

financial

difficulty

are

disclosed

the

tables

below.

Many

factors

are

considered

when

evaluating

whether

there

other-than-

insignificant

payment

delay,

such as

the significance

of the

restructured

payment

amount relative

to the

unpaid

principal balance

collateral value of the loan or the relative significance of the delay to

the original loan terms.

The

below

disclosures

relate

loan

modifications

granted

borrowers

experiencing

financial

difficulty

which

there

was

change

the

timing

and/or

amount

contractual

cash

flows

the

form

any

the

aforementioned

types

modifications,

including

restructurings

that

resulted

more-than-insignificant

payment

delay.

These

disclosures

exclude

0.9

million

and

3.2

million in restructured residential

mortgage loans that are

government-guaranteed (e.g.,

FHA/VA

loans) and were modified

during the

quarter and nine-month period ended September 30, 2023, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

the

amortized

cost

basis

September

30,

2023

loans

modified

borrowers

experiencing

financial difficulty

during the quarter

and nine-month period

ended September 30,

2023, by portfolio

classes and type

of modification

granted, and the

percentage of these

modified loans relative

to the total

period-end amortized

cost basis of

receivables in the

portfolio

class:

Quarter Ended September 30,2023

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction

and Term

Extension

Other

Total

Percentage

of Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

401

0.01%

Construction loans

Commercial mortgage loans

2,225

0.10%

C&I loans

192

0.01%

Consumer loans:

Auto loans

608

(1)

741

0.04%

Personal loans

154

0.04%

Credit cards

368

(2)

368

0.11%

Other consumer loans

(1)

0.04%

Total modifications

401

560

2,420

150

612

4,143

Nine-Month Period Ended September 30,2023

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction

and Term

Extension

Other

Total

Percentage

of Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

610

687

239

1,536

0.05%

Construction loans

Commercial mortgage loans

2,225

30,170

32,395

1.40%

C&I loans

192

185

377

0.01%

Consumer loans:

Auto loans

234

153

1,511

(1)

1,898

0.10%

Personal loans

132

165

297

0.08%

Credit cards

1,033

(2)

1,033

0.32%

Other consumer loans

311

(1)

429

0.28%

Total modifications

610

1,225

3,774

30,817

1,539

37,965

(1)

Modification consists of reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings or consumer credit counseling programs unless dismissal occurs.

(2)

Modification consists of reduction in interest rate and revocation of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

portfolio

classes

the

financial

effects

the

modifications

granted

borrowers

experiencing

financial

difficulty,

other

than

those

associated

payment

delay,

during

the

quarter

and

nine-month

period

ended

September

30,2023.

The financial

effects

of the

modifications

associated to

payment

delay were

discussed above

and, as

such, were

excluded

from the tables below:

Quarter Ended September 30, 2023

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

Construction loans

Commercial mortgage loans

C&I loans

0.45

Consumer loans:

Auto loans

2.27

Personal loans

3.61

Credit cards

16.67

Other consumer loans

2.00

Nine-Month Period Ended September 30, 2023

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

105

2.95

105

Construction loans

Commercial mortgage loans

0.25

C&I loans

0.45

Consumer loans:

Auto loans

3.10

Personal loans

4.29

Credit cards

16.27

Other consumer loans

1.74

The following table presents by portfolio classes the performance of loans modified

during the nine-month period ended

September 30, 2023 that were granted to borrowers experiencing financial

difficulty:

Nine-Month Period Ended September 30, 2023

30-59

60-89

90+

Total

Delinquency

Current

Total

(In thousands)

Conventional residential mortgage loans

1,465

1,536

Construction loans

Commercial mortgage loans

32,395

C&I loans

377

Consumer loans:

Auto loans

1,876

1,898

Personal loans

282

297

Credit cards

149

184

849

1,033

Other consumer loans

(1)

363

429

Total modifications

291

358

37,607

37,965

(1)

Consists of loan modifications that defaulted (failure

by the borrower to make payments of

either principal, interest, or both for a

period of 90 days or more) during the

quarter and nine-month period ended September

30, 2023, and that had been modified after January 1, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Troubled Debt

Restructuring ("TDR") Disclosures Prior to

Adoption of ASU 2022-02

The

following

provides

additional

disclosures

previously

required

ASC

Subtopic

310-40,

Receivables

Troubled

Debt

Restructurings

Creditors,

the quarter

and

nine-month

period

ended

September

30,

2022.

Prior

to the

adoption of

ASU

2022-02,

a restructuring

of a

loan constituted

a TDR

if the

creditor,

for economic

or legal

reasons related

to the

borrower's financial

difficulties, granted

a concession to

the borrower that

it would not

otherwise consider.

See Note 1

- Nature of

Business and Summary

of Significant

Accounting Policies

and Note

4 -

Loans Held

For Investment

to the

audited consolidated

financial statements

included

the

2022

Annual

Report

Form

10-K

for

additional

discussion

TDRs.

The

following

tables

present

TDR

loans

completed

during the quarter and nine-month period ended September 30,

2022:

Quarter Ended September 30,2022

Total

Interest rate

below market

Maturity or

term extension

Combination

of reduction in

interest rate

and extension

of maturity

Forgiveness of

principal

and/or interest

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

132

1,022

1,154

Construction loans

Commercial mortgage loans

C&I loans

495

Consumer loans:

Auto loans

661

787

Finance leases

Personal loans

133

Credit cards

252

(2)

252

Other consumer loans

Total TDRs

1,418

387

142

1,022

2,988

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

the table. Amounts included in Other that represent a combination of

concessions are excluded from the amounts reported in the

column for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

Nine-Month Period Ended September 30,2022

Total

Interest rate

below market

Maturity or

term extension

Combination

of reduction in

interest rate

and extension

of maturity

Forgiveness of

principal

and/or interest

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

215

1,484

190

3,709

5,598

Construction loans

Commercial mortgage loans

245

5,178

467

5,890

C&I loans

895

825

1,083

2,803

Consumer loans:

Auto loans

2,120

126

264

2,510

Finance leases

451

469

Personal loans

135

318

Credit cards

647

(2)

647

Other consumer loans

188

318

Total TDRs

4,069

2,629

5,716

862

5,277

18,553

(1)

Other concessions granted by the Corporation include payment

plans under judicial stipulation or loss mitigation programs, or

a combination of two or more of the concessions listed

the table. Amounts included in Other that represent a combination of

concessions are excluded from the amounts reported in the

column for such individual concessions.

(2)

Concession consists of reduction in interest rate and revocation

of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Quarter Ended September 30,2022

Nine-Month Period Ended September 30,2022

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

Number of

contracts

Pre-modification

Amortized Cost

Post-modification

Amortized Cost

(Dollars in thousands)

TDRs:

Conventional residential mortgage loans

1,220

1,154

5,668

5,598

Construction loans

Commercial mortgage loans

5,897

5,890

C&I loans

495

3,031

2,803

Consumer loans:

Auto loans

790

787

123

2,512

2,510

Finance leases

469

Personal loans

116

133

301

318

Credit Cards

251

252

139

646

647

Other consumer loans

311

318

Total TDRs

141

3,037

2,988

451

18,835

18,553

Loan modifications considered

TDR loans that defaulted

(failure by the

borrower to make

payments of either

principal, interest, or

both

for

period

days or

more)

during

the

quarter

and

nine-month

period

ended

September

30,

2022,

and

had

become

TDR

loans during the 12-months preceding the default date, were as follows:

Quarter Ended September 30,2022

Nine-Month Period Ended September 30,2022

Number of contracts

Amortized Cost

Number of contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

534

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

776

1,674

Finance leases

Personal loans

Credit cards

201

Other consumer loans

Total

888

125

2,444

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 4 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by

portfolio segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended September 30, 2023

(In thousands)

ACL:

Beginning balance

60,514

4,804

42,427

28,014

131,299

267,058

Provision for credit losses - (benefit) expense

(3,349)

(642)

(1,344)

1,931

14,047

10,643

Charge-offs

(499)

(4)

(1)

(9)

(19,746)

(20,259)

Recoveries

534

1,463

161

3,940

6,173

Ending balance

57,200

5,621

41,157

30,097

129,540

263,615

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Quarter Ended September 30,

2022

(In thousands)

ACL:

Beginning balance

65,231

2,020

32,619

36,203

116,079

252,152

Provision for credit losses - expense (benefit)

755

(179)

(2,383)

(1,228)

17,387

14,352

Charge-offs

(1,466)

(63)

(3)

(8)

(12,522)

(14,062)

Recoveries

559

494

4,264

5,417

Ending balance

65,079

1,821

30,290

35,461

125,208

257,859

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Nine-Month Period Ended September 30,

2023

(In thousands)

ACL:

Beginning balance

62,760

2,308

35,064

32,906

127,426

260,464

Impact of adoption of ASU 2022-02

2,056

2,116

Provision for credit losses - (benefit) expense

(6,776)

1,420

5,901

3,278

43,846

47,669

Charge-offs

(2,628)

(42)

(107)

(6,477)

(53,006)

(62,260)

Recoveries

1,788

1,935

299

383

11,221

15,626

Ending balance

57,200

5,621

41,157

30,097

129,540

263,615

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial Loans

Consumer Loans

Total

Nine-Month Period Ended September 30,

2022

(In thousands)

ACL:

Beginning balance

74,837

4,048

52,771

34,284

103,090

269,030

Provision for credit losses - (benefit) expense

(6,913)

(2,242)

(23,758)

(575)

43,516

10,028

Charge-offs

(6,073)

(123)

(42)

(366)

(32,765)

(39,369)

Recoveries

3,228

138

1,319

2,118

11,367

18,170

Ending balance

65,079

1,821

30,290

35,461

125,208

257,859

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

Nature

Business

and

Summary

Significant Accounting

Policies, to

the audited

consolidated financial

statements included

in the

2022 Annual

Report on

Form 10-K,

as updated by the information contained in this report, for each portfolio

segment.

The Corporation

generally applies

probability weights

to the

baseline and

alternative downside

economic scenarios

to estimate

the

ACL with

the

baseline

scenario

carrying

the highest

weight.

The

scenarios

that are

chosen each

quarter

and

the

weighting

given

each

scenario

for

the

different

loan

portfolio

categories

depend

variety

factors

including

recent

economic

events,

leading

national and

regional economic

indicators, and

industry trends.

During the

third quarter

of 2023,

the Corporation

continued to

apply

the baseline

scenario

for the

commercial

mortgage

and construction

loan portfolios

as deterioration

in the

CRE price

index

these

portfolios is

expected at

a lower

extent than

projected in

the alternative

downside scenario,

particularly in

the Puerto

Rico region.

addition,

during the

third quarter

of 2023,

the Corporation

applied the

alternative downside

scenario for

the credit

cards portfolio

account

for

increased

uncertainty

charge-off

trends

and

projection

certain

macroeconomic

variables,

such

retail

sales.

Results for

the ACL

include updated

macroeconomic projections

which continue

to reflect

deterioration on

the long-term

outlook of

certain

macroeconomic

variables,

such

as unemployment

rate

and

retail

sales,

but

slower

pace,

mostly

driven

actual

results

outperforming previous forecasts.

September

30,

2023,

the

ACL

for

loans

and

finance

leases

was

263.6

million,

increase

3.1

million,

from

260.5

million

December

31,

2022.

The

ACL

for

commercial

and

construction

loans

increased

6.6

million,

mainly

due

deterioration in the forecasted CRE price index to account

for an increased uncertainty in the CRE market at a national

level that could

potentially impact the

markets served by

the Corporation coupled

with the growth

in the commercial

and construction loan

portfolios,

and a

1.7

million incremental

reserve recorded

during the

third quarter

of 2023

associated with

the inflow

to nonaccrual

status of

9.5

million

commercial

and

industrial

loan

the

Puerto

Rico

region.

The

ACL

for

consumer

loans

increased

2.1

million,

primarily

reflecting

the

effect

the

increase

the

size

the

consumer

loan

portfolios

and

historical

charge-off

levels,

partially

offset

updated

macroeconomic

variables.

The

ACL

for

residential

mortgage

loans

decreased

5.6

million,

mainly

driven

updated

macroeconomic

variables,

such

as the

Regional

Home

Price

Index

and

the

unemployment

rate,

partially

offset

the

2.1

million cumulative increase in the ACL due to the adoption of ASU 2022-02

on January 1, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The tables below

present the ACL

related to loans

and finance leases

and the carrying

values of loans

by portfolio segment

as of

September 30,

2023 and December 31, 2022:

As of September 30,

2023

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,812,631

202,774

2,316,113

3,030,954

3,588,460

11,950,932

Allowance for credit losses

57,200

5,621

41,157

30,097

129,540

263,615

Allowance for credit losses to

amortized cost

2.03

2.77

1.78

0.99

3.61

2.21

As of December 31, 2022

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

Commercial and

Industrial Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to

amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial and construction

loans, unless the

obligation is unconditionally

cancellable by the Corporation.

See Note 22 –

Regulatory

Matters, Commitments,

and

Contingencies

for

information on

off-balance

sheet exposures

as of

September

30, 2023

and

December

31, 2022. The

Corporation estimates the

ACL for these

off-balance sheet

exposures following the

methodology described

in Note 1

–

Nature of Business and Summary of Accounting Policies,

to the audited consolidated financial statements included in the

2022 Annual

Report on Form 10-K.

As of September 30,

2023, the ACL for

off-balance sheet credit

exposures increased to $

4.8

million, from $

4.3

million as of December 31,

2022, driven by the deterioration

in the forecasted CRE price

index and its effect

in construction unfunded

loan commitments.

The following

table presents

the activity

in the

ACL for

unfunded loan

commitments and

standby letters

of credit

for the

quarters

and nine-month periods ended September 30, 2023 and 2022:

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

(In thousands)

Beginning Balance

4,889

2,171

4,273

1,537

Provision for credit losses - (benefit) expense

(128)

2,071

488

2,705

Ending balance

4,761

4,242

4,761

4,242

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 5

–

OTHER REAL ESTATE

OWNED

The following table presents the OREO inventory as of the indicated dates:

September 30, 2023

December 31, 2022

(In thousands)

OREO balances, carrying value:

Residential

(1)

20,740

24,025

Construction

1,861

1,764

Commercial

5,962

5,852

Total

28,563

31,641

(1)

Excludes $

19.6

million and $

23.5

million as of September 30, 2023 and December 31,

2022, respectively, of foreclosures

that met the conditions of ASC Subtopic 310-40

“Reclassification

of Residential Real

Estate Collateralized Consumer Mortgage

Loans upon Foreclosure,”

and are presented as

a receivable as part

of other assets in

the consolidated statements

of financial

condition.

See Note 18 - Fair

Value

for information on write-downs

recorded on OREO properties

during the quarters and

nine-month periods

ended September 30, 2023 and 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

Goodwill

each

September

30,

2023

and

December

31,

2022

amounted

38.6

million.

The Corporation’s policy is to

assess goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if

events or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the

fourth quarter of 2022, management performed a qualitative analysis over the carrying amount of each relevant reporting units’

goodwill and concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This

assessment involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant

events impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-

likely-than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2022, the Corporation

concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation

determined that there have been no significant events since the last annual assessment that could indicate potential goodwill

impairment on reporting units for which the goodwill is allocated. As a result, no impairment charges for goodwill were recorded

during the first nine months of 2023.

There were

changes in

the carrying

amount of

goodwill during

the quarters

and nine-month

periods ended

September 30,

2023

and 2022.

Other Intangible Assets

The

following

table

presents

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

September 30,

December 31,

2023

2022

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(72,315)

(66,644)

Net carrying amount

15,229

20,900

Remaining amortization period (in years)

6.3

7.0

Purchased credit card relationship intangible:

Gross amount

3,800

Accumulated amortization

(3,595)

Net carrying amount

205

Remaining amortization period (in years)

0.7

Insurance customer relationship intangible:

Gross amount

1,067

Accumulated amortization

(1,054)

Net carrying amount

Remaining amortization period (in years)

0.1

During

the quarter

and

nine-month

period

ended

September

30,

2023,

the

Corporation recognized

1.9

million

and $

5.9

million,

respectively,

in amortization

expense

on its

other intangibles

subject to

amortization,

compared to

2.2

million

and $

6.7

million for

the same periods in 2022, respectively.

The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit

intangibles are analyzed annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that

may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that

would indicate a possible impairment to the core deposit intangibles as of September 30, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of September 30, 2023

(In thousands)

Remaining 2023

1,847

2024

6,416

2025

3,509

2026

872

2027

872

2028 and after

1,713

NOTE 7 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIEs”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation has

entered into

other transactions,

the Corporation

first determines

if the

counterparty is

an entity

for which

a variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

primary beneficiary of the VIE and whether the entity should be consolidated

or not.

Below is a summary of transactions with VIEs for which the Corporation has retained

some level of continuing involvement:

Trust-Preferred

Securities (“TRuPs”)

In April 2004,

FBP Statutory Trust

I, a financing

trust that is wholly

owned by the

Corporation, sold to

institutional investors $

100

million of its variable

-rate TRuPs. FBP Statutory

Trust I used

the proceeds of the

issuance, together with the

proceeds of the purchase

the

Corporation

3.1

million

FBP

Statutory

Trust

variable-rate

common

securities, to

purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

September

2004,

FBP

Statutory

Trust

II,

financing

trust that

is wholly

owned by

the Corporation,

sold to

institutional investors

125

million of

its variable-rate

TRuPs. FBP

Statutory Trust

II used

the proceeds of

the issuance,

together with

the proceeds of

the purchase by

the Corporation

of $

3.9

million of

FBP Statutory

Trust

II variable-rate

common securities,

to purchase

128.9

million aggregate

principal amount

of the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

The

debentures,

net

issuance

costs,

are

presented

the

Corporation’s

consolidated statements of financial

condition as other long-term borrowings.

These TRuPs are variable-rate instruments

indexed to

month CME Term SOFR

plus a

tenor spread

adjustment of

0.26161

% and the

original spread

2.75

% for the

FBP Statutory

Trust I

and

2.50

% for

the FBP

Statutory Trust

II.

The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September

20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be

shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).

During the second quarter of 2023, the Corporation

completed the repurchase of $

21.4

million of TRuPs of FBP Statutory Trust I as

part

privately-negotiated

transaction

with

investors,

resulting

commensurate

reduction

the

floating

rate

junior

subordinated

debentures.

The

purchase

price

paid

the

Corporation

equated

92.5

the

21.4

million

par

value.

The

7.5

discount resulted

in a

gain of

approximately

1.6

million, which

is reflected

in the

consolidated statements

of income

as a

“Gain on

early extinguishment

of debt.”

As of

September 30,

2023 and

December 31,

2022, these

Junior Subordinated

Deferrable Debentures

amounted to $

161.7

million and $

183.8

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Under the

indentures, the

Corporation has

the right,

from time

to time,

and without

causing an

event of

default, to

defer payments

of interest

on the

Junior Subordinated

Deferrable Debentures

by extending

the interest

payment period

at any

time and

from time

time

during

the term

of the

subordinated

debentures

for

up to

twenty

consecutive

quarterly

periods.

As of

September

30,

2023,

the

Corporation was current on all interest payments due on its subordinated

debt.

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is

the sole

owner of

these private

label MBS;

the servicing

of the

underlying

residential mortgages

that generate

the principal

and

interest

cash

flows

is performed

another

third

party that

receives

servicing

fee.

These

private

label

MBS are

variable-rate

securities indexed

3-month CME Term SOFR

plus a

tenor

spread

adjustment

0.26161

% and

the original

spread

limited to

the

weighted-average

coupon

the

underlying

collateral.

The

principal

payments

from

the

underlying

loans

are

remitted

paying

agent

(servicer),

who

then

remits

interest

the

Bank.

Interest

income

shared

certain

extent

with

the

FDIC,

which

has

interest only strip (“IO”) tied to the

cash flows of the underlying loans

and is entitled to receive the excess

of the interest income less a

servicing

fee

over

the

variable

rate

income

that

the

Bank

earns

the

securities.

The

FDIC

became

the

owner

the

upon

its

intervention of the seller,

a failed financial institution.

No recourse agreement exists, and

the Bank, as the sole

holder of the securities,

absorbs all risks

from losses

on non-accruing

loans and repossessed

collateral. As

of September

30, 2023, the

amortized cost and

fair

value

of these

private

label MBS

amounted

to $

7.3

million and

4.9

million, respectively,

with a

weighted

average yield

7.73

which is included as part of

the Corporation’s

available-for-sale debt securities portfolio.

As described in Note 2 –

Debt Securities,

the

ACL on these private label MBS amounted to $

0.1

million as of September 30, 2023.

Servicing Assets (MSRs)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

which the

loans are

exchanged for

cash or

securities that

are readily

redeemed for

cash proceeds

and servicing

rights. The

securities

issued

through

these

transactions

are

guaranteed

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

required

service

the

loans

accordance

with

the

issuers’

servicing

guidelines

and

standards.

September

30,

2023,

the

Corporation

serviced

loans securitized

through

GNMA with

a principal

balance

2.1

billion.

Also, certain

conventional

conforming

loans are

sold to FNMA or FHLMC

with servicing retained. The

Corporation recognizes as separate

assets the rights to service

loans for others,

whether those servicing

assets are originated or

purchased. MSRs are included

as part of other

assets in the consolidated

statements of

financial condition.

The changes in MSRs are shown below for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Balance at beginning of period

28,034

30,277

29,037

30,986

Capitalization of servicing assets

601

679

1,839

2,637

Amortization

(1,035)

(1,247)

(3,265)

(3,850)

Temporary impairment

recoveries

Other

(1)

(6)

(20)

(22)

(148)

Balance at end of period

27,601

29,690

27,601

29,690

(1)

Mainly represents adjustments related to the repurchase

of loans serviced for others.

Impairment

charges

are

recognized

through

valuation

allowance

for

each

individual

stratum

servicing

assets.

The

valuation

allowance

is adjusted

to reflect

the amount,

if any,

by which

the cost

basis of

the servicing

asset for

a given

stratum of

loans being

serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing

asset for a given stratum is not recognized.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Changes in the impairment allowance were as follows for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Balance at beginning of period

Temporary impairment

recoveries

(7)

(1)

(12)

(65)

Balance at end of period

The components

of net servicing

income, included as

part of mortgage

banking activities in

the consolidated statements

of income,

are shown below for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Servicing fees

2,606

2,758

7,984

8,398

Late charges and prepayment penalties

137

201

547

614

Other

(1)

(6)

(20)

(22)

(148)

Servicing income, gross

2,737

2,939

8,509

8,864

Amortization and impairment of servicing assets

(1,028)

(1,246)

(3,253)

(3,785)

Servicing income, net

1,709

1,693

5,256

5,079

(1) Mainly represents adjustments related to the repurchase

of loans serviced for others.

The Corporation’s

MSRs are subject

to prepayment

and interest rate

risks. Key economic

assumptions used

in determining

the fair

value at the time of sale of the related mortgages for the indicated periods

ranged as follows:

Weighted Average

Maximum

Minimum

Nine-Month Period Ended September 30,

2023

Constant prepayment rate:

Government-guaranteed mortgage loans

6.6

11.6

4.8

Conventional conforming mortgage loans

7.4

16.0

3.8

Conventional non-conforming mortgage loans

5.9

9.0

2.1

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

Conventional non-conforming mortgage loans

13.0

14.0

11.5

Nine-Month Period Ended September 30,

2022

Constant prepayment rate:

Government-guaranteed mortgage loans

6.6

18.3

4.8

Conventional conforming mortgage loans

6.6

18.4

3.4

Conventional non-conforming mortgage loans

6.0

21.9

3.8

Discount rate:

Government-guaranteed mortgage loans

11.8

12.0

11.5

Conventional conforming mortgage loans

9.8

10.0

9.5

Conventional non-conforming mortgage loans

12.4

14.5

11.5

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The weighted

averages of the

key economic

assumptions that the

Corporation used

in its valuation

model and the

sensitivity of the

current fair value

to immediate

% and

% adverse changes in

those assumptions for mortgage

loans as of September

30, 2023 and

December 31, 2022 were as follows:

September 30,

December 31,

2023

2022

(In thousands)

Carrying amount of servicing assets

27,601

29,037

Fair value

45,114

44,710

Weighted-average

expected life (in years)

7.75

7.80

Constant prepayment rate (weighted-average annual

rate)

6.31

6.40

Decrease in fair value due to 10% adverse change

1,036

1,048

Decrease in fair value due to 20% adverse change

2,027

2,054

Discount rate (weighted-average annual rate)

10.72

10.69

Decrease in fair value due to 10% adverse change

1,937

1,925

Decrease in fair value due to 20% adverse change

3,727

3,704

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%

variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change

in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is

calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,

increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 8 – DEPOSITS

The following table summarizes deposit balances as of the indicated dates:

September 30, 2023

December 31, 2022

(In thousands)

Type of account:

Non-interest-bearing deposit accounts

5,440,247

6,112,884

Interest-bearing saving accounts

3,687,203

3,902,888

Interest-bearing checking accounts

4,242,672

3,770,993

Certificates of deposit (“CDs”)

2,754,776

2,250,876

Brokered CDs

310,339

105,826

Total

16,435,237

16,143,467

The following table presents the contractual maturities of CDs, including brokered

CDs, as of September 30,

2023:

Total

(In thousands)

Three months or less

786,211

Over three months to six months

496,333

Over six months to one year

785,367

Over one year to two years

716,417

Over two years to three years

113,932

Over three years to four years

49,303

Over four years to five years

110,325

Over five years

7,227

Total

3,065,115

The following were the components of interest expense on deposits for the

indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Interest expense on deposits

54,243

10,045

125,720

25,619

Accretion of premiums from acquisitions

(33)

(92)

(149)

(384)

Amortization of broker placement fees

216

Total

54,298

9,978

125,787

25,324

Total

Puerto

Rico

and

U.S.

time

deposits

with

balances

than

$250,000

amounted

1.4

billion

and

1.0

billion

September 30, 2023

and December 31,

2022, respectively.

This amount does

not include brokered

CDs that are generally

participated

out

brokers

less

than

the

FDIC

insurance

limit.

each

September

30,

2023

and

December

31,

2022,

unamortized broker

placement fees amounted

to $

0.3

million, which

are amortized

over the contractual

maturity of the

brokered CDs

under the interest method.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO

REPURCHASE (REPURCHASE AGREEMENTS)

Repurchase agreements as of the indicated dates consisted of the following:

September 30, 2023

December 31, 2022

(In thousands)

Short-term Fixed-rate repurchase agreements

(1) (2)

75,133

(1)

Weighted-average interest rate

4.55

% as of December 31, 2022. As of September 30,

2023, the Corporation repaid and did not renew its short-term repurchase

agreements.

(2)

As of December 31, 2022, the securities underlying such agreements

were delivered to the dealers with which the repurchase

agreements were transacted. In accordance with the master

agreements, in the event of default, repurchase agreements

have a right of set-off against the other party for amounts

owed under the related agreement and any other amount or obligation

owed with respect to any other agreement or transaction between

them. As of December 31, 2022, repurchase agreements were

fully collateralized and not offset in the consolidated

statements of financial condition.

NOTE 10 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK (“FHLB

”)

The following is a summary of the advances from the FHLB as of the indicated dates:

September 30, 2023

December 31, 2022

(In thousands)

Short-term

Fixed

-rate advances from the FHLB

(1)

475,000

Long-term

Fixed

-rate advances from the FHLB

(2)

500,000

200,000

500,000

675,000

(1)

Weighted-average interest rate of

4.56

% as of December 31, 2022.

(2)

Weighted-average interest rate of

4.45

% and

4.25

% as of September 30, 2023 and December 31, 2022, respectively.

Advances from the FHLB mature as follows as of the indicated date:

September 30, 2023

(In thousands)

Over one to five years

(1)

500,000

'(1) Average remaining term to maturity of

2.74

years.

During the nine-month period

ended September 30, 2023,

the Corporation added $

300.0

million of long-term FHLB advances

at an

average cost of

4.59

%, and repaid its short-term FHLB advances.

NOTE 11 – OTHER LONG-TERM

BORROWINGS

Junior Subordinated Debentures

Junior subordinated debentures, as of the indicated dates, consisted of:

(In thousands)

September 30, 2023

December 31, 2022

Floating rate junior subordinated debentures (FBP Statutory Trust

(1)

(3)

43,143

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust

II)

(2) (3)

118,557

161,700

183,762

(1)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.75

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of September 30, 2023 and

2.75

% over

3-month LIBOR

as of December 31, 2022 (

8.42

% as of September 30,2023 and

7.49

% as of December 31, 2022).

(2)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.50

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of September 30, 2023 and

2.50

% over

3-month LIBOR

as of December 31, 2022 (

8.16

% as of September 30, 2023 and

7.25

% as of December 31, 2022).

(3)

See Note 7 - Non-Consolidated Variable

Interest Entities

(“VIEs”) and Servicing Assets, for additional information on these

debentures.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 12 – EARNINGS PER COMMON

The calculations of earnings per common share for the quarters and nine-month

periods ended September 30, 2023 and 2022 are as

follows:

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

(In thousands, except per share information)

Net income attributable to common stockholders

82,022

74,603

223,375

231,898

Weighted-Average

Average common

shares outstanding

176,358

187,236

178,486

193,217

Average potential

dilutive common shares

604

1,083

658

1,151

Average common

shares outstanding -

assuming dilution

176,962

188,319

179,144

194,368

Earnings per common share:

Basic

0.47

0.40

1.25

1.20

Diluted

0.46

0.40

1.25

1.19

Earnings

per

common

computed

dividing

net

income

attributable

common

stockholders

the

weighted-average

number of common shares issued and outstanding. Net income attributable

to common stockholders represents net income adjusted for

any preferred

stock dividends,

including any

dividends declared

but not

yet paid,

and any cumulative

dividends related

to the

current

dividend period

that have

not been

declared as

of the

end of

the period.

Basic weighted-average

common shares

outstanding exclude

unvested shares of restricted stock that do not contain non-forfeitable

dividend rights.

Potential dilutive

common

shares consist

of unvested

shares of

restricted

stock

and

performance

units (if

any

of the

performance

conditions

are

met

as of

the end

the reporting

period),

that

not contain

non-forfeitable

dividend

or dividend

equivalent

rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

shares of common stock during the quarters and nine-month periods

ended September 30, 2023 and 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 13 – STOCK-BASED

COMPENSATION

The First Bancorp

Omnibus Incentive

Plan (the “Omnibus

Plan”), which is

effective until

May 24, 2026,

provides for equity-based

and non

equity-based compensation

incentives (the

“awards”). The

Omnibus Plan

authorizes the

issuance of

up to

14,169,807

of common

stock, subject

to adjustments

for

stock splits,

reorganizations

and other

similar events.

As of

September 30,

2023, there

were

3,151,949

authorized

common

stock

available

for

issuance

under

the

Omnibus

Plan.

The

Board,

based

the

recommendation of

the Compensation

and Benefits

Committee of

the Board,

has the

power and

authority to

determine those

eligible

to receive

awards and

to establish the

terms and conditions

of any

awards, subject to

various limits and

vesting restrictions

that apply

to individual and aggregate awards.

Restricted Stock

Under the

Omnibus Plan,

the Corporation

may grant

restricted stock

to plan

participants, subject

to forfeiture

upon the

occurrence

of certain

events until

the dates

specified in

the participant’s

award agreement.

While the

restricted stock

is subject

to forfeiture

and

does

not

contain

non-forfeitable

dividend

rights,

participants

may

exercise

full

voting

rights

with

respect

the

restricted

stock

granted

them.

The

fair

value

the

restricted

stock

granted

was

based

the

market

price

the

Corporation’s

common

stock on

the date

of the

respective grant.

The shares

of restricted

stocks granted

to employees

are subject

to the

following

vesting period:

fifty percent

(

%) of

those shares

vest on

the two-year

anniversary of

the grant

date and

the remaining

% vest

the three-year

anniversary of

the grant

date. The

shares of

restricted stock

granted to

directors are

generally subject

to vesting

on the

one-year

anniversary

the

grant

date.

The

Corporation

issued

519,794

during

the

nine-month

period

ended

September

30,

2023 in connection with restricted stock awards, which were reissued

from treasury shares.

The following table summarizes the restricted stock activity under the Omnibus

Plan during the nine-month periods ended

September 30, 2023 and 2022:

Nine-Month Period Ended September 30,

2023

2022

Number of

Weighted-

Number of

Weighted-

shares of

Average

shares of

Average

restricted

Grant Date

restricted

Grant Date

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of year

938,491

9.14

1,148,775

6.61

Granted

(1)

519,794

12.06

323,364

13.18

Forfeited

(58,454)

11.31

(15,108)

8.79

Vested

(503,460)

6.27

(510,007)

6.05

Unvested shares outstanding at end of period

896,371

12.32

947,024

9.12

(1)

Includes, for the nine-month period ended September 30,2023,

25,786

shares of restricted stock awarded to independent directors

and

494,008

shares of restricted stock awarded to

employees, of which

33,718

shares were granted to retirement-eligible employees and thus

charged to earnings as of the grant date. Includes,

for the nine-month period ended September

30,2022,

24,972

shares of restricted stock awarded to independent directors and

298,392

shares of restricted stock awarded to employees, of which

6,084

shares were granted to

retirement-eligible employees and thus charged to earnings

as of the grant date.

For

the

quarter

and

nine

month-period

ended

September

30,

2023,

the

Corporation

recognized

1.3

million

and

4.3

million,

respectively,

of stock-based

compensation expense

related to

restricted stock

awards, compared

to $

0.9

million and

2.7

million for

the

same

periods

2022,

respectively.

As of

September

30,

2023,

there

was $

5.4

million

total unrecognized

compensation

cost

related to unvested shares of restricted stock that the Corporation expects to

recognize over a weighted average period of

1.7

years.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants, with each unit representing

the value of one

the

Corporation’s

common

stock.

These awards, which are granted to executives, do not contain non-forfeitable rights to

dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.

On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on March 16,

2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics

weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq

Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the

growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The

participant may earn 50% of their target opportunity for threshold level performance and up to 150% of their target opportunity for

maximum level performance, based on the individual achievement of each performance goal during a three-year performance cycle.

Amounts between threshold, target and maximum performance will vest in a proportional amount. Performance units granted prior to

March 16, 2023 vest subject only to achievement of a TBVPS goal and the participant may earn only up to 100% of their target

opportunity.

The

following

table

summarizes

the

performance

units

activity

under

the

Omnibus

Plan

during

the

nine-month

periods

ended

September 30, 2023 and 2022:

Nine-Month Period Ended September 30,

2023

2022

Number

Weighted -

Number

Weighted -

Average

Performance

Grant Date

Performance

Grant Date

Units

Fair Value

Units

Fair Value

Performance units at beginning of year

791,923

7.36

814,899

7.06

Additions

(1)

216,876

12.24

166,669

13.15

Vested

(2)

(474,538)

4.08

(189,645)

11.16

Performance units at end of period

534,261

12.25

791,923

7.36

(1)

Units granted during the nine-month period ended September 30,

2023 are subject to the achievement of the Relative TSR and

TBVPS performance goals during a three-year performance

cycle beginning January 1, 2023 and ending on December

31, 2025. Units granted during the nine-month period ended

September 30, 2022 are subject to the achievement of the TBVPS

performance goal during a three-year performance cycle beginning

January 1, 2022 and ending on December 31, 2024.

(2)

Units vested during the nine-month period ended September 30,

2023 are related to performance units granted in 2020 that

met certain pre-established targets and were settled

with shares

of common stock reissued from treasury shares. Units

vested during the nine-month period ended September 30, 2022 are

related to performance units granted in 2019 that met certain

pre-

established targets and were settled with shares

of common stock reissued from treasury shares.

The fair value of the performance units awarded during the nine-month periods ended September 30, 2023 and 2022, that was based

on the TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of

the grant and assuming attainment of 100% of target opportunity. As of September 30, 2023, there have been no changes in

management’s assessment of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment

to compensation expense has been recognized. The fair value of the performance units awarded during the nine-month period ended

September 30, 2023, that was based on the Relative TSR component, was calculated using a Monte Carlo simulation. Since the

Relative TSR component is considered a market condition, the fair value of the portion of the award based on Relative TSR is not

revised subsequent to grant date based on actual performance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following

table summarizes

the valuation

assumptions used

to calculate

the fair

value of

the Relative

TSR component

of the

performance units granted under the Omnibus Plan during the nine-month

period ended September 30, 2023:

Nine-Month Period Ended

September 30, 2023

Risk-free interest rate

(1)

3.98

Correlation coefficient

77.16

Expected dividend yield

(2)

Expected volatility

(3)

41.37

Expected life (in years)

2.79

(1)

Based on the yield on zero-coupon U.S. Treasury

Separate Trading of Registered Interest and

Principal of Securities as of the grant date.

(2)

Assumes that dividends are reinvested at each ex-dividend date.

(3)

Calculated based on the historical volatility of the Corporation's

stock price with a look-back period equal to the simulation

term using daily stock prices.

For

the

quarter

and

nine-month

periods

ended

September

30,

2023,

the

Corporation

recognized

0.6

million

and

1.6

million,

respectively,

stock-based

compensation

expense

performance

units,

compared

0.5

million

and

1.3

million

for

the

same periods in 2022,

respectively.

As of September 30, 2023,

there was $

3.6

million of total unrecognized

compensation cost related

to unvested performance units that the Corporation expects to recognize

over a weighted average period of

2.0

years.

Shares withheld

During the first nine

months of 2023, the

Corporation withheld

288,613

shares (as compared to

202,649

shares during the first

nine

months

2022)

the

restricted

stock

that

vested

during

such

period

cover

the

officers’

payroll

and

income

tax

withholding

liabilities;

these

are

held

treasury

shares.

The

Corporation

paid

cash

any

fractional

salary

stock

which

officer

was entitled.

the consolidated

financial

statements,

the

Corporation

presents shares

withheld

for

tax purposes

as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 14 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Programs

During the third quarter of 2023, the Corporation repurchased

5,392,458

shares of common stock at an average price of $

13.91

for a

total cost of $

million which completed the

350

million stock repurchase program

approved by the Board of

Directors on April 27,

2022.

For

the

nine-month

period

ended

September

30,

2023,

the

Corporation

repurchased

8,969,998

average

price

13.94

for a total cost of $

125

million under this stock repurchase program.

On July

24, 2023,

the Corporation

announced that

its Board

of Directors

approved a

new stock

repurchase program,

under which

the Corporation may repurchase up to $

225

million of its outstanding common stock which it expects to execute through the

end of the

third quarter of 2024. Repurchases

under the program may be

executed through open market purchases,

accelerated share repurchases,

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with

Rule

10b5-1

under

the

Exchange

Act.

The

Corporation’s

stock repurchase

program is

subject to

various factors,

including the

Corporation’s

capital position,

liquidity,

financial

performance

and

alternative

uses of

capital,

stock

trading price,

and

general

market

conditions.

The

Corporation’s

stock

repurchase

program

does

not

obligate

acquire

any

specific

number

and

does

not

have

expiration

date.

The

stock

repurchase

program

may

modified,

suspended,

terminated

any

time

the

Corporation’s

discretion.

The

Corporation

repurchased

common

stock

under

the

current

repurchase

authorization

during

the

quarter

ended

September

30,

2023.

The

Parent

Company

has

operations

and

depends

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments, stock repurchases, and to fund all payments on its obligations, including

debt obligations.

Common Stock

The following table shows the change in shares of common stock outstanding

for the quarters and nine-month periods ended

September 30, 2023 and 2022:

Total

Number of Shares

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

Common stock outstanding, beginning balance

179,756,622

191,626,336

182,709,059

201,826,505

Common stock repurchased

(1)

(5,393,236)

(5,385,857)

(9,258,611)

(16,066,747)

Common stock reissued under stock-based compensation plan

23,903

21,924

994,332

513,009

Restricted stock forfeited

(963)

(4,744)

(58,454)

(15,108)

Common stock outstanding, ending balances

174,386,326

186,257,659

174,386,326

186,257,659

(1)

For the quarter and nine-month period ended September 30, 2023 includes

778

and

288,613

shares, respectively, of common

stock surrendered to cover plan participants' payroll and

income taxes.

For

the

quarter

and

nine-month

period

ended

September

30,

2023,

total

cash

dividends

declared

common

stock

amounted

to $

24.9

million

and $

75.6

million, respectively,

compared

to $

22.7

million

and $

65.9

million,

respectively,

for

the same

periods

2022.

October 31, 2023

the

Corporation

announced

that

its

Board

declared

quarterly

cash

dividend

0.14

per

common

payable

December 8, 2023

shareholders

record

the

business

November 24, 2023

The

Corporation intends

to continue

to pay

quarterly dividends

on common

stock. However,

the Corporation’s

common stock

dividends,

including the

declaration, timing,

and amount,

remain subject

to consideration

and approval

by the

Corporation’s

Board Directors

the relevant times.

Preferred Stock

The Corporation

has

50,000,000

authorized shares of

preferred stock with

a par value

of $

1.00

, subject to

certain terms. This

stock

may be issued

in series and

the shares of

each series have

such rights and

preferences as are

fixed by the

Board when authorizing

the

issuance of

that particular

series and

are redeemable

at the Corporation’s

option.

shares of preferred

stock were

outstanding as

September 30, 2023 and December 31, 2022.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Treasury Stock

The following table shows the change in shares of treasury stock for the quarters and nine-month

periods ended September 30,

2023 and 2022:

Total

Number of Shares

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

Treasury stock, beginning balance

43,906,494

32,036,780

40,954,057

21,836,611

Common stock repurchased

5,393,236

5,385,857

9,258,611

16,066,747

Common stock reissued under stock-based compensation plan

(23,903)

(21,924)

(994,332)

(513,009)

Restricted stock forfeited

963

4,744

58,454

15,108

Treasury stock, ending balances

49,276,790

37,405,457

49,276,790

37,405,457

FirstBank Statutory Reserve (Legal Surplus)

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without the

prior consent of the Puerto

Rico Commissioner of Financial Institutions.

The Puerto Rico Banking Law

provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over

receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal

surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the

outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal

surplus reserve to an amount of at least 20% of the original capital contributed.

FirstBank’s

legal surplus

reserve, included

as part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted

168.5

million

each

September 30, 2023 and December 31, 2022. There were

transfers to the legal surplus reserve during the first nine months of 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 15 – ACCUMULATED

OTHER COMPREHENSIVE LOSS

The following table presents the changes in accumulated other comprehensive

loss for the quarters and nine-month periods ended

September 30, 2023 and 2022:

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Quarter ended September 30,

Nine-Month Period Ended September

30,

2023

2022

2023

2022

(In thousands)

Unrealized net holding losses on available-for-sale

debt securities:

Beginning balance

(773,581)

(595,147)

(805,972)

(87,390)

Other comprehensive loss

(2)

(78,976)

(270,937)

(46,585)

(778,694)

Ending balance

(852,557)

(866,084)

(852,557)

(866,084)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

1,194

3,391

1,194

3,391

Other comprehensive (loss) income

Ending balance

1,194

3,391

1,194

3,391

____________________

(1)

All amounts presented are net of tax.

(2)

Net unrealized holding losses on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an IBE, or have a full deferred tax asset valuation allowance.

NOTE 16 – EMPLOYEE BENEFIT PLANS

The Corporation

maintains two frozen

qualified noncontributory

defined benefit pension

plans (the “Pension

Plans”), and

a related

complementary

post-retirement

benefit

plan

(the

“Postretirement

Benefit

Plan”)

covering

medical

benefits

and

life

insurance

after

retirement

that

obtained

the

Banco

Santander

Puerto

Rico

(“BSPR”)

acquisition

September

2020.

One

defined

benefit

pension

plan covers

substantially all

of BSPR’s

former

employees who

were active

before January

1, 2007,

while

the other

defined

benefit pension plan covers personnel of an institution previously acquired

by BSPR. Benefits are based on salary and years of service.

The accrual of benefits under the Pension Plans is frozen to all participants.

The

Corporation

requires

recognition

plan’s

overfunded

and

underfunded

status

asset

liability

with

offsetting

adjustment to accumulated other comprehensive loss pursuant to

the ASC Topic 715, “Compensation-Retirement

Benefits.”

The following table presents the components of net periodic cost (benefit) for

the indicated periods:

Affected Line Item

in the Consolidated

Quarter Ended September 30,

Nine-Month Period Ended September 30,

Statements of Income

2023

2022

2023

2022

(In thousands)

Net periodic cost (benefit), pension plans:

Interest cost

Other expenses

950

654

2,850

1,962

Expected return on plan assets

Other expenses

(886)

(1,040)

(2,657)

(3,119)

Net periodic cost (benefit), pension plans

(386)

193

(1,157)

Net periodic cost, postretirement plan

Other expenses

Net periodic cost (benefit)

(384)

212

(1,152)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 17 –

INCOME TAXES

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

The

Corporation is subject

to Puerto Rico income

tax on its

income from all

sources. As a Puerto

Rico corporation, FirstBank

is treated as

a foreign corporation for U.S. and

USVI income tax purposes and, accordingly,

is generally subject to U.S. and USVI

income tax only

on its income from

sources within the U.S.

and USVI or income

effectively connected with

the conduct of a

trade or business in

those

jurisdictions. Any

such tax

paid in

the U.S.

and USVI

is also

creditable against

the Corporation’s

Puerto Rico

tax liability,

subject to

certain conditions and limitations.

Under

the Puerto

Rico

Internal Revenue

Code of

2011

(the “2011

PR Code”),

the

Corporation

and its

subsidiaries

are

treated

separate

taxable

entities

and

are

not

entitled

file

consolidated

tax

returns

and,

thus,

the

Corporation

generally

not

entitled

utilize

losses

from

one

subsidiary

offset

gains

another

subsidiary.

Accordingly,

order

obtain

tax

benefit

from

net

operating

loss

(“NOL”),

particular

subsidiary

must

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

Pursuant

the

2011

Code,

the

carry-forward

period

for

NOLs

incurred

during

taxable

years

that

commenced

after

December

31,

2004

and

ended

before

January

2013

years;

for

NOLs

incurred

during

taxable

years

commencing after December 31,

2012, the carryover period is

10 years. The 2011

PR Code provides a dividend

received deduction of

100

% on

dividends

received

from

“controlled”

subsidiaries

subject

taxation

Puerto

Rico

and

% on

dividends

received

from

other taxable domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

Puerto

Rico

maximum

statutory

rate

37.5

mainly

investing

government

obligations

and

MBS

exempt

from

U.S.

and

Puerto

Rico

income

taxes

and

doing

business

through

international banking

entity (an

“IBE”) unit

of the

Bank, and

through the

Bank’s

subsidiary,

FirstBank Overseas

Corporation, whose

interest income

and gains

on sales

are exempt

from Puerto

Rico income

taxation. The

IBE unit

and FirstBank

Overseas Corporation

were created

under the

International Banking

Entity

Act of

Puerto

Rico, which

provides for

total Puerto

Rico tax

exemption on

net

income derived by

IBEs operating in

Puerto Rico on the

specific activities identified

in the IBE Act.

An IBE that operates

as a unit

a bank

pays income

taxes at

the corporate

standard rates

to the

extent that

the IBE’s

net income

exceeds

% of

the bank’s

total net

taxable income.

For the

third quarter

of 2023,

the Corporation

recorded an

income tax

expense of

27.0

million compared

to $

32.0

million in

the

third quarter of 2022. For the first

nine months of 2023, the Corporation

recorded an income tax expense of

89.2

million compared to

109.2

million for the same period in 2022.

The decrease in income tax expense for

the third quarter of 2023, as compared

to the same

quarter

the

year,

was

the

result

lower

effective

tax

rate

due

increased

business

activities

wholly-owned

subsidiary of FirstBank,

which is engaged in

lending and investing activities,

that provided additional tax

advantages under the

Puerto

Rico tax

code,

as well

as a

higher proportion

of exempt

income to

taxable income.

The decrease

in income

tax expense

for the

first

nine

months of

2023,

as compared

to the

same period

in 2022,

was mainly

to lower

pre-tax income

the aforementioned

tax

advantages

and

higher

proportion

exempt

taxable

income.

The

Corporation’s

estimated

annual

effective

tax

rate,

excluding

entities with

pre-tax losses

from which

a tax

benefit cannot

be recognized

and discrete

items, was

28.2

% for

the first

nine months

2023, compared to

31.8

% for the first nine months of 2022.

September

30,

2023,

the

Corporation

had

deferred

tax

asset

150.8

million,

net

valuation

allowance

195.1

million

against

the

deferred

tax

asset,

compared

deferred

tax

asset

155.6

million,

net

valuation

allowance

185.5

million, as of

December 31, 2022.

The net deferred

tax asset of

the Corporation’s

banking subsidiary,

FirstBank, amounted

to $

150.8

million

September

30,

2023,

net

valuation

allowance

157.9

million,

compared

net

deferred

tax

asset

155.6

million,

net

valuation

allowance

149.5

million,

December

31,

2022.

The

Corporation

maintains

full

valuation

allowance

for

its

deferred

tax

assets

associated

with

capital

losses

carry

forward

and

unrealized

losses

available-for-sale

debt

securities.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

the

U.S.

Internal

Revenue Code

(“Section 382”)

covering a

comprehensive period

and concluded

that an

ownership

change had

occurred during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

that

would

have

incurred

the

absence of such limitation. The Corporation has mitigated

to an extent the adverse effects associated with the

Section 382 limitation as

any

such

tax

paid

the

U.S.

USVI

can

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income. However,

our ability

to reduce

our Puerto

Rico tax

liability through

such a

credit or

deduction depends

on our

tax profile

each annual

taxable period, which

is dependent on

various factors.

For the quarter

and nine-month period

ended September 30,

2023,

the Corporation

incurred current

income tax

expense of

approximately $

2.8

million and

6.8

million, respectively,

related to

its U.S.

operations, compared to

3.0

million and $

7.1

million, respectively,

for comparable periods in 2022.

The limitation did not impact

the

USVI operations in the quarters and nine-month periods ended

September 30, 2023 and 2022.

The Corporation

accounts for uncertain

tax positions under

the provisions of

ASC Topic

740. The Corporation’s

policy is to

report

interest

and

penalties

unrecognized

tax positions

income

tax

expense.

September

30,

2023,

the

Corporation

had

0.2

million

accrued

interest

and

penalties

uncertain

tax

positions

the

amount

0.8

million

that

it acquired

from

BSPR, which, if

recognized, would

decrease the

effective income

tax rate in

future periods.

The amount

of unrecognized tax

benefits

may increase or

decrease in the future

for various reasons,

including adding amounts

for current tax year

positions, expiration of

open

income

tax returns

due

to the

statute of

limitations,

changes

in management’s

judgment about

the level

of uncertainty,

the status

examinations,

litigation

and

legislative activity,

and

the addition

or elimination

of uncertain

tax positions.

The statute

limitations

under the 2011

PR Code is four

years after a

tax return is

due or filed,

whichever is later;

the statute of

limitations for U.S.

and USVI

income

tax

purposes

three

years

after

tax

return

due

filed,

whichever

later.

The

completion

audit

the

taxing

authorities

the

expiration

the

statute

limitations

for

given

audit

period

could

result

adjustment

the Corporation’s

liability for

income taxes. Any

such adjustment could

be material to

the results of

operations for any

given quarterly

or annual period

based, in part, upon

the results of operations

for the given period.

For U.S. and USVI

income tax purposes, all

tax years subsequent

2019 remain open to examination. For Puerto Rico tax purposes, all tax years

subsequent to 2018 remain open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 18 –

FAIR VALUE

Fair Value

Measurement

ASC Topic

820, “Fair

Value

Measurement,”

defines fair

value as

the exchange

price that

would be

received for

an asset

or paid

transfer

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

One of three levels of inputs may be used to measure fair value:

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

luations of

Level 2 assets

and liabilities

are based on

observable inputs

other than Level

1 prices, such

as quoted

prices for similar assets or liabilities, or other inputs that are

observable or can be corroborated by observable market

data for substantially the full term of the assets or liabilities.

Level 3

luations of Level 3 assets and

liabilities are based on unobservable

inputs that are supported by

little or no market

activity and

are significant to

the fair value

of the assets

or liabilities. Level

3 assets and

liabilities include financial

instruments

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

requires

significant management judgment as to the estimation.

See Note 25

– Fair Value

to the audited

consolidated financial

statements included

in the 2022

Annual Report

on Form

10-K for

description of the valuation methodologies used to measure financial

instruments at fair value on a recurring basis.

Assets and liabilities measured at fair value on a recurring basis are summarized below as of

September 30, 2023 and December 31,

2022:

As of September 30, 2023

As of December 31, 2022

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Debt securities available for sale:

U.S. Treasury securities

140,723

138,875

Noncallable U.S. agencies debt securities

430,515

389,787

Callable U.S. agencies debt securities

1,877,075

1,963,566

MBS

2,721,124

4,918

(1)

2,726,042

3,098,797

5,794

(1)

3,104,591

Puerto Rico government obligations

1,448

2,201

Other investments

500

Equity securities

4,775

4,861

Derivative assets

360

633

Liabilities:

Derivative liabilities

170

476

(1) Related to private label MBS.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The table below presents a reconciliation of the beginning and ending balances

of all assets measured at fair value on a recurring

basis using significant unobservable inputs (Level 3) for the quarters

and nine-month periods ended September 30, 2023 and 2022:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

Level 3 Instruments Only

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

Securities Available for

Sale

(1)

(In thousands)

Beginning balance

7,357

10,180

8,495

11,084

Total (losses)/gains:

Included in other comprehensive loss (unrealized)

(722)

(177)

(903)

(570)

Included in earnings (unrealized)

(2)

(32)

(7)

435

Principal repayments and amortization

(237)

(1,152)

(1,219)

(3)

(2,086)

Ending balance

6,366

8,863

6,366

8,863

___________________

(1)

Amounts mostly related to private label MBS.

(2)

Changes in unrealized (losses) gains included in earnings were

recognized within provision for credit losses - expense

(benefit) and relate to assets still held as of the reporting date.

(3)

Includes a $

0.5

million repayment of a matured debt security.

The tables below present quantitative information for significant assets measured at fair

value on a recurring basis using significant

unobservable inputs (Level 3) as of September 30, 2023 and December 31, 2022:

September 30, 2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

4,918

Discounted cash flows

Discount rate

17.3%

Prepayment rate

1.2%

8.8%

5.3%

Projected cumulative loss rate

0.2%

13.7%

5.5%

Puerto Rico government obligations

1,448

Discounted cash flows

Discount rate

13.9%

Projected cumulative loss rate

24.5%

December 31, 2022

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

5,794

Discounted cash flows

Discount rate

16.2%

Prepayment rate

1.5%

15.2%

11.8%

Projected cumulative loss rate

0.3%

15.6%

5.6%

Puerto Rico government obligations

2,201

Discounted cash flows

Discount rate

12.9%

Projected cumulative loss rate

19.3%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label

MBS: The

significant unobservable

inputs in

the valuation

include probability

of default,

the loss

severity

assumption,

and prepayment

rates. Shifts

in those

inputs would

result in different

fair value

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

isolation

would

generally

result

adverse

effect

the

fair

value

the

instruments. The Corporation modeled meaningful and possible

shifts of each input to assess the effect on the fair value estimation.

Puerto Rico

Government Obligations:

The significant

unobservable input

used in

the fair value

measurement is

the assumed

loss rate

of the

underlying

residential

mortgage

loans that

collateralize

these obligations,

which

are guaranteed

by the

PRHFA.

A significant

increase

(decrease)

the

assumed

rate

would

lead

(lower)

higher

fair

value

estimate.

See

Note

–

Debt

Securities

for

information

on the methodology used to calculate the fair value of these debt securities.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Additionally, fair value

is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.

As of September 30, 2023, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-

recurring basis and still held at September 30, 2023, as shown in the following

table:

Carrying value as of September 30, 2023

Related to (losses) gains

recorded for the Quarter

Ended September 30,

2023

Related to losses

recorded for the Nine-

Month Period Ended

September 30, 2023

(Losses) gains recorded

for the Quarter Ended

September 30, 2023

Losses recorded for the

Nine-Month Period

Ended September 30,

2023

(In thousands)

Level 3:

Loans receivable

(1)

16,655

24,933

(2,495)

(9,234)

OREO

(2)

1,085

2,124

(169)

(205)

Level 2:

Loans held for sale

(3)

8,961

(57)

(1)

Consists mainly of

collateral dependent

commercial and construction

loans. The

Corporation generally

measured losses

based on the

fair value of

the collateral.

The Corporation derived

the fair values from

external appraisals that

took into consideration

prices in observed

transactions involving similar

assets in similar locations

but adjusted for

specific characteristics

and

assumptions of the collateral (e.g., absorption rates), which are

not market observable.

(2)

The Corporation

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

assets in

similar locations

but adjusted

for specific

characteristics and assumptions of

the properties (e.g., absorption

rates and net operating

income of income producing

properties), which are

not market observable. Losses

were related to

market valuation adjustments after the transfer of the loans to the

OREO portfolio.

(3)

The Corporation derived the fair value of these loans based

on published secondary market prices of MBS with similar characteristics.

As of September 30, 2022, the Corporation recorded losses or valuation adjustments

for assets recognized at fair value on a non-

recurring basis and still held at September 30, 2022, as shown in the following

table:

Carrying value as of September 30, 2022

Related to losses

recorded for the Quarter

Ended September 30,

2022

Related to losses

recorded for the Nine-

Month Period Ended

September 30, 2022

Losses recorded for the

Quarter Ended

September 30, 2022

Losses recorded for the

Nine-Month Period

Ended September 30,

2022

(In thousands)

Level 3:

Loans receivable

(1)

4,207

27,531

(227)

(2,978)

OREO

(2)

1,234

2,913

(57)

(34)

Premises and equipment

(3)

1,242

(218)

Level 2:

Loans held for sale

(4)

12,169

(177)

(1)

Consists mainly of

collateral dependent

commercial and construction

loans. The

Corporation generally

measured losses

based on the

fair value of

the collateral.

The Corporation derived

the fair values from

external appraisals that

took into consideration

prices in observed

transactions involving similar

assets in similar

locations but adjusted

for specific characteristics

and

assumptions of the collateral (e.g., absorption rates), which are

not market observable.

(2)

The Corporation

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

assets in

similar locations

but adjusted

for specific

characteristics and assumptions of

the properties (e.g., absorption

rates and net operating

income of income producing

properties), which are

not market observable. Losses

were related to

market valuation adjustments after the transfer of the loans to the

OREO portfolio.

(3)

Relates to a banking facility reclassified to held-for-sale and

measured at the fair value of the collateral.

(4)

The Corporation derived the fair value of these loans based

on published secondary market prices of MBS with similar characteristics.

See Note

25 –

Fair Value,

to the

audited consolidated

financial statements

included in

the 2022

Annual Report

on Form

10-K for

qualitative information regarding the

fair value measurements for Level 3 financial

instruments measured at fair value on nonrecurring

basis.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following tables present the carrying value, estimated fair value and estimated

fair value level of the hierarchy of financial

instruments as of September 30, 2023 and December 31, 2022:

Total Carrying Amount

in Statement of

Financial Condition as

of September 30, 2023

Fair Value Estimate as

September 30, 2023

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

584,913

Available-for-sale debt

securities (fair value)

5,175,803

140,723

5,028,714

6,366

Held-to-maturity debt securities (amortized cost)

359,169

Less: ACL on held-to-maturity debt securities

(2,250)

Held-to-maturity debt securities, net of ACL

356,919

342,851

232,719

110,132

Equity securities (amortized cost)

43,908

(1)

Other equity securities (fair value)

4,775

Loans held for sale (lower of cost or market)

8,961

Loans held for investment (amortized cost)

11,950,932

Less: ACL for loans and finance leases

(263,615)

Loans held for investment, net of ACL

11,687,317

11,566,106

MSRs (amortized cost)

27,601

45,114

Derivative assets (fair value)

(2)

360

Liabilities:

Deposits (amortized cost)

16,435,237

16,447,189

Advances from the FHLB (amortized cost):

Long-term

500,000

491,505

Other long-term borrowings (amortized cost)

161,700

159,549

Derivative liabilities (fair value)

(2)

170

(1) Includes FHLB stock with a carrying value of $

34.6

million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2022

Fair Value Estimate as

December 31, 2022

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

480,505

Available-for-sale debt

securities (fair value)

5,599,520

138,875

5,452,150

8,495

Held-to-maturity debt securities (amortized cost)

437,537

Less: ACL on held-to-maturity debt securities

(8,286)

Held-to-maturity debt securities, net of ACL

429,251

427,115

260,106

167,009

Equity securities (amortized cost)

50,428

(1)

Other equity securities (fair value)

4,861

Loans held for sale (lower of cost or market)

12,306

Loans held for investment (amortized cost)

11,552,825

Less: ACL for loans and finance leases

(260,464)

Loans held for investment, net of ACL

11,292,361

11,106,809

MSRs (amortized cost)

29,037

44,710

Derivative assets (fair value)

(2)

633

Liabilities:

Deposits (amortized cost)

16,143,467

16,139,937

Short-term securities sold under agreements to repurchase (amortized

cost)

75,133

75,230

Advances from the FHLB (amortized cost)

Short-term

475,000

474,731

Long-term

200,000

199,865

Other long-term borrowings (amortized cost)

183,762

187,246

Derivative liabilities (fair value)

(2)

476

(1) Includes FHLB stock with a carrying value of $

42.9

million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

relevancy of market prices of comparable instruments, expected future cash flows,

and appropriate discount rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 19 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

ASC Topic

606, “Revenue from

Contracts with Customers” (“ASC

Topic

606”), revenues are

recognized when

control

promised

goods

services

transferred

customers

and

amount

that

reflects

the

consideration

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

within the

scope of

ASC Topic

606, the

Corporation assesses

the goods

or services

that are

promised within

each contract,

identifies

the

respective

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

as revenue

the amount

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

Disaggregation of Revenue

The following

tables summarize

the Corporation’s

revenue, which

includes net

interest income

on financial

instruments and

non-

interest income,

disaggregated by

type of

service and

business segment

for the quarters

and nine-month

periods ended

September 30,

2023 and 2022:

Quarter ended September 30,2023

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

18,279

147,066

13,212

(4,055)

19,749

5,477

199,728

Service charges and fees on deposit accounts

5,286

3,406

155

705

9,552

Insurance commissions

2,596

126

2,790

Merchant-related income

2,156

319

2,494

Credit and debit card fees

7,826

493

8,347

Other service charges and fees

1,262

853

615

163

2,943

Not in scope of ASC Topic

606

(1)

2,971

1,044

185

(3)

(14)

(13)

4,170

Total non-interest income

3,021

20,170

4,468

(3)

847

1,793

30,296

Total Revenue

21,300

167,236

17,680

(4,058)

20,596

7,270

230,024

Quarter ended September 30,2022

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

24,338

118,408

22,861

14,827

21,494

5,982

207,910

Service charges and fees on deposit accounts

5,744

3,169

151

756

9,820

Insurance commissions

2,485

123

2,624

Merchant-related income

1,458

347

330

2,167

Credit and debit card fees

7,209

(2)

439

7,667

Other service charges and fees

1,228

340

595

195

2,443

Not in scope of ASC Topic

606

(1)

3,648

997

399

(19)

(86)

4,972

Total non-interest

income

3,733

19,121

4,276

773

1,757

29,693

Total Revenue

28,071

137,529

27,137

14,860

22,267

7,739

237,603

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Nine-Month Period Ended September 30,2023

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

61,427

427,407

41,085

(7,502)

60,369

17,642

600,428

Service charges and fees on deposit accounts

15,859

9,886

492

2,143

28,380

Insurance commissions

9,700

175

509

10,384

Merchant-related income

6,454

1,172

7,713

Credit and debit card fees

23,581

1,510

25,181

Other service charges and fees

244

3,922

2,801

1,858

714

9,539

Not in scope of ASC Topic

606

(1)

8,913

2,909

4,027

1,837

221

(19)

17,888

Total non-interest income

9,157

62,425

16,788

1,837

2,849

6,029

99,085

Total Revenue

70,584

489,832

57,873

(5,665)

63,218

23,671

699,513

Nine-Month Period Ended September 30,2022

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

76,452

310,351

94,655

33,702

56,664

17,896

589,720

Service charges and fees on deposit accounts

16,778

9,214

446

2,211

28,649

Insurance commissions

10,176

604

10,845

Merchant-related income

4,991

1,101

1,046

7,192

Credit and debit card fees

21,271

(6)

1,298

22,621

Other service charges and fees

287

4,404

2,329

1,579

509

9,108

Not in scope of ASC Topic

606

(1)

12,865

1,747

576

(130)

(38)

15,077

Total non-interest income

13,152

59,367

13,278

(130)

2,195

5,630

93,492

Total Revenue

89,604

369,718

107,933

33,572

58,859

23,526

683,212

(1)

Most of the Corporation's revenue is not within the scope of ASC Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities, as well as other non-interest income from loans,

leases, investment securities and derivative financial instruments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

For the

quarters and

nine-month periods

ended September

30, 2023

and 2022,

most of

the Corporation’s

revenue within

the scope

of ASC Topic 606 was related

to performance obligations satisfied at a point in time.

See

Note

–

Revenue

from

Contracts

with

Customers,

the

audited

consolidated

financial

statements

included

the

2022

Annual Report on Form 10-K for a discussion of major revenue streams under

the scope of ASC Topic 606.

Contract Balances

contract

liability

entity’s

obligation

transfer

goods

services

customer

exchange

for

consideration

from

the

customer.

FirstBank

participates

merchant

revenue-sharing

agreement

with

another

entity

which

the

Bank

sold

its

merchant

contracts portfolio and related point-of-sale terminals,

and a growth agreement with an international card

service association to expand

the

customer

base

and

enhance

product

offerings.

FirstBank

recognizes

the

revenue

under

these

agreements

over

time, as

the

Bank

completes its performance obligations.

The following table shows

the activity of contract

liabilities for the quarters

and nine-month periods ended

September 30, 2023 and

2022:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Beginning balance

608

1,049

841

1,443

Revenue recognized

(81)

(104)

(314)

(498)

Ending balance

527

945

527

945

As of September 30, 2023 and 2022, there were no contract assets recorded

on the Corporation’s consolidated

financial statements.

Other

Except for the

contract liabilities noted

above, the Corporation

did not have

any other performance

obligations as of

September 30,

2023.

The

Corporation

also

did

not

have

any

material contract

acquisition

costs

and

did

not

make

any

significant

judgments

estimates in recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 20 – SEGMENT INFORMATION

Based upon

the Corporation’s

organizational

structure and

the information

provided to

the Chief

Executive

Officer,

the operating

segments

are

based

primarily

the

Corporation’s

lines

business

for

its

operations

Puerto

Rico,

the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

September

30,

2023,

the

Corporation

had

six

reportable segments: Mortgage Banking;

Consumer (Retail) Banking; Commercial

and Corporate Banking; Treasury

and Investments;

United

States

Operations;

and

Virgin

Islands

Operations.

Management

determined

the

reportable

segments

based

the

internal

structure

used

evaluate

performance

and

assess

where

allocate

resources.

Other

factors,

such

the

Corporation’s

organizational

chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were

also

considered in the determination of the reportable segments.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage Banking

segment also

acquires and

sells mortgages

in the

secondary markets.

In addition,

the Mortgage

Banking segment

includes mortgage loans purchased from

other local banks and mortgage bankers.

The Consumer (Retail) Banking segment

consists of

the Corporation’s

consumer lending

and deposit-taking

activities conducted

mainly through

its branch

network and

loan centers.

The

Commercial and

Corporate Banking

segment consists of

the Corporation’s

lending and other

services for

large customers

represented

by specialized

and middle-market

clients and

the public

sector.

The Commercial

and Corporate

Banking segment

offers commercial

loans,

including

commercial

real

estate

and

construction

loans,

and

floor

plan

financings,

well

other

products,

such

cash

management

and

business

management

services.

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of all

banking activities conducted by the

Corporation in the USVI and BVI, including commercial and consumer banking

services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, to the audited consolidated financial

statements included in the 2022 Annual Report on Form 10-K.

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-

earning assets less the ACL.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following tables present information about the reportable segments for

the indicated periods:

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended September 30,2023:

Interest income

31,208

90,976

68,138

32,146

33,560

7,377

263,405

Net (charge) credit for transfer of funds

(12,929)

96,836

(54,926)

(27,817)

(1,164)

Interest expense

(40,746)

(8,384)

(12,647)

(1,900)

(63,677)

Net interest income (loss)

18,279

147,066

13,212

(4,055)

19,749

5,477

199,728

Provision for credit losses - (benefit) expense

(3,288)

13,707

(7,235)

873

307

4,396

Non-interest income (loss)

3,021

20,170

4,468

(3)

847

1,793

30,296

Direct non-interest expenses

5,201

43,431

9,658

958

8,535

6,647

74,430

Segment income (loss)

19,387

110,098

15,257

(5,048)

11,188

316

151,198

Average earnings assets

2,127,641

3,336,158

3,769,370

6,382,276

2,041,662

406,499

18,063,606

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended September 30,2022:

Interest income

32,349

77,576

53,506

28,203

24,804

6,245

222,683

Net (charge) credit for transfer of funds

(8,011)

47,577

(30,645)

(8,447)

(474)

Interest expense

(6,745)

(4,929)

(2,836)

(263)

(14,773)

Net interest income

24,338

118,408

22,861

14,827

21,494

5,982

207,910

Provision for credit losses - expense (benefit)

2,092

16,705

(3,519)

(12)

(624)

1,141

15,783

Non-interest income

3,733

19,121

4,276

773

1,757

29,693

Direct non-interest expenses

6,489

42,080

9,295

942

8,479

7,097

74,382

Segment income (loss)

19,490

78,744

21,361

13,930

14,412

(499)

147,438

Average earnings assets

2,211,675

2,974,894

3,622,907

7,095,503

2,040,656

365,743

18,311,378

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Nine-Month Period Ended September 30,2023

Interest income

94,720

261,139

195,837

89,140

96,772

20,397

758,005

Net (charge) credit for transfer of funds

(33,293)

260,715

(154,752)

(70,095)

(2,575)

Interest expense

(94,447)

(26,547)

(33,828)

(2,755)

(157,577)

Net interest income (loss)

61,427

427,407

41,085

(7,502)

60,369

17,642

600,428

Provision for credit losses - (benefit) expense

(7,623)

42,600

(2,096)

9,545

(305)

42,128

Non-interest income

9,157

62,425

16,788

1,837

2,849

6,029

99,085

Direct non-interest expenses

15,821

126,872

28,363

2,828

25,341

20,203

219,428

Segment income (loss)

62,386

320,360

31,606

(8,500)

28,332

3,773

437,957

Average earnings assets

2,147,521

3,251,286

3,751,359

6,321,540

2,049,281

381,655

17,902,642

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Nine-Month Period Ended September 30,2022

Interest income

98,625

221,500

148,046

77,530

64,742

18,719

629,162

Net (charge) credit for transfer of funds

(22,173)

105,898

(53,391)

(29,101)

(1,233)

Interest expense

(17,047)

(14,727)

(6,845)

(823)

(39,442)

Net interest income

76,452

310,351

94,655

33,702

56,664

17,896

589,720

Provision for credit losses - (benefit) expense

(5,216)

42,904

(20,611)

(435)

(5,849)

1,191

11,984

Non-interest income (loss)

13,152

59,367

13,278

(130)

2,195

5,630

93,492

Direct non-interest expenses

19,076

121,897

27,202

2,732

25,195

20,835

216,937

Segment income

75,744

204,917

101,342

31,275

39,513

1,500

454,291

Average earnings assets

2,249,203

2,865,610

3,654,906

7,642,121

2,047,375

371,468

18,830,683

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Net income:

Total income for segments

151,198

147,438

437,957

454,291

Other operating expenses

(1)

42,208

40,807

125,395

113,237

Income before income taxes

108,990

106,631

312,562

341,054

Income tax expense

26,968

32,028

89,187

109,156

Total consolidated net income

82,022

74,603

223,375

231,898

Average assets:

Total average earning assets for segments

18,063,606

18,311,378

17,902,642

18,830,683

Average non-earning assets

832,374

835,740

845,837

873,911

Total consolidated average assets

18,895,980

19,147,118

18,748,479

19,704,594

(1)

Expenses pertaining to corporate administrative functions that support

the operating segment, but are not specifically attributable to

or managed by any segment, are not included in the reported

financial results of the operating segments. The unallocated

corporate expenses include certain general and administrative expenses

and related depreciation and amortization expenses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 21 – SUPPLEMENTAL

STATEMENT

OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the

indicated periods:

Nine-Month Period Ended September 30,

2023

2022

(In thousands)

Cash paid for:

Interest

143,792

41,205

Income tax

88,258

22,943

Operating cash flow from operating leases

12,939

13,759

Non-cash investing and financing activities:

Additions to OREO

14,951

13,653

Additions to auto and other repossessed assets

48,245

33,119

Capitalization of servicing assets

1,839

2,637

Loan securitizations

100,735

113,757

Loans held for investment transferred to held for sale

3,255

3,893

Right-of-use assets obtained in exchange for operating lease liabilities

3,042

2,297

Payable related to unsettled common stock shares repurchases

1,310

467

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 22 – REGULATORY

MATTERS, COMMITMENTS,

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and

other

factors.

September

30,

2023

and

December

31,

2022,

the

Corporation

and

FirstBank

exceeded

the

minimum

regulatory capital ratios

for capital adequacy purposes

and FirstBank exceeded the

minimum regulatory capital

ratios to be considered

well-capitalized

institution

under

the regulatory

framework

for

prompt

corrective

action.

As of

September

30,

2023,

management

does not believe that any condition has changed or event has occurred that would

have changed the institution’s status.

The Corporation and FirstBank

compute risk-weighted assets

using the standardized approach

required by the U.S.

Basel III capital

rules (“Basel III rules”).

The

Basel

III

rules

require

the

Corporation

maintain

additional

capital

conservation

buffer

2.5

certain

regulatory

capital

ratios

avoid

limitations

both

(i)

capital

distributions

(

e.g.

repurchases

capital

instruments,

dividends

and

interest

payments on capital instruments) and (ii) discretionary bonus payments

to executive officers and heads of major business lines.

As part

of its

response to

the impact

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

provided

the

option

temporarily

delay

the

effects

CECL

regulatory

capital

for

two

years,

followed

three-year

transition

period.

The

interim

final

rule

provides

that,

the

election

qualified

banking

organization,

the

day

one

impact

retained earnings plus

% of the change in

the ACL (as defined

in the final rule) from

January 1, 2020 to

December 31, 2021 will

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition period of

five years. Accordingly,

as of September

30, 2023, the

capital measures of

the Corporation and

the Bank included

32.4

million associated

with the

CECL day

one impact

to retained

earnings plus

% of

the increase

in the

ACL (as

defined in

the

interim

final

rule)

from

January

2020

December

31,

2021,

and

32.4

million

remains

excluded

phased-in

during

the

remainder of

the three-year

transition period.

The federal

financial regulatory

agencies may

take other

measures affecting

regulatory

capital to address

macroeconomic conditions,

as well as

the effect

regional bank failures

in the U.S.

mainland during

the first half

of 2023, although the nature and impact of such actions cannot be predicted

at this time.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

regulatory

capital

position

the

Corporation

and

the

FirstBank

September

30,

2023

and

December

31,

2022,

which

reflects the delay in the full effect of CECL on regulatory capital, were

as follows:

Regulatory Requirements

Actual

For Capital Adequacy Purposes

To be Well

-Capitalized

Thresholds

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of September 30,2023

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,385,079

18.84

1,012,868

8.0

N/A

FirstBank

2,335,546

18.45

1,012,710

8.0

1,265,888

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,069,675

16.35

569,738

4.5

N/A

FirstBank

2,077,017

16.41

569,649

4.5

822,827

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,069,675

16.35

759,651

6.0

N/A

FirstBank

2,177,017

17.20

759,533

6.0

1,012,710

8.0

Leverage ratio

First BanCorp.

2,069,675

10.57

783,163

4.0

N/A

FirstBank

2,177,017

11.12

782,913

4.0

978,641

5.0

As of December 31, 2022

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,385,866

19.21

993,405

8.0

N/A

FirstBank

2,346,093

18.90

993,264

8.0

1,241,580

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,052,333

16.53

558,790

4.5

N/A

FirstBank

2,090,832

16.84

558,711

4.5

807,027

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,052,333

16.53

745,054

6.0

N/A

FirstBank

2,190,832

17.65

744,948

6.0

993,264

8.0

Leverage ratio

First BanCorp.

2,052,333

10.70

767,075

4.0

N/A

FirstBank

2,190,832

11.43

766,714

4.0

958,392

5.0

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Commitments

The Corporation enters

into financial instruments

with off-balance sheet

risk in the normal

course of business to

meet the financing

needs

its

customers.

These

financial

instruments

may

include

commitments

extend

credit

and

standby

letters

credit.

Commitments to extend credit are agreements

to lend to a customer as long

as there is no violation of any conditions

established in the

contract. Commitments

generally have fixed

expiration dates or

other termination clauses.

Since certain commitments

are expected

expire without

being drawn

upon, the

total commitment

amount does

not necessarily

represent future

cash requirements.

For most

the

commercial

lines

credit,

the

Corporation

has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

the

case of credit cards and personal lines of credit, the Corporation can

cancel the unused credit facility at any time and without cause.

of September 30, 2023, commitments to extend credit amounted to

approximately $

2.0

billion, of which $

961.1

million relates to retail

credit card loans.

In addition, commercial

and financial standby

letters of credit

as of September

30, 2023 amounted

to approximately

72.1

million.

Contingencies

As of

September 30,

2023, First

BanCorp. and

its subsidiaries

were defendants

in various

legal proceedings,

claims and

other loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

information

available. For

legal proceedings,

claims and

other loss

contingencies where

it is

both probable

that the

Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments.

For

legal

proceedings,

claims

and

other

loss

contingencies

where a loss is not probable or the amount of the loss cannot be estimated, no accrual

is established.

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such

proceedings. Accordingly,

the Corporation’s

estimate will change

from time to time,

and actual losses

may be more

or less than the current estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

it is at least reasonably possible that a material loss (or material

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or

discloses that

an estimate cannot be made. Based on the Corporation’s

assessment as of September 30, 2023, no such disclosures were necessary.

Following the

failure of

several financial

institutions in

the first

half of

2023, the

FDIC issued

a notice

of proposed

rulemaking in

May 2023

that would

implement a

special assessment

to recover

the cost

associated with

protecting

uninsured

depositors as

part

those

financial

institutions’

failures.

The

Corporation

continues

monitor

the

status

the

proposed

special

assessment

and

the

impact to its future operating results.

The Corporation expects to record the impact when the final rule is enacted.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 23- FIRST BANCORP.

(HOLDING COMPANY

ONLY) FINANCIAL

INFORMATION

The following

condensed financial information

presents the financial

position of

First BanCorp.

at the holding

company level only

September

30,

2023

and

December

31,

2022,

and

the

results

its

operations

for

the

quarters

and

nine-month

periods

ended

September 30, 2023 and 2022:

Statements of Financial Condition

As of September 30,

As of December 31,

2023

2022

(In thousands)

Assets

Cash and due from banks

34,804

19,279

Other investment securities

735

Investment in First Bank Puerto Rico, at equity

1,410,410

1,464,026

Investment in First Bank Insurance Agency,

at equity

23,596

28,770

Investment in FBP Statutory Trust I

1,289

1,951

Investment in FBP Statutory Trust II

3,561

Dividends receivable

715

624

Other assets

577

430

Total assets

1,475,687

1,519,376

Liabilities and Stockholders’ Equity

Liabilities:

Long-term borrowings

161,700

183,762

Accounts payable and other liabilities

10,919

10,074

Total liabilities

172,619

193,836

Stockholders’ equity

1,303,068

1,325,540

Total liabilities and stockholders’

equity

1,475,687

1,519,376

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Statements of Income

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

(In thousands)

Income

Interest income on money market investments

187

Dividend income from banking subsidiaries

82,178

49,728

239,980

292,000

Dividend income from nonbanking subsidiaries

12,000

Gain on early extinguishment of debt

1,605

Other income

101

304

159

Total income

82,356

49,815

254,076

292,192

Expense

Interest expense on long-term borrowings

3,345

2,273

10,135

5,304

Other non-interest expenses

452

422

1,324

1,295

Total expense

3,797

2,695

11,459

6,599

Income before income taxes and equity in undistributed

earnings of subsidiaries

78,559

47,120

242,617

285,593

Income tax expense

745

735

2,606

2,634

Equity in undistributed earnings of subsidiaries

(distributions in excess of earnings)

4,208

28,218

(16,636)

(51,061)

Net income

82,022

74,603

223,375

231,898

Other comprehensive loss, net of tax

(78,976)

(270,937)

(46,585)

(778,694)

Comprehensive income (loss)

3,046

(196,334)

176,790

(546,796)

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

FINANCIAL

CONDITION

AND

RESULTS

OPERATIONS (“MD&A”)

The

following

MD&A

relates

the

accompanying

unaudited

consolidated

financial

statements

First

BanCorp.

(the

“Corporation,” “we,” “us,”

“our,” or “First

BanCorp.”) and should be

read in conjunction with

such financial statements and

the notes

thereto,

and

our

Annual

Report

Form

10-K

for

the fiscal

year

ended

December 31,

2022,

as amended

on October

13,

2023

(the

“2022 Annual

Report on

Form 10-K”).

This section

also presents

certain financial

measures that

are not

based on

generally accepted

accounting

principles in

the United

States of

America

(“GAAP”). See

“Non-GAAP

Financial

Measures and

Reconciliations”

below

for information

about why non-GAAP

financial measures

are presented,

reconciliations of

non-GAAP financial

measures to the

most

comparable GAAP financial measures, and references to non-GAAP

financial measures reconciliations presented in other sections.

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Recent Developments

Economy and Market Volatility

The

Federal

Reserve

(“FED”)

continues

committed

bringing

inflation

down

its

goal.

Projections

suggest

that

inflation will reach

the 2% target by

2026. In light of

the progress reached thus

far with respect to

the FED’s

tightening campaign, the

FED has decided

to leave the

federal funds rate

unchanged, at a

target range

of 5.25% to

5.50% after the

last interest rate

hike in July

2023. Notwithstanding, the FED is prepared to raise rates further if appropriate.

Recent indicators

suggest that

economic activity

continues expanding,

and so far

this year,

growth in

real GDP

has come

in above

expectations.

such,

July

2023,

the

Economic

Development

Bank

for

Puerto

Rico’s

Economic

Activity

Index

(“EDB-EAI”)

registered the highest

reading since June

2015. Labor markets

remain strong, although

they are cooling

as evidenced by the

slight rise

in the national unemployment rate to 3.9% in October 2023, from 3.6% in

June 2023.

The Corporation remains cautiously

optimistic on economic conditions in Puerto

Rico, its principal market. For

the third quarter we

earned $82.0

million in

net income

and delivered

a strong return

on average

assets of

1.72% driven

by a

combination of

loan growth

across all

our businesses,

disciplined expense

management, and

encouraging economic

trends in

our main

market. The

Corporation’s

loan

growth

strategy

has

been

supported

increased

business

activity

and

economic

tailwinds,

particularly

its

main

market,

coupled with

timely execution

across the

three regions.

Going forward,

the Corporation

expects loan

growth as

it redeploys a

portion

of investment

portfolio cash

flows into

higher yielding

assets and

the pace

of draws

on recently

extended construction

loan facilities

begins to accelerate.

On the

other hand,

the deposit

market share

continues to

reflect a

gradual erosion

of excess

liquidity in

the overall

market and

the

migration of

retail customers to

higher rate options

outside the traditional

banking sector,

such as credit

unions and the

U.S. Treasury

market,

partially

offset

stabilization

commercial

deposit

balances.

The

Corporation

remains

focused

on retaining

its

deposit

market

the

segments

serves

pricing

its

products

function

the

market

environment

and

accounting

for

the

future

economic value of new and existing relationships, which could potentially

lead to further increments in interest expense.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

accounting

principles

the

Corporation

and

the

methods

applying

these

principles

conform

GAAP.

preparing

the

consolidated

financial

statements,

management

required

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses

during

the

reporting

periods.

Note

the Notes

Consolidated

Financial

Statements

included

our

2022

Annual

Report on

Form 10-K,

as supplemented

by this

Quarterly Report

on Form

10-Q (“Form

10-Q”), including

this MD&A,

describes the

significant accounting policies we used in our consolidated financial statements.

Not all significant

accounting policies require

management to make

difficult, subjective

or complex judgments.

Critical accounting

estimates

are

those

estimates

made

accordance

with

GAAP

that

involve

significant

level

uncertainty

and

have

had

are

reasonably

likely

have

material

impact

the

Corporation’s

financial

condition

and

results

operations.

The

Corporation’s

critical accounting

estimates that

are particularly

susceptible

to significant

changes include,

but are

not limited

to, the

following:

(i)

the allowance for credit losses (“ACL”);

(ii) valuation of financial instruments;

and (iii) income taxes. For more

information regarding

valuation of financial

instruments and income taxes

policies, assumptions, and

judgments, see “Critical Accounting

Estimates” in Part

II,

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

(“MD&A”),”

the

2022

Annual

Report

Form

10-K.

The

“Risk

Management

–

Credit

Risk

Management”

section

this

MD&A

details

the

policies,

assumptions, and

judgments related

to the

ACL. Actual

results could

differ

from estimates

and assumptions

if different

outcomes or

conditions prevail.

Overview of Results of Operations

The

Corporation’s

results

of operations

depend

primarily

its

net

interest

income,

which

the

difference

between

the

interest

income

earned

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

affected

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

interest-earning

assets,

and

interest-bearing

liabilities; and

(iii) the

repricing

characteristics of

these assets

and liabilities.

The Corporation

’s

results of

operations also

depend on

the provision

for credit

losses, non-interest

expenses (such

as personnel,

occupancy,

professional service

fees and

other costs),

non-

interest income

(mainly service

charges and

fees on

deposits, cards

and processing

income, and

insurance income),

gains (losses)

sales of investments, gains (losses) on mortgage banking activities, and income

taxes.

For

the

quarter

and

nine-month

period

ended

September

30,

2023,

the

Corporation

had

net

income

$82.0

million

($0.46

per

diluted

common

share)

and

$223.4

million

($1.25

per

diluted

common

share),

respectively,

compared

$74.6

million

($0.40

per

diluted

common

share)

and

$231.9

million

($1.19

per

diluted

common

share),

for

the

comparable

periods

2022.

Other

relevant

selected financial indicators for the periods presented are included below:

Quarter Ended September 30,

Nine-Month Period Ended September

30,

2023

2022

2023

2022

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.72

1.55

1.59

1.57

Return on Average

Common Equity

(3)

20.70

19.00

17.73

Efficiency Ratio

(4)

50.71

48.48

49.29

48.33

(1)

These financial ratios are used by management to monitor the Corporation’s

financial performance and whether it is using its assets

efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets

and is calculated by dividing net income on an annualized basis

by its average total assets.

(3)

Measures the Corporation’s performance

based on its average common stockholders’ equity and is calculated

by dividing net income on an annualized basis by its

average total common

stockholders’ equity.

(4)

Measures how much the Corporation incurred to generate a

dollar of revenue and is calculated by dividing non-interest expenses

by total revenue.

The

key

drivers

the

Corporation’s

GAAP

financial

results

for

the

quarter

ended

September

30,

2023,

compared

the

third

quarter of 2022, include the following:

●

Net interest

income for

the quarter

ended September

30, 2023

decreased to

$199.7 million,

compared to

$207.9 million

for

the

third

quarter

2022,

mainly

driven

increase

interest

expense

due

higher

rates

paid

interest-bearing

deposits

and

continued

migration

from

non-interest-bearing

and

other

low-cost

deposits

higher-cost

deposits,

partially

offset by

the effect

in the

commercial loan

portfolio of

higher market

interest rates

on the

upward repricing

of variable-rate

loans and on new loan

originations,

and the growth in the

consumer portfolio.

See "Net Interest Income" below

for additional

information.

●

The provision for credit

losses on loans, finance

leases, unfunded loan commitments

and debt securities for the

quarter ended

September 30, 2023

was $4.4 million,

compared to $15.8

million for the

third quarter of

2022. The decrease

in the provision

expense was primarily

related to updated

macroeconomic variables, which

are forecasted to

deteriorate at a

slower pace than

projected

third

quarter

2022,

and

higher

net

benefit

recorded

for

held-to-maturity

debt

securities

during

the

third

quarter of 2023.

Net charge-offs

totaled $14.1 million

for the quarter

ended September

30, 2023, or

0.48% of average

loans on an

annualized

basis,

compared

to $8.6

million,

0.31% of

average

loans,

for

the third

quarter of

2022,

mainly

driven by

a $7.5

million

increase in consumer loans

net charge-offs.

See “Provision for Credit

Losses” and “Risk Management”

below for analyses of

the ACL and non-performing assets and related ratios.

●

The Corporation recorded non-interest

income of $30.3 million for

the quarter ended September

30, 2023, compared to $29.7

million for the third quarter of 2022. See “Non-Interest Income” below for

additional information.

●

Non-interest expenses for

the quarter ended

September 30, 2023

increased by $1.4 million

to $116.6

million. The increase in

non-interest

expenses

mainly

reflects

$3.6

million

increase

employees’

compensation

and

benefits

expenses

driven

annual

salary

merit

increases

and

minimum

wage

adjustments,

partially

offset

$1.5

million

decrease

professional

service fees and a $1.1

million increase in net gains

on other real estate owned

(“OREO”) operations. The

efficiency ratio for

the

third

quarter

2023

was

50.71%,

compared

48.48%

for

the

same

period

2022.

See

“Non-Interest

Expenses”

below for additional information.

●

Income tax expense decreased to $27.0 million for the third quarter

of 2023, compared to $32.0 million for the same period in

2022

driven

lower

effective

tax

rate.

The

Corporation’s

estimated

effective

tax

rate,

excluding

entities

with

pre-tax

losses

from

which

tax

benefit

cannot

recognized

and

discrete

items,

decreased

28.2%

for

the

first

nine

months

2023, compared

to 31.8%

for the first

nine months

of 2022. See

“Income Taxes”

below and

Note 17

– Income Taxes,

to the

unaudited consolidated financial statements herein for additional information.

●

September

30,

2023,

total

assets

were

approximately

$18.6

billion,

decrease

$39.9

million

from

December

31,

2022,

primarily

related to

a $46.6

million

decrease in

the fair

value of

available-for-sale

debt

securities recorded

as part

accumulated other

comprehensive loss

in the

consolidated statements

of financial

condition. Total

assets were

also impacted

by repayments of investment securities, partially offset by increases in total

loans and cash and cash equivalents.

●

As of

September 30,

2023, total

liabilities were

$17.3 billion,

a decrease

of $17.4

million from

December 31,

2022, mainly

driven

$272.2

million

decrease

borrowings

and

$37.0

million

decrease

accounts

payable

and

other

liabilities,

partially

offset

by a

$291.8 million

increase

in total

deposits, including

brokered

certificates of

deposit (“CDs”).

See “Risk

Management – Liquidity Risk” below for additional information about the Corporation’s

funding sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

brokered

CDs.

September

30,

2023,

these

core

deposits,

amounting

$12.9

billion,

funded

69.17%

total

assets.

Excluding

fully collateralized

government

deposits, estimated

uninsured deposits

amounted

to $4.8

billion as

of September

30, 2023. In

addition to approximately

$2.7 billion in

cash and free

high-quality liquid

assets, the Bank

maintains borrowing

capacity at the

FHLB and

the FED’s

Discount Window.

As of September

30, 2023, the

Corporation had

approximately $1.4

billion

available

for

funding

under

the

FED’s

Discount

Window

and

$947.8

million

available

for

additional

borrowing

capacity

FHLB

lines

credit

based

collateral

pledged

these

entities.

combined

basis,

September

30,

2023,

the

Corporation

had

$5.1

billion,

107%

uninsured

deposits,

available

meet

liquidity

needs.

See

“Risk

Management – Liquidity Risk” below for additional information about the Corporation’s

funding sources and strategy.

●

As of

September

30,

2023,

the Corporation’s

total

stockholders’

equity

was $1.3

billion,

decrease

$22.5

million

from

December 31, 2022. The decrease was

mainly driven by the repurchase

of approximately 9.0 million shares

of common stock

for

total

purchase

price

approximately

$125.0

million,

$75.6

million

dividends

declared

common

stock

shareholders,

and

$46.6

million

decrease

the

fair

value

available-for-sale

debt

securities

recorded

part

accumulated other

comprehensive loss

in the

consolidated statements

of financial

condition as

a result

of changes

in market

interest rates. This decrease was

partially offset by the

earnings generated in the first

nine months of 2023. The

Corporation’s

CET1 capital, tier

1 capital, total

capital, and

leverage ratios were

16.35%, 16.35%, 18.84%,

and 10.57%, respectively,

as of

September 30,

2023, compared

to CET1

capital, tier 1

capital, total

capital, and

leverage ratios

of 16.53%,

16.53%, 19.21%,

and 10.70%, respectively,

as of December 31, 2022.

See “Risk Management – Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments,

increased

$124.9

million

$1.4

billion

for

the

quarter

ended

September

30,

2023

driven

higher

volume

commercial

loan

originations.

See

“Financial

Condition

and

Operating

Data

Analysis”

below

for

additional

information.

●

Total

non-performing assets

were $130.2

million as

of September

30, 2023,

an increase

of $1.0

million, from

December 31,

2022,

primarily related to a

net increase of $3.3

million in nonaccrual loans,

which include the inflow to

nonaccrual of a $9.5

million

commercial

and

industrial loan

in the

Puerto

Rico region

partially

offset

by a

$2.3 million

reduction

in other

non-

performing

assets.

See

“Risk

Management

–

Nonaccrual

Loans

and

Non-Performing

Assets”

below

for

additional

information.

●

Adversely

classified

commercial

and

construction

loans

decreased

$16.8

million

$76.8

million

September

30,

2023,

compared to December 31, 2022, mainly driven by the payoff

of a $24.3 million commercial and industrial participated

loan in

the Florida

region,

partially offset

by the

aforementioned inflow

of a

$9.5 million

commercial and

industrial loan

the Puerto Rico region.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation

has included

in this

Quarterly Report

on Form

10-Q (“Form

10-Q”) the

following financial

measures that

are not

recognized under GAAP,

which are referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin, Excluding

Valuations

and on a Tax

-Equivalent Basis

Net interest

income, interest

rate spread,

and net

interest margin,

excluding the

changes in

the fair

value of

derivative instruments

and on

a tax-equivalent

basis, are

reported in

order to

provide to

investors additional

information about

the Corporation’s

net interest

income

that management

uses and

believes should

facilitate comparability and

analysis of

the periods

presented.

The changes

in the

fair value

of derivative

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

interest-earning

assets, respectively.

The tax-equivalent

adjustment to

net interest

income recognizes

the income

tax savings

when comparing

taxable

and

tax-exempt

assets

and

assumes

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

increased

amount

equivalent to

the taxes

that would

have been

paid if

this income

had been

taxable at

statutory rates.

Management believes

that it

is a

standard

practice

the banking

industry

present

net

interest

income,

interest

rate

spread,

and

net

interest

margin

fully

tax-

equivalent basis. This adjustment

puts all earning assets, most notably

tax-exempt securities and tax-exempt

loans, on a common basis

that facilitates comparison of results to the results of peers.

See “Result of Operations

– Net Interest Income”

below, for

the table that reconciles

net interest income

in accordance with GAAP

the

non-GAAP

financial

measure

net

interest

income,

excluding

valuations,

and

tax-equivalent

basis

for

the

indicated

periods. The table also reconciles

net interest spread and

net interest margin on

a GAAP basis to these items

excluding valuations, and

on a tax-equivalent basis.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less

goodwill

and

other

intangibles.

Similarly,

tangible

assets

are

total

assets

less

goodwill

and

other

intangibles.

Management

and

many

stock

analysts

use

the

tangible

common

equity

ratio

and

tangible

book

value

per

common

conjunction

with

traditional bank capital

ratios to compare

the capital adequacy

of banking organizations

with significant

amounts of goodwill

or other

intangible assets,

typically stemming

from the

use of

the purchase

method of

accounting for

mergers

and acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful to

investors. Neither

tangible common

equity nor

tangible assets, or the related measures,

should be considered in isolation or

as a substitute for stockholders’ equity,

total assets, or any

other measure

calculated in

accordance with

GAAP.

Moreover,

the manner

in which

the Corporation

calculates its

tangible common

equity, tangible assets, and

any other related measures may differ from that of other companies reporting

measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income, and Adjusted Efficiency

Ratio

supplement the

Corporation’s

financial statements

presented in

accordance with

GAAP,

the Corporation

uses, and believes

that

investors

benefit from

disclosure

of, non-GAAP

financial measures

that reflect

adjustments to

net income,

non-interest income,

and

the efficiency ratio

to exclude items that management

believes are not reflective

of core operating performance

(“Special Items”). The

financial results for the quarters

ended September 30, 2023 and

2022 and for the nine-month period

ended September 30, 2022 did not

include

any

significant

Special

Items.

The

financial

results

for

the

nine-month

period

ended

September

30,

2023

included

the

following Special Items:

Nine-Month Period Ended September 30, 2023

$3.6

million

($2.3

million

after-tax)

gain

recognized

from

legal

settlement

reflected

the

consolidated

statements

income as part of other non-interest income.

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures

reflected

the

consolidated

statements

income

“Gain

early

extinguishment

debt.”

The

junior

subordinated

debentures

are

reflected

the

consolidated statements

of financial condition

as “Other long-term

borrowings.” The

purchase price

equated to

92.5% of the

$21.4

million

par

value

the

TRuPs.

The

7.5%

discount

resulted

the

gain

$1.6

million.

The

gain,

realized

the

holding company level, had no effect on the income tax expense recorded

in 2023.

The following

table shows

the net

income for

the third

quarter of

2023 and

reconciles for

the nine-month

period ended

September

30,

2023

the reported

net

income

to adjusted

net income,

non-GAAP

financial

measure

that excludes

the Special

Items identified

above:

Quarter Ended September 30,

Nine-Month Period Ended

September 30,

2023

(In thousands)

Net income, as reported (GAAP)

82,022

223,375

Adjustments:

Gain recognized from a legal settlement

(3,600)

Gain on early extinguishment of debt

(1,605)

Income tax impact of adjustments

(1)

1,350

Adjusted net income (Non-GAAP)

82,022

219,520

(1)

See "Adjusted Net Income, Adjusted Non-Interest Income, and

Adjusted Efficiency Ratio" above for the individual tax

impact related to the above adjustments, which were

based on the

Puerto Rico statutory tax rate of 37.5%, as applicable.

RESULTS

OF OPERATIONS

Net Interest Income

Net interest

income is

the excess of

interest earned

by First BanCorp.

on its interest-earning

assets over

the interest

incurred on its

interest-bearing

liabilities.

First

BanCorp.’s

net

interest

income

subject

interest

rate

risk

due

the

repricing

and

maturity

mismatch

the

Corporation’s

assets

and

liabilities.

addition,

variable

sources

interest

income,

such

loan

fees,

periodic

dividends, and

collection of

interest in

nonaccrual loans,

can fluctuate

from period

to period.

Net interest

income for

the quarter

and

nine-month

period ended

September 30,

2023 was

$199.7 million

and $600.4

million, respectively,

compared to

$207.9 million

and

$589.7 million for

the comparable periods

in 2022. On a

tax-equivalent basis and

excluding the changes

in the fair value

of derivative

instruments,

net

interest

income

for

the

quarter

and

nine-month

period

ended

September

30,

2023

was

$204.4

million

and

$617.0

million, respectively,

compared to $217.0 million and $615.4 million for the comparable periods in 2022.

The

following

tables

include a

detailed

analysis

of net

interest income

for

the indicated

periods.

Part I

presents

average volumes

(based

the

average

daily

balance)

and

rates

adjusted

tax-equivalent

basis

and

Part

presents,

also

adjusted

tax-

equivalent basis,

the extent

to which

changes in

interest rates

and changes

in the

volume of

interest-related assets

and liabilities

have

affected

the Corporation’s

net interest

income. For

each category

of interest-earning

assets and

interest-bearing

liabilities, the

tables

provide

information

changes

(i)

volume

(changes

volume

multiplied

prior

period

rates),

and

(ii)

rate

(changes

rate

multiplied by

prior period

volumes). The

Corporation has

allocated rate-volume

variances (changes

in rate

multiplied by

changes in

volume) to either the changes in volume or the changes in rate based upon the

effect of each factor on the combined totals.

Net

interest

income

adjusted

tax

equivalent

basis and

excluding

the

change

the fair

value

of derivative

instruments

is a

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

“Non-GAAP

Financial Measures and Reconciliations” above.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Quarter ended September 30,

2023

2022

2023

2022

2023

2022

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

807,883

882,759

10,956

4,654

5.38

2.09

Government obligations

(2)

2,817,646

2,912,130

9,415

10,325

1.33

1.41

MBS

3,650,737

4,113,870

15,677

22,028

1.70

2.12

FHLB stock

34,666

16,677

768

292

8.79

6.95

Other investments

14,294

13,094

1.69

1.36

Total investments

(3)

7,325,226

7,938,530

36,877

37,344

2.00

1.87

Residential mortgage loans

2,800,675

2,855,927

39,640

39,874

5.62

5.54

Construction loans

183,507

118,794

4,937

1,831

10.67

6.12

Commercial and industrial ("C&I") and commercial mortgage loans

5,261,849

5,085,257

93,711

73,518

7.07

5.74

Finance leases

808,480

647,586

15,802

11,751

7.75

7.20

Consumer loans

2,728,945

2,511,300

77,125

67,504

11.21

10.66

Total loans

(4)(5)

11,783,456

11,218,864

231,215

194,478

7.78

6.88

Total interest-earning assets

19,108,682

19,157,394

268,092

231,822

5.57

4.80

Interest-bearing liabilities:

Time deposits

2,708,297

2,109,521

19,852

3,788

2.91

0.71

Brokered certificates of deposit ("CDs")

318,831

63,524

3,830

333

4.77

2.08

Other interest-bearing deposits

7,956,856

8,372,342

30,616

5,857

1.53

0.28

Securities sold under agreements to repurchase

26,254

200,000

359

1,993

5.43

3.95

Advances from the FHLB

500,000

97,826

5,675

529

4.50

2.15

Other long-term borrowings

161,700

183,762

3,345

2,273

8.21

4.91

Total interest-bearing liabilities

11,671,938

11,026,975

63,677

14,773

2.16

0.53

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

204,415

217,049

Interest rate spread

3.41

4.27

Net interest margin

4.24

4.49

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Nine-Month Period Ended September 30,

2023

2022

2023

2022

2023

2022

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

611,308

1,412,802

23,486

8,347

5.14

0.79

Government obligations

(2)

2,878,603

2,857,462

31,153

28,647

1.45

1.34

MBS

3,756,654

4,079,403

52,160

64,252

1.86

2.11

FHLB stock

37,234

19,788

1,969

830

7.07

5.61

Other investments

13,729

12,496

258

2.51

0.83

Total investments

(3)

7,297,528

8,381,951

109,026

102,154

2.00

1.63

Residential mortgage loans

2,814,667

2,902,542

119,298

121,134

5.67

5.58

Construction loans

159,914

119,214

10,516

5,123

8.79

5.75

C&I and commercial mortgage loans

5,207,216

5,081,049

268,886

200,022

6.90

5.26

Finance leases

771,366

617,946

44,325

34,073

7.68

7.37

Consumer loans

2,679,261

2,422,337

222,531

192,379

11.10

10.62

Total loans

(4)(5)

11,632,424

11,143,088

665,556

552,731

7.65

6.63

Total interest-earning assets

18,929,952

19,525,039

774,582

654,885

5.47

4.48

Interest-bearing liabilities:

Time deposits

2,522,061

2,224,002

46,301

12,047

2.45

0.72

Brokered CDs

273,586

77,239

9,178

1,214

4.49

2.10

Other interest-bearing deposits

7,674,759

8,403,860

70,308

12,063

1.22

0.19

Securities sold under agreements to repurchase

72,648

213,553

2,756

6,147

5.07

3.85

Advances from the FHLB

553,993

165,568

18,899

2,667

4.56

2.15

Other long-term borrowings

174,307

183,762

10,135

5,304

7.77

3.86

Total interest-bearing liabilities

11,271,354

11,267,984

157,577

39,442

1.87

0.47

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

617,005

615,443

Interest rate spread

3.60

4.01

Net interest margin

4.36

4.21

(1)

On an adjusted tax-equivalent basis. The Corporation estimated the

adjusted tax-equivalent yield by dividing the interest rate

spread on exempt assets by 1 less the Puerto Rico statutory

tax rate of 37.5% and adding to it the cost of interest-bearing liabilities.

The tax-equivalent adjustment recognizes the income tax savings when

comparing taxable and tax-exempt assets.

Management believes that it is a standard practice in the banking industry

to present net interest income, interest rate spread and net

interest margin on a fully tax-equivalent basis.

Therefore, management believes these measures provide useful information

to investors by allowing them to make peer comparisons.

The Corporation excludes changes in the fair value

of derivatives from interest income and interest expense

because the changes in valuation do not affect interest received

or paid. See "Non-GAAP Financial Measures and

Reconciliations"

above.

(2)

Government obligations include debt issued by government-sponsored

agencies.

(3)

Unrealized gains and losses on available-for-sale debt securities

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

Interest income on loans includes $2.9 million for each of the quarters

ended September 30, 2023 and 2022, and $8.9 million and $8.5

million for the nine-month periods ended September

30, 2023 and 2022, respectively,

of income from prepayment penalties and late fees related to the Corporation’s

loan portfolio.

Part II

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023 Compared to 2022

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

(674)

6,976

6,302

(17,834)

32,973

15,139

Government obligations

(328)

(582)

(910)

213

2,293

2,506

MBS

(2,302)

(4,049)

(6,351)

(4,842)

(7,250)

(12,092)

FHLB stock

382

476

878

261

1,139

Other investments

172

180

Total investments

(2,918)

2,451

(467)

(21,577)

28,449

6,872

Residential mortgage loans

(771)

537

(234)

(3,705)

1,869

(1,836)

Construction loans

1,311

1,795

3,106

2,112

3,281

5,393

C&I and commercial mortgage loans

2,630

17,563

20,193

5,081

63,783

68,864

Finance leases

3,091

960

4,051

8,764

1,488

10,252

Consumer loans

6,039

3,582

9,621

21,058

9,094

30,152

Total loans

12,300

24,437

36,737

33,310

79,515

112,825

Total interest income

9,382

26,888

36,270

11,733

107,964

119,697

Interest expense on interest-bearing liabilities:

Time deposits

1,355

14,709

16,064

1,819

32,435

34,254

Brokered CDs

2,647

850

3,497

5,506

2,458

7,964

Other interest-bearing deposits

(658)

25,417

24,759

(2,527)

60,772

58,245

Securities sold under agreements to repurchase

(2,037)

403

(1,634)

(4,668)

1,277

(3,391)

Advances from the FHLB

4,061

1,085

5,146

10,991

5,241

16,232

Other borrowings

(352)

1,424

1,072

(380)

5,211

4,831

Total interest expense

5,016

43,888

48,904

10,741

107,394

118,135

Change in net interest income

4,366

(17,000)

(12,634)

992

570

1,562

Portions of the Corporation’s

interest-earning assets, mostly investments

in obligations of some U.S.

government agencies and U.S.

government-sponsored

entities (“GSEs”),

generate interest

that is

exempt from

income tax,

principally in

Puerto Rico.

Also, interest

and gains

on sales of

investments held by

the Corporation’s

international banking

entities (“IBEs”) are

tax-exempt under

Puerto Rico

tax

law

(see

Note

Income

Taxes,

the

unaudited

consolidated

financial

statements

herein

for

additional

information).

Management

believes

that

the

presentation

interest

income

adjusted

tax-equivalent

basis

facilitates

the

comparison

all

interest data

related to

these assets. The

Corporation estimated

the tax

equivalent yield

by dividing

the interest

rate spread

on exempt

assets

less

the

Puerto

Rico

statutory

tax

rate

(37.5%)

and

adding

the

average

cost

interest-bearing

liabilities.

The

computation considers the interest expense disallowance required

by Puerto Rico tax law.

Management

believes

that

the

presentation

net

interest

income,

excluding

the

effects

the

changes

the

fair

value

the

derivative

instruments,

provides additional

information about

the Corporation’s

net interest

income and

facilitates comparability

and

analysis from

period to

period. The

changes in

the fair

value of

the derivative

instruments have

no effect

on interest

due on

interest-

bearing liabilities or interest earned on interest-earning assets.

The following

table reconciles

net interest

income in

accordance with

GAAP to

net interest

income, excluding

valuations, and

net

interest

income

adjusted

tax-equivalent

basis

for

the

indicated

periods.

The

table

also

reconciles

net

interest

spread

and

net

interest margin on a GAAP basis to these items excluding valuations, and

on an adjusted tax-equivalent basis:

Quarter Ended

Nine-Month Period Ended

September 30,

2023

2022

2023

2022

(Dollars in thousands)

Interest income - GAAP

263,405

222,683

758,005

629,162

Unrealized gain on derivative instruments

(3)

(11)

(35)

Interest income excluding valuations - non-GAAP

263,402

222,672

758,005

629,127

Tax-equivalent adjustment

4,690

9,150

16,577

25,758

Interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

268,092

231,822

774,582

654,885

Interest expense - GAAP

63,677

14,773

157,577

39,442

Net interest income - GAAP

199,728

207,910

600,428

589,720

Net interest income excluding valuations - non-GAAP

199,725

207,899

600,428

589,685

Net interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

204,415

217,049

617,005

615,443

Average Balances

Loans and leases

11,783,456

11,218,864

11,632,424

11,143,088

Total securities, other short-term investments and interest-bearing

cash balances

7,325,226

7,938,530

7,297,528

8,381,951

Average Interest-Earning Assets

19,108,682

19,157,394

18,929,952

19,525,039

Average Interest-Bearing Liabilities

11,671,938

11,026,975

11,271,354

11,267,984

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.47%

4.61%

5.35%

4.31%

Average rate on interest-bearing liabilities - GAAP

2.16%

0.53%

1.87%

0.47%

Net interest spread - GAAP

3.31%

4.08%

3.48%

3.84%

Net interest margin - GAAP

4.15%

4.31%

4.24%

4.04%

Average yield on interest-earning assets excluding valuations

- non-GAAP

5.47%

4.61%

5.35%

4.31%

Average rate on interest-bearing liabilities

2.16%

0.53%

1.87%

0.47%

Net interest spread excluding valuations

- non-GAAP

3.31%

4.08%

3.48%

3.84%

Net interest margin excluding valuations - non-GAAP

4.15%

4.31%

4.24%

4.04%

Average yield on interest-earning assets on a tax-equivalent

basis and excluding

valuations - non-GAAP

5.57%

4.80%

5.47%

4.48%

Average rate on interest-bearing liabilities

2.16%

0.53%

1.87%

0.47%

Net interest spread on a tax-equivalent basis

and excluding valuations - non-GAAP

3.41%

4.27%

3.60%

4.01%

Net interest margin on a tax-equivalent basis and excluding

valuations - non-GAAP

4.24%

4.49%

4.36%

4.21%

Net

interest

income

amounted

$199.7

million

for

the

quarter

ended

September

30,

2023,

decrease

$8.2

million,

when

compared to $207.9 million for same period in 2022. The $8.2 million decrease

in net interest income was primarily due to:

●

A $44.3 million increase in interest expense on interest-bearing deposits, consisting

of:

A $24.8

million increase

in interest

expense on

interest-bearing checking

and saving

accounts, driven

by an

increase of

$25.4

million

associated

with

higher

interest

rates

paid

the

third

quarter

2023

result

the

overall

higher

interest

rate

environment,

partially

offset

decrease

of $0.7

million

resulting

from

$415.5

million

decline

the

average balance

of these

deposits. The

average cost

of interest-bearing

checking and

saving accounts

increased by

125

basis points

to 1.53%

in the

third

quarter of

2023 as

compared to

0.28%

in the

same period

in 2022,

mostly driven

public

sector

deposits in

the

Puerto

Rico

region.

Excluding

public

sector deposits,

the

average

cost

interest-bearing

checking

and

saving accounts

for

the third

quarter of

2023 was

0.74%,

compared to

0.33%

for

the same

period a

year

ago.

$16.1

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

which

$14.7

million

was

related to

higher rates

paid on

new issuances

and renewals also

associated with

the higher

interest rate

environment and

$1.4 million was due

to the $598.9 million

increase in the average balance

The average cost of time

deposits in the third

quarter

2023,

excluding

brokered

CDs,

increased

220

basis

points

2.91%

when

compared

the

same

period

2022.

$3.4

million

increase

interest

expense

brokered

CDs,

mainly

driven

the

increase

$255.3

million

the

average balance.

●

$4.6 million net increase in interest expense on borrowings, consisting of:

A $5.2

million increase

in interest

expense on

advances from

the FHLB,

of which

$4.1 million

was associated

with an

increase of

$402.2 million

in the

average balance,

and $1.1

million was

associated with

new FHLB

advances at

higher

interest rates.

$1.1

million

increase

interest

expense

other

long-term

borrowings,

driven

the

upward

repricing

junior

subordinated debentures,

partially offset by a

$0.4 million decrease in interest

expense associated with a

decline of $22.1

million in the average balance.

Partially offset by:

A $1.7

million decrease

in interest

expense on

repurchase agreements,

mainly driven

by the

$173.7 million

decrease in

the average balance.

Partially offset by:

●

A $36.2 million increase in interest income on loans including:

A $22.5 million increase

in interest income on

commercial and construction loans,

of which $19.4

million was related to

the

effect

higher

market

interest

rates

the

upward

repricing

variable-rate

loans and

new

loan

originations,

$3.9

million

was

the

increase

$271.9

million

the

average

balance

(excluding

Small

Business

Administration Paycheck

Protection Program (“SBA

PPP”) loans), and

interest income of $1.2

million recognized in the

third quarter of 2023

due to the collection

of a previously

charged-off construction

loan in the Puerto

Rico region. These

variances were partially offset by a $2.0 million reduction

in interest income from SBA PPP loans.

September

30,

2023,

the

interest

rate

approximately

54%

the

Corporation’s

commercial

and

construction

loans was tied

to variable

rates, with 30%

based upon

SOFR of 3

months or

less, 13% based

upon the

Prime rate index,

and 11%

based on other indexes.

For the third quarter

of 2023, the average

one-month SOFR increased

287 basis points,

the

average

three-month

SOFR

increased

255

basis

points,

and

the

average

Prime

rate

increased

308

basis

points,

compared to the average rates for such indexes during the third quarter of 2022.

$13.7

million

increase

interest

income

consumer

loans

and

finance

leases,

driven

increase

$378.5

million in the average balance of this portfolio,

and, to a lesser extent, the upward repricing of the credit cards portfolio.

●

A $4.5 million increase in interest income from interest-bearing cash

balances and investment securities, consisting of:

$6.3

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

cash

balances

deposited

the

FED,

due

increase

$7.0

million

associated

with

the

effect

higher

market

interest

rates, partially offset by a $0.7 million decrease due to a decline

of $74.9 million in the average balance.

A $0.5 million increase in

dividends received from the

FHLB during the third quarter of

2023, mainly driven by a

higher

volume of FHLB stock due to the aforementioned increase in advances

for the third quarter of 2023.

Partially offset by:

A $2.3

million

decrease

in interest

income

on debt

securities, mainly

driven

by a

decrease of

$3.1

million

to a

decline

$557.6

million

the

average

balance,

and

higher

level

U.S.

agencies’

MBS

premium

amortization

expense associated

with changes in

anticipated prepayments,

partially offset

by higher yields

mainly associated

with the

upward repricing of variable-rate municipal bonds.

Net

interest

margin

for

the

third

quarter

2023

decreased

4.15%,

compared

4.31%

for

the

same

period

2022.

The

net

interest margin

decrease primarily reflects

an increase in

the average cost

of interest-bearing

liabilities, mainly reflecting

the effect

higher rates

paid on

deposits, primarily

in public

sector deposits

and a

continued migration

from non-interest-bearing

and other

low-

cost deposits to

higher-cost deposits.

These variances

were partially offset

by the upward

repricing of variable-rate

commercial loans,

the growth

in higher

yielding loans,

primarily consumer

loans, and

the change

in asset

mix, reflecting

a higher

proportion of

higher-

yielding assets in the third quarter of 2023.

Net interest income amounted

to $600.4 million for

the nine-month period

ended September 30, 2023,

an increase of $10.7 million,

when compared to $589.7 million for same period in 2022. The $10.7

million increase in net interest income was primarily due to:

●

A $111.9 million

increase in interest income on loans consisting of:

A $72.7

million increase in interest

income on commercial and

construction loans, of

which $69.1 million was

related to

the effect

of higher

market interest

rates in

the upward

repricing of

variable-rate loans

and in

new loan

originations and

$9.2

million

was

the

increase

$236.8

million

the

average

balance

(excluding

SBA

PPP

loans).

These

variances were partially offset by a $6.8 million

reduction in interest income from SBA PPP loans.

For

the

nine-month

period

ended

September

30,

2023,

the

average

one-month

SOFR

increased

381

basis

points,

the

average three-month

SOFR increased 360

basis points, and

the average Prime

rate increased 389

basis points, compared

to the average rates for such indexes during the same period of the prior year.

$40.4

million

increase

interest

income

consumer

loans

and

finance

leases,

driven

the

increase

$410.3

million in the average balance of this portfolio, and, to a lesser extent, the upward

repricing of the credit cards portfolio.

Partially offset by:

$1.2 million decrease in

interest income on residential

mortgage loans, driven by

a $3.4 million decrease related

to the

$87.9 million

decline in

the average

balance of

this portfolio,

partially offset

by a

$2.2 million

increase associated

with

the positive effect of new loan originations at higher current market

interest rates.

●

$17.0 million increase in interest income from interest-bearing cash balances

and investment securities, consisting of:

A $15.1

million

increase

interest income

from

interest-bearing

cash balances,

driven by

the

effect

of higher

market

interest rates, partially offset by the impact of a $801.5 million

decrease in the average balance of interest-bearing cash.

A $1.3 million

increase in dividend

income,

mainly driven by

the aforementioned

higher volume

of FHLB stock

for the

first nine months of 2023.

$0.5

million

net

increase

interest

income

debt

securities,

which

includes

$2.7

million

increase

interest

income on

Puerto Rico

municipal bonds,

mainly due

to the

upward repricing

of variable-rate

bonds, partially

offset

the

impact

$26.0

million

decline

the

average

balance.

This

favorable

variance

was

partially

offset

$2.2

million decrease

in interest income

on U.S. agencies

debentures and

MBS mainly driven

by the $275.6

million decrease

in the

average balance

of this

portfolio,

partially offset

by the

positive effects

from higher-yielding

U.S. agencies

MBS

purchased during 2022.

Partially offset by:

●

A $100.5 million increase in interest expense on interest-bearing deposits, consisting

of:

$58.2

million

increase

interest

expense

interest-bearing

checking

and

saving

accounts,

mainly

driven

increase

$60.7

million

associated

with

higher

interest

rates

paid

the

first

nine

months

2023

result

the

overall

higher

interest

rate

environment,

partially

offset

$2.5

million

decrease

resulting

from

decline

$729.1

million

the

average

balance

these

deposits.

The

average

cost

interest-bearing

checking

and

saving

accounts

increased

103

basis

points

1.22%

the

first

nine

months

2023

compared

0.19%

the

same

period

2022,

mostly driven

by public

sector deposits

in the

Puerto

Rico region.

Excluding

public sector

deposits,

the average

cost of interest-bearing

checking and savings

accounts for the

first nine months

of 2023 was

0.66%, compared

to 0.20%

for the same period a year ago.

A $34.3

million

increase

interest expense

on time

deposits, excluding

brokered

CDs, mainly

associated

with

higher

rates paid

in the

first nine

months of

2023 on

new issuances

and

renewals also

associated

with the

higher

interest rate

environment. The average

cost of time deposits

in the first

nine months of

2023, excluding brokered

CDs, increased 173

basis points to 2.45%

when compared to the same period in 2022.

An $8.0

million increase

in interest

expense

on brokered

CDs, driven

by the

increase of

$196.3 million

in the

average

balance.

●

A $17.7 million net increase in interest expense on borrowings, including:

A $16.3 million increase

in interest expense on

advances from the FHLB, of

which $11.0 million

was associated with an

increase of

$388.4 million

in the

average balance

and $5.2

million was

associated with

new FHLB

advances at

higher

interest rates.

$4.8

million

increase

interest

expense

other

long-term

borrowings,

mainly

driven

the

upward

repricing

junior subordinated debentures.

Partially offset by:

A $3.4

million decrease

in interest expense

on repurchase

agreements, driven

by a

$4.7 million

decrease associated

to a

decline

of $140.9

million

in the

average balance

partially offset

by a

$1.3 million

increase associated

with new

short-

term repurchase agreements entered into during 2023 at higher interest

rates.

Net interest margin

increased by 20 basis

points to 4.24% for

the first nine months

of 2023, compared to

4.04% for the same

period

of 2022.

The net

interest margin

increase primarily

reflects the

upward repricing

of variable-rate

commercial loans

and the

growth in

higher yielding

loans, primarily

in commercial

and consumer

loans. These

factors were

partially offset

by an

increase in

the average

cost of interest-bearing

liabilities, mainly reflecting

the effect of

higher rates paid

on deposits, primarily

in public sector

deposits, and

a continued migration from non-interest-bearing and other low-cost deposits to higher

-cost deposits.

Provision for Credit Losses

The provision

for credit

losses consists of

provisions for

credit losses on

loans and

finance leases,

unfunded loan

commitments, as

well as the debt securities portfolio. The principal changes in the provision for

credit losses by main categories follow:

Provision for credit losses for

loans and finance leases

The

provision

for

credit

losses

for

loans

and

finance

leases

was

$10.6

million

for

the

third

quarter

2023,

compared

$14.4

million for the third quarter of 2022.

The variances by major portfolio category were as follows:

●

Provision for credit

losses for the residential

mortgage loan portfolio

was a net benefit

of $3.3 million for

the third quarter of

2023, compared

to an

expense of

$0.8 million

for the

third quarter

of 2022.

The net

benefit recorded

for the

third quarter

2023

was

primarily

the

aforementioned

updated

macroeconomic

variables

and,

lesser

extent,

reduction

qualitative reserves driven by the sustained levels of collateral values.

●

Provision for

credit losses

for the

consumer loans

and finance

leases portfolio

was an

expense of

$14.0 million

for the

third

quarter of

2023, compared

to an

expense of

$17.4 million

for the

third quarter

of 2022.

The decrease

in the

provision in

the

third

quarter

2023

was

primarily

updated

macroeconomic

variables,

mainly

the

projection

the

unemployment rate and retail sales growth in the case of credit cards.

●

Provision for

credit losses

for the

commercial and

construction loan

portfolio was

a net

benefit of

$0.1 million

for the

third

quarter of

2023, compared

to a

net benefit

of $3.8

million for

the third

quarter of

2022. The

net benefit

for the

commercial

and

construction

loan

portfolio

for

the

third

quarter

2023

included

various

offsetting

factors

including

recovery

associated to the collection

of a fully charged-off

construction loan in the Puerto

Rico region, partially offset

by an additional

provision

recorded

the

aforementioned

$9.5

million

commercial

and

industrial

loan

the

Puerto

Rico

region

which

migrated to non-accrual.

The net benefit

for the commercial

and construction loan

portfolio for the

third quarter of

2022 was

related mostly to a reduction in reserves due to updated financial information received

during the third quarter of 2022.

The provision

for credit losses

for loans

and finance leases

was $47.7

million for the

first nine months

of 2023, compared

to $10.0

million for the same period in 2022. The variances by major portfolio

category were as follows:

●

Provision

for credit

losses for

the commercial

and

construction loan

portfolio

was an

expense of

$10.6

million for

the first

nine months of 2023,

compared to a net

benefit of $26.6 million

for the same period

of 2022. The expense

recognized during

the first nine months

of 2023 was mainly

due to a deterioration

in the forecasted commercial

real estate (“CRE”) price

index,

a $6.2

million

charge

associated with

a nonaccrual

commercial

and

industrial

participated

loan

in the

Florida

region

in the

power generation

industry,

the aforementioned

$1.7 million reserve

associated with the

inflow to

nonaccrual status

of a

$9.5

million commercial and

industrial loan in the

Puerto Rico region and,

to a lesser extent,

portfolio growth. Meanwhile,

the net

benefit

recorded

during

the

first

nine

months

2022

mainly

reflects

reductions

qualitative

reserves

associated

with

reduced COVID-19 uncertainties and updated borrowers’ financial information.

●

Provision for

credit losses

for the

consumer loans

and finance

leases portfolio

was an

expense of

$43.9 million

for the

first

nine months

of 2023,

compared to

an expense

of $43.5

million for

the same

period of

2022. The

increase primarily

reflects

the increase in

the size of the consumer

loan portfolios and historical

charge-off levels

in all major portfolio

classes, partially

offset by the aforementioned updates in macroeconomic variables.

●

Provision

for

credit

losses

for

the

residential

mortgage

loan

portfolio

was

net

benefit

$6.8

million

for

the

first

nine

months

2023,

compared

to a

net

benefit

$6.9

million

for

the

same

period

of 2022.

The

net

benefit

recorded

for

both

periods was primarily related to updated macroeconomic variables.

Provision for credit losses for

unfunded loan commitments

The provision for

credit losses for

unfunded commercial and

construction loan commitments

and standby letters

of credit was a

net

benefit of $0.1 million

and an expense of $0.5 million

for the third quarter and

first nine months of 2023, respectively,

compared to an

expense

$2.0

million

and

$2.7

million,

respectively,

for

the

same

periods

2022.

The

expense

recorded

during

the

first

nine

months of

2022 was

mainly driven

by an

increase in

unfunded loan

commitments principally

due to

then newly

originated facilities

which remained undrawn as of September 30, 2022.

Provision for credit losses for

held-to-maturity and available-for-sale debt

securities

The provision

for credit

losses for

held-to-maturity debt

securities was

a net

benefit of

$6.2 million

and $6.0

million for

the third

quarter

and first

nine months

of 2023,

respectively,

compared to

a net

benefit of

$0.6 million

and $0.3

million, respectively,

for the

same

periods

2022.

The

net

benefit

recorded

during

the

third

quarter

and

first

nine

months

2023

was

mostly

driven

the

aforementioned refinancing

of a $46.5

million municipal

bond into

a shorter-term

commercial loan structure

and, to

a lesser extent,

reduction

in qualitative

reserves driven

by updated

financial information

of certain

bond issuers

received

during the

third quarter

2023.

The provision

for credit

losses for

available-for-sale

debt securities

was an

expense of

$32 thousand

and $7

thousand for

the third

quarter and

first nine

months of

2023, respectively,

compared to

a net

benefit of

$12 thousand

and $0.4

million, respectively,

for the

same periods in 2022.

Non-Interest Income

Non-interest

income

amounted

$30.3

million

for

the

third

quarter

2023,

compared

$29.7

million

for

the

same

period

2022.

The $0.6 million increase in non-interest income was primarily due to:

●

$1.0

million

increase

card

and

processing

income

mainly

interchange

income

higher

transactional

volumes.

●

A $0.3 million

increase in other

non-interest income,

mainly driven

by a $0.2

million increase related

to higher

benefit of

purchased income tax credits realized.

●

A $0.2 million increase in insurance commission income.

Partially offset by:

●

A $0.6 million decrease

in revenues from mortgage

banking activities, mainly driven

by a decrease in the

net realized gain

on sales

of residential

mortgage loans

in the

secondary market

due to

a lower

volume of

sales and

lower margins.

During

the third quarters

of 2023 and 2022,

net realized gains

of $0.9 million

and $1.5 million, respectively,

were recognized as a

result

GNMA

securitization

transactions

and

whole

loan

sales

U.S.

GSEs

amounting

$42.3

million

and

$48.4

million, respectively.

●

A $0.3 million decrease in service in charges and fees on deposit accounts

Non-interest

income for

the nine-month

period ended

September 30,

2023 amounted

to $99.1

million, compared

to $93.5

million

for the same

period in 2022.

Non-interest income

for the nine-month

period ended September

30, 2023 includes

the $3.6 million

gain

recognized from a legal

settlement, included as part

of other non-interest income, and

the $1.6 million gain on

the repurchase of $21.4

million

junior

subordinated

debentures,

included

part

gain

early

extinguishment

debt.

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

this MD&A

for further

information.

On a

non-GAAP basis,

excluding

the effect

of these

Special

Items, adjusted non-interest income increased by $0.4 million primarily

due to:

●

$3.1

million

increase

card

and

processing

income

mainly

interchange

income

higher

transactional

volumes.

●

A $2.2

million

net

increase

adjusted

other

non-interest

income

including:

(i)

a $1.2

million

increase

to higher

benefit recognized in relation to

purchased income tax credits realized;

(ii) a $0.6 million

increase related to higher unused

loan

commitment

fees;

(iii)

$0.4

million

decrease

unrealized

losses

marketable

equity

securities;

and

(iv)

$0.3

million

debit

card

incentives

collected

during

2023;

partially

offset

$0.7

million

decrease

net

gains

fixed

assets.

Partially offset by:

●

A $4.2 million decrease

in revenues from mortgage

banking activities, mainly driven

by a decrease in the

net realized gain

on sales

of residential

mortgage loans

in the

secondary market

due to

a lower

volume of

sales and

lower margins.

During

the

first

nine

months

2023

and

2022,

net

gains

$2.9

million

and

$7.2

million,

respectively,

were

recognized

result of

GNMA

securitization

transactions

and

whole

loan sales

to U.S.

GSEs amounting

to $131.5

million

and

$206.5

million, respectively.

●

A $0.5 million decrease in insurance commission income.

●

A $0.2 million decrease in service in charges and fees on deposit accounts.

Non-Interest Expenses

Non-interest

expenses for

the quarter

ended September

30, 2023

amounted to

$116.6

million, compared

to $115.2

million for

the

same period in 2022.

The efficiency ratio

for the third quarter of

2023 was 50.71%, compared

to 48.48% for the

third quarter of 2022.

The $1.4 million increase in non-interest expenses was primarily due

to:

●

$3.6 million

increase in

employees’ compensation

and benefits

expenses, driven

by increases

of $2.5

million in

salary

compensation

mainly

due

to annual

salary

merit

increases

and

minimum

wage

adjustments,

$0.5

million

stock-based

compensation expense, and $0.4 million in medical insurance premium

costs.

●

$0.7 million

increase in

the FDIC deposit

insurance expense,

driven by

the two basis

points increase

on the initial

base

deposit insurance assessment rate that came into effect during the

first quarter of 2023.

●

A $0.5

million

increase

in other

non-interest

expenses,

mainly

due

to an

increase

of $0.5

million

in net

periodic

cost of

pension plans

and a

$0.3 million

increase in

charges

for legal

and operational

reserves, partially

offset

by a

$0.3 million

decrease in amortization

of intangible

assets, mainly in

the purchased

credit card relationship

intangible assets

recognized

in connection with the Banco Santander Puerto Rico acquisition becoming

fully amortized in 2023.

●

$0.4 million

increase in

credit and

debit card

processing fees,

mainly driven

by higher

transactional volumes,

partially

offset by higher incentives collected.

Partially offset by:

●

$1.5

million

decrease

professional

service

fees,

mainly

due

reductions

$0.6

million

consulting

fees;

$0.3

million in outsourced technology service fees; and $0.3 million in collections,

appraisals, and other credit-related fees.

●

$1.1 million

increase in

net gains

on OREO

operations,

mainly driven

by an

increase in

net realized

gains on

sales of

OREO properties, primarily residential properties in the Puerto Rico region.

●

$0.8

million

decrease

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

rental

expenses

and

energy costs.

●

A $0.4

million decrease

in business promotion

expenses, mainly

due to

a decrease

in donations

and advertising

expenses,

and adjustments

recorded to

reduce the credit

card loyalty

reward program

liability consistent

with lower historical

trends

customer

redemptions,

partially

offset

by expenses

associated with

the commemoration

of the

anniversary

of the

Bank.

Non-interest

expenses

for

the

first

nine

months

2023

amounted

$344.8

million,

compared

$330.2

million

for

the

same

period in

2022. The

efficiency

ratio for

the first

nine months

of 2023

was 49.29%,

compared to

48.33% for

the first

nine months

2022.

a non-GAAP

basis,

excluding

the

aforementioned

Special

Items,

the

adjusted efficiency

ratio

for

the first

nine

months

2023 was 49.66%. The $14.6 million increase in non-interest expenses was primarily

due to:

●

$13.5

million

increase

employees’

compensation

and

benefits

expenses,

mainly

driven

annual

salary

merit

increases and minimum

wage adjustments and

increases in bonuses accruals

medical insurance premium

costs, and stock-

based compensation expense; partially offset by higher

deferral of loan origination costs.

●

$2.3

million

increase

credit

and

debit

card

processing

expenses,

mainly

driven

higher

transactional

volumes,

partially offset by higher incentives collected.

●

A $2.0

million

increase

in other

non-interest

expenses,

mainly

due

to an

increase

of $1.4

million

in net

periodic

cost of

pension plans

and a

$1.0 million

increase in

charges

for legal

and operational

reserves, partially

offset

by a

$0.8 million

decrease in amortization

of intangible

assets, mainly in

the purchased

credit card relationship

intangible assets recognized

in connection with the Banco Santander Puerto Rico acquisition becoming

fully amortized in 2023.

●

$1.8 million

increase in

the FDIC deposit

insurance expense,

driven by

the two basis

points increase

on the initial

base

deposit insurance assessment rate that came into effect during the

first quarter of 2023.

Partially offset by:

●

$2.9 million

increase in

net gains

on OREO

operations,

mainly driven

by an

increase in

net realized

gains on

sales of

OREO properties,

primarily residential properties in the Puerto Rico region.

●

$2.4

million

decrease

occupancy

and

equipment

expenses,

primarily

reflecting

reductions

rental

expenses,

depreciation charges, and energy costs; partially

offset by an increase in maintenance charges and

property taxes.

Income Taxes

For the

third quarter

of 2023, the

Corporation recorded

an income

tax expense of

$27.0 million,

compared to

$32.0 million

for the

same period in 2022. For the first nine months of

2023, the Corporation recorded an income tax expense

of $89.2 million, compared to

$109.2 million for the same period

in 2022. The decrease in income tax expense

for the third quarter of 2023, as

compared to the same

quarter of the

previous year,

was the result

of a lower

effective tax

rate due to

increased business activities

with tax advantages

under

the Puerto

Rico tax

code, which

resulted in

additional deductions

in the

banking subsidiary,

as well

as a

higher proportion

of exempt

income to

taxable income,

partially offset

by higher

pre-tax income.

The decrease

in income

tax expense

for the

first nine

months of

2023, as compared to the same period in 2022,

was mainly related to lower pre-tax income; and the aforementioned

increased business

activities during the

third quarter of

2023 and a

higher proportion of

exempt to taxable

income which resulted

in a lower

effective tax

rate.

The Corporation’s

estimated annual

effective tax

rate in

the first

nine months

of 2023,

excluding entities

from which

a tax

benefit

cannot

recognized

and

discrete

items,

was

28.2%,

compared

31.8%

for

the

first

nine

months

2022.

See

Note

Income

Taxes, to the

unaudited consolidated financial statements herein for additional informatio

September

30,

2023,

the

Corporation

had

deferred

tax

asset

$150.8

million,

net

valuation

allowance

$195.1

million

against

the

deferred

tax

asset,

compared

deferred

tax

asset

$155.6

million,

net

valuation

allowance

$185.5

million, as of

December 31,

2022. Income

tax paid for

the nine-month

period ended September

30, 2023 amounted

to $ 88.3

million,

compared to

$22.9 million

for the

same period

in 2022.

The increase

is related

to the

full utilization

during 2022

of certain

deferred

tax assets related to NOLs that were available for regular income tax which decreased

the amount due for income taxes.

FINANCIAL CONDITION AND OPERATING

ANALYSIS

Assets

The Corporation’s

total assets

were $18.6

billion as

of September

30, 2023,

a decrease

of $39.9

million from

December 31,

2022,

primarily related to a $46.6 million decrease in the fair value of

available-for-sale debt securities recorded as part

of accumulated other

comprehensive loss in the consolidated statements of financial condition

Total assets were also impacted

by repayments of investment

securities, partially offset by increases in total loans and

cash and cash equivalents.

Loans Receivable, including Loans Held for Sale

As of

September 30,

2023, the

Corporation’s

total loan

portfolio before

the ACL

amounted to

$12.0 billion,

an increase

of $394.8

million compared to December 31, 2022. In

terms of geography,

the growth consisted of increases of $394.9 million

and $43.6 million

the

Puerto

Rico

and

Virgin

Islands

regions,

respectively,

partially

offset

$43.7

million

decrease

the

Florida

region.

On a

portfolio

basis,

the

growth

consisted

increases

$261.0

million

consumer

loans,

including

$218.4

million

increase

auto

loans and

leases, and

$171.8 million

in commercial

and construction

loans, partially

offset by

a $38.0

million decrease

in residential

mortgage loans.

As of

September

30,

2023,

the Corporation’s

loans

held-for-investment

portfolio

was comprised

commercial

and

construction

loans

(46%),

residential

real

estate

loans

(24%),

and

consumer

and

finance

leases

(30%).

the

total

gross

loan

portfolio

held

for

investment

$12.0

billion

September

30,

2023,

the

Corporation

had

credit

risk

concentration

approximately

79%

the

Puerto Rico region,

17% in the

United States region

(mainly in the

state of Florida),

and 4% in

the Virgin

Islands region, as

shown in

the following table:

As of September 30, 2023

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,182,882

170,797

458,952

2,812,631

Construction loans

98,565

3,762

100,447

202,774

Commercial mortgage loans

1,714,974

65,034

536,105

2,316,113

Commercial and Industrial loans

1,971,686

116,588

942,680

3,030,954

Total commercial loans

3,785,225

185,384

1,579,232

5,549,841

Consumer loans and finance leases

3,514,817

67,184

6,459

3,588,460

Total loans held for investment,

gross

9,482,924

423,365

2,044,643

11,950,932

Loans held for sale

8,961

Total loans, gross

9,491,885

423,365

2,044,643

11,959,893

As of December 31, 2022

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,237,983

179,917

429,390

2,847,290

Construction loans

30,529

4,243

98,181

132,953

Commercial mortgage loans

1,768,890

65,314

524,647

2,358,851

Commercial and Industrial loans

1,791,235

68,874

1,026,154

2,886,263

Total commercial loans

3,590,654

138,431

1,648,982

5,378,067

Consumer loans and finance leases

3,256,070

61,419

9,979

3,327,468

Total loans held for investment,

gross

9,084,707

379,767

2,088,351

11,552,825

Loans held for sale

12,306

Total loans, gross

9,097,013

379,767

2,088,351

11,565,131

Residential Real Estate Loans

As of

September 30,

2023, the

Corporation’s

total residential

mortgage loan

portfolio, including

loans held

for sale,

decreased by

$38.0

million,

as compared

to the

balance

as of

December 31,

2022.

The

decline

the residential

mortgage

loan

portfolio

reflects

decreases

of $58.4

million in

the Puerto

Rico region

and $9.2

million in

the Virgin

Islands region,

partially offset

by an

increase of

$29.6 million

in the

Florida region.

The decline

was driven

by repayments,

foreclosures, and

charge-offs,

which more

than offset

the

volume of new loan originations kept on the balance sheet.

The

majority

the

Corporation’s

outstanding

balance

residential

mortgage

loans

the

Puerto

Rico

and

the

Virgin

Islands

regions as of

September 30, 2023

consisted of fixed-rate

loans that traditionally

carry higher yields

than residential mortgage

loans in

the Florida region.

In the Florida region,

approximately 40% of

the residential mortgage

loan portfolio consisted

of hybrid adjustable-

rate

mortgages.

accordance

with

the

Corporation’s

underwriting

guidelines,

residential

mortgage

loans

are

primarily

fully

documented loans, and the Corporation does not originate negative amortization

loans.

Commercial and Construction Loans

As of September 30, 2023,

the Corporation’s commercial

and construction loan portfolio increased

by $171.8 million, as compared

to the balance as of December 31, 2022.

the

Puerto

Rico

region,

commercial

and

construction

loans

increased

$194.6

million,

compared

the

balance

December 31, 2022. This

increase was driven by

the origination of several

term loans, including six

commercial relationships, each

excess

$10

million,

which

increased

the

portfolio

amount

$86.1

million,

increased

lines

credit utilizations

including

$72.7

million

associated

three

lines

credit,

and

$62.3

million

increase

the

outstanding

balance

floor

plan

lines

credit.

The

variance also reflects

the aforementioned refinancing

of a $46.5

million municipal loan

into a commercial

loan. These variances

were

partially

offset

multiple

payoffs

and

paydowns,

including

two

commercial

and

industrial

relationships,

each

excess

$10

million, totaling $50.2 million.

the

Virgin

Islands

region,

commercial

and

construction

loans

increased

$47.0

million,

compared

the

balance

December 31, 2022. The increase was driven by the

utilization of $55.8 million of a new $100.0 million line

of credit facility extended

to a government public corporation.

In the

Florida region,

commercial and

construction loans

decreased by

$69.8 million,

as compared

to the

balance as

of December

31, 2022. This decrease reflected

$106.4 million in payoffs and

paydowns of six commercial and industrial

relationships in the Florida

region,

each

excess

$10

million,

including

the

aforementioned

payoff

$24.3

million

adversely

classified

commercial

and

industrial

participated

loan, partially

offset

by the

originations

of three

commercial

and industrial

term loans,

each in

excess of

$10

million, which increased the portfolio amount by $54.1 million.

As of

September 30,

2023, the

Corporation had

$185.0 million

outstanding

in loans

extended to

the Puerto

Rico government,

its

municipalities,

and

public

corporations,

compared

$169.8

million

December

31,

2022.

See

“Exposure

Puerto

Rico

Government” below for additional information.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

September

30,

2023,

the

Corporation

had

$87.5

million in loans

to USVI government

public corporations,

compared to $38.0

million as of

December 31,

2022. The increase

in loans

to USVI

government public

corporations was

driven by

the aforementioned

$55.8 million

line of

credit utilization.

See “Exposure

USVI Government” below for additional information.

As of

September

30, 2023,

the Corporation’s

total commercial

mortgage

loan

exposure amounted

to $2.3

billion,

or 42%

of the

total

commercial

loan

portfolio.

The

commercial

mortgage

loan

portfolio

includes

exposure

office

real

estate

amounting

$417.7 million

($374.0 million and

$43.7 million in

the Puerto Rico

and Florida regions,

respectively), of which

approximately $77.2

million matures during the remainder of 2023 and 2024.

September

30,

2023,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including

unused

commitments)

amounted

$1.1

billion

each

September

30,

2023

and

December

31,

2022.

September

30,

2023,

approximately $234.7 million of

the SNC exposure is related

to the portfolio in the

Puerto Rico region and $847.0

million is related to

the portfolio in the Florida region.

Consumer Loans and Finance Leases

As of September

30, 2023, the Corporation’s

consumer loan and finance

lease portfolio increased by

$261.0 million to $3.6

billion,

as compared to

the portfolio balance

of $3.3 billion

as of December

31, 2022. This increase

was mainly related

to increases of $113.3

million

and

$105.1

million

the

finance

leases

and

auto

loans

portfolios,

respectively.

The

growth

consumer

loans

was

mainly

reflected in the Puerto Rico region across all portfolio classes.

100

Loan Production

First BanCorp.

relies primarily

on its

retail network

of branches

to originate

residential and

consumer loans.

The Corporation

may

supplement

its residential

mortgage originations

with wholesale

servicing released

mortgage loan

purchases from

mortgage bankers.

The

Corporation

manages

its

construction

and

commercial

loan

originations

through

centralized

units

and

most

its

originations

come

from

existing

customers,

well

through

referrals

and

direct

solicitations.

Auto

loans

and

finance

leases

originations

rely

primarily on relationships with auto dealers and dedicated sales professionals who

serve selected locations to facilitate originations.

The

following

table

provides

breakdown

First

BanCorp.’s

loan

production,

including

purchases,

refinancings,

renewals

and

draws from existing revolving and non-revolving commitments, for

the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Residential mortgage

129,852

103,897

322,405

352,942

Construction

71,897

21,892

154,402

88,758

Commercial mortgage

65,171

96,894

196,247

430,599

Commercial and Industrial

640,848

562,828

1,747,304

1,675,838

Consumer

462,080

459,402

1,351,403

1,368,121

Total loan production

1,369,848

1,244,913

3,771,761

3,916,258

During the quarter and nine-month

period ended September 30, 2023,

total loan originations, including purchases, refinancings,

and

draws from existing revolving and

non-revolving commitments, amounted to

approximately $1.4 billion and $3.8

billion, respectively,

compared to $1.2 billion and $3.9 billion, respectively,

for the comparable periods in 2022.

Residential

mortgage

loan

originations

for

the

quarter

and

nine-month

period

ended

September

30,

2023

amounted

$129.9

million and

$322.4 million,

respectively,

compared to

$103.9 million

and $352.9

million, respectively,

for the

comparable periods

2022.

The

increase

of $26.0

million

the third

quarter of

2023,

as compared

to the

same

period

in 2022,

reflects

growth

of $13.4

million

the

Puerto

Rico

region,

$12.2

million

the

Florida

region,

and

$0.4

million

the

Virgin

Islands

region.

For

the

nine-

month

period

ended

September

30,

2023,

the

decrease

$30.5

million

consisted

declines

$38.0

million

the

Puerto

Rico

region and

$1.4 million

in the Virgin

Islands region,

partially offset

by an $8.9

million increase

in the

Florida region. Approximately

52%

the

$243.2

million

residential

mortgage

loan

originations

the

Puerto

Rico

region

during

the

first

nine

months

2023

consisted of

conforming loans,

compared to

58% of

$281.2 million

for the

first nine

months of

2022. During

2023, the

Corporation's

ratio

conforming

loan

originations

total

originations

has

been

decreasing

part

due

increase

non-conforming

loan

originations, particularly in the Florida region, and is expected to remain at current

levels.

Commercial

and

construction

loan

originations

(excluding

government

loans)

for

the

quarter

and

nine-month

period

ended

September

30,

2023

amounted

$692.8

million

and

$1.9

billion,

respectively,

compared

$679.7

million

and

$2.2

billion,

respectively,

for the comparable

periods in

2022. The

increase of

$13.1

million in the

third quarter

of 2023,

as compared

to the

same

period

2022,

reflects

growth

$18.0

million

the

Puerto

Rico

region,

partially

offset

decreases

$3.0

million

and

$1.9

million

the

Florida

and

Virgin

Islands

regions,

respectively.

For

the

first

nine

months

2023,

the

decrease

$229.3

million

consisted of

decreases of

$216.4 million

in the

Florida region

and $13.0

million in

the Puerto

Rico region,

partially offset

by a

$0.1

million increase in the Virgin

Islands region.

Government

loan

originations

for

the

quarter

and

nine-month

period

ended

September

30,

2023

amounted

$85.1

million

and

$168.7

million,

respectively,

compared

$1.8

million

and

$36.6

million,

respectively,

for

the

comparable

periods

2022.

Government loan

originations during

the first

nine months

of 2023

were mainly

related to

the aforementioned

refinancing of

a $46.5

million municipal

loan into

a commercial

loan, the

aforementioned line

of credit

utilization in

the Virgin

Islands region,

a loan

to an

agency of the Puerto Rico government

for a low-income housing project

and the utilization of an arranged

overdraft line of credit of

government

entity

the

Virgin

Islands

region.

the

other

hand,

government

loan

originations

during

the

first

nine

months

of 2022 were

mainly

the

renewal

public

corporation

line

credit

the

Virgin

Islands

region,

the

renewal

municipal loan in the Puerto Rico region, and the utilization of an arranged

overdraft line of credit of a government entity in the Virgin

Islands region.

101

Originations of auto

loans (including finance

leases) for the

quarter and nine-month

period ended September

30, 2023 amounted

$259.2

million

and

$754.6

million,

respectively,

compared

$244.9

million

and

$775.7

million,

respectively,

for

the

comparable

periods

2022.

The

increase

the

third

quarter

2023,

compared

the

same

quarter

2022,

consisted

$14.5

million

increase

in the

Puerto

Rico region,

partially

offset

by a

$0.2

million

decrease

in the

Virgin

Islands region

The decrease

in the

first

nine months

of 2023,

as compared

to the

same period

of the

previous year,

consisted of

a $24.3

million decrease

in the

Puerto Rico

region,

partially

offset

$3.2

million

increase

the

Virgin

Islands

region.

Other

consumer

loan

originations,

other

than

credit

cards, for

the quarter

and nine-month

period ended

September 30,

2023 amounted

to $79.5

million and

$229.0 million,

respectively,

compared

$90.2

million

and

$233.0

million,

respectively,

for

the

comparable

periods

2022.

The

utilization

activity

the

outstanding

credit card

portfolio

for

the

quarter

and

nine-month

period

ended

September

30,

2023

amounted

to $123.4

million

and

$367.8 million, respectively,

compared to $124.3 million and $359.3 million, respectively,

for the comparable periods in 2022.

102

Investment Activities

part

its

liquidity,

revenue

diversification,

and

interest

rate

risk

management

strategies,

First

BanCorp.

maintains

debt

securities portfolio classified as available for sale or held to maturity.

The

Corporation’s

total

available-for-sale

debt

securities

portfolio

September

30,

2023

amounted

$5.2

billion,

$423.7

million decrease

from December

31, 2022.

The decrease

was mainly

driven by

repayments of

approximately $302.

million of

U.S.

agencies

MBS

and

debentures;

repayments

$74.3

million

associated

matured

securities,

which

$73.8

million

were

FNMA

callable

debentures;

and

a $46.6

million

decrease

in fair

value

attributable

to changes

in market

interest rates.

As of

September

30,

2023,

the

Corporation

had

net

unrealized

loss

available-for-sale

debt

securities

$844.8

million.

This

net

unrealized

loss

attributable to

instruments on books

carrying a lower

interest rate than

market rates. The

Corporation expects

that this unrealized

loss

will reverse over time and it is likely that it will not be required

to sell the securities before their anticipated recovery.

The Corporation

expects the portfolio will

continue to decrease and

the accumulated other comprehensive

loss will decrease accordingly,

excluding the

impact of market interest rates.

September

30,

2023,

substantially

all

the

Corporation’s

available-for-sale

debt

securities

portfolio

was

invested

U.S.

government and

agencies debentures

and fixed-rate

GSEs’ MBS. In

addition, as

of September

30, 2023,

the Corporation

held a

bond

issued

the

PRHFA,

classified

as available

for

sale,

specifically

residential

pass-through

MBS in

the

aggregate

amount

of $3.2

million

(fair

value

$1.4

million).

This

residential

pass-through

MBS

issued

the

PRHFA

collateralized

certain

second

mortgages originated

under a program

launched by the

Puerto Rico government

in 2010 and

had an unrealized

loss of $1.8

million as

of September

30, 2023,

of which

$0.4 million

is due

to credit

deterioration.

During 2021,

the Corporation

placed this

instrument

nonaccrual status based on the delinquency status of the underlying

second mortgage loans collateral.

September

30,

2023,

the

Corporation’s

held-to-maturity

debt

securities

portfolio,

before

the

ACL,

decreased

$359.2

million, compared to

$437.5 million as

of December 31,

2022, mainly due

to the refinancing

of a $46.5 million

municipal bond into

shorter-term

commercial

loan

structure

and

$33.4

million

repayments.

Held-to-maturity

debt

securities

include

fixed-rate

GSEs’

MBS

with

carrying

value

$252.5

million

and

fair

value

$232.7

million

of September

30,

2023.

Held-to-maturity

debt

securities also

include financing

arrangements with

Puerto Rico

municipalities issued

in bond

form, which

the Corporation

accounts

for

securities,

but

which

were

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

Puerto

Rico

municipal bonds typically

are not issued in

bearer form, are not

registered with the

SEC, and are not

rated by external

credit agencies.

These bonds

have seniority

to the

payment of

operating costs

and expenses

of the

municipality and,

in most

cases, are

supported

assigned

property

tax

revenues.

September

30,

2023,

approximately

54%

the

Corporation’s

municipal

bonds

consisted

obligations issued by three

of the largest municipalities

in Puerto Rico. The municipalities

are required by law to

levy special property

taxes

such

amounts

are

required

for

the

payment

all

their

respective

general

obligation

bonds

and

loans.

Given

the

uncertainties as to

the effects that the

fiscal position of

the Puerto Rico central

government, and the measures

taken, or to be

taken, by

other

government

entities

may

have

municipalities,

and

the

higher

interest

rate

environment,

the

Corporation

cannot

certain

whether future

charges to

the ACL on

these securities will

be required.

As of September

30, 2023,

the ACL for

held-to-maturity debt

securities

was

$2.3

million,

compared

$8.3

million

December

31,

2022.

The

decrease

the

ACL

of held-to-maturity

debt

securities was mostly driven by the aforementioned refinancing

of a $46.5 million municipal bond into a shorter-term

commercial loan

structure

and,

lesser

extent,

reduction

qualitative

reserves

driven

updated

financial

information

certain

bond

issuers

received during the third quarter of 2023.

See

“Risk Management

–

Exposure

to Puerto

Rico

Government”

below

for

information

and

details

about

the Corporation’s

total

direct

exposure

to the

Puerto Rico

government,

including municipalities

and

“Credit

Risk Management”

below

for the

ACL of

the

exposure to Puerto Rico municipal bonds.

103

The following table presents the carrying values of investments as of the indicated dates:

September 30, 2023

December 31, 2022

(In thousands)

Money market investments

1,000

2,025

Available-for-sale

debt securities, at fair value:

U.S. government and agencies obligations

2,448,313

2,492,228

Puerto Rico government obligations

1,448

2,201

MBS:

Residential

2,580,395

2,941,458

Commercial

145,647

163,133

Other

500

Total available-for-sale

debt securities, at fair value

5,175,803

5,599,520

Held-to-maturity debt securities, at amortized cost:

MBS:

Residential

150,650

166,739

Commercial

101,801

105,088

Puerto Rico municipal bonds

106,718

165,710

ACL for held-to-maturity Puerto Rico municipal bonds

(2,250)

(8,286)

Total held-to-maturity

debt securities

356,919

429,251

Equity securities, including $34.6 million and $42.9 million of FHLB stock

as of September 30,

2023 and December 31, 2022, respectively

48,683

55,289

Total money market

investments and investment securities

5,582,405

6,086,085

The carrying values of debt securities as of September 30, 2023 by contractual maturity

(excluding MBS), are shown below:

Carrying Amount

Weighted-Average

Yield %

(Dollars in thousands)

U.S. government and agencies obligations:

Due within one year

310,072

0.70

Due after one year through five years

2,118,664

0.83

Due after five years through ten years

8,939

2.95

Due after ten years

10,638

5.65

2,448,313

0.85

Puerto Rico government and municipalities obligations:

Due within one year

3,159

9.30

Due after one year through five years

51,133

7.71

Due after five years through ten years

35,831

7.05

Due after ten years

18,043

7.33

108,166

7.48

MBS

2,978,493

1.69

ACL on held-to-maturity debt securities

(2,250)

Total debt securities

5,532,722

1.44

104

Net

interest

income

future

periods

could

affected

prepayments

MBS.

Any

acceleration

the

prepayments

MBS

purchased

premium

would

lower

yields

these

securities,

since

the

amortization

premiums

paid

upon

acquisition

would

accelerate. Conversely,

acceleration of the

prepayments of MBS would

increase yields on

securities purchased at

a discount, since

the

amortization

the

discount

would

accelerate.

These

risks

are

directly

linked

future

period

market

interest

rate

fluctuations.

Net

interest income

in future

periods might

also be

affected

by the

Corporation’s

investment in

callable securities.

As of

September

30,

2023, the

Corporation had

approximately $1.9

billion in

callable debt

securities (U.S.

agencies debt

securities) with

an average

yield

of 0.78% of which

approximately 61% were purchased

at a discount and 3%

at a premium. See

“Risk Management” below for

further

analysis

the

effects

changing

interest

rates

the

Corporation’s

net

interest

income

and

the

Corporation’s

interest

rate

risk

management strategies. Also,

refer to Note 2

– Debt Securities to

the unaudited consolidated

financial statements herein for

additional

information regarding the Corporation’s

debt securities portfolio.

RISK MANAGEMENT

General

Risks

are

inherent

virtually

all

aspects

the

Corporation’s

business

activities

and

operations.

Consequently,

effective

risk

management

fundamental

the

success

the

Corporation.

The

primary

goals

risk

management

are

ensure

that

the

Corporation’s

risk-taking activities are

consistent with the

Corporation’s

objectives and risk

tolerance, and that

there is an appropriate

balance between risks and rewards in order to maximize stockholder value.

The

Corporation

has

place

risk

management

framework

monitor,

evaluate

and

manage

the

principal

risks

assumed

conducting its activities. First BanCorp.’s

business is subject to eleven

broad categories of risks: (i) liquidity

risk; (ii) interest rate risk;

(iii) market risk; (iv)

credit risk; (v) operational

risk; (vi) legal and

regulatory risk; (vii)

reputational risk; (viii) model

risk; (ix) capital

risk; (x)

strategic risk;

and (xi)

information technology

risk. First

BanCorp. has

adopted policies

and procedures

designed to

identify

and manage the risks to which the Corporation is exposed.

The

Corporation’s

risk

management

policies

are

described

below,

well

Part

II,

Item

“Management’s

Discussion

and

Analysis of Financial Condition and Results of Operations,” in the 2022 Annual

Report on Form 10-K.

Liquidity Risk

Liquidity

risk

involves

the

ongoing

ability

accommodate

liability

maturities

and

deposit

withdrawals,

fund

asset growth

and

business operations,

and meet

contractual obligations

through unconstrained

access to funding

at reasonable

market rates. Liquidity

management

involves

forecasting

funding

requirements

and

maintaining

sufficient

capacity

meet

liquidity

needs

and

accommodate

fluctuations

asset

and

liability

levels

due

changes

the

Corporation’s

business

operations

unanticipated

events.

The Corporation

manages liquidity

at two

levels. The

first is

the liquidity

of the

parent company,

or First

Bancorp., which

is the

holding

company

that

owns

the

banking

and

non-banking

subsidiaries.

The

second

the

liquidity

the

banking

subsidiary,

FirstBank.

The Asset

and Liability

Committee of

the Board

is responsible

for overseeing

management’s

establishment of

the Corporation’s

liquidity

policy,

well

approving

operating

and

contingency

procedures

and

monitoring

liquidity

ongoing

basis.

The

Management’s

Investment

and

Asset

Liability

Committee

(“MIALCO”),

which

reports

the

Board’s

Asset

and

Liability

Committee,

uses

measures

liquidity

developed

management

that

involve

the

use

several

assumptions

review

the

Corporation’s

liquidity

position

monthly

basis.

The

MIALCO

oversees

liquidity

management,

interest

rate

risk,

market

risk,

and other related matters.

The MIALCO is composed of

senior management officers,

including the Chief Executive Officer,

the Chief Financial Officer,

the

Chief

Risk

Officer,

the

Corporate

Strategic

and

Business

Development

Director,

the

Business

Group

Director,

the

Treasury

and

Investments Risk

Manager,

the Financial

Planning and

Asset and

Liability Management

(“ALM”) Director,

and the

Treasurer.

The

Treasury

and

Investments

Division

responsible

for

planning

and

executing

the

Corporation’s

funding

activities

and

strategy,

monitoring liquidity availability on

a daily basis, and reviewing

liquidity measures on a weekly

basis. The Treasury

and Investments

Accounting and

Operations area

of the

Corporate Controller’s

Department is

responsible for

calculating the

liquidity measurements

used

the

Treasury

and

Investment

Division

review

the

Corporation’s

liquidity

position

weekly

basis.

The

Financial

Planning and ALM Division is responsible for estimating the liquidity gap for

longer periods.

105

ensure

adequate liquidity

through the

full range

of potential

operating

environments and

market

conditions,

the Corporation

conducts

its

liquidity

management

and

business

activities

manner

that

intended

preserve

and

enhance

funding

stability,

flexibility,

and

diversity.

Key

components

this

operating

strategy

include

strong

focus

the

continued

development

customer-based

funding, the

maintenance

of direct

relationships with

wholesale

market funding

providers, and

the maintenance

the ability to liquidate certain assets when, and if, requirements warrant.

The

Corporation

develops

and

maintains

contingency

funding

plans.

These

plans

evaluate

the

Corporation’s

liquidity

position

under various

operating circumstances

and are

designed to

help ensure

that the

Corporation will

be able

to operate

through periods

of stress when

access to normal

sources of funds

is constrained. The

plans project funding

requirements during

a potential period

stress, specify and quantify sources of liquidity,

outline actions and procedures for effectively managing liquidity

through a period of

stress, and

define roles

and responsibilities

for the

Corporation’s

employees. Under

the contingency

funding plans,

the Corporation

stresses the

balance sheet

and the liquidity

position to

critical levels

that mimic

difficulties in

generating funds

or even

maintaining

the current

funding position

of the

Corporation and

the Bank

and are

designed to

help ensure

the ability

of the

Corporation and

the

Bank to honor

their respective commitments.

The Corporation has

established liquidity

triggers that the

MIALCO monitors in

order

to maintain the

ordinary funding of

the banking business.

The MIALCO has

developed contingency funding

plans for the

following

three

scenarios:

credit rating

downgrade,

economic

cycle downturn

event,

and

concentration

event.

The

Board’s

Asset and

Liability Committee reviews and approves these plans on an annual basis.

The

Corporation

manages

its

liquidity

proactive

manner

and

effort

maintain

sound

liquidity

position.

uses

multiple measures

to monitor

its liquidity

position, including

core liquidity,

basic liquidity,

and time-based

reserve measures.

Cash

and cash

equivalents amounted

to $584.9

million as

of September

30, 2023,

compared to

$480.5 million

as of

December 31,

2022.

Free high-quality

liquid securities

that could

be liquidated

or pledged

within one

day amounted

to $2.1

billion as

of September

30,

2023,

compared

$3.1

billion

December

31,

2022.

September

30,

2023,

the estimated

core

liquidity

reserve

(which

includes cash

and free

high quality

liquid assets such

as U.S.

government and

GSEs obligations

that could

be liquidated

or pledged

within one

day) was

$2.7 billion,

or 14.58%

of total

assets, compared

to $3.5

billion, or

19.02% of

total assets

as of

December 31,

2022.

The basic liquidity

ratio (which adds available

secured lines of

credit to the core

liquidity) was approximately

19.67% of total

assets as of September 30, 2023, compared to 22.48% of total assets as of December

31, 2022.

September

30,

2023,

addition

the

aforementioned

$2.7

billion

cash

and

free

high

quality

liquid

assets,

the

Corporation had $947.8 million available for credit with the FHLB based

on the value of loan collateral pledged with the FHLB. The

Corporation

also

maintains

borrowing

capacity

the

FED

Discount

Window.

The

Corporation

does

not

consider

borrowing

capacity from

the FED

Discount Window

as a

primary source

of liquidity

but had

approximately $1.4

billion available

for funding

under the

FED’s

Borrower-in-Custody

(“BIC”) Program

as of

September 30,

2023 as

a contingent

source of

liquidity.

Total

loans

pledged

to the

FED Discount

Window

amounted

to $2.4

billion as

of September

30, 2023.

The Corporation

also does

not rely

uncommitted

inter-bank

lines of

credit (federal

funds lines)

to fund

its operations

and

does not

include

them in

the basic

liquidity

measure. On

a combined

basis, as

of September

30, 2023,

the Corporation

had $5.1

billion of

total available

liquidity,

or 107%

uninsured deposits excluding government deposits, to meet liquidity

needs,

while maintaining a strong capital position.

Liquidity

the Bank

level

is highly

dependent

bank deposits,

which

fund

88.7%

of the

Bank’s

assets (or

87.0%

excluding

brokered CDs).

In addition,

as further

discussed below,

the Corporation

maintains a

diversified base

of readily

available wholesale

funding

sources,

including

advances

from

the

FHLB

through

pledged

borrowing

capacity,

securities

sold

under

agreements

repurchase,

and

access

CDs

through

brokers.

Funding

through

wholesale

funding

may

continue

increase

the

overall

cost

funding for the Corporation and impact the net interest margin.

provider

financial

services,

the

Corporation

routinely

enters

into

commitments

with

off-balance

sheet

risk

meet

the

financial

needs

its

customers.

These

financial

instruments

may

include

loan

commitments

and

standby

letters

credit.

These

commitments

are

subject

the

same

credit

policies

and

approval

processes

used

for

on-balance

sheet

instruments.

These

instruments involve, to varying degrees,

elements of credit and interest rate risk

in excess of the amount recognized in the

statements

of financial

condition. As

of September

30, 2023,

the Corporation’s

commitments to

extend credit

amounted to

approximately $2.0

billion.

Commitments

extend

credit

are

agreements

lend

customer

long

there

violation

any

condition

established

the

contract.

Since

certain

commitments

are

expected

expire

without

being

drawn

upon,

the

total

commitment

amount does

not necessarily

represent future

cash requirements. For

most of the

commercial lines of

credit, the

Corporation has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

There

have

been

significant

unexpected

draws

existing commitments. In the case of

credit cards and personal lines

of credit, the Corporation can

cancel the unused credit facility

any time and without cause.

106

The following table summarizes commitments to extend credit and standby letters of

credit as of the indicated dates:

September 30,

2023

December 31, 2022

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

245,641

170,639

Unused credit card lines

961,118

936,231

Unused personal lines of credit

39,569

41,988

Commercial lines of credit

763,349

761,634

Letters of credit:

Commercial letters of credit

64,148

68,647

Standby letters of credit

7,911

9,160

The

Corporation

engages

the ordinary

course

of business

other

financial

transactions

that

are not

recorded

on the

balance

sheet,

may

recorded

the

balance

sheet

amounts

that

are

different

from

the

full

contract

notional

amount

the

transaction

and, thus,

affect

the Corporation’s

liquidity position.

These transactions

are designed

to (i)

meet the

financial needs

customers, (ii) manage the

Corporation’s credit,

market and liquidity risks, (iii)

diversify the Corporation’s

funding sources, and (iv)

optimize capital.

In addition to the

aforementioned off-balance

sheet debt obligations

and unfunded commitments

to extend credit, the

Corporation

has

obligations

and

commitments

make

future

payments

under

contracts,

amounting

approximately

$3.8

billion

September 30,

2023. Our

material cash

requirements comprise

primarily of

contractual obligations

to make future

payments related

time

deposits,

short-term

borrowings,

long-term

debt,

and

operating

lease

obligations.

also

have

other

contractual

cash

obligations

certain

binding

agreements

have

entered

into

for

services

including

outsourcing

technology

services,

security,

advertising

and

other

services

which

are

not

material

our

liquidity

needs.

currently

anticipate

that

our

available

funds,

credit

facilities,

and

cash

flows

from

operations

will

sufficient

meet

our

operational

cash

needs

for

the

foreseeable

future.

Off-balance sheet

transactions are continuously

monitored to consider

their potential impact

to our liquidity

position and changes

are applied to the balance between sources and uses of funds, as deemed appropriate,

to maintain a sound liquidity position.

Sources of Funding

The

Corporation

utilizes

different

sources

funding

help

ensure

that

adequate

levels

liquidity

are

available

when

needed.

Diversification of

funding sources is

of great importance

to protect the

Corporation’s

liquidity from market

disruptions. The

principal

sources

short-term

funding

are

deposits,

including

brokered

CDs.

Additional

funding

provided

securities

sold

under

agreements to repurchase and lines of

credit with the FHLB. Consistent

with its strategy,

the Corporation has been seeking

to add core

deposits.

The

Asset and

Liability

Committee

reviews

credit availability

on a

regular basis.

The

Corporation

also

sells mortgage

loans

as a

supplementary source of

funding and has obtained

long-term funding in the past

through the issuance of

notes and long-term brokered

CDs. In

addition, the

Corporation also

maintains as

additional contingent

sources borrowing

capacity at

the FED’s

BIC Program

and

is enrolled in the FED’s BTFP.

While

liquidity

ongoing

challenge

for

all

financial

institutions,

management

believes

that

the

Corporation’s

available

borrowing capacity and

efforts to grow

core deposits will be

adequate to provide

the necessary funding

for the Corporation’s

business

plans in the foreseeable future.

107

The Corporation’s principal

sources of funding are discussed below:

Retail

and

commercial

core

deposits

–

The

Corporation’s

deposit

products

include

regular

savings

accounts,

demand

deposit

accounts,

money

market

accounts,

and

retail

CDs.

September

30,

2023,

the

Corporation’s

core

deposits,

which

exclude

government deposits

and brokered

CDs, decreased

by $406.0

million to

$12.9 billion

from $13.3

billion as

of December

31, 2022.

The

decrease

was

primarily

saving

and

checking

accounts

primarily

the

Puerto

Rico

and

Florida

regions.

Notwithstanding, these reductions

were partially offset by

an increase in time deposits,

including a shift from non

-interest bearing or

low-interest bearing

products to

time deposits,

driven by

higher rates

offered.

Over the

last year,

the FED’s

policies to

control the

inflationary

economic

environment,

including

repeated

market

interest

rate

increases,

have

resulted

excess

liquidity

gradually

tapering

off

and

impacting

the Corporation’s

core

deposit

balances

as customers

continued

reallocate

cash

into higher

yielding

alternatives. Further shift may continue to increase the

overall cost of funding for the Corporation and impact the net

interest margin.

For the third quarter of 2023, the average balance per retail and commercial

core deposit account was $19 thousand.

Government deposits

– As of September

30, 2023, the

Corporation had $2.8

billion of Puerto Rico

public sector deposits

($2.6 billion

in transactional

accounts and

$137.0 million

in time

deposits), compared

to $2.3

billion as

of December

31, 2022.

The increase

was

higher

balances

interest-bearing

transactional

accounts.

Government

deposits

are

insured

the

FDIC

the

applicable limits and

the uninsured portions

are fully collateralized.

Approximately 22% of

the public sector

deposits as of September

30,

2023

were

from

municipalities

and

municipal

agencies

Puerto

Rico

and

78%

were

from

public

corporations,

the

central

government and its agencies, and U.S. federal government agencies in Puerto

Rico.

In addition,

as of

September 30,

2023, the

Corporation had

$480.6 million

of government

deposits in

the Virgin

Islands region

(as

compared

to $442.8

million

as of

December

31,

2022)

and $12.3

million

the Florida

region

(as

compared

to $11.6

million

as of

December 31, 2022).

The uninsured

portions

of government

deposits were

collateralized

by securities

and

loans with

an amortized

cost of

$3.5

billion

and

$3.1 billion

as of

September 30,

2023

and

December 31,

2022,

respectively,

and an

estimated market

value

of $3.0

billion

and

$2.7 billion,

respectively.

In addition to

securities and loans,

as of September

30, 2023 and

December 31, 2022,

the Corporation used

$175.0 million

and $200.0

million, respectively,

in letters

of credit

issued by

the FHLB as

pledges for

a portion

of public

deposits in

the Virgin

Islands.

Estimate of

Uninsured

Deposits –

As of

September 30,

2023 and

December 31,

2022, the

estimated amount

of uninsured

deposits

totaled $7.8

billion and

$7.6 billion,

respectively,

generally representing

the portion

of deposits

that exceed

the FDIC

insurance limit

of $250,000 and amounts

in any other uninsured

deposit account. The balances

presented as of September

30, 2023 and December 31,

2022

include

the

uninsured

portion

fully

collateralized

government

deposits

which

amounted

$3.1

billion

and

$2.6

billion,

respectively.

The increase is mostly

related to government deposits,

which are fully collateralized

as previously mentioned.

Excluding

fully

collateralized

government

deposits,

uninsured

deposits

amounted

$4.8

billion,

which

represent

29.47%

total

deposits

(excluding brokered CDs), as of September 30, 2023, compared to $4.9 billion,

or 30.65%, as of December 31, 2022.

The

amount of

uninsured

deposits is

calculated

based on

the

same

methodologies

and assumptions

used for

our bank

regulatory

reporting requirements adjusted for cash held by wholly-owned subsidiaries

at the Bank.

The following table presents by contractual maturities the amount of U.S. time deposits in

excess of FDIC insurance limits (over

$250,000) and other time deposits that are otherwise uninsured as of September

30, 2023:

(In thousands)

3 months or

less

3 months to

6 months

6 months to

1 year

Over 1 year

Total

U.S. time deposits in excess of FDIC insurance limits

285,002

144,955

215,056

334,396

979,409

Other uninsured time deposits

17,923

9,170

11,653

5,448

44,194

Brokered

CDs

–

Total

brokered

CDs increased

by $204.5

million

to $310.3

million

as of

September 30,

2023,

compared

to $105.8

million as of

December 31,

2022. The increase

reflects the effect

of new issuances

amounting to

$593.1 million

with an all-in

cost of

5.05%,

partially offset

by approximately

$388.6

million of

maturing

brokered

CDs, with

an all-in

cost of

4.90%, that

were paid

off

during the first nine months of 2023.

The average remaining term to maturity of the brokered CDs outstanding

as of September 30, 2023 was approximately 0.8 year.

The

increased use

of brokered

CDs was

primarily

related to

short-term

funding in

our Florida

region. The

future use

of brokered

CDs

will

depend

multiple

factors

including

excess

liquidity

each

the

regions,

future

cash

needs

and

any

tax

implications.

Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained

faster than regular retail deposits.

108

The following table presents the contractual maturities of brokered CDs as of September

30,

2023:

Total

(In thousands)

Three months or less

156,398

Over three months to six months

67,987

Over six months to one year

29,438

Over one year to three years

29,554

Over three years to five years

26,962

Total

310,339

Refer to

“Net Interest

Income” above

for information

about average

balances of

interest-bearing deposits

and the

average interest

rate paid on deposits, for the quarters and nine-month periods ended September

30, 2023 and 2022.

Securities

sold

under

agreements

repurchase

September

30,

2023,

there

were

outstanding

repurchase

agreements

(December 31,

2022 –

$75.1 million).

As of

September 30,

2023, the

Corporation repaid

and did

not renew

its short-term

repurchase

agreements.

addition

these

repurchase

agreements,

the

Corporation

has

been

able

maintain

access

credit

using

cost-

effective sources such as FHLB advances.

Under the Corporation’s

repurchase agreements, as

is the case with

derivative contracts, the

Corporation is required

to pledge cash

or qualifying securities to meet margin requirements.

To the extent that the value of

securities previously pledged as collateral declines

due to changes in interest

rates, a liquidity crisis or

any other factor, the

Corporation is required to deposit

additional cash or securities

to meet

its margin

requirements, thereby

adversely affecting

its liquidity.

Given the

quality of

the collateral

pledged, the

Corporation

has not experienced margin calls from counterparties

arising from credit-quality-related write-downs in valuations.

Advances

from

the

FHLB

–

The

Bank

member

the

FHLB

system

and

obtains

advances

fund

its

operations

under

collateral

agreement

with

the

FHLB

that

requires

the

Bank

maintain

qualifying

mortgages

and/or

investments

collateral

for

advances

taken.

As of

September 30,

2023,

the outstanding

balance

of fixed

-rate FHLB

advances

was $500.0

million,

compared

$675.0

million

December

31,

2022.

During

the

nine-month

period

ended

September

30,

2023,

the

Corporation

added

$300.0

million of long-term

FHLB advances at

an average cost

of 4.59%, and

repaid its short-term

FHLB advances. Of

the $500.0 million

FHLB advances

as of

September 30,

2023, $400.0

million were

pledged with

investment securities

and $100.0

million were

pledged

with mortgage

loans. As of

September 30,

2023, the

Corporation had

$947.8 million

available for

additional credit

on FHLB lines

credit based on collateral pledged at the FHLB of New York.

Trust

Preferred

Securities –

In 2004,

FBP Statutory

Trusts I

and II,

statutory trusts

that are

wholly-owned by

the Corporation

and

not consolidated in

the Corporation’s

financial statements, sold

to institutional investors

variable-rate TRuPs and

used the proceeds of

these issuances, together

with the proceeds

of the purchases by

the Corporation of

variable rate common

securities, to purchase

junior

subordinated

deferrable

debentures.

The

subordinated

debentures

are

presented

the

Corporation’s

consolidated

statements

financial condition as

other long-term borrowings.

Under the indentures,

the Corporation has the

right, from time

to time, and without

causing an

event of

default, to defer

payments of

interest on the

Junior Subordinated

Deferrable Debentures

by extending the

interest

payment

period

any

time

and

from

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly periods.

During the second quarter

of 2023, the Corporation completed

the repurchase of $21.4 million

of TRuPs of the FBP Statutory

Trust

I as

part of

a privately

-negotiated

transaction,

resulting

in a

commensurate

reduction

in the

floating

rate junior

subordinated

debentures. The purchase

price equated to 92.5%

of the $21.4 million

par value of the

TRuPs. The 7.5% discount

resulted in a gain

approximately $1.6 million, which

is reflected in the consolidated

statements of income as “Gain on

early extinguishment of debt.” As

September

30,

2023

and

December

31,

2022,

the

Corporation

had

junior

subordinated

debentures

outstanding

the

aggregate

amount

of $161.7

million

and $183.8

million,

respectively,

with

maturity

dates

ranging from

June 17,

2034

through September

20,

2034.

As of

September 30,

2023,

the Corporation

was current

on all

interest payments

due

on its

subordinated

debt. See

Note 11

–

Other Long-Term

Borrowings and

Note 7

– Non-Consolidated

Variable

Interest Entities

(“VIEs”) and

Servicing Assets

to unaudited

consolidated financial statements herein for additional information.

Other Sources

of Funds and

Liquidity

- The Corporation’s

principal uses of

funds are for

the origination of

loans, the repayment

maturing deposits

and borrowings,

and deposits

withdrawals. In

connection with

its mortgage

banking activities,

the Corporation

has

invested in technology and personnel to enhance the Corporation’s

secondary mortgage market capabilities.

The enhanced

capabilities improve

the Corporation’s

liquidity profile

as they

allow the

Corporation to

derive liquidity,

if needed,

from the sale

of mortgage loans

in the secondary

market. The U.S. (including

Puerto Rico) secondary

mortgage market is

still highly-

109

liquid, in

large part

because of

the sale

of mortgages

through guarantee

programs of

the FHA,

VA,

U.S. Department

of Housing

and

Urban Development

(“HUD”), FNMA and

FHLMC. During

the first nine

months of

2023, loans pooled

into GNMA MBS

amounted

approximately

$102.9

million.

Also,

during

the

first

nine

months

2023,

the

Corporation

sold

approximately

$28.6

million

performing residential mortgage loans to FNMA and FHLMC.

The

FED

Discount

Window

cost-efficient

contingent

source

funding

for

the

Corporation

highly-volatile

market

conditions. As previously mentioned, although currently

not in use, as of September 30, 2023, the Corporation

had approximately $1.4

billion available for funding under the FED’s

Discount Window based on collateral pledged at the FED.

The FED’s

BTFP was

established

by the

Federal Reserve

Board in

March 2023

as an

additional source

of funding

for depository

institutions

borrow

the

par

value

eligible

collateral

for

terms

one

year.

The

BTFP

eliminates

the

need

for

depository

institutions

sell their

debt

securities

times

stress. Eligible

collateral

includes

high-quality

securities such

as U.S.

Treasuries, U.S.

agency securities, and

U.S. agency MBS.

Borrowers that are

eligible for primary

credit under the

BIC Program, such

as FirstBank,

are eligible

to borrow

under the

BTFP.

In addition,

any eligible

collateral pledged

to the

discount window

can be

used

under the BTFP.

The rate for

term advances is the

one-year overnight index

swap rate plus 10

basis points and

is fixed for the

term of

the advance on the day the advance is made.

Effect of Credit Ratings on Access to Liquidity

The

Corporation’s

liquidity

contingent

upon

its

ability

obtain

deposits

and

other

external

sources

funding

finance

its

operations.

The Corporation’s

current credit

ratings and

any downgrade

in credit

ratings can

hinder the

Corporation’s

access to

new

forms

external

funding

and/or

cause

external

funding

expensive,

which

could,

turn,

adversely

affect

its

results

operations. Also, changes in credit ratings may further affect the

fair value of unsecured derivatives whose value takes into account

the

Corporation’s own credit risk.

The Corporation

does not

have any

outstanding debt

or derivative

agreements that

would be

affected by

credit rating

downgrades.

Furthermore, given the Corporation’s

non-reliance on corporate debt or

other instruments directly linked in

terms of pricing or volume

to credit

ratings, the

liquidity of

the Corporation

has not been

affected in

any material

way by downgrades.

The Corporation’s

ability

to access new non-deposit sources of funding, however,

could be adversely affected by credit downgrades.

As of

the date

hereof, the

Corporation’s

credit as

a long-term

issuer is

rated BB+

by S&P

and BB

by Fitch.

As of

the date

hereof,

FirstBank’s

credit

ratings

long-term

issuer

are

BB+

S&P,

one

notch

below

S&P’s

minimum

BBB-

level

required

considered investment

grade; and BB by

Fitch, two notches

below Fitch’s

minimum BBB- level

required to be

considered investment

grade.

The

Corporation’s

credit

ratings

are

dependent

number

factors,

both

quantitative

and

qualitative,

and

are

subject

change

at any

time. The

disclosure of

credit ratings

is not

a recommendation

to buy,

sell or

hold

the Corporation’s

securities.

Each

rating should be evaluated independently of any other rating.

110

Cash Flows

Cash

and

cash

equivalents

were

$584.9

million

September

30,

2023,

increase

$104.4

million

when

compared

December

31,

2022.

The

following

discussion

highlights

the

major

activities

and

transactions

that

affected

the

Corporation’s

cash

flows during the first nine months of 2023 and 2022:

Cash Flows from Operating Activities

First BanCorp.’s

operating assets and

liabilities vary significantly

in the normal course

of business due to

the amount and timing

cash flows.

Management believes

that cash

flows from

operations, available

cash balances,

and the

Corporation’s

ability to

generate

cash through

short and long-term

borrowings will be

sufficient to

fund the Corporation’s

operating liquidity

needs for the

foreseeable

future.

For

the

first

nine

months

2023

and

2022,

net

cash

provided

operating

activities

was

$283.7

million

and

$334.8

million,

respectively.

Net cash

generated from

operating activities

was higher

than reported

net income

largely as

a result

of adjustments

for

non-cash items such

as depreciation and

amortization, deferred income

tax expense and the

provision for credit

losses, as well as cash

generated from

sales and

repayments of

loans held

for sale.

Net cash

provided by

operating activities

includes an

increase in

income

tax

paid

as a

result

the

full utilization

during

2022 of

certain

deferred

tax

assets related

NOLs

that

were

available

for

regular

income tax.

Cash Flows from Investing Activities

The Corporation’s

investing activities primarily

relate to originating

loans to be

held for investment,

as well as

purchasing, selling,

and

repaying

available-for-sale

and

held-to-maturity debt

securities. For

the nine

-month period

ended September

30, 2023,

net cash

provided

investing

activities

was

$17.5

million,

primarily

due

repayments

available-for-sale

and

held-to-maturity

debt

securities and proceeds from sales of repossessed assets, partially offset

by net disbursements on loans held for investment.

For

the

nine-month

period

ended

September

30,

2022,

net

cash

used

investing

activities

was

$508.2

million,

primarily

due

purchases

available-for-sale

and

held-to-maturity

debt

securities,

and

net

disbursements

loans

held

for

investment,

partially

offset

repayments

available-for-sale

and

held-to-maturity

debt

securities

and

proceeds

from

sales

commercial

loan

participations.

Cash Flows from Financing Activities

The Corporation’s

financing activities

primarily

include the

receipt of

deposits and

the issuance

of brokered

CDs, the

issuance of

and payments

on long-term

debt, the

issuance of

equity instruments,

return of

capital, and

activities related

to its

short-term funding.

For

the

nine-month

period

ended

September

30,

2023,

net cash

used

financing

activities was

$196.8

million,

mainly

reflecting

$269.9 million

net decrease

in borrowings

and $200.8

million of

capital returned

to stockholders,

partially offset

by a

$275.8 million

net increase in deposits.

For the first nine months

of 2022, net cash used in

financing activities was $1.8 billion,

mainly reflecting a net decrease

in deposits,

a $300.0 million decrease in borrowings and $290.8 million of capital returned

to stockholders.

111

Capital

As of September

30, 2023, the Corporation’s

stockholders’ equity was

$1.3 billion, a decrease

of $22.5 million

from December 31,

2022.

The

decrease

was

driven

the

repurchase

approximately

9.0

million

common

stock

for

total

cost

$125.0

million, common

stock dividends

declared in

the first

nine months

of 2023

totaling $75.6

million or

$0.42 per

common share,

and a

$46.6 million decrease

in the fair

value of available-for-sale

debt securities recorded

as part of

accumulated other comprehensive

loss

in the

consolidated statements

of financial

condition. These

variances were

partially offset

by the

earnings generated

in the

first nine

months of 2023.

On October 31, 2023, the Corporation’s

Board declared a quarterly cash dividend of

$0.14 per common share payable on December

8, 2023 to shareholders of

record at the close of business on

November 24, 2023. The Corporation

intends to continue to pay quarterly

dividends

common

stock.

The

Corporation’s

common

stock

dividends,

including

the

declaration,

timing

and

amount,

remain

subject to the consideration and approval by the Corporation’s

Board at the relevant times.

During

the

third

quarter

2023,

the

Corporation

repurchased

5.4

million

its

common

stock

for

total

cost

$75.0

million which

completed the

$350 million

stock repurchase program

approved by

the Board of

Directors on

April 27, 2022.

On July

24,

2023,

the

Corporation

announced

that

its

Board

Directors

approved

new

stock

repurchase

program,

under

which

the

Corporation may

repurchase up

to $225

million of

its outstanding

common stock

which it

expects to

execute through

the end

of the

third

quarter

2024.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases, and/or privately

negotiated transactions

or plans, including under

plans complying with

Rule 10b5-1 under

the Exchange

Act. The

Corporation’s

stock repurchase

program is

subject to

various factors,

including the

Corporation’s

capital position,

liquidity,

financial

performance

and

alternative

uses

capital,

stock

trading

price,

and

general

market

conditions.

The

Corporation’s

stock

repurchase

program

does

not

obligate

acquire

any

specific

number

and

does

not

have

expiration

date.

The

stock

repurchase

program

may

modified,

suspended,

terminated

any

time

the

Corporation’s

discretion.

The

Corporation

repurchased

common

stock

under

the

current

repurchase

authorization

during

the

quarter

ended

September

30,

2023.

However, as of November

1, 2023, the Corporation has repurchased

approximately 1.8 million shares of common

stock for a total cost

of $25.0 million

under the $225 million

stock repurchase program

approved in July 2023.

The Parent Company

has no operations

and

depends

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments,

stock

repurchases,

and

fund all payments on its obligations, including debt obligations.

The tangible common

equity ratio and

tangible book value

per common share

are non-GAAP financial

measures generally used

the

financial

community

evaluate

capital

adequacy.

Tangible

common

equity

total

common

equity

less

goodwill

and

other

intangible

assets.

Tangible

assets

are

total

assets

less

the

previously

mentioned

intangible

assets.

See

“Non-GAAP

Financial

Measures and Reconciliations” above for additional information.

112

The

following

table

reconciliation

the

Corporation’s

tangible

common

equity

and

tangible

assets,

non-GAAP

financial

measures, to total equity and total assets, respectively,

as of September 30,2023 and December 31, 2022, respectively:

September 30, 2023

December 31, 2022

(In thousands, except ratios and per share information)

Total equity

- GAAP

1,303,068

1,325,540

Goodwill

(38,611)

Purchased credit card relationship intangible

(205)

Core deposit intangible

(15,229)

(20,900)

Insurance customer relationship intangible

(13)

Tangible common

equity - non-GAAP

1,249,228

1,265,811

Total assets - GAAP

18,594,608

18,634,484

Goodwill

(38,611)

Purchased credit card relationship intangible

(205)

Core deposit intangible

(15,229)

(20,900)

Insurance customer relationship intangible

(13)

Tangible assets -

non-GAAP

18,540,768

18,574,755

Common shares outstanding

174,386

182,709

Tangible common

equity ratio - non-GAAP

6.74%

6.81%

Tangible book

value per common share - non-GAAP

7.16

6.93

See Note

22 -

Regulatory Matters,

Commitments and

Contingencies, to

the unaudited

consolidated financial

statements herein

for

the regulatory capital positions of the Corporation and FirstBank as of September

30, 2023 and December 31, 2022, respectively.

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”)

requires

that

minimum

10%

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without the

prior consent of the Puerto

Rico Commissioner of Financial Institutions.

The Puerto Rico Banking

Law

provides that,

when the

expenditures of

a Puerto

Rico commercial

bank are

greater than

receipts, the

excess of

the expenditures

over

receipts

must

charged

against

the

undistributed

profits

the

bank,

and

the

balance,

any,

must

charged

against

the

legal

surplus

reserve,

reduction

thereof.

the

legal

surplus

reserve

not

sufficient

cover

such

balance

whole

part,

the

outstanding

amount

must

be charged

against

the

capital

account

and

the

Bank

cannot

pay

dividends

until

can

replenish

the

legal

surplus reserve

to an

amount of

at least

20% of

the original

capital contributed.

FirstBank’s

legal surplus

reserve, included

as part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted

$168.5

million

each

September

30, 2023

and

December 31,

2022,

respectively.

There

were no

transfers to

the legal

surplus

reserve

during the

first nine

months of 2023.

113

Interest Rate Risk Management

First

BanCorp

manages

its

asset/liability

position

limit

the

effects

changes

interest

rates

net

interest

income

and

maintain stability

of profitability

under varying

interest rate

scenarios. The

MIALCO oversees

interest rate

risk and

monitors, among

other things, current

and expected conditions

in global financial

markets, competition

and prevailing rates

in the local

deposit market,

liquidity,

loan

originations

pipeline,

securities

market

values,

recent

proposed

changes

the

investment

portfolio,

alternative

funding sources

and related costs,

hedging and the

possible purchase of

derivatives such as

swaps and caps,

and any tax

or regulatory

issues which may be

pertinent to these areas.

The MIALCO approves funding

decisions in light of

the Corporation’s

overall strategies

and objectives.

On at least a quarterly basis, the Corporation performs a

consolidated net interest income simulation analysis to estimate the

potential

change

future

earnings

from

projected

changes

interest

rates.

These

simulations

are

carried

out

over

one-to-five-year

time

horizon. The

rate scenarios

considered in

these simulations

reflect gradual

upward or

downward interest

rate movements

in the

yield

curve,

for

gradual

(ramp)

parallel

shifts

the

yield

curve

200

and

300

basis

points

(“bps”)

during

twelve-month

period,

immediate

upward

downward

changes

interest

rate

movements

200

bps,

for

interest

rate

shock

scenarios.

The

Corporation

carries out the simulations in two ways:

(1)

Using a static balance sheet, as the Corporation had on the simulation

date, and

(2)

Using a dynamic balance sheet based on recent patterns and current strategies.

The balance

sheet is

divided into

groups of

assets and

liabilities by

maturity or

repricing structure

and their

corresponding

interest

yields and

costs. As interest

rates rise or

fall, these

simulations incorporate

expected future

lending rates,

current and

expected future

funding sources

and costs,

the possible

exercise of

options, changes

in prepayment

rates, deposit

decay and

other factors,

which may

be important in projecting net interest income.

The Corporation uses

a simulation model

to project future movements

in the Corporation’s

balance sheet and

income statement. The

starting point

of the

projections corresponds

to the

actual values

on the

balance

sheet on

the

simulation

date.

These simulations

are

highly complex

and are based

on many assumptions

that are intended

to reflect the

general behavior of

the balance sheet

components

over the modeled periods. It is unlikely that actual events

will match these assumptions in all cases. For this reason, the results

of these

forward-looking

computations

are

only

approximations

the

sensitivity

net

interest

income

changes

market

interest

rates.

Several benchmark

and market rate

curves were

used in the

modeling process,

primarily the LIBOR/Swap

curve, SOFR

curve, Prime

Rate, U.S. Treasury

yield curve, FHLB

rates, brokered CDs

rates, repurchase

agreements rates, and

the mortgage commitment

rate of

30 years.

As of

September 30,

2023, the

Corporation forecasted

the 12-month

net interest

income assuming

September 30,

2023 interest

rate

curves remain constant.

Then, net interest income was

estimated under rising

and falling rates scenarios.

For the rising rate

scenario, a

gradual (ramp)

and immediate

(shock) parallel

upward shift

of the

yield curve

is assumed

during the

first twelve

months (the

“+300

ramp”, “+200

ramp” and

“+200 shock”

scenarios). Conversely,

for the

falling rate

scenario, a

gradual (ramp)

and immediate

(shock)

parallel downward shift

of the yield curve

is assumed during the

first twelve months (the

“-300 ramp”, “-200

ramp” and “-200

shock”

scenarios).

The SOFR curve for

September 30, 2023, as

compared to December 31,

2022, reflects an increase

of 70 bps on

average in the short-

term sector

of the

curve, or

between one

to twelve

months;

58 bps

in the

medium-term sector

of the

curve, or

between 2

to 5

years;

and 71

bps in

the long-term

sector of

the curve,

or over

5-year maturities.

An increase

in market

rates changes

was also

observed in

the Constant Maturity Treasury yield curve

with an increase of 102 bps in the short-term sector,

60 bps in the medium-term sector, and

75 bps in the long-term sector.

114

The following table presents the results of the static simulations as of September 30, 2023

and December 31, 2022. Consistent with

prior years, these exclude non-cash changes in the fair value of derivatives:

Net Interest Income Risk

(% Change Projected for the next 12 months)

September 30, 2023

December 31, 2022

Gradual Change in Interest Rates:

+ 300 bps ramp

0.00

1.42

- 300 bps ramp

-0.30

-2.78

+ 200 bps ramp

0.00

0.96

- 200 bps ramp

-0.13

-1.61

Immediate Change in Interest Rates:

+ 200 bps shock

1.26

2.35

- 200 bps shock

-2.22

-4.71

The Corporation

continues to

manage its

balance sheet

structure to

control and

limit the

overall interest

rate risk

by managing

its

asset composition while maintaining a sound liquidity position.

See “Risk Management – Liquidity Risk” above for liquidity ratios.

As of September

30, 2023, the net

interest income simulations

show the Corporation

has a relatively neutral

sensitivity position for

the next twelve months under a static balance sheet scenario,

as compared to an asset sensitive position as of December 31, 2022.

The reduction

in interest

rate sensitivity

reflects shifts

in funding

mix, including

an increased

migration from

non-interest-bearing

deposits and

other low-cost

deposits to

higher-cost deposits,

and updated

assumptions about

depositor behavior,

impacting both

beta

and decay assumptions, as a result of the higher interest rate environment

and options outside the traditional banking sector.

Under the

static simulation,

the Corporation

assumes that

maturing instruments

are replaced

with like

instruments at

the repricing

rate with

the proportional

remaining change

in interest

rate in

the period

that the

instrument matures.

The Corporation’s

results may

vary

significantly

from

the

ones

presented

above

under

alternative

balance

sheet

compositions,

such

growing

balance

sheet

scenario

which,

for

example,

would

assume

that

cash

flows

from

the

investment

securities

portfolio

and

loan

repayments

will

redeployed into higher yielding alternatives.

Credit Risk Management

First BanCorp.

is subject

credit

risk

mainly

with

respect to

its portfolio

of loans

receivable

and

off-balance-sheet

instruments,

principally

loan

commitments.

Loans

receivable

represents

loans

that

First

BanCorp.

holds

for

investment

and,

therefore,

First

BanCorp. is at risk for

the term of the loan.

Loan commitments represent commitments

to extend credit, subject

to specific conditions,

for specific amounts

and maturities. These commitments

may expose the Corporation

to credit risk and

are subject to the

same review

and

approval

process

for

loans

made

the

Bank.

See

“Liquidity

Risk”

above

for

further

details.

The

Corporation

manages

its

credit risk through its credit policy,

underwriting, monitoring of loan concentrations and

related credit quality,

counterparty credit risk,

economic and

market conditions, and

legislative or regulatory

mandates. The Corporation

also performs independent

loan review

and

quality

control

procedures,

statistical

analysis,

comprehensive

financial

analysis,

established

management

committees,

and

employs

proactive collection

and loss

mitigation efforts.

Furthermore, personnel

performing structured

loan workout

functions are

responsible

for

mitigating

defaults

and

minimizing

losses

upon

default

within

each

region

and

for

each

business

segment.

the

case

the

commercial

and

industrial,

commercial

mortgage

and

construction

loan

portfolios,

the

Special

Asset

Group

(“SAG”)

focuses

strategies for the

accelerated reduction of

non-performing assets through

note sales, short sales,

loss mitigation programs,

and sales of

OREO. In addition to

the management of the

resolution process for problem

loans, the SAG oversees collection

efforts for all

loans to

prevent migration to the nonaccrual and/or adversely classified

status. The SAG utilizes relationship officers,

collection specialists and

attorneys.

The

Corporation

may

also

have

risk

default

the

securities

portfolio.

The

securities

held

the

Corporation

are

principally

fixed-rate U.S. agencies

MBS and U.S. Treasury

and agencies securities. Thus,

a substantial portion

of these instruments is

backed by

mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.

Management, consisting of the

Corporation’s Commercial

Credit Risk Officer,

Retail Credit Risk Officer,

Chief Credit Officer,

and

other

senior

executives,

has

the

primary

responsibility

for

setting

strategies

achieve

the

Corporation’s

credit

risk

goals

and

objectives. Management has documented these goals and objectives in the Corporation’s

Credit Policy.

115

Allowance for Credit Losses and Non-performing Assets

Allowance for Credit Losses for Loans and

Finance Leases

The ACL

for loans

and finance

leases represents

the estimate

of the

level of

reserves appropriate

to absorb

expected credit

losses

over the estimated life of the

loans. The amount of the allowance

is determined using relevant available

information, from internal and

external sources, relating

to past events, current

conditions, and reasonable

and supportable forecasts.

Historical credit loss experience

significant

input

for

the

estimation

expected

credit

losses,

well

adjustments

historical

loss

information

made

for

differences in current loan-specific

risk characteristics, such as differences

in underwriting standards, portfolio mix,

delinquency level,

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such as

changes in

unemployment

rates, property

values, and

other relevant

factors to

account for

current and

forecasted

market conditions

that are

likely to

cause estimated

credit losses over

the life

of the

loans to differ

from historical

credit losses.

Such

factors are

subject to

regular review

and may

change to

reflect updated

performance trends

and expectations,

particularly in

times of

severe

stress.

The

process

includes

judgments

and

quantitative

elements

that

may

subject

significant

change.

Further,

the

Corporation periodically considers the need for qualitative

reserves to the ACL. Qualitative adjustments may be related

to and include,

but are

not limited

to, factors

such as

the following:

(i) management’s

assessment of

economic forecasts

used in

the model

and how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks such

as credit

concentrations,

collateral

specific risks,

nature

and

size of

the portfolio

and

external

factors that

may

ultimately

impact credit quality,

and (iii) other

limitations associated with

factors such as

changes in underwriting

and loan resolution

strategies,

among others.

The ACL

for loans

and finance

leases is

reviewed at

least on

a quarterly

basis as

part of

the Corporation’s

continued

evaluation of its asset quality.

The Corporation

generally applies

probability weights

to the

baseline and

alternative downside

economic scenarios

to estimate

the

ACL with

the

baseline

scenario

carrying

the highest

weight.

The

scenarios

that are

chosen each

quarter

and

the

weighting

given

each

scenario

for

the

different

loan

portfolio

categories

depend

variety

factors

including

recent

economic

events,

leading

national and

regional economic

indicators, and

industry trends.

During the

third quarter

of 2023,

the Corporation

continued to

apply

the baseline

scenario

for the

commercial

mortgage

and construction

loan portfolios

as deterioration

in the

CRE price

index

these

portfolios is

expected at

a lower

extent than

projected in

the alternative

downside scenario,

particularly in

the Puerto

Rico region.

addition,

during the

third quarter

of 2023,

the Corporation

applied the

alternative downside

scenario for

the credit

cards portfolio

account for

an increased

uncertainty in

charge-off

trends and

projection of

certain macroeconomic

variables, such

as retail sales.

The

economic

scenarios

used

the

ACL

determination

contained

assumptions

economic

uncertainties

associated

with

geopolitical instability,

the CRE price index,

high inflation levels, and

expected future interest

rate adjustments in

the FED funds rate.

September

30,

2023,

the

Corporation’s

ACL

model

considered

the

following

assumptions

for

key

economic

variables

the

probability-weighted economic scenarios:

●

Average

CRE price

index at

the national

level is

forecasted to

contract by

4.19% for

the remainder

of 2023

and 6.49%

for

2024.

●

Regional

Home Price Index forecast in Puerto Rico (purchase only prices)

is projected to remain relatively flat throughout the

remainder of 2023 and 2024, while in the Florida region,

Home Price Index forecast is projected to contract by approximately

5.70%.

●

Average regional

unemployment in Puerto Rico is forecasted at 6.34% for the

remainder of 2023 and 7.22% for 2024. For the

Florida

region

and

the

U.S.

mainland,

average

unemployment

rate

forecasted

3.37%

and

4.03%,

respectively,

for

the

remainder of 2023, and 4.30% and 4.80%, respectively,

for 2024.

●

Annualized real

gross domestic

product (“GDP”)

in the

U.S. mainland

is projected

to grow

at a

slower pace

until the

fourth

quarter of 2024 where it is expected to grow at approximately 0.90%.

It is difficult to estimate how potential changes

in one factor or input might affect the overall ACL because

management considers a

wide variety of

factors and inputs in

estimating the ACL.

Changes in the

factors and inputs considered

may not occur

at the same rate

and may not be consistent

across all geographies or product

types, and changes in factors

and inputs may be directionally

inconsistent,

such that improvement

in one factor

or input may

offset deterioration

in others. However,

to demonstrate the

sensitivity of credit

loss

estimates to macroeconomic

forecasts as of

September 30, 2023

management compared the

modeled estimates under

the probability-

weighted economic

scenarios against a

more adverse scenario.

The more adverse

scenario incorporates an

additional adverse scenario

and decreases

the weight

applied to

the baseline

scenario. Under

this more

adverse scenario,

as an

example, average

unemployment

rate

for

the

Puerto

Rico

region

increases

6.63%

for

the

remainder

2023,

compared

6.34%

for

the

same

period

the

probability-weighted economic scenario projections.

116

demonstrate the sensitivity

to key economic

parameters used in

the calculation of

the ACL at September

30, 2023, management

calculated

the

difference

between

the

quantitative

ACL

and

this

adverse

scenario.

Excluding

consideration

qualitative

adjustments, this sensitivity analysis would result in a hypothetical

increase in the ACL of approximately $44 million

at September 30,

2023.

This analysis

relates only

to the

modeled credit

loss estimates

and is

not intended

to estimate

changes in

the overall

ACL as

does

not

reflect

any

potential

changes

other

adjustments

the

qualitative

calculation,

which

would

also

influenced

the

judgment

management

applies

the

modeled

lifetime

loss

estimates

reflect

the

uncertainty

and

imprecision

these

estimates

based

current

circumstances

and

conditions.

Recognizing

that

forecasts

macroeconomic

conditions

are

inherently

uncertain,

particularly in

light of

recent economic

conditions and

challenges, which

continue to

evolve, management

believes that

its process

consider the

available information

and associated

risks and

uncertainties is

appropriately governed

and that

its estimates

of expected

credit losses were reasonable and appropriate for the period ended

September 30, 2023.

September

30,

2023,

the

ACL

for

loans

and

finance

leases

was

$263.6

million,

increase

$3.1

million,

from

$260.5

million

December

31,

2022.

The

ACL

for

commercial

and

construction

loans

increased

$6.6

million,

mainly

due

deterioration in the forecasted CRE price index to account

for an increased uncertainty in the CRE market at a national level

that could

potentially impact the

markets served by

the Corporation coupled

with the growth

in the commercial

and construction loan

portfolios,

and a

$1.7 million

incremental reserve

recorded during

the third

quarter of

2023 associated

with the

inflow to

nonaccrual status

of a

$9.5

million

commercial

and

industrial

loan

the

Puerto

Rico

region.

The

ACL

for

consumer

loans

increased

$2.1

million,

primarily

reflecting

the

effect

the

increase

the

size

the

consumer

loan

portfolios

and

historical

charge-off

levels,

partially

offset by updated macroeconomic

variables. The unemployment rate

as well as retail sales are still

expected to deteriorate on

the long-

term

outlook

but

slower

pace,

mostly

driven

actual

results

outperforming

projections.

The

ACL

for

residential

mortgage

loans

decreased

$5.6

million,

mainly

driven

updated

macroeconomic

variables,

such

the

Regional

Home

Price

Index and the unemployment rate,

partially offset by a $2.1 million

cumulative increase in the ACL

due to the adoption of

Accounting

Standards Update

(“ASU”) 2022-02,

“Financial Instruments

– Credit

Losses (Topic

326): Troubled

Debt Restructurings

and Vintage

Disclosures”,

for

which

the

Corporation

elected

discontinue

the

use

discounted

cash

flow

methodology

for

restructured

accruing

loans.

See

Note

–

Basis

Presentation

and

Significant

Accounting

Policies

for

additional

information

the

adoption of ASU 2022-02 during 2023.

The ratio

of the ACL

for loans and

finance leases

to total

loans held

for investment

decreased to

2.21%

as of September

30, 2023,

compared to 2.25% as of December 31, 2022. An explanation for the change

for each portfolio follows:

●

The

ACL

total

loans

ratio

for

the

residential

mortgage

portfolio

decreased

from

2.20%

December

31,

2022

2.03% as of September

30, 2023, primarily

reflecting updated macroeconomic

variables, such as the

Regional Home Price

Index and the

unemployment rate, partially

offset by the

aforementioned $2.1

million cumulative increase

in the ACL due

to the adoption of ASU 2022-02 during the first quarter of 2023.

●

The ACL

to total

loans ratio

for the

construction loan

portfolio increased

from 1.74%

as of

December 31,

2022 to

2.77%

as of September 30, 2023 mainly due to the aforementioned deterioration

in the forecasted CRE price index.

●

The

ACL

total

loans

ratio for

the

commercial

mortgage

portfolio

increased

from

1.49%

December

31,

2022

1.78% as of September 30, 2023, mainly due to the aforementioned deterioration

in the forecasted CRE price index.

●

The ACL to total loans ratio

for the commercial and industrial portfolio

decreased from 1.14% as of December

31, 2022 to

0.99% as of September 30, 2023, mainly due to

updated macroeconomic variables, such as the unemployment

rate, and the

aforementioned

repayment

$24.3

million

adversely

classified

commercial

and

industrial

participated

loan

the

Florida region, partially

offset by the

aforementioned $1.7 million

incremental reserve recorded

during the third

quarter of

2023 associated

with the

inflow to

nonaccrual

status of

a $9.5

million commercial

and industrial

loan in

the Puerto

Rico

region.

●

The ACL to

total loans ratio

for the consumer

loan portfolio decreased

from 3.83% as

of December

31, 2022

to 3.61% as

of September 30, 2023, mainly due to the aforementioned updates in macroeconomic

variables.

The ratio

of the

total ACL

for loans

and finance

leases to

nonaccrual loans

held for

investment was

282.96% as

of September

30,

2023,

compared to 289.61%

as of December 31, 2022.

Substantially all of

the Corporation’s

loan portfolio is

located within the

boundaries of the

U.S. economy.

Whether the collateral

located in

Puerto Rico,

the U.S.

and British

Virgin

Islands, or

the U.S.

mainland (mainly

in the

state of

Florida), the

performance of

the Corporation’s

loan portfolio and

the value of

the collateral supporting

the transactions are

dependent upon the

performance of and

conditions

within each

specific area’s

real estate

market. The

Corporation believes

it sets

adequate loan-to-value

ratios following

its

regulatory and credit policy standards.

117

As shown

in the

following tables,

the ACL

for loans

and finance

leases amounted

to $263.6

million as

of September

30, 2023,

2.21% of

total loans,

compared with

$260.5 million,

or 2.25%

of total

loans, as

of December

31, 2022.

See “Results

of Operations

Provision for Credit Losses” above for additional information.

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(Dollars in thousands)

ACL for loans and finance leases, beginning of year

267,058

252,152

260,464

269,030

Impact of adoption of ASU 2022-02

2,116

Provision for credit losses - (benefit) expense:

Residential mortgage

(3,349)

755

(6,776)

(6,913)

Construction

(642)

(179)

1,420

(2,242)

Commercial mortgage

(1,344)

(2,383)

5,901

(23,758)

Commercial and industrial

1,931

(1,228)

3,278

(575)

Consumer and finance leases

14,047

17,387

43,846

43,516

Total provision for credit losses

- expense

10,643

14,352

47,669

10,028

Charge-offs:

Residential mortgage

(499)

(1,466)

(2,628)

(6,073)

Construction

(4)

(63)

(42)

(123)

Commercial mortgage

(1)

(3)

(107)

(42)

Commercial and industrial

(9)

(8)

(6,477)

(366)

Consumer and finance leases

(19,746)

(12,522)

(53,006)

(32,765)

Total charge offs

(20,259)

(14,062)

(62,260)

(39,369)

Recoveries:

Residential mortgage

534

559

1,788

3,228

Construction

1,463

1,935

138

Commercial mortgage

299

1,319

Commercial and industrial

161

494

383

2,118

Consumer and finance leases

3,940

4,264

11,221

11,367

Total recoveries

6,173

5,417

15,626

18,170

Net charge-offs

(14,086)

(8,645)

(46,634)

(21,199)

ACL for loans and finance leases, end of period

263,615

257,859

263,615

257,859

ACL for loans and finance leases to period-end total loans

held for investment

2.21%

2.28%

2.21%

2.28%

Net charge-offs (annualized) to average loans

outstanding during the period

0.48%

0.31%

0.54%

0.25%

Provision for credit losses - expense for loans and finance

leases to net charge-offs during

the period

0.76x

1.66x

1.02x

0.47x

118

The following tables set forth information concerning the composition of the

Corporation's loan portfolio and related ACL by

loan category, and the percentage

of loan balances in each category to the total of such loans as of the indicated dates:

As of September 30,

2023

Residential

Mortgage

Loans

Commercial

Mortgage

Loans

C&I Loans

Consumer and

Finance

Leases

Construction

Loans

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

2,812,631

202,774

2,316,113

3,030,954

3,588,460

11,950,932

Percent of loans in each category to total loans

100

Allowance for credit losses

57,200

5,621

41,157

30,097

129,540

263,615

Allowance for credit losses to amortized cost

2.03

2.77

1.78

0.99

3.61

2.21

As of December 31, 2022

Residential

Mortgage

Loans

Commercial

Mortgage

Loans

C&I Loans

Consumer and

Finance Leases

Construction

Loans

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

2,847,290

132,953

2,358,851

2,886,263

3,327,468

11,552,825

Percent of loans in each category to total loans

100

Allowance for credit losses

62,760

2,308

35,064

32,906

127,426

260,464

Allowance for credit losses to amortized cost

2.20

1.74

1.49

1.14

3.83

2.25

Allowance for Credit Losses for Unfunded Loan

Commitments

The Corporation estimates

expected credit losses

over the contractual

period in which

the Corporation is

exposed to credit

risk as a

result

contractual

obligation

extend

credit,

such as

pursuant

to unfunded

loan

commitments

and

standby

letters of

credit

for

commercial and

construction loans,

unless the

obligation is

unconditionally cancellable

by the

Corporation. The

ACL for

off-balance

sheet

credit

exposures

adjusted

provision

for

credit loss

expense.

September

30,

2023,

the

ACL

for

off-balance

sheet

credit exposures

increased by

$0.5 million

to $4.8

million, when

compared to

December 31,

2022, driven

by the

deterioration in

the

forecasted CRE price index and its effect in construction unfunded

loan commitments.

Allowance for Credit Losses for Held-to-Maturity

Debt Securities

As of

September

30,

2023,

the ACL

for

held-to-maturity

securities

portfolio

was entirely

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

securities,

but

which

were

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

September

30,

2023,

the

ACL

for

held-to-maturity

debt

securities was $2.3

million, compared to

$8.3 million as of

December 31, 2022.

The decrease was mostly

driven by the refinancing

a $46.5 million municipal bond

into a shorter-term commercial loan

structure and, to a lesser extent, a reduction

in qualitative reserves

driven by updated financial information of certain bond issuers received

during the third quarter of 2023.

Allowance for Credit Losses for Available

-for-Sale Debt Securities

The

ACL

for

available-for-sale

debt

securities,

which

associated

with

private

label

MBS

and

residential

pass-through

MBS

issued by the PRHFA, was $0.5

million as of each of September 30, 2023 and December 31, 2022.

119

Nonaccrual Loans and Non-performing Assets

Total

non-performing

assets

consist

nonaccrual

loans

(generally

loans

held

for

investment

loans

held

for

sale

which

the

recognition of

interest income

was discontinued

when the

loan became

90 days

past due

or earlier

if the

full and

timely collection

interest or principal

is uncertain), foreclosed

real estate and

other repossessed properties,

and non-performing

investment securities, if

any.

When a

loan is placed

in nonaccrual

status, any

interest previously

recognized and

not collected

is reversed

and charged

against

interest

income.

Cash

payments

received

are

recognized

when

collected

accordance

with

the

contractual

terms

the

loans.

The

principal

portion

of the

payment is

used to

reduce

the principal

balance

of the

loan,

whereas the

interest portion

is recognized

on a

cash basis

(when collected).

However,

when management

believes that

the ultimate

collectability of

principal is

in doubt,

the interest

portion

applied

the

outstanding

principal.

The

risk

exposure

this

portfolio

diversified

individual

borrowers

and

industries, among other factors. In addition, a large portion

is secured with real estate collateral.

Nonaccrual Loans Policy

Residential Real Estate Loans

— The Corporation generally classifies real estate loans in nonaccrual

status when it has not received

interest and principal for a period of 90 days or more.

Commercial

and

Construction

Loans

—

The

Corporation

classifies

commercial

loans

(including

commercial

real

estate

and

construction loans) in nonaccrual

status when it has not

received interest and principal

for a period of 90

days or more or when

it does

not expect to collect all of the principal or interest due to deterioration in the financial condition

of the borrower.

Finance Leases

— The Corporation

classifies finance leases

in nonaccrual status

when it has not

received interest and

principal for

a period of 90 days or more.

Consumer Loans

— The Corporation

classifies consumer

loans in nonaccrual

status when it

has not received

interest and

principal

for a period of 90 days or more. Credit card loans continue to accrue finance

charges and fees until charged-off at 180

days delinquent.

Purchased

Credit Deteriorated

Loans (“PCD”)

— For

PCD loans,

the nonaccrual

status is

determined in

the same

manner as

for

other loans,

except for

PCD loans

that prior

to the

adoption of

CECL were

classified as

purchased credit

impaired (“PCI”)

loans and

accounted

for

under

ASC

Subtopic

310-30,

“Receivables

–

Loans

and

Debt

Securities

Acquired

with

Deteriorated

Credit

Quality”

(“ASC

Subtopic

310-30”).

allowed

CECL,

the

Corporation

elected

maintain

pools

loans

accounted

for

under

ASC

Subtopic 310-30

as “units

of accounts,”

conceptually treating

each pool

as a

single asset.

Regarding interest

income recognition,

the

prospective

transition

approach

for

PCD loans

was applied

pool

level, which

froze

the

effective

interest

rate of

the pools

as of

January

1, 2020.

According

to regulatory

guidance,

the determination

of nonaccrual

or accrual

status for

PCD loans

with respect

which the Corporation has made

a policy election to maintain previously

existing pools upon adoption of CECL

should be made at the

pool level, not the individual

asset level. In addition, the guidance

provides that the Corporation can continue

accruing interest and not

report

the PCD

loans as

being

in nonaccrual

status if

the following

criteria are

met: (i)

the Corporation

can reasonably

estimate

the

timing and amounts of

cash flows expected to

be collected; and (ii)

the Corporation did not

acquire the asset primarily

for the rewards

of ownership

of the

underlying collateral,

such as

the use

in operations

or improving

the collateral

for resale.

Thus, the

Corporation

continues to exclude these pools of PCD loans from nonaccrual loan statistics.

Other Real Estate Owned

OREO

acquired

settlement

loans

carried

fair

value

less

estimated

costs

sell

the

real

estate

acquired.

Appraisals

are

obtained periodically,

generally on an annual basis.

Other Repossessed Property

The

other

repossessed

property

category

consists

of a

residential

pass-through

MBS

issued

the

PRHFA placed

non-performing

status

the

second

quarter of 2021 based on the delinquency status of the underlying second

mortgage loans.

120

Loans Past-Due 90 Days and Still Accruing

These are accruing loans

that are contractually delinquent

90 days or more. These

past-due loans are either

current as to interest but

delinquent as to the

payment of principal (i.e.,

well secured and in process

of collection) or are

insured or guaranteed under

applicable

FHA,

VA,

other

government-guaranteed

programs

for

residential

mortgage

loans.

Furthermore,

required

instructions

regulatory

reports,

loans

past

due

days

and

still

accruing

include

loans

previously

pooled

into

GNMA

securities

for

which

the

Corporation

has

the

option

but

not

the

obligation

repurchase

loans

that

meet

GNMA’s

specified

delinquency

criteria

(e.g.,

borrowers

fail

make

any

payment

for

three

consecutive

months).

For

accounting

purposes,

these

GNMA

loans

subject

the

repurchase option are required to be reflected in

the financial statements with an offsetting liability.

In addition, loans past due 90 days

and

still

accruing

include

PCD

loans,

mentioned

above,

and

credit

cards

that

continue

accruing

interest

until

charged-off

180

days.

The following table presents non-performing assets as of the indicated dates:

September 30, 2023

December 31, 2022

(Dollars in thousands)

Nonaccrual loans held for investment:

Residential mortgage

31,946

42,772

Construction

1,640

2,208

Commercial mortgage

21,632

22,319

Commercial and Industrial

18,809

7,830

Consumer and finance leases

19,137

14,806

Total nonaccrual loans held for investment

93,164

89,935

OREO

28,563

31,641

Other repossessed property

7,063

5,380

Other assets

(1)

1,448

2,202

Total non-performing assets

130,238

129,158

Past due loans 90 days and still accruing

(2) (3) (4)

62,892

80,517

Non-performing assets to total assets

0.70

0.69

Nonaccrual loans held for investment to total loans held for investment

0.78

ACL for loans and finance leases

263,615

260,464

ACL for loans and finance leases to total nonaccrual loans held

for investment

282.96

289.61

ACL for loans and finance leases to total nonaccrual loans held

for investment, excluding residential real estate loans

430.62

552.26

(1)

Residential pass-through MBS issued by the PRHFA

held as part of the available-for-sale debt securities

portfolio.

(2)

Includes PCD loans previously accounted for under ASC Subtopic 310-30

for which the Corporation made the accounting policy

election of maintaining pools of loans as “units of

account” both at the time of adoption of CECL on January

1, 2020 and on an ongoing basis for credit loss measurement.

These loans will continue to be excluded from nonaccrual loan

statistics as long as the Corporation can reasonably estimate the

timing and amount of cash flows expected to be collected on

the loan pools. The portion of such loans contractually past due

90 days or more amounted to $8.9 million and $12.0 million as of

September 30,

2023 and December 31, 2022, respectively.

(3)

Includes FHA/VA

government-guaranteed residential mortgage as

loans past-due 90 days and still accruing as opposed

to nonaccrual loans. The Corporation continues accruing interest on

these loans until they have passed the 15 months delinquency mark,

taking into consideration the FHA interest curtailment process.

These balances include $17.4 million and $28.2 million

of FHA government guaranteed residential mortgage loans that were

over 15 months delinquent as of September 30,

2023 and December 31, 2022, respectively.

(4)

Includes rebooked loans, which were previously pooled into

GNMA securities, amounting to $8.5 million and $10.3 million as

of September 30, 2023 and December 31, 2022, respectively.

Under the GNMA program, the Corporation has the option but not

the obligation to repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes,

the loans

subject to the repurchase option are required to be reflected

on the financial statements with an offsetting liability.

121

Total nonaccrual

loans were $93.2 million as of September

30, 2023. This represents an increase

of $3.3 million from $89.9 million

as of

December 31,

2022, primarily

related to

increases of

$9.8 million

and $4.4

million in

nonaccrual commercial

and construction

loans

and

nonaccrual

consumer

loans,

respectively,

partially

offset

$10.9

million

reduction

nonaccrual

residential

mortgage

loans.

The following table shows non-performing assets by geographic segment

as of the indicated dates:

September 30, 2023

December 31, 2022

(In thousands)

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

19,378

28,857

Construction

669

831

Commercial mortgage

13,220

14,341

Commercial and Industrial

15,779

5,859

Consumer and finance leases

18,564

14,142

Total nonaccrual loans held for investment

67,610

64,030

OREO

23,547

28,135

Other repossessed property

6,799

5,275

Other assets

1,448

2,202

Total non-performing assets

99,404

99,642

Past due loans 90 days and still accruing

57,834

76,417

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

5,871

6,614

Construction

971

1,377

Commercial mortgage

8,412

7,978

Commercial and Industrial

1,094

1,179

Consumer

475

469

Total nonaccrual loans held for investment

16,823

17,617

OREO

4,638

3,475

Other repossessed property

264

Total non-performing assets

21,725

21,168

Past due loans 90 days and still accruing

4,678

4,100

United States:

Nonaccrual loans held for investment:

Residential mortgage

6,697

7,301

Commercial and Industrial

1,936

792

Consumer

195

Total nonaccrual loans held for investment

8,731

8,288

OREO

378

Other repossessed property

Total non-performing assets

9,109

8,348

Past due loans 90 days and still accruing

380

122

Nonaccrual

commercial

and

industrial

loans

increased

$11.0

million

$18.8

million

September

30,

2023,

from

$7.8

million as of December 31, 2022.

For the nine-month period ended

September 30, 2023, inflows to

nonaccrual included a $9.5 million

commercial and industrial

loan in the Puerto

Rico region and a

$7.1 million commercial

and industrial participated

loan in the

Florida

region in the power generation industry,

in which a $6.2 million charge was recorded.

Nonaccrual

construction

loans

decreased

$0.6

million

$1.6

million

September

30,

2023,

from

$2.2

million

December 31, 2022.

Nonaccrual commercial mortgage loans decreased

by $0.6 million to $21.7 million as of September

30, 2023, from $22.3 million as

of December 31, 2022.

The following tables present the activity of commercial and construction

nonaccrual loans held for investment for the indicated

periods:

Construction

Commercial

Mortgage

Commercial &

Industrial

Total

(In thousands)

Quarter Ended September 30, 2023

Beginning balance

1,677

21,536

9,194

32,407

Plus:

Additions to nonaccrual

522

10,569

11,091

Less:

Loans returned to accrual status

(199)

Nonaccrual loans transferred to OREO

(547)

Nonaccrual loans charge-offs

(1)

(9)

(10)

Loan collections

(37)

(425)

(199)

(661)

Ending balance

1,640

21,632

18,809

42,081

Construction

Commercial

Mortgage

Commercial &

Industrial

Total

(In thousands)

Quarter Ended September 30, 2022

Beginning balance

2,375

24,753

17,079

44,207

Plus:

Additions to nonaccrual

179

181

Less:

Loans returned to accrual status

(189)

(75)

(264)

Nonaccrual loans transferred to OREO

(50)

Nonaccrual loans charge-offs

(58)

(2)

(8)

(68)

Loan collections

(32)

(821)

(1,460)

(2,313)

Ending balance

2,237

23,741

15,715

41,693

123

Construction

Commercial

Mortgage

Commercial &

Industrial

Total

(In thousands)

Nine-Month Period Ended September 30, 2023

Beginning balance

2,208

22,319

7,830

32,357

Plus:

Additions to nonaccrual

127

1,505

20,730

22,362

Less:

Loans returned to accrual status

(361)

(725)

(1,086)

Nonaccrual loans transferred to OREO

(332)

(223)

(730)

(1,285)

Nonaccrual loans charge-offs

(107)

(6,477)

(6,584)

Loan collections

(363)

(1,507)

(1,819)

(3,689)

Reclassification

Ending balance

1,640

21,632

18,809

42,081

Construction

Commercial

Mortgage

Commercial &

Industrial

Total

(In thousands)

Nine-Month Period Ended September 30, 2022

Beginning balance

2,664

25,337

17,135

45,136

Plus:

Additions to nonaccrual

2,934

2,337

5,291

Less:

Loans returned to accrual status

(48)

(547)

(539)

(1,134)

Nonaccrual loans transferred to OREO

(130)

(549)

(273)

(952)

Nonaccrual loans charge-offs

(114)

(41)

(335)

(490)

Loan collections

(155)

(2,991)

(3,012)

(6,158)

Reclassification

(402)

402

Ending balance

2,237

23,741

15,715

41,693

124

Nonaccrual

residential mortgage

loans decreased

by $10.9

million to

$31.9 million

as of

September 30,

2023, compared

to $42.8

million as of

December 31, 2022.

The decrease was

primarily related to

$10.4 million of

loans restored to

accrual status, $5.2

million

of loans transferred to OREO, and $4.0 million in collections, partially offset

by inflows of $9.6 million.

The following table presents the activity of residential nonaccrual loans held for investment

for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(In thousands)

Beginning balance

33,252

44,588

42,772

55,127

Plus:

Additions to nonaccrual

4,510

4,782

9,600

14,513

Less:

Loans returned to accrual status

(3,788)

(3,630)

(10,439)

(12,411)

Nonaccrual loans transferred to OREO

(984)

(495)

(5,243)

(2,617)

Nonaccrual loans charge-offs

(83)

(356)

(704)

(1,306)

Loan collections

(961)

(1,853)

(4,034)

(10,270)

Reclassification

(6)

Ending balance

31,946

43,036

31,946

43,036

The amount of nonaccrual

consumer loans, including finance

leases, increased by $4.4

million to $19.2 million

as of September 30,

2023,

compared

$14.8

million

as of

December

31,

2022.

The

increase

was mainly

reflected

the

auto

loans

and

finance

leases

portfolio.

As of September 30, 2023,

approximately $26.5 million of

the loans placed in nonaccrual status,

mainly commercial and residential

loans,

were current, or had

delinquencies of less than

90 days in their interest

payments.

Collections on these loans

are being recorded

on a cash basis through earnings, or on a cost-recovery basis, as conditions

warrant.

During the nine-month period ended

September 30, 2023, interest income of

approximately $0.2 million related to

nonaccrual loans

with a

carrying value

of $34.9

million as

of September

30, 2023,

mainly nonaccrual

commercial and

construction loans,

was applied

against the related principal balances under the cost-recovery method.

Total loans in early

delinquency (

i.e.

, 30-89 days past due loans, as defined in regulatory reporting

instructions) amounted to $137.0

million as of

September 30, 2023,

an increase of

$32.1 million, compared

to $104.9 million

as of December

31, 2022.

The variances

by major portfolio categories are as follows:

●

Consumer loans in early delinquency increased by $25.7 million to

$96.6 million, mainly in the auto loans portfolio.

●

Residential mortgage loans in early delinquency increased by $5.9

million to $34.1 million.

●

Commercial and construction loans in early delinquency increased

by $0.5 million to $6.3 million.

In addition,

the Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

as well

as other

restructurings

of individual

C&I, commercial

mortgage, construction,

and residential

mortgage loans.

See

Note

–

Basis

Presentation

and

Significant

Accounting

Policies,

the

unaudited

consolidated

financial

statements

herein

for

additional information

related to

the accounting

policies of

loan modifications

granted to

borrowers experiencing

financial difficulty.

addition,

see

Note

Loans

Held

for

Investment,

the

unaudited

consolidated

financial

statements

herein

for

additional

information and statistics about the Corporation’s

modified loans.

125

The

OREO

portfolio,

which

part

non-performing

assets,

amounted

$28.6

million

September

30,

2023

and

$31.6

million as

of December

31, 2022.

The following

tables show

the composition

of the

OREO portfolio

as of

September 30,

2023 and

December 31,

2022, as well

as the activity

of the OREO

portfolio by geographic

area during the

nine-month period

ended September

30, 2023:

OREO Composition by Region

As of September 30, 2023

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

18,971

1,769

20,740

Construction

1,802

1,861

Commercial

2,774

2,810

378

5,962

23,547

4,638

378

28,563

As of December 31, 2022

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

23,388

606

24,025

Construction

1,705

1,764

Commercial

3,042

2,810

5,852

28,135

3,475

31,641

OREO Activity by Region

Nine-Month Period Ended September 30, 2023

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

28,135

3,475

31,641

Additions

12,602

1,970

378

14,950

Sales

(15,930)

(776)

(31)

(16,737)

Write-downs and other adjustments

(1,260)

(31)

(1,291)

Ending Balance

23,547

4,638

378

28,563

126

Net Charge-offs and Total

Credit Losses

Net charge-offs

totaled $14.1

million for

the third

quarter of

2023,

or 0.48% of

average loans

on an annualized

basis, compared

$8.6

million, or

an annualized

0.31%

of average

loans, for

the third

quarter of

2022. For

the nine-month

period ended

September 30,

2023,

net

charge-offs

totaled

$46.6

million,

annualized

0.54%

average

loans,

compared

to $21.1

million,

or an

annualized

0.25% of average loans,

for the same period in 2022.

Consumer

loans

and

finance

leases

net

charge-offs

for

the

third

quarter

2023

were

$15.8

million,

annualized

1.79%

related average

loans, compared

to $8.3

million, or

an annualized

1.05% of

related average

loans, for

the third

quarter of

2022. Net

charge-offs

of consumer

loans and

finance leases

for the

nine-month period

ended September

30, 2023

were $41.8

million, or

1.61%

of related average loans, compared to $21.4 million, or an annualized

0.94% of related average loans, for the same period in 2022.

Commercial and

industrial loans

net recoveries

for the

third quarter

of 2023

were $0.2

million, or

an annualized

0.02% of

average loans,

compared to

$0.5 million,

or an

annualized 0.07%

of related

average loans,

for the

third quarter

of 2022.

Commercial

and

industrial

loans

net

charge-offs

for

the

nine-month

period

ended

September

30,

2023

were

$6.1

million,

0.28%

average

loans,

compared

to net

recoveries

of $1.8

million,

annualized

0.08%

average

loans, for

the same

period

2022. The net charge-offs

for the first nine months of 2023 included a $6.2

million charge-off recorded on a commercial

and industrial

participated loan in the Florida region in the power generation industry.

Construction loans

net recoveries for

the third

quarter of

2023 were $1.4

million, or an

annualized 3.18%

of related

average loans,

compared

net

charge-offs

$20

thousand,

annualized

0.07%

average

loans,

for

the

same

period

2022.

Construction loans

net recoveries

for the nine

-month period

ended September

30, 2023

were $1.9

million, or

an annualized

1.58% of

related average

loans, compared

to $15

thousand, or

an annualized

0.02% of

related average

loans, for

the same

period in

2022. The

net recoveries

for the

third quarter

and first

nine months

of 2023

included a

$1.4 million

recovery recorded

on a

construction loan

the Puerto Rico region.

Residential

mortgage

loans

net

recoveries

for

the

third

quarter

2023

were

$35

thousand,

annualized

0.01%

average loans,

compared to

net-charge-offs

of $0.9

million, or

an annualized

0.13% of

related average

loans, for

the third

quarter of

2022.

Residential

mortgage

loans

net

charge-offs

for

the

nine-month

period

ended

September

30,

2023

were

$0.8

million,

annualized 0.04%

of related

average loans,

compared to

$2.8 million,

or an

annualized 0.13%

of related

average loans,

for the

same

period of

2022. Approximately

$0.1 million

of charge-offs

for the

third quarter

of 2023

and $0.6

million for

the first

nine months

2023 resulted

from valuations

of collateral

dependent

residential mortgage

loans, compared

to $0.3

million

and $1.2

million

for the

comparable

periods

2022,

respectively.

Charge-offs

residential

mortgage

loans

also

included

$0.3

million

and

$1.2

million

foreclosures

recorded

the

third

quarter

and

first nine

months

2023,

respectively,

compared

$0.6

million

and

$2.4

million, recorded for the comparable periods in 2022, respectively.

Commercial

mortgage

loans

net

recoveries

for

the

third

quarter

2023

were

$0.1

million,

annualized

0.01%

average

loans,

relatively

unchanged

compared

to the

third quarter

of 2022.

Commercial mortgage

loans net

recoveries for

the nine-

month

period

ended

September

30,

2023

were

$0.2

million,

annualized

0.01%

average

loans,

compared

$1.3

million, or

an annualized

0.08% of related

average loans,

for the same

period in

2022. Commercial

mortgage loans

net recoveries

for

the first nine months of 2022 included recoveries totaling $1.2 million

associated with two commercial mortgage relationships.

127

The following table presents annualized net (recoveries) charge

-offs to average loans held-in-portfolio for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

Residential mortgage

(0.01)

0.13

0.04

0.13

Construction

(3.18)

0.07

(1.58)

(0.02)

Commercial mortgage

(0.01)

(0.08)

Commercial and industrial

(0.02)

(0.07)

0.28

(0.08)

Consumer and finance leases

1.79

1.05

1.61

0.94

Total loans

0.48

0.31

0.54

0.25

The following table presents annualized net (recoveries) charge

-offs to average loans held in various portfolios by geographic

segment for the indicated periods:

Quarter Ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

PUERTO RICO:

Residential mortgage

0.15

0.06

0.16

Construction

(7.30)

0.53

(4.32)

0.09

Commercial mortgage

(0.01)

(0.05)

Commercial and industrial

(0.03)

(0.11)

(0.13)

Consumer and finance leases

1.78

1.04

1.61

0.94

Total loans

0.59

0.38

0.58

0.32

VIRGIN ISLANDS:

Residential mortgage

(0.12)

0.30

0.19

Construction

0.42

Commercial mortgage

(0.21)

(0.22)

(0.02)

(0.22)

Consumer and finance leases

2.15

1.67

0.33

1.35

Total loans

0.26

0.36

0.05

0.24

FLORIDA:

Residential mortgage

(0.01)

(0.05)

(0.02)

(0.03)

Construction

(0.05)

(0.04)

(0.05)

(0.06)

Commercial mortgage

(0.03)

(0.14)

Commercial and industrial

(0.01)

0.88

Consumer and finance leases

(0.16)

0.47

(0.37)

(0.16)

Total loans

(0.01)

0.39

(0.05)

The above ratios are

based on annualized charge

-offs and are not

necessarily indicative of the

results expected for the

entire year or

in subsequent periods.

Total net

charge-offs net of gains on

OREO operations for the first nine

months of 2023 amounted to $40.5 million,

or a loss rate of

0.46% on an annualized

basis of average loans

and repossessed assets, compared

to losses of $17.9

million, or a loss

rate of 0.21% on

an annualized basis, for the same period in 2022.

128

The following table presents information about the OREO inventory

and credit losses for the indicated periods:

Quarter ended September 30,

Nine-Month Period Ended September 30,

2023

2022

2023

2022

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

20,740

30,036

20,740

30,036

Construction

1,861

2,613

1,861

2,613

Commercial

5,962

6,033

5,962

6,033

Total

28,563

38,682

28,563

38,682

OREO activity (number of properties):

Beginning property inventory

320

431

344

418

Properties acquired

139

Properties disposed

(75)

(49)

(202)

(145)

Ending property inventory

281

412

281

412

Average holding period (in days)

Residential

464

656

464

656

Construction

2,302

2,192

2,302

2,192

Commercial

2,598

2,420

2,598

2,420

Total average holding period (in days)

1,029

1,035

1,029

1,035

OREO operations gain (loss):

Market adjustments and gains (losses) on sale:

Residential

2,577

1,159

7,620

4,139

Construction

(7)

107

Commercial

408

(26)

329

Total net gain

2,670

1,560

7,693

4,575

Other OREO operations expenses

(517)

(496)

(1,560)

(1,306)

Net Gain on OREO operations

2,153

1,064

6,133

3,269

RECOVERIES (CHARGE-OFFS)

Residential recoveries (charge-offs), net

(907)

(840)

(2,845)

Construction recoveries (charge-offs), net

1,459

(20)

1,893

Commercial recoveries (charge-offs) , net

226

540

(5,902)

3,029

Consumer and finance leases charge-offs, net

(15,806)

(8,258)

(41,785)

(21,398)

Total charge-offs,

net

(14,086)

(8,645)

(46,634)

(21,199)

TOTAL CREDIT LOSSES

(1)

(11,933)

(7,581)

(40,501)

(17,930)

(GAIN) LOSS RATIO PER CATEGORY

(2)

Residential

(0.37)

(0.03)

(0.32)

(0.06)

Construction

(3.26)

0.09

(1.64)

(0.13)

Commercial

(0.02)

(0.07)

0.15

(0.09)

Consumer

1.78

1.04

1.61

0.94

TOTAL CREDIT LOSS RATIO

(3)

0.40

0.27

0.46

0.21

(1)

Equal to net gain on OREO operations plus charge-offs,

net.

(2)

Calculated as net recoveries (charge-offs) plus

market adjustments and gains (losses) on sale of OREO divided by

average loans and repossessed assets.

(3)

Calculated as net charge-offs plus net gain on OREO

operations divided by average loans and repossessed

assets.

129

Operational Risk

The

Corporation

faces

ongoing

and

emerging

risk

and

regulatory

pressure

the

activities

that

surround

the

delivery

banking

and

financial

products.

Coupled

with

external

influences,

such

market

conditions,

security

risks,

and

legal

risks,

the

potential for

operational and

reputational loss

has increased.

mitigate and

control operational

risk, the

Corporation has

developed,

and continues

to enhance, specific

internal controls,

policies and procedures

that are designed

to identify and

manage operational

risk

appropriate

levels

throughout

the

organization.

The

purpose

these

mechanisms

provide

reasonable

assurance

that

the

Corporation’s business operations

are functioning within the policies and limits established by management.

The

Corporation

classifies operational

risk

into

two

major

categories:

business-specific

and

corporate-wide

affecting

all business

lines.

For

business

specific

risks,

risk

assessment

group

works

with

the

various

business

units

ensure

consistency

policies,

processes

and

assessments.

With

respect

corporate-wide

risks,

such

information

security,

business

recovery,

and

legal

and

compliance, the

Corporation has specialized

groups, such

as the Legal

Department, Information

Security,

Corporate Compliance,

and

Operations. These groups

assist the lines of

business in the

development and implementation

of risk management

practices specific to

the needs of the business groups.

Legal and Compliance Risk

Legal and compliance risk includes

the risk of noncompliance with applicable

legal and regulatory requirements,

the risk of adverse

legal

judgments

against

the

Corporation,

and

the

risk

that

counterparty’s

performance

obligations

will

unenforceable.

The

Corporation

subject

extensive

regulation

the

different

jurisdictions

which

conducts

its

business,

and

this

regulatory

scrutiny has

been significantly

increasing over

the years.

The Corporation

has established,

and continues

to enhance,

procedures that

are designed

to ensure

compliance with

all applicable

statutory,

regulatory

and any

other legal

requirements.

The Corporation

has a

Compliance

Director

who

reports

the

Chief

Risk

Officer

and

responsible

for

the

oversight

regulatory

compliance

and

implementation

of an

enterprise-wide compliance

risk assessment

process.

The Compliance

division

has officer

roles in

each major

business area with direct reporting responsibilities to the Corporate Compliance

Group.

Concentration Risk

The Corporation conducts

its operations in

a geographically concentrated

area, as its main

market is Puerto

Rico. Of the total

gross

loan portfolio held

for investment of

$12.0 billion as

of September 30,

2023, the Corporation

had credit risk

of approximately 79%

the Puerto Rico region, 17% in the United States region, and 4% in the Virgin

Islands region.

130

Update on the Puerto Rico Fiscal and Economic Situation

A significant

portion of

the Corporation’s

business activities

and credit

exposure is

concentrated in

the Commonwealth

of Puerto

Rico, which

has experienced

economic and

fiscal distress

over the

last decade.

Since declaring

bankruptcy and

benefitting from

the

enactment of the federal Puerto

Rico Oversight, Management and

Economic Stability Act (“PROMESA”) in

2016, the Government of

Puerto

Rico

has

made

progress

fiscal

matters

primarily

restructuring

large

portion

its

outstanding

public

debt

and

identifying funding sources for its underfunded pension system.

Economic Indicators

June

15,

2023,

the

Puerto

Rico

Planning

Board

(“PRPB”)

presented

the

updated

Economic

Report

the

Governor,

which

provides

analysis

Puerto

Rico’s

economy

during

fiscal

year

2022

and

short-term

forecast

for

fiscal

years

2023

and

2024.

According

the

PRPB,

Puerto

Rico’s

real

gross

national

product

(“GNP”)

expanded

3.7%

fiscal

year

2022,

which

was

the

highest annual real GNP

growth registered in Puerto

Rico since fiscal year 1999.

The growth was primarily driven

by a sharp increase

in personal consumption expenditures reflecting an increase of

approximately 8.5% when compared to fiscal year 2021, increase

in net

exports of 4.8%, and growth in fixed capital investments of 12.6%.

There

are

other

indicators

that

gauge

economic

activity

and

are

published

with

greater

frequency,

for

example,

the

Economic

Development

Bank

for

Puerto

Rico’s

Economic

Activity

Index

(“EDB-EAI”).

Although

not

direct

measure

Puerto

Rico’s

real

GNP,

the

EDB-EAI

correlated

Puerto

Rico’s

real

GNP.

For

August

2023,

preliminary

estimates

showed

that

the

EDB-EAI

decreased 0.2%

on a

month-over-month

basis; however,

the EDB-EAI

increased 3.3%

when compared

to August

2022. Over

the 12-

month period ended August 31, 2023, the EDB-EAI averaged 125.8,

approximately 0.6% above the comparable figure a year earlier.

Labor

market

trends

remain

positive.

Data

published

the

Bureau

Labor

Statistics

showed

that

September

2023

payroll

employment in Puerto

Rico increased by

2.3% when compared

to September 2022,

supported by a year-over

-year increase of 9.4%

Leisure

and

Hospitality

payroll

employment

and

11.9%

year-over-year

increase

Construction

-related

payroll

employment

The

unemployment rate stood at 6.0% as of September 2023.

Fiscal Plan

On April

3, 2023,

the PROMESA

oversight board

certified the

2023 Fiscal

Plan for

Puerto Rico

(the “2023

Fiscal Plan”).

Unlike

previous versions

of the

fiscal plan,

the PROMESA

oversight board

segregated the

2023 Fiscal Plan

into three

different volumes.

the first fiscal plan

certified in a post-bankruptcy

environment, Volume

1 presents a

Transformation Plan

that highlights priority

areas

to cement fiscal responsibility,

accelerate economic growth in a sustainable manner,

and restore market access to Puerto Rico. Volume

2 provides additional details

on economic trends and

financial projections, and Volume

3 maps out the supplementary

implementation

details to

guide

the government’s

implementation

of the

requirements

of the

2023 Fiscal

Plan, as

well as

additional

initiatives

from

prior fiscal plans which remain mandatory and are still pending to be implemented.

The

2023

Fiscal

Plan

prioritizes

resource

allocation

across

three

major

pillars:

(i)

entrenching

legacy

strong

financial

management

through

the

implementation

comprehensive

financial

management

agenda,

(ii)

instilling

culture

of public

-sector

performance

and excellence

to properly

delivery quality

public services,

and (iii)

investing for

economic growth

to ensure

sufficient

revenues are

generated to

support the delivery

of services. According

to the Transformation

Plan, the fiscal

and economic turnaround

of Puerto Rico cannot

be accomplished without the implementation

of structural economic reforms

that promote sustainable economic

development.

These

reforms

include

power/energy

sector

reform

improve

availability,

reliability

and

affordability

energy,

education

reform

expand

opportunity

and

prepare

the

workforce

compete

for

jobs

the

future,

and

infrastructure

reform

aimed

improving

the

efficiency

the

economy

and

facilitating

investment.

The

2023

Fiscal

Plan

projects

that

these

reforms,

implemented

successfully,

will contribute

0.75% in

GNP growth

by fiscal

year

2026.

Additionally,

the 2023

Fiscal Plan

provides

roadmap

for

tax

reform

directed

towards

establishing

tax

regime

that

competitive

for

investors

and

equitable

for

individuals.

The

2023

Fiscal

Plan

notes

that

Puerto

Rico

has

had

strong

recovery

the

aftermath

the

COVID-19

pandemic

crisis

with

labor

participation

trending

positively

and

unemployment

historically

low

levels.

However,

recognizes

that

such

recovery

has

been

primarily

fueled

the

unprecedented

influx

federal

funds

which

have

outsized

and

temporary

impact

that

may

mask

underlying structural

weaknesses in

the economy.

As such,

the 2023

Fiscal Plan

projects a

0.7% decline

in real

GNP for

the current

fiscal year

2023, followed

by a

period of

near-zero

real growth

in fiscal

years 2024

through 2026.

Also, the

fiscal plan

projects that

Puerto Rico’s

population will continue the long-term

trend of steady decline. Notwithstanding,

the Transformation Plan depicts

that, if

managed properly,

these non-recurring federal funds can be leveraged into sustainable longer-term

growth and opportunity.

The 2023

Fiscal Plan

projects that

approximately $81

billion in

total disaster

relief funding,

from federal

and private sources,

will

be disbursed

as part

of the

reconstruction

efforts over

a span

of 18

years (fiscal

years 2018

through 2035).

These funds

will benefit

131

individuals, the

public (e.g.,

reconstruction of

major infrastructure,

roads, and

schools), and

will cover

part of

Puerto Rico’s

share of

the cost of disaster relief funding.

Also, the 2023 Fiscal Plan projects

accelerated deployment of the remaining

COVID-19 relief funds

in fiscal years 2023

through 2025, with

approximately $9.3 billion

expected to be

disbursed, compared to

$4.5 billion projected

in the

previous fiscal

plan. Additionally,

the 2023

Fiscal Plan

continues to

account for

$2.3 billion

in federal

funds to

Puerto Rico

from the

Bipartisan Infrastructure Law directed towards improving Puerto

Rico’s infrastructure over fiscal years

2022 through 2026.

Debt Restructuring

Over

80%

Puerto

Rico’s

outstanding

debt

has

been

restructured

date.

March

15,

2022,

the

Plan

Adjustment

the

central

government’s

debt

became

effective

through

the

exchange

of more

than

$33

billion

existing

bonds

and

other

claims

into

approximately

billion

new

bonds,

saving

Puerto

Rico

than

$50

billion

debt

payments

creditors.

Also,

the

restructurings

the

Puerto

Rico

Sales

Tax

Financing

Corporation

(“COFINA”),

the

Highways

and

Transportation

Authority

(“HTA”),

and

the

Puerto

Rico

Aqueducts

and

Sewers

Authority

(“PRASA”)

are

expected

yield

savings

approximately

$17.5

billion, $3.0

billion, and

$400 million,

respectively,

in future

debt service

payments. The

main restructurings

pending include

that of

the Puerto Rico Electric Power Authority (“PREPA”)

and the Puerto Rico Industrial Company (“PRIDCO”).

June

23,

2023,

the

Fiscal

Oversight

and

Management

Board

for

Puerto

Rico

certified

new

fiscal

plan

for

PREPA

which

included

the most

recent projections

of energy

consumption in

Puerto Rico

and consequently

reflected a

significant reduction

in the

projected

revenues

for

PREPA

over

the

years.

such,

PREPA

concluded

that

its

ability

repay

its

outstanding

debt

was

significantly less than

what was previously

stated.

On June 26,

2023, Judge Laura

Taylor

Swain resolved

that PREPA’s

bondholders

have an unsecured claim of $2.4 billion against PREPA

and not the approximately $9.0 billion that bondholders were claiming.

On August 25, 2023,

the PROMESA oversight board

announced that it filed

the third amended Plan

of Adjustment to reduce

than $10 billion

of total asserted

claims by various

creditors against PREPA

by approximately 80%

to $2.5 billion,

excluding pension

liabilities.

According

the

PROMESA

oversight

board,

bondholders

who

support

the

plan

would

recover

12.5%

their

original

asserted claim, while

bondholders who

do not agree

to the proposed

plan would recover

3.5% of

their asserted claim.

Combined with

other previous

agreements and

settlements that

remain in

place, approximately

43% of

PREPA’s

creditors support

the third

amended

plan.

addition

conforming

Judge

Taylor

Swain’s

ruling

made

June,

the

amended

plan

also

conforms

the

previously

disclosed

debt

sustainability

analysis

the

revised

PREPA

Fiscal

Plan

certified

June

2023

that

based

the

most

recent

projections of

PREPA’s

operating costs

and future

demand for

its services.

The PREPA

pension treatment

remains unchanged

under

the third

amended

plan. PREPA

retirees will

be paid

in full

for

all benefits

earned

through the

effective

date of

the plan.

After

that

date, no further benefits can be

earned under the defined benefit plan

by existing or new participants. The

disclosure statement hearing

for

the amended

plan

has

been

scheduled

for

November

14, 2023,

and

the

confirmation

hearing

is expected

to take

place

March

2024, according to a court order dated September 11,

2023.

Other Developments

Notable

progress

continues

made

part

the

ongoing

efforts

prioritizing

the

restoration,

improvement,

and

modernization of

Puerto Rico’s

infrastructure, particularly

in the aftermath

of Hurricane

Maria in 2017.

During the first

eight months

of 2023,

over $2.6 billion

in disaster relief

funds have

been disbursed

through FEMA

Public Assistance program

and the Department

Housing

and

Urban

Development’s

“Community

Development

Block

Grant”

program,

81%

increase

when

compared

the

same period in

2022.

These funds will

continue to play

a key role

in supporting Puerto

Rico’s economic

stability and are

expected to

have

positive

impact

the

Island’s

infrastructure.

For

example,

approximately

86%

the

projects

that

FEMA

has

obligated

address damage

caused by

Hurricane Maria

have resources

to reinforce

their infrastructure,

among other

hazard mitigation

measures,

that will prepare these facilities for

future weather events. To

date, the agency has allocated over

$31 billion for nearly 10,800 projects

under

its

Public

Assistance

program

which

2,069

permanent

works

have

been

completed

while

over

2,800

are

currently

the

process of construction, according to the Central Office for Recovery,

Reconstruction and Resiliency (“COR3”).

On June

21, 2023,

Fitch Ratings

issued a

credit rating

research note

highlighting the

government’s

commitment

to improving

its

continuing

disclosure

practices and

the release

the 2021

audited

financial

statements.

The

government

has

made

great strides

recent

years with

regards to

its financial

transparency

and is

on target

to release

its audited

financial

statements on

time and

in line

with regulatory expectations.

October

17,

2023,

the

Government

Puerto

Rico

announced

the

execution

$2.85

billion

concession

agreement

with

Puerto

Rico

Tollroads

LLC

(“PR

Tollroads”),

subsidiary

Abertis

Infraestructuras

SA,

operate,

maintain,

and

improve

the

Puerto Rico

toll roads

currently managed

by HTA.

Pursuant to

the agreement,

PR Tollroads

will pay

HTA

a concession

fee of

about

$2.85 billion which

will enable HTA

to pay off

approximately $1.6 billion

of its outstanding

debt. In addition,

the concession fee

will

provide an

estimated $1.1

billion in

new funding

to be

dedicated for

road-maintenance

purposes and

other long-term

investments of

transportation projects.

132

Exposure to Puerto Rico Government

As of September

30, 2023, the Corporation

had $294.9 million

of direct exposure

to the Puerto Rico

government, its municipalities

and

public

corporations,

compared

$338.9

million

December

31,

2022.

September

30,

2023,

approximately

$188.9

million of the

exposure consisted of loans

and obligations of municipalities

in Puerto Rico that

are supported by assigned

property tax

revenues

and

for

which,

most

cases,

the

good

faith,

credit

and

unlimited

taxing

power

the

applicable

municipality

have

been

pledged to their

repayment, and $59.2

million consisted of

loans and obligations

which are supported

by one or more

specific sources

of municipal

revenues. Approximately

73% of the

Corporation’s

exposure to Puerto

Rico municipalities consisted

primarily of

senior

priority loans

and obligations concentrated

in four of

the largest municipalities

in Puerto Rico.

The municipalities are

required by law

to levy

special property

taxes in

such amounts

as are

required for

the payment

of all

of their

respective general

obligation bonds

and

notes. Furthermore,

municipalities are

also

likely to

be affected

by the

negative

economic and

other

effects

resulting

from

expense,

revenue, or cash management measures taken to address

the Puerto Rico government’s

fiscal problems and measures included in fiscal

plans

other

government

entities.

addition

municipalities,

the

total

direct

exposure

also

included

$8.9

million

loans

to an

affiliate

of PREPA,

$34.7

million in

loans to

agencies or

public corporations

of the

Puerto Rico

government,

and obligations

of the

Puerto Rico

government,

specifically a

residential pass-through

MBS issued

by the

PRHFA,

at an

amortized

cost of

$3.2 million

part of its available-for-sale debt securities portfolio (fair

value of $1.4 million as of September 30, 2023).

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of September 30, 2023

Investment

Portfolio

(Amortized

cost)

Loans

Total

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,204

Total

Puerto Rico Housing Finance Authority

3,204

Agencies and public corporation of the Puerto Rico government:

After 1 to 5 years

9,330

After 5 to 10 years

25,376

Total agencies and public

corporation of the Puerto Rico government

34,706

Affiliate of the Puerto Rico Electric Power Authority:

Due within one year

After 1 to 5 years

8,938

Total Puerto Rico government

affiliate

8,938

Total

Puerto Rico public corporations and government affiliate

43,644

Municipalities:

Due within one year

3,159

7,179

10,338

After 1 to 5 years

51,133

52,323

103,456

After 5 to 10 years

35,831

81,858

117,689

After 10 years

16,595

Total

Municipalities

106,718

141,360

248,078

Total

Direct Government Exposure

109,922

185,004

294,926

133

addition,

September

30,

2023,

the

Corporation

had

$79.3

million

exposure

residential

mortgage

loans

that

are

guaranteed by

the PRHFA,

a governmental instrumentality

that has been

designated as a

covered entity under

PROMESA (December

31,

2022

–

$84.7

million).

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees serve

to cover shortfalls

in collateral in

the event of

a borrower default.

The Puerto Rico

government guarantees up

to $75

million

the

principal

for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements

the

PRHFA,

June

30,

2022,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$418

million.

The

regulations

adopted

the

PRHFA

require

the

establishment

adequate

reserves to

guarantee

the solvency

of the

mortgage loans

insurance program.

As of

June 30,

2022, the

most recent

date as

of which

information is available, the PRHFA

had a liability of approximately $1 million as an estimate of

the losses inherent in the portfolio.

As of September

30, 2023, the Corporation

had $2.8 billion

of public sector

deposits in Puerto

Rico, compared to

$2.3 billion as

December

31,

2022.

Approximately

22%

the

public

sector

deposits

September

30,

2023

were

from

municipalities

and

municipal agencies in Puerto Rico and 78% were from

public corporations, the Puerto Rico central government and

agencies, and U.S.

federal government agencies in Puerto Rico.

Exposure to USVI Government

The Corporation has operations in the USVI and has credit exposure

to USVI government entities.

For many years, the

USVI has been experiencing

several fiscal and economic

challenges that have deteriorated

the overall financial

and

economic

conditions

the

area.

However,

May

22,

2023,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released its

estimates of

real gross domestic

product (“GDP”)

for 2021.

According to

the BEA,

the USVI’s

real GDP

increased 2.8%

2021

after

decreasing

1.9%

2020.

The

increase

real

GDP

reflected

increases

exports

and

personal

consumption

expenditures.

These

increases

were

partly

offset

decreases

private

inventory

investment,

private

fixed

investment,

and

government spending. Imports, a subtraction item in the calculation of

GDP,

also decreased.

Over the

past two

years, the

USVI has

been recovering

from the

adverse impact

caused by

COVID-19 and

has continued

to make

progress on

its rebuilding

efforts related

to Hurricanes

Irma and

Maria, which

occurred in

2017. According

to data

published by

the

government, over

$4.9 billion in

disaster recovery

funds were disbursed

as of August

2023 and $5.8

billion were remaining

obligated

funds waiting to

be disbursed. On the

fiscal front, revenues

have trended positively

and the USVI government

successfully completed

the restructuring

of the

government employee

retirement system.

Moreover,

labor market

trends are

stable with

payroll employment

for the month of September 2023, up 1.1% when compared to September

2022.

Finally, PROMESA

does not apply to

the USVI and, as such,

there is currently no federal

legislation permitting the restructuring

the debts of the USVI and

its public corporations and instrumentalities.

To the

extent that the fiscal condition of the

USVI government

deteriorates

again,

the

U.S.

Congress

the

government

the

USVI

may

enact

legislation

allowing

for

the

restructuring

the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of September 30, 2023, the Corporation had $87.5 million

in loans to USVI public corporations, compared to $38.0 million as of

December 31,

2022. The increase

in loans to

USVI public corporations

was driven by

the aforementioned $55.8

million line of

credit

utilization.

As of September 30, 2023, all loans were currently performing and up to date on principal

and interest payments.

134

ITEM 3. QUANTITATIVE

AND QUALITATIVE DISCLOSURES

ABOUT MARKET

RISK

For

information

regarding

market

risk

which

the

Corporation

exposed,

see

the

information

contained

Part

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results of

Operations

— Risk

Management”

this Quarterly

Report on Form 10-Q.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

First

BanCorp.’s

management,

including

its

Chief

Executive

Officer

and

Chief

Financial

Officer,

evaluated

the

effectiveness

First

BanCorp.’s

disclosure

controls

and

procedures

(as

defined

Rules

13a-15(e)

and

15d-15(e)

under

the

Exchange

Act)

September

30,

2023

the

end

the

period

covered

this

Quarterly

Report

Form

10-Q.

Based

this

evaluation,

the

Chief

Executive

Officer and

Chief Financial

Officer

concluded that

the Corporation’s

disclosure controls

and procedures

were effective

of September

30, 2023

and provide

reasonable assurance

that the

information

required to

be disclosed

by the

Corporation in

reports

that the Corporation

files or submits under

the Exchange Act is recorded,

processed, summarized and reported

within the time periods

specified

in SEC

rules and

forms and

is accumulated

and reported

to the

Corporation’s

management,

including

the Chief

Executive

Office and Chief Financial Officer,

as appropriate, to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

There were

no changes

to the

Corporation’s

internal control

over financial

reporting (as

defined

in Rules

13a-15(f) and

15d-15(f)

under

the Exchange

Act) during

our most

recent

quarter

ended September

30, 2023

that have

materially

affected,

or are

reasonably

likely to materially affect, the Corporation’s

internal control over financial reporting.

135

PART II - OTHER INFORMATION

In accordance

with the

instructions to

Part II

of Form

10-Q, the

other specified

items in

this part

have been

omitted because

they are

not

applicable, or the information has been previously reported.

ITEM 1.

LEGAL PROCEEDINGS

For a

discussion of

legal proceedings,

see Note

22 –

Regulatory Matters,

Commitments and

Contingencies, to

the unaudited

consolidated

financial

statements

herein, which is incorporated by reference in this Part II, Item 1.

ITEM 1A.

RISK FACTORS

The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of

factors. A detailed

discussion of certain

risk factors that

could affect

the Corporation’s future

operations, financial

condition or results

for

future periods is set forth in Part I, Item

1A., “Risk Factors,” in the 2022 Annual Report on Form

10-K. These risk factors, and others, could

cause actual

results to

differ materially

from historical

results or

the results

contemplated by

the forward-looking

statements contained

this report. Also,

refer to

the discussion in

“Forward Looking Statements”

and Part I,

Item 2.

“Management’s Discussion

and Analysis of

Financial Condition and Results

of Operations,” in this Quarterly

Report on Form 10-Q

for additional information that may

supplement or

update the discussion of risk factors in the

2022 Annual Report on Form 10-K.

Other than as described below, there have been

no material changes from those risk factors previously

disclosed in Part I, Item 1A. “Risk

Factors,” in the 2022 Annual Report on Form

10-K.

Cyber-attacks,

system risks

and data

protection breaches

to our

computer systems

and networks

or those

of third-party

service

providers could

adversely affect

our ability to

conduct business, manage

our exposure to

risk or expand

our business, result

in the

disclosure

misuse

confidential

proprietary

information,

increase

our

costs

maintain

and

update

our

operational

and

security systems and infrastructure, and present significant reputational, legal

and regulatory costs

Our

business

highly

dependent

the

security,

controls

and

efficacy

our

infrastructure,

computer

and

data

management

systems,

well

those

our

customers,

suppliers,

and

other

third

parties.

access

our

network,

products

and

services,

our

employees,

customers, suppliers,

and other

third parties,

including downstream

service providers,

the financial

services industry

and

financial

data

aggregators,

with

whom

interact,

whom

rely

who

have

access

our

customers

’

personal

account

information, increasingly

use personal mobile

devices or computing

devices that are

outside of our

network and control

environments

and

are

subject

their

own

cybersecurity

risks.

Our

business

relies

effective

access

management

and

the

secure

collection,

processing,

transmission,

storage and

retrieval

of confidential,

proprietary,

personal and

other

information

in our

computer

and data

management systems and networks, and in the computer and data management

systems and networks of third parties.

Information

security

risks

for

financial

institutions

have

significantly

increased

recent

years,

especially

given

the

increasing

sophistication and activities

of organized

computer criminals, hackers,

and terrorists and

our expansion of

online and digital

customer

services to

better meet

our

customer’s

needs.

These threats

may

derive

from fraud

or malice

on the

part of

our employees

or third-

party

providers

may

result

from

human

error

accidental

technological

failure.

These

threats

include

cyber-attacks,

such

computer viruses,

malicious or

destructive code,

phishing attacks,

denial of

service attacks, or

other security

breach tactics

that could

result

the

unauthorized

release,

gathering,

monitoring,

misuse,

loss,

destruction,

theft

confidential,

proprietary,

and

other

information, including

intellectual property,

of ours, our

employees, our customers,

or third parties,

damages to systems,

or otherwise

material

disruption

our

customers’

other

third

parties’

network

access

business

operations,

both

domestically

and

internationally.

While

maintain

Information

Security

Program

that

continuously

monitors

cyber-related

risks

and

ultimately

ensures

protection

for

the

processing,

transmission,

and

storage

of confidential,

proprietary,

and other

information

in our

computer

systems

and networks, as

well as a vendor

management program to

oversee third party

and vendor risks, there

is no guarantee

that we will not

be exposed to

or be affected

by a cybersecurity

incident. For example,

as previously disclosed,

one of our

third-party vendors was

the

victim

security

incident

April

2023

involving

set

data

that

included

some

information

FirstBank’s

mortgage

loan

business. In

response to learning

of the incident,

we promptly launched

our own internal

investigation, which

confirmed that our

own

systems

were

not

compromised,

and

any

operational

and

financial

impact

was minimal.

Our

vendor

has

indicated

(and

have

evidence

the

contrary)

that

date

there

evidence

that

there

has

been

any

actual

attempted

misuse

information.

The

Corporation has not incurred any material expenses related to the incident and does

not expect any future impact.

136

Cyber threats are rapidly

changing, and future attacks or

breaches could lead to

other security breaches of

the networks, systems, or

devices that

our customers

use to

access our

integrated products

and services,

which, in

turn, could

result in

unauthorized disclosure,

release, gathering,

monitoring, misuse,

loss or

destruction of

confidential, proprietary,

and other

information (including

account data

information) or

data security

compromises. As

cyber threats

continue to

evolve, we

may be

required to

expend significant

additional

resources

modify

enhance

our

protective

measures,

investigate,

and

remediate

any

information

security

vulnerabilities

incidents

and

develop

our

capabilities

respond

and

recover.

The

full

extent

particular

cyberattack,

and

the

steps

that

the

Corporation may

need to take

to investigate

such attack, may

not be immediately

clear, and

it could take

considerable additional

time

for

determine

the complete

scope

of information

compromised,

at which

time

the impact

on the

Corporation

and

measures

recover and restore to

a business-as-usual state may

be difficult to assess.

These factors may also

inhibit our ability to provide

full and

reliable information about the cyberattack to our customers, third-party

vendors, regulators, and the public.

A successful penetration or circumvention of our system security,

or the systems of our customers, suppliers, and other third parties,

could cause us serious negative consequences, including significant

operational, reputational, legal, and regulatory costs and concerns.

Any of these

adverse consequences could

adversely impact our

results of operations,

liquidity,

and financial condition.

In addition,

our

insurance

policies

may

not

adequate

compensate

for

the

potential

costs

and

other

losses

arising

from

cyber-attacks,

failures of

information technology

systems, or

security breaches,

and such

insurance policies

may not

be available

to us in

the future

economically

reasonable

terms, or

all.

Insurers

may

also

deny

coverage

as to

any

future

claim.

Any of

these

results

could

harm our growth prospects, financial condition, business, and reputation.

The

volatility

the

financial

services

industry,

including

failures

rumored

failures

other

depository

institutions,

and

actions taken by governmental

agencies to stabilize the financial

system, could result in,

among other things, bank deposit

runoffs,

liquidity constraints,

and new capital requirements.

The closure and

placement into receivership

with the FDIC

of certain large

U.S. regional banks with

assets over $100 billion

in March

and May

2023, and

adverse developments

affecting other

banks, resulted

in heightened

levels of

market volatility

and consequently

have

negatively impacted customer confidence in the safety and soundness of financial

institutions. These developments have resulted in certain

regional banks experiencing higher than normal

deposit outflows and an elevated

level of competition for available

deposits in the market.

Although we

have not

been materially

impacted by

these recent

bank failures,

the resulting

speed at

which news,

including social

media

outlets, led

depositors to

withdraw funds

from these

and other

financial institutions,

as well

as the

volatile impact

to stock

prices, could

have a

material effect

on operations.

The impact

of market

volatility from

the adverse

developments in

the banking

industry, along

with

continued high

inflation and

rising interest

rates on

our business

and related

financial results,

will depend

on future

developments, which

are highly uncertain and difficult to predict.

In the

aftermath of

these recent

bank failures,

the banking

agencies could

propose certain

actions that

may impact

capital ratios

or the

FDIC deposit

insurance premium.

For example,

on May

11, 2023,

the FDIC

issued a

proposed rule

to recover

the losses

to the

Deposit

Insurance Fund

(“DIF”) associated with

protecting uninsured depositors

as part of

the aforementioned

financial institution failures.

Under

the proposed

rule, the

FDIC would

collect a

special assessment

at an

annual rate

of approximately

12.5 basis

points over

eight quarterly

periods,

commencing with the first quarter of 2024. The assessment

base for the special assessment would be equal to an

insured depository

institution’s estimated uninsured deposits reported as

of December 31, 2022, adjusted

to exclude the first $5

billion in estimated uninsured

deposits.

Notwithstanding, the

special assessment

could be

subject to

change depending

on whether

there are

any shortfalls

on amounts

collected.

If the final rule

is issued as proposed, the

estimated impact of the special

assessment on the Corporation would

be an increase in

non-interest expense by approximately $6

million that would need to be accrued once the

proposed rule is finalized.

137

ITEM 2.

UNREGISTERED

SALES OF

EQUITY SECURITIES

AND USE OF

PROCEEDS

The Corporation did not have any unregistered sales

of equity securities during the quarter ended September

30, 2023.

Issuer Purchases of Equity Securities

The

following

table

provides

information

relation

the

Corporation’s

purchases

its

common

stock

during

the

quarter

ended

September 30, 2023.

Period

Total Number of Shares

Purchased

Average Price

Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Approximate Dollar Value

of Shares That May Yet

Purchased Under These

Plans or Programs (In

thousands)

(1)

July 1, 2023 - July 31, 2023

1,424,636

13.37

1,424,636

280,954

August 1, 2023 - August 31, 2023

2,142,034

14.45

2,142,034

250,000

September 1, 2023 - September 30, 2023

1,826,566

13.69

1,825,788

225,000

Total

5,393,236

(2) (3)

5,392,458

(1)

During the

third quarter

of 2023,

the Corporation

completed the

$350 million

stock repurchase

program approved

by the

Board of

Directors on

April 27,

2022. On

July 24,

2023, the

Corporation announced that its

Board of Directors approved

a new stock repurchase

program, under which the

Corporation may repurchase

up to $225 million of

its outstanding common

stock. The

stock repurchase

program does

not obligate

the Corporation

to acquire

any specific

number of

shares, does

not have

an expiration

date and

may be

modified, suspended,

terminated at

any time

at the

Corporation's

discretion. Under

the stock

repurchase program,

shares may

be repurchased

through open

market purchases,

accelerated share

repurchases

and/or privately negotiated transactions, including under plans

complying with Rule 10b5-1 under the Exchange Act.

(2)

Includes 5,392,458 shares of common stock repurchased in the open

market at an average price of $13.91 for a total purchase price

of approximately $75 million.

(3)

Includes 778 shares

of common stock

withheld by the

Corporation to cover

minimum tax

withholdings obligations in

connection with the

vesting of outstanding

restricted stock through

the withholding of shares.

ITEM 5.

OTHER INFORMATION

No director

or officer

(as defined

in Rule

16a-1(f) of

the Exchange

Act) of

the Corporation

adopted

, modified,

terminated

any

Rule 10b5-1 trading arrangement or

any

non-Rule

10b5-1

trading arrangement (as such terms are defined

in Item 408 of Regulation S-

K under the Exchange Act) during the quarter ended September 30, 2023.

138

ITEM 6.

EXHIBITS

See the Exhibit Index below, which is incorporated by

reference herein:

EXHIBIT INDEX

Exhibit No.

Description

31.1

CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

32.2

CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

101.INS

Inline XBRL Instance Document, filed herewith. The

instance document does not appear in the interactive

data file because

its XBRL tags are embedded within the inline XBRL

document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document, filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith

104

The cover page of First BanCorp. Quarterly Report on Form 10-Q

for the quarter ended September 30, 2023, formatted in

Inline XBRL (included within the Exhibit 101 attachments)

139

SIGNATURES

Pursuant to

the requirements

of the

Securities Exchange

Act of

1934, the

Corporation has

duly caused

this report

to be

signed on

its

behalf by the undersigned hereunto duly authorized:

First BanCorp.

Registrant

Date:

November 8, 2023

By:

/s/ Aurelio Alemán

Aurelio Alemán

President and Chief Executive Officer

Date: November 8, 2023

By:

/s/ Orlando Berges

Orlando Berges

Executive Vice President and Chief Financial Officer