fbp1231202110k

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-K

(Mark one)

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

OF 1934

For the Fiscal Year Ended

December 31, 2021

[ ]

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

00908

Santurce

Puerto Rico

(Zip Code)

(Address of principal executive office)

Registrant’s telephone number, including area code:

(

787

)

729-8200

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)

FBP

New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned

issuer, as defined in Rule 405 of the Securities

Act.

Yes

☑

☐

Indicate by check mark if the registrant is not required to file reports

pursuant to Section 13 or 15(d) of the Act. Yes

☐

☑

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 has filed a

report on and attestation to its management’s

assessment of the effectiveness of its internal control

over financial reporting under

Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the

registered public accounting firm that prepared or issued its

audit report.

☑

Indicate by check mark whether the registrant is a shell company

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

Yes

☐

☑

The aggregate market value of the voting common equity held

by non-affiliates of the registrant as of June 30,

2021 (the last trading day of the registrant’s

most recently completed second

fiscal quarter) was $

2,418,491,241

based on the closing price of $11.92 per share of the

registrant’s common stock on the New

York Stock Exchange

on June 30, 2021. The registrant had no

nonvoting common equity outstanding as of June 30, 2021.

For the purposes of the foregoing calculation only,

the registrant has defined affiliates to include (a) the executive

officers named in

Part III of this Annual Report on Form 10-K; (b) all directors

of the registrant; and (c) each shareholder,

including the registrant’s employee benefit

plans but excluding shareholders that file on

Schedule 13G, known to the registrant to be the beneficial owner

of 5% or more of the outstanding shares of common stock

of the registrant as of June 30, 2021. The registrant’s

response to

this item is not intended to be an admission that any person

is an affiliate of the registrant for any purposes other than this

response.

Indicate the number of shares outstanding of each of the

registrant’s classes of common stock,

as of the latest practicable date:

198,414,429

shares as of February 15, 2022.

Documents incorporated by reference:

Portions of the definitive proxy statement relating

to the registrant’s annual meeting of stockholders

scheduled to be held on May 20, 2022 are

incorporated by reference in response to Items 10, 11,

12, 13 and 14 of Part III of this Form 10-K.

FIRST BANCORP.

2021 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

PART

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity

Securities

Item 6.

[Reserved]

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

132

Item 8.

Financial Statements and Supplementary Data

133

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

273

Item 9A.

Controls and Procedures

273

Item 9B.

Other Information

273

Item 9C.

Disclosure regarding Foreign Jurisdictions that Prevent Inspections

273

PART

III

Item 10.

Directors, Executive Officers and Corporate Governance

274

Item 11.

Executive Compensation

274

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

274

Item 13.

Certain Relationships and Related Transactions, and Director Independence

274

Item 14.

Principal Accountant Fees and Services

275

PART

Item 15.

Exhibits and Financial Statement Schedules

275

Item 16.

Form 10-K Summary

275

Exhibit Index

SIGNATURES

Forward-Looking Statements

This Form 10-K 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-K or future filings

by First BanCorp. (the “Corporation,” “we,”

“us,” or “our”)

with the U.S.

Securities and

Exchange Commission (the

“SEC”), in the

Corporation’s

press releases or

in other public

stockholder

communications

made

the

Corporation,

oral

statements

made

behalf

the

Corporation

by,

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

similar

meaning

import

connection

with

any

discussion

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

made,

and

advises

readers

that

these

forward-looking

statements

are

not

guarantees

future

performance

and

involve

certain

risks,

uncertainties,

estimates,

and

assumptions

that

are

difficult

predict.

Various

factors,

some

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 to

differ from

those expressed in

the Corporation’s

forward-looking statements

include, but

are not

limited to, risks described or referenced in Part I, Item 1A, “Risk Factors,” and the

following:

●

uncertainties

relating

the

impact

the

ongoing

COVID-19

pandemic

any

future

regional

global

health

crisis,

including new

variants and

mutations of

the virus,

such as

the Omicron

variant, and

the efficacy

and acceptance

of various

vaccines

and

treatments

for

the

disease,

the

Corporation’s

business,

operations,

employees,

credit

quality,

financial

condition and net

income, including because

of uncertainties

as to the

extent and duration

of the pandemic

and the impact

the pandemic on consumer spending, borrowing and saving

habits, the underemployment and unemployment rates, which can

adversely affect repayment patterns, the Puerto

Rico economy and the global economy,

as well as the risk that the COVID-19

pandemic may

exacerbate any

other factor

that could

cause our

actual results

to differ

materially from

those expressed

in or

implied by any forward-looking statements;

●

risks related

to the

effect on

the Corporation

and its

customers of

governmental, regulatory

or central

bank responses

to the

COVID-19

pandemic

and

the

Corporation’s

participation

any

such

responses

programs,

such

the

Small

Business

Administration

Paycheck

Protection

Program

(“SBA

PPP”)

established

the

Coronavirus

Aid,

Relief,

and

Economic

Security Act of 2020,

as amended (the “CARES Act

of 2020”), including any

judgments, claims, damages, penalties,

fines or

reputational

damage

resulting

from

claims

challenges

against

the

Corporation

governments,

regulators,

customers

otherwise, relating to the Corporation’s

participation in any such responses or programs;

●

risks,

uncertainties

and

other

factors

the

Corporation’s

acquisition

Banco

Santander

Puerto

Rico

(“BSPR”),

including

the risks

that the

Corporation’s

may not

realize, either

fully or

on a

timely basis,

the cost

savings and

any other

synergies from

the acquisition

that the

Corporation expected,

because of

deposit attrition,

customer loss

and/or revenue

loss

as a

result of

unexpected factors

or events,

including those

that are

outside of

our control

following the

acquisition, and

the

impact on the Corporation’s results of

operations and financial condition of other business acquisitions, or dispositions;

●

uncertainty as to

the ultimate outcomes

of the recently

approved Puerto Rico’s

debt restructuring plan

(“Plan of Adjustment”

or “PoA”)

and its

2022 fiscal

plan, or

any revisions

to it,

on our

clients and

loan portfolios,

and any

potential impact

from

future economic or political developments in Puerto Rico;

●

the impact that a resumption of

a slowing economy and unemployment

or underemployment may have on

the performance of

our

loan

and

lease

portfolio,

the

market

price

our

investment

securities,

the

availability

sources

funding

and

the

demand for our products;

●

uncertainty

the

availability

wholesale

funding

sources,

such

securities

sold

under

agreements

repurchase,

Federal Home Loan Bank (“FHLB”) advances and brokered certificates of

deposit (“brokered CDs”);

●

the effect

of a

resumption of

deteriorating economic

conditions in

the real

estate markets

and the

consumer and

commercial

sectors

and

their

impact

the credit

quality

the Corporation’s

loans

and

other

assets, which

may

contribute

to, among

other

things,

higher

than

targeted

levels

non-performing

assets,

charge-offs

and

provisions

for

credit

losses,

and

may

subject the Corporation to further risk from loan defaults and foreclosures;

●

the

impact

changes

accounting

standards

assumptions

applying

those

standards,

including

the

impact

the

ongoing COVID-19

pandemic on forecasted

economic variables

considered for

the determination

of the allowance

for credit

losses (“ACL”) required by the current expected credit losses (“CECL”) accounting

standard;

●

the ability of the

Corporation’s banking

subsidiary FirstBank Puerto

Rico (“FirstBank” or the

“Bank”)

to realize the benefits

of its net deferred tax assets;

●

the ability of FirstBank to generate sufficient cash flow to make dividend

payments to the Corporation;

●

the impact

of rising

interest rates

and

inflation

on the

Corporation,

including

a decrease

in demand

for

new mortgage

loan

originations

and

refinancings

and

increased

competition

for

borrowers,

which

would

likely

pressure

the

Corporation’s

margins and have an adverse impact on origination volumes and

financial performance;

●

adverse

changes

general

economic

conditions

Puerto

Rico,

the

United

States

(“U.S.”),

the

U.S.

Virgin

Islands

(the

“USVI”),

and

the

British

Virgin

Islands

(the

“BVI”),

including

the

interest

rate

environment,

market

liquidity,

housing

absorption rates, real estate prices, and disruptions in the U.S. capital

markets, including as a result of the ongoing COVID-19

pandemic,

which

may

further

reduce

interest

margins,

affect

funding

sources

and

demand

for

all

the

Corporation’s

products and services, and reduce the Corporation’s

revenues and earnings and the value of the Corporation’s

assets;

●

the

effect

changes

the

interest

rate

environment,

including

the

cessation

the

London

Interbank

Offered

Rate

(“LIBOR”), which could adversely affect the Corporation’s

results of operations, cash flows and liquidity;

●

an adverse change in the Corporation’s

ability to attract new clients and retain existing ones;

●

the risk that additional

portions of the unrealized

losses in the Corporation’s

investment portfolio are determined

to be credit-

related, including

additional charges

to the provision

for credit losses

on the Corporation’s

remaining exposure

to the Puerto

Rico government’s

debt securities

held as

part of

the available-for

-sale securities

portfolio

with a

fair value

of $2.9

million

($3.6 million amortized cost) and an ACL of $0.3 million;

●

uncertainty about

legislative, tax

or regulatory

changes that

affect financial

services companies

in Puerto

Rico, the

U.S. and

the

USVI

and

BVI,

which

could

affect

the

Corporation’s

financial

condition

performance

and

could

cause

the

Corporation’s actual results for future

periods to differ materially from prior results and anticipated

or projected results;

●

changes

the

fiscal

and

monetary

policies

and

regulations

the

U.S.

federal

government

and

the

Puerto

Rico

and

other

governments,

including

those

determined

the

Board

the

Governors

the

Federal

Reserve

System

(the

“Federal

Reserve Board”),

the Federal

Reserve Bank

of New

York

(the “New

York

FED”, “FED”

or “Federal

Reserve”), the

Federal

Deposit Insurance Corporation (the “FDIC”),

government-sponsored housing agencies, and

regulators in Puerto Rico, and the

USVI and BVI;

●

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

Corporation’s

ability

identify

and

prevent

cyber-security

incidents,

such

data

security

breaches,

ransomware,

malware, “denial of service” attacks, “hacking”

and identity theft, and the occurrence of any of

which may result in misuse or

misappropriation

confidential

proprietary

information,

and

could

result

the

disruption

damage

our

systems,

increased costs and losses or an adverse effect to our reputation;

●

the

risk

that

the

FDIC

may

increase

the

deposit

insurance

premium

and/or

require

special

assessments

replenish

its

insurance fund, causing an additional increase in the Corporation’s

non-interest expenses;

●

a need

to recognize

impairments on

the Corporation’s

financial instruments,

goodwill and

other intangible

assets relating

business acquisitions, including as a result of the ongoing COVID-19 pandemic;

●

the

effect

changes

the

interest

rate

environment

the

global

economy,

the

Corporation’s

businesses,

business

practices,

and

results

operations,

including

the

impact

rising

interest

rates

and

inflation

the

Corporation

and

decrease

demand

for

new

mortgage

loan

originations

and

refinancings

and

increased

competition

for

borrowers,

which

could pressure the Corporation’s

margins and have an adverse impact on origination volumes and

financial performance;

●

the risk

that the

impact

of the

occurrence

of any

of these

uncertainties

on the

Corporation’s

capital would

preclude

further

growth of the Bank and preclude the Corporation’s

Board of Directors from declaring dividends;

●

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; and

●

general competitive factors and industry consolidation.

The

Corporation

does

not

undertake,

and

specifically

disclaims

any

obligation,

update

any

“forward-looking

statements”

reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities laws.

PART

Item 1.

Business

GENERAL

First

BanCorp.

publicly

owned

financial

holding

company

that

subject

regulation,

supervision

and

examination

the

Federal Reserve

Board. The

Corporation was

incorporated under

the laws

of the

Commonwealth of

Puerto Rico

to serve

as the

bank

holding company for FirstBank.

The Corporation is a full-service

provider of financial services and

products with operations in Puerto

Rico, the

U.S., the

USVI and

the BVI.

As of

December 31,

2021, the

Corporation had

total assets

of $20.8

billion, total

deposits of

$17.8 billion, and total stockholders’ equity of $2.1

billion.

The

Corporation

provides

a wide

range

of financial

services for

retail,

commercial

and institutional

clients.

The

Corporation

has

two

wholly-owned

subsidiaries:

FirstBank

and

FirstBank

Insurance

Agency,

Inc.

(“FirstBank

Insurance

Agency”).

FirstBank

Puerto Rico-chartered commercial bank, and FirstBank Insurance

Agency is a Puerto Rico-chartered insurance agency.

FirstBank is subject to

the supervision, examination

and regulation of both

the Office of the

Commissioner of Financial Institutions

Puerto

Rico

(“OCIF”)

and

the

FDIC.

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund

(the

“DIF”).

addition,

within FirstBank,

the Bank’s

USVI operations

are subject

to regulation

and examination

by the

United States

Virgin

Islands Banking

Board; its BVI

operations are subject

to regulation by

the British Virgin

Islands Financial Services

Commission; and

its operations in

the state

of Florida

are subject

to regulation

and examination

by the

Florida Office

of Financial

Regulation. The

Consumer Financial

Protection Bureau

(“CFPB”) regulates

FirstBank’s

consumer financial

products and

services.

FirstBank Insurance

Agency is

subject

to the supervision,

examination and regulation

of the Office of

the Insurance Commissioner

of the Commonwealth of

Puerto Rico and

the Division of Banking and Insurance Financial Regulation in the USVI.

FirstBank conducts its

business through its main

office located in

San Juan, Puerto Rico, 64

banking branches in Puerto

Rico, eight

banking branches in

the USVI and

the BVI, and

11 banking

branches in the

state of Florida

(USA). FirstBank has

four wholly owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company

specializing

the

origination

small

loans

with

offices

Puerto

Rico;

First

Management

Puerto

Rico,

Puerto

Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

international

banking

entity

(an

“IBE”)

organized

under

the International

Banking

Entity

Act of

Puerto

Rico;

and

one dormant

company formerly

engaged

in the

operation

of certain

other real estate owned (“OREO”) property.

For a

discussion

of certain

significant

events that

have occurred

in 2021,

please refer

to “Significant

Events”

included

in Item

Management’s Discussion and

Analysis of Financial Condition and Results of Operations of this Form

10-K.

BUSINESS SEGMENTS

The Corporation has six reportable segments: Commercial and Corporate

Banking; Mortgage Banking; Consumer (Retail) Banking;

Treasury and Investments; United States

Operations; and Virgin

Islands Operations. These segments are described below,

as well as in

Note 36 - “Segment Information,” to the consolidated

financial statements for the year ended December 31, 2021 included in

Item 8 of

this Form 10-K.

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

the

Corporation’s

lending

and

other

services

for

large

customers

represented

by specialized

and middle-market

clients and

the government

sector in

the Puerto

Rico region.

FirstBank has

developed

expertise

wide

variety

industries.

The

Commercial

and

Corporate

Banking

segment

offers

commercial

loans,

including

commercial real estate and construction

loans, as well as other products,

such as cash management and business

management services.

substantial

portion

the

commercial

and

corporate

banking

portfolio

secured

the

underlying

real

estate

collateral

and

the

personal guarantees of the borrowers.

Mortgage Banking

The Mortgage

Banking operations

consist of

the origination,

sale and

servicing of

a variety

of residential

mortgage loan

products

and

hedging

activities

the

Puerto

Rico

region.

Originations

are

sourced

through

different

channels,

such

FirstBank

branches

and

purchases

from

mortgage

bankers,

and

association

with

new

project

developers.

The

Mortgage

Banking

segment

focuses on

originating residential

real estate

loans, some

of which

conform to

the U.S.

Federal Housing

Administration (the

“FHA”),

U.S.

Veterans

Administration

(the

“VA”)

and

the

U.S.

Department

Agriculture

Rural

Development

(the

“RD”)

standards.

Originated loans that

meet the FHA’s

standards qualify for

the FHA’s

insurance program whereas

loans that meet the

standards of the

or RD are guaranteed by those respective federal agencies.

Mortgage

loans that

do not

qualify

under the

FHA,

or RD

programs

are referred

to as

conventional

loans. Conventional

real

estate loans

can be

conforming or

non-conforming. Conforming

loans are residential

real estate loans

that meet

the standards

for sale

under

the

U.S.

Federal

National

Mortgage

Association

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”) programs.

Loans that

do not

meet FNMA

or FHLMC

standards are

referred to

as non-conforming

residential real

estate

loans. The

Corporation’s

strategy is

to penetrate

markets by

providing customers

with a

variety of

high-quality mortgage

products to

serve

their

financial

needs

through

faster

and

simpler

process

and

competitive

prices.

The

Mortgage

Banking

segment

also

acquires and

sells mortgages

in the

secondary markets.

Residential real

estate conforming

loans are

sold to

investors like

FNMA and

FHLMC.

Most

the

Corporation’s

residential

mortgage

loan

portfolio

consists

fixed-rate,

fully

amortizing,

full

documentation

loans. The

Corporation has

commitment authority

to issue Government

National Mortgage

Association (“GNMA”)

mortgage-backed

securities (“MBS”).

Under this

program,

the Corporation

has been

selling FHA/VA

mortgage

loans into

the secondary

market since

2009.

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities

conducted

mainly through FirstBank’s

branch network in the Puerto Rico region.

Loans to consumers include auto loans,

finance leases, boat and

personal loans,

credit card loans,

and lines of

credit.

Deposit products include

interest-bearing and non-interest-bearing

checking and

savings accounts,

Individual Retirement

Accounts (“IRAs”)

and retail

certificates of

deposit (“re

tail CDs”).

Retail deposits

gathered

through each

branch of

FirstBank’s

retail network

serve as

one of

the funding

sources for

the lending

and investment

activities. This

segment also includes the Corporation’s

insurance agency activities in the Puerto Rico region.

Treasury and Investments

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

treasury

and

investment

management

functions.

The

treasury

function,

which

includes

funding

and

liquidity

management,

lends

funds

the

Commercial

and

Corporate

Banking,

Mortgage

Banking,

the

Consumer

(Retail)

Banking

and

the

United

States

operations

segments

finance

their

respective

lending

activities

and

borrows

from

those segments.

The Treasury

and

Investment

segment

also obtains

funding

through

brokered deposits,

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible funding sources.

United States Operations

The

United

States Operations

segment

consists of

all banking

activities conducted

by FirstBank

the U.S.

mainland.

FirstBank

provides

wide range

of banking

services to

individual

and

corporate

customers,

primarily

southern

Florida

through

banking

branches.

The

United

States

Operations

segment

offers

array

both

consumer

and

commercial

banking

products

and

services.

Consumer banking

products include

checking, savings

and money

market accounts,

retail CDs,

internet banking

services, residential

mortgages,

home

equity

loans,

and

lines

credit.

Retail

deposits,

well

FHLB

advances

and

brokered

CDs

assigned

this

segment, serve as funding sources for its lending

activities.

The commercial banking services include

checking, savings and money market

accounts, retail CDs, internet banking services,

cash

management

services,

remote

deposit

capture,

and

automated

clearing

house,

ACH,

transactions.

Loan

products

include

the

traditional commercial and industrial and commercial real estate products,

such as lines of credit, term loans and construction loans.

Virgin Islands Operations

The

Virgin

Islands

Operations

segment

consists

all

banking

activities

conducted

FirstBank

the

USVI

and

BVI

regions,

including

consumer and

commercial banking

services, with

a total

of eight

banking branches

serving

the islands

in the

USVI of

St.

Thomas,

St.

Croix,

and

St.

John,

and

the

island

Tortola

the

BVI.

The

Virgin

Islands

Operations

segment

driven

its

consumer, commercial lending and deposit

-taking activities.

Loans

consumers

include

auto

and

boat

loans,

lines

credit,

and

personal

and

residential

mortgage

loans.

Deposit

products

include

interest-bearing

and

non-interest-bearing

checking

and

savings

accounts,

IRAs,

and

retail

CDs.

Retail

deposits

gathered

through each branch serve as the funding sources for its own lending activities.

ENVIRONMENTAL

SOCIAL AND GOVERNANCE (ESG) PROGRAM OVERVIEW

The

Corporation

committed

supporting

our

clients,

employees,

shareholders

and

communities

which

serve.

With

oversight from our Board of Directors, the Corporation

is focused on implementing ESG practices to support

environmental and social

sustainability with an effective governance framework.

During

2021,

the

Corporation

made

progress

towards

formally

establishing

our

ESG

Program

adopting

ESG

framework

through

which

will

establish

and

communicate

the

Corporation’s

ESG

strategy

and

overarching

governance

policy,

with

anticipated plans to publish an ESG report during 2022.

The

Corporate

Governance

and

Nominating

Committee

of the

Board

Directors

has

direct oversight

ESG policies,

practices

and disclosures.

Additionally, during

2021, the Corporation established

an ESG Committee at the

management level, which primarily

responsible

for

driving

the

Corporation’s

ESG

policies

and

strategy

and

reporting

regularly

the

Corporate

Governance

and

Nominating Committee.

The ESG

Committee will

align priorities

and initiatives

for the

year,

provide strategy

recommendations and

lead

the

reporting

process

ESG

topics.

The

ESG

Committee

composed

core,

cross-functional

group

senior

management,

with

representatives

from

our

Investor

Relations,

Corporate

Affairs,

Corporate

Communications,

Human

Resources,

Risk, Credit and Finance functions.

The Corporation

intends to

report to

shareholders and

other key

stakeholders regarding

these efforts

with an

ESG Report

that will

align

with

leading

standards

and

frameworks,

including

the

Sustainability

Accounting

Standards

Board

and

the

United

Nations

Sustainable Development

Goals. The Corporation

expects to publish

the Corporation’s

inaugural 2021 ESG

Report during the

second

quarter of 2022.

HUMAN CAPITAL MANAGEMENT

First BanCorp.

strives to be recognized as a leading and diversified financial institution,

offering a superior experience to our clients

and employees. We

believe that the key to our success is caring about our team as much

as we care about our customers. Our goal is to

be an “Employer of Choice” within our

primary operating regions, which we

believe can be achieved and sustained by adding

value to

our

employees’

lives

and

providing

the

right

work

experience.

The

core

our

Employer

Value

Proposition,

“The

Experience

Being 1”, is our commitment to our employees’ wellbeing, success, professional

development, and work environment.

Structure

As of December

31, 2021,

the Corporation

and its subsidiaries

had 3,075

regular employees,

nearly all

of whom

are full-time. The

Corporation

had 2,722

employees in

the Puerto

Rico region,

200 employees

in the

Florida region,

and 153

employees in

the Virgin

Islands region. As

of December 31, 2021,

approximately 67% of the

total employees and 57%

of the top and

middle management, are

women.

The

overall

headcount

was

7.45%

lower

than

December

31,

2020,

primarily

result

the

completion

the

integration

BSPR

operations.

The

Human

Resources

Division

reports

the

Corporation’s

Chief

Risk

Officer

and

manages

all

aspects

the

Corporation’s

human

capital,

including

talent

recruiting

and

engagement,

training

and

development,

and

compensation and benefits.

The

Human

Resources

Division

efforts

are

overseen

the

Corporation’s

Chief

Executive

Officer

(CEO)

and

the

executive

management

team

through

regular

work-related

interactions.

Our

leaders

focus

strengthening

employee

management

and

engagement,

and

maximizing

collaboration

between

departments

and

talents

promoting

open-door

culture

that

stimulates

frequent communication

between employees

and management.

This provides

more opportunities

to identify

employees' needs,

obtain

feedback

about

work

experience,

and

adapt

our

employee

engagement

believe

appropriate.

addition,

the

Corporation’s

Board

of Directors

and

the Board’s

Compensation

and Benefits

Committee

monitor

and are

regularly

updated

on the

Corporation’s

human capital management strategies.

Recruitment and Retention

First

BanCorp.

equal

opportunity

employer,

which

considers

qualified

candidates

for

employment

fill

its

available

positions.

Our

efforts

are

focused

attracting

and

retaining

the

best

talent

for

the

Corporation,

including

college

graduates.

The

attraction and selection process includes:

●

Building our employer brand by participating in professional events and

job fairs and maintaining a relationship with

universities through internship programs and career forums.

●

A partnership with hiring managers to ensure an accurate match between

role and candidate and reasonably speed up the

recruitment process to secure top candidates.

●

A robust management information system to enhance the effectiveness

of the recruitment process and provide candidates with

a unique experience.

●

A robust on-boarding process to engage and support the new employee’s

induction process, including our mentorship program

for new hires,

“FirstPal”.

Our

commitment

employee

engagement

continues

throughout

the

employee’s

time

with

the

Corporation.

Therefore,

have

talent management processes to attract

and engage the best talent and

promote professional development and

career growth, including,

promoting

internal

career

opportunities,

performance

management

processes,

annual

talent

review,

and

robust

succession

planning,

among

other

practices.

also

promote

our

commitment

our

communities

through

our

volunteer

and

community

reinvestment

programs. In

2021, despite

the COVID-19

pandemic,

we supported

14 organizations

with volunteer

work and over

80 others

through

donations.

believe

that

financial

security

is critical

for

our

employees.

Our

goal is to

maintain

compensation

levels that

are competitive

with comparable

job categories

in similar

organizations.

Our salary

administration program

is designed

to provide

compensation that

consistent

with

our

employees’

assigned

duties

and

responsibilities

order

recognize

differences

individual

performance

levels and to attract the right talent for each job.

addition

salary,

some

job

positions

are

eligible

participate

variable

pay

programs.

The

Corporation

has

different

incentive

programs

for

most

the

business

units.

These

incentive

programs

are

periodically

reviewed

align

them

business

strategies

and

ensure

sound

risk

management.

Further,

the

Corporation’s

Management

Award

Program

used

recognize

and

reward outstanding

performance for

exempt employees

who do

not participate

in other

variable pay

programs. The Corporation

also

has a Long-Term

Incentive Plan for

top-performing leaders and

employees with high

potential. These programs

provide awards based

upon

the

Corporation’s

and

individual’s

performance

and

are

key

for

the

attraction

and

engagement

the

best

talent

The

Corporation’s investment

in its employees has resulted

in a stable-tenured workforce,

with an average tenure

of 10 years of service. In

2021, employee’s

voluntary turnover increased

globally affecting most

industries. Our employee

voluntary turnover rate

for 2021

was

18.4%, mostly related

to hourly employees

in call centers

and branches. Voluntary

turnover for all

other positions was

9.5%,

for high

performers employees’ turnover was relatively low at 7.5%.

Talent Development

First BanCorp. believes

that a culture

of learning

and development maximizes

the talent of

human capital and

is the foundation

for

sustained business success.

The

Corporation

provides

face-to-face,

online

and

virtual

training,

development

activities,

special

projects,

and

partial

tuition

reimbursement

complete

bachelor’s

master's

degree.

Training

offered

various

subjects

that

are

classified

into

the

following

five

main

areas:

fundamentals,

compliance

and

corporate

governance,

specialized

technical

subjects,

professional

development,

and

leadership

development.

Our

training

and

development

programs

strives

reflect

both

the

employees’

and

the

organization’s needs.

offer

than

7,000

training

opportunities

through

online

courses

and

in-person

virtual

classes.

2021,

due

the

COVID-19 pandemic,

we provided

over 70

training opportunities

(both internal

and external)

through

virtual and

online modalities.

This

action

allowed

our

employees

keep

learning

even

when

they

were

working

remotely.

For

2021,

delivered

than

119,000 hours of training. Furthermore,

employees each completed on average 32.21 training hours.

Every

year

around

100

new

and

existing

supervisors

and

managers

receive

training.

For

new

supervisors,

offer

program

intended to

train in basic

supervision, leadership

and communication

skills, and our

human resources policies

and practices. We

have

delivered more

than 9,000

hours of

supervision and

management-related

training over

the last

three years.

In addition,

our program

for active

supervisors and

managers encourages

leaders to

review their

leadership skills

with feedback

received from

instructors and

coworkers.

the

past

five

years,

the

program

has

been

delivered

60%

our

current

leaders,

including

new

leaders

from

the

acquired BSPR business, accounting for over 20,000 training hours since the

program was launched.

Health & Wellness

Health

and

wellness

programs

are

strong

component

the

benefits

provide

our

employees.

First

BanCorp.

provides

competitive

benefits

programs

that

are

intended

address

even

the

most

pressing

needs

our

employees

and

their

families

promote

physical, emotional,

and

financial health.

Our comprehensive

benefits

package includes

health, dental

and vision

insurance

offered

through different

insurance company

options that

enable an

employee to

choose the

one that

best accommodates

their needs

and

those of

their family.

also offer

life insurance

and disability

plans; and

a retirement-defined

contribution

plan option

where

both employee and employer contribute.

promote work-life

balance, we

grant a variety

of paid

time off

for vacation,

illness, maternity

and paternity

leave, bereavement

leave, marriage and personal days,

in-house health services, and a complete

wellness program, including nutrition, fitness,

health fairs,

personal

finance

education,

and

preventive

healthcare

activities,

among

others.

The

Corporation

contributes

substantial

portion

towards

the costs of all these benefits.

Initiatives for

the safety and

security of employees

have always been

an important priority.

In 2021, in

response to the

COVID-19

pandemic,

over

60%

the

Corporation’s

employees

were

able

work

remotely.

Additional

activities

implemented

the

Corporation to support employees included:

●

COVID-19 monitoring, and contact tracing processes.

●

Free testing for all employees.

●

Paid leave for employees affected by the virus and special leave of

absence without pay for unique needs.

●

Enhanced cleaning activities, installed barriers (plexiglass or similar materials)

to comply with social distance guidelines and

protect customers and employees, provided

face masks, hand sanitizers and cleaning materials, and implemented the taking

the temperature of all employees and customers who enter the Corporation’s

facilities.

●

Training activities related to COVID-19, safety

measures, stress management,

and remote work.

●

Implemented a COVID-19 vaccination mandate to protect our workforce.

●

Offered multiple onsite vaccination clinics, including vaccination

booster clinics.

WEBSITE ACCESS TO REPORT

The Corporation

makes available

annual reports

on Form

10-K, quarterly

reports on Form

10-Q, and

current reports

on Form

8-K,

and amendments

to those

reports, and

proxy statements

on Schedule

14A, filed

or furnished

pursuant to

section 13(a),

14(a) or

15(d)

of the Exchange Act,

free of charge on

or through its internet

website at www.1firstbank.com

(under “Investor Relations”),

as soon as

reasonably practicable

after the

Corporation

electronically files

such material

with, or

furnishes it

to, the

SEC. The

SEC maintains

website that

contains

reports, proxy

and information

statements, and

other information

regarding issuers

that file

electronically

with

the SEC at www.sec.gov.

The Corporation

also makes

available the

Corporation’s

corporate governance

guidelines and

principles, the

charters of

the audit,

asset/liability,

compensation

and

benefits,

credit,

risk,

trust,

corporate

governance

and

nominating

committees

and

the

codes

conduct

and

independence

principles

mentioned

below,

free

charge

through

its

internet

website

www.1firstbank.com

(under “Investor Relations”):

•

Code of Ethics for CEO and Senior Financial Officers

•

Code of Ethics applicable to all employees

•

Corporate Governance Guidelines and Principles

•

Independence Principles for Directors

The corporate governance

guidelines and principles

and the aforementioned

charters and codes may

also be obtained free

of charge

sending

a written

request

to Mrs. Sara

Alvarez

Cabrero, Executive

Vice

President,

General

Counsel

and

Secretary of

the

Board,

PO Box 9146, San Juan, Puerto Rico 00908.

Website

addresses

referenced

this

Annual

Report

Form

10-K

are

provided

for

convenience

only,

and

the

content

the

referenced websites does not constitute a part of this Annual Report on

Form 10-K.

MARKET AREA AND COMPETITION

Puerto

Rico,

where

the

banking

market

highly

competitive,

the

main

geographic

service

area

the

Corporation.

December

31,

2021,

the

Corporation

also

had

presence

the

state

Florida

and

the

USVI

and

BVI.

Puerto

Rico

banks

are

subject to the same federal laws, regulations and supervision that apply

to similar institutions in the United States mainland.

Competitors include

other banks,

insurance companies,

mortgage banking

companies, small

loan companies,

automobile financing

companies,

leasing companies,

brokerage firms

with retail

operations,

credit unions

and certain

retailers that

operate in

Puerto Rico,

the Virgin

Islands and

the state

of Florida,

as well

as Fintechs

and

emerging

competition

from digital

platforms.

The Corporation’s

businesses

compete

with

these

other

firms

with

respect

the

range

products

and

services

offered

and

the

types

clients,

customers and industries served.

The

Corporation’s

ability

compete

effectively

depends

the

relative

performance

its

products,

the

degree

which

the

features

its

products

appeal

customers,

and

the

extent

which

the

Corporation

meets

clients’

needs

and

expectations.

The

Corporation’s ability to compete also depends

on its ability to attract and retain professional and other personnel, and on its reputation.

The

Corporation

encounters

intense

competition

in attracting

and

retaining

deposits

and

its consumer

and

commercial

lending

activities. The

Corporation

competes for

loans with

other financial

institutions, some

of which

are larger

and have

greater resources

available than

those of

the Corporation.

Management believes

that the

Corporation has

been able

to compete

effectively for

deposits

and loans by

offering a variety

of account products

and loans with competitive

features, by pricing

its products at competitive

interest

rates,

offering

convenient

branch

locations,

and

emphasizing

the

quality

its service.

The

Corporation’s

ability

originate

loans depends

primarily on

the rates

and fees

charged and

the service

it provides

to its

borrowers in

making prompt

credit decisions.

There can

be no

assurance that

in the

future the

Corporation will

be able

to continue

to increase its

deposit base

or originate

loans in

the manner or on the terms on which it has done so in the past.

SUPERVISION AND REGULATION

The

Corporation

and

FirstBank,

its

bank

subsidiary,

are

subject

comprehensive

federal

and

Puerto

Rican

supervision

and

regulation.

These

supervisory

and

regulatory

requirements

apply

all

aspects

the

Corporation’s

and

the

Bank’s

activities,

including commercial

and consumer

lending, deposit

taking, management,

governance and

other activities.

As part

of this

regulatory

framework, the

Corporation and

the Bank

are subject

to extensive

consumer financial

regulatory legal

and supervisory

requirements.

Further,

U.S.

financial

supervision

and

regulation

dynamic

nature,

and

supervisory

and

regulatory

requirements

are

subject

change

new

legislative

and

regulatory

actions

are

taken.

Future

legislation

may

increase

the

regulation

and

oversight

the

Corporation and the

Bank. Any change in

applicable laws or regulations,

however, may

have a material adverse

effect on the business

of commercial banks and bank holding companies, including the Bank and

the Corporation.

Bank Holding Company Activities and Other Limitations

The

Corporation

registered

under,

and

subject

to,

supervision

and

regulation

the

Federal

Reserve

Board

under

the

Bank

Holding Company

Act of

1956, as

amended (the

“Bank Holding

Company Act”).

The Corporation

is subject

to ongoing

regulation,

supervision, and examination by the Federal Reserve Board, and

is required to file with the Federal Reserve Board periodic and annual

reports and other information concerning its own business operations

and those of its subsidiaries.

The Bank Holding

Company Act also permits

a bank holding company

to elect to become

a financial holding

company and engage

in a

broad range

of activities

that are

financial in

nature. The

Corporation elected

to be

a financial

holding company

under the

Bank

Holding

Company

Act.

Financial

holding

companies may

engage,

directly

or indirectly,

in any

activity

that is

determined

to be

(i)

financial

nature,

(ii)

incidental

such

financial

activity,

(iii)

complementary

financial

activity

and

does

not

pose

substantial risk

to the

safety and

soundness of

depository institutions

or the

financial system

generally.

The Bank

Holding Company

Act

specifically

provides

that

the

following

activities

have

been

determined

“financial

nature”:

(i)

lending,

trust

and

other

banking

activities;

(ii)

insurance

activities;

(iii)

financial

economic

advice

services;

(iv)

pooled

investments;

(v)

securities

underwriting

and

dealing; (vi)

domestic

activities permitted

for

an existing

bank holding

company;

(vii)

foreign

activities permitted

for an existing bank holding company; and (viii) merchant banking

activities.

financial

holding

company

that

ceases

meet

certain

standards

subject

variety

restrictions,

depending

the

circumstances,

including

precluding

the

undertaking

new

financial

activities

the

acquisition

control

other

companies.

Until

compliance

restored,

the

Federal

Reserve

Board

has

broad

discretion

impose

appropriate

limitations

the

financial

holding

company’s

activities.

compliance

not

restored

within

180

days,

the

Federal

Reserve

Board

may

ultimately

require the

financial holding

company to

divest its

depository institutions

or,

in the

alternative, to

discontinue or

divest any

activities

that are not permitted

to non-financial holding companies.

The Corporation and FirstBank

must be well-capitalized

and well-managed

for

regulatory

purposes,

and

FirstBank

must

earn

“satisfactory”

better

ratings

its

periodic

Community

Reinvestment

Act

(“CRA”) examinations for the Corporation to preserve its financial

holding company status.

Under

federal

law

and

Federal

Reserve

Board

policy,

bank

holding

company

such

the

Corporation

expected

act

source of financial

and managerial strength

to its banking

subsidiaries and

to commit required

levels of support

to them. This

support

may be required

at times when,

absent such policy,

the bank holding

company might not

otherwise provide

such support. In

the event

bank

holding

company’s

bankruptcy,

any

commitment

the

bank

holding

company

federal

bank

regulatory

agency

maintain capital of a subsidiary bank will be assumed by the bankruptcy

trustee and be entitled to a priority of payment.

In addition, any

capital loans by a

bank holding company

to any of

its subsidiary banks

must be subordinated

in right of payment

to deposits

and to

certain other

indebtedness of

such subsidiary

bank. As

of December

31, 2021,

and the

date hereof,

FirstBank was

and is the only depository

institution subsidiary of the Corporation.

Federal law directs the Federal Reserve

Board to adopt regulations

implementing the statutory source-of-strength requirements; how

ever, such regulations have not yet been proposed.

Regulatory Capital Requirements

The federal

banking agencies

have implemented

rules for

U.S. banks

that establish

minimum

regulatory

capital requirements,

the

components

regulatory

capital,

and

the

risk-based

capital

treatment

bank

assets

and

off-balance

sheet

exposures.

These

rules

currently

apply

the

Corporation

and

FirstBank,

and

generally

are

intended

align

U.S.

regulatory

capital

requirements

with

international regulatory capital standards

adopted by the Basel Committee on Banking

Supervision (“Basel Committee”), in particular,

the most recent international capital accord adopted in

2010 (and revised in 2011) known

as “Basel III.”

The current rules increase the

quantity

and quality

of capital

required

by,

among other

things, establishing

a minimum

common

equity capital

requirement

and an

additional common

equity Tier

1 capital

conservation buffer.

In addition,

the current

rules revise

and harmonize

the bank

regulators’

rules for

calculating risk-weighted

assets to

enhance risk

sensitivity and

address weaknesses

that have

been identified,

by applying

variation

of the

Basel III

“Standardized

Approach” for

the risk-weighting

of bank

assets and

off-balance

sheet exposures

to all

U.S.

banking organizations other than large

internationally active banks.

International

regulatory developments

also can

affect

the regulation

and

supervision

of U.S.

banking

organizations,

including

the

Corporation

and FirstBank.

Both the

Basel Committee

and the

Financial Stability

Board (established

in April

2009 by

the Group

Twenty

Finance

Ministers

and

Central

Bank

Governors)

have

agreed

take

action

strengthen

regulation

and

supervision

the

financial

system

with

greater

international

consistency,

cooperation,

and

transparency,

including

the

adoption

Basel

III

and

commitment to raise capital standards and liquidity buffers

within the banking system under Basel III. In addition, 12 U.S.C. 5371

(the

“Collins

Amendment”),

among

other

things,

eliminates

certain

trust-preferred

securities

(“TRuPs”)

from

Tier

capital.

Preferred

securities

issued

under

the

U.S.

Treasury’s

Troubled

Asset

Relief

Program

(“TARP”)

are

exempt

from

this

change.

Bank

holding

companies,

such

the

Corporation,

were

required

fully

phase

out

these

instruments

from

Tier

capital

January

2016;

however, these instruments

may remain in Tier

2 capital until the instruments

are redeemed or mature.

As of December 31, 2021,

the

Corporation

had $178.3

million in

TRuPs that

were subject

to a

full phase-out

from Tier

1 capital

under the

final regulatory

capital

rules discussed above.

Consistent

with

Basel

Committee

actions

noted

above,

the

Federal

Reserve

Board

has

adopted

risk-based

and

leverage

capital

adequacy guidelines

pursuant to which

it assesses the

adequacy of

capital in examining

and supervising a

bank holding

company and

analyzing

applications

under

the

Bank

Holding

Company

Act.

The

Corporation

and

FirstBank

became

subject

the

U.S.

Basel III

capital rules

beginning on

January 1,

2015, and

compute risk-weighted

assets using

the Standardized

Approach required

these rules.

The

Basel III

rules

require

the

Corporation

maintain

an additional

capital

conservation

buffer

2.5%

avoid

limitations on

both (i)

capital distributions

(

e.g.

, repurchases

of capital

instruments, dividends

and interest payments

on capital

instruments) and

(ii)

discretionary bonus payments to executive officers

and heads of major business lines.

Under

the fully

phased-in Basel

III

rules, in

order to

be considered

adequately

capitalized and

not subject

to the

above-described

limitations,

the Corporation

is required

to maintain:

(i) a

minimum

common equity

Tier

1 Capital

(“CET1”)

to risk-weighted

assets

ratio of

at least

4.5%, plus

the 2.5%

“capital conservation

buffer,”

resulting in

a required

minimum CET1

ratio of

at least

7%; (ii)

minimum ratio

of total Tier

1 capital to

risk-weighted assets

of at least

6.0%, plus

the 2.5% capital

conservation buffer,

resulting in

required

minimum Tier

1 capital

ratio of

8.5%; (iii)

a minimum

ratio of

total Tie

1 plus

Tier

2 capital

to risk-weighted

assets of

least 8.0%, plus

the 2.5% capital

conservation buffer,

resulting in a required

minimum total capital ratio

of 10.5%; and

(iv) a required

minimum leverage ratio of 4%, calculated as the ratio of Tier

1 capital to average on-balance sheet (non-risk adjusted) assets.

The

Basel

III

rules

have

increased

our

regulatory

capital

requirements

and

require

hold

capital

against

certain

our

assets and off

-balance sheet exposures.

The Corporation’s

CET1 capital ratio,

Tier 1

capital ratio, total

capital ratio, and

the leverage

ratio under the Basel III rules, as of December 31, 2021, were 17.

80%, 17.80%, 20.50%, and 10.14%, respectively.

Further,

as part

of its

response

to the

impact

of COVID-19,

on March

31, 2020,

federal banking

agencies

issued an

interim final

rule that

provided the

option to

temporarily

delay the

effects of

CECL on

regulatory

capital for

two years,

followed by

a three-year

transition

period.

The

interim

final

rule

provides

that,

the

election

qualified

banking

organization,

the

initial

impact

the

adoption of CECL on retained

earnings plus 25% of the change

in the ACL (excluding PCD loans)

from January 1, 2020 to

December

31, 2021 will be delayed

for two years and phased-in

at 25% per year beginning on

January 1, 2022 over a three

-year period, resulting

in a total transition period of five years. The Corporation

and the Bank elected to phase in the full effect of CECL on

regulatory capital

over the five-year transition period.

The Corporation

and the

Bank compute

risk-weighted assets

using the

Standardized Approach

required by

the Basel

III rules.

The

Standardized Approach

for risk-weightings

has expanded

the risk-weighting

categories from

the four

major risk-weighting

categories

under the previous regulatory

capital rules (0%, 20%,

50%, and 100%) to

a much larger and

more risk-sensitive number of

categories,

depending on the

nature of the assets.

In a number

of cases, the Standardized

Approach resulted in higher

risk weights for a

variety of

asset

categories.

Specific

changes

the

risk-weightings

assets

included,

among

other

things:

(i)

applying

150%

risk

weight

instead of a 100% risk

weight for high volatility commercial

real estate acquisition, development

and construction loans, (ii) assigning

a 150%

risk weight

to exposures

that are

90 days

past due

(other than

qualifying residential

mortgage exposures,

which remain

at an

assigned

risk-weighting

of 100%),

(iii) establishing

a 20%

credit conversion

factor for

the unused

portion of

a commitment

with an

original maturity

of one

year or

less that

is not unconditionally

cancellable, in

contrast to

the 0%

risk-weighting under

the prior

rules

and

(iv) requiring

capital to

be maintained

against on-balance-sheet

and

off-balance-sheet

exposures

that result

from certain

cleared

transactions, guarantees and credit derivatives, and collateralized transactions

(such as repurchase agreement transactions).

Set forth below are the Corporation's and FirstBank's capital ratios as of December

31, 2021 based on Federal

Reserve and FDIC guidelines:

Banking Subsidiary

First BanCorp.

FirstBank

Well-

Capitalized

Minimum

As of December 31, 2021

Total capital (Total

capital to

risk-weighted assets)

20.50%

20.23%

10.00%

CET1 Capital (CET1

capital to risk-weighted assets)

17.80%

18.12%

6.50%

Tier 1 capital ratio (Tier

1 capital

to risk-weighted assets)

17.80%

19.03%

8.00%

Leverage ratio

(1)

10.14%

10.85%

5.00%

_______________

(1)

Tier 1 capital to average assets.

Consumer Financial Protection Bureau

The CFPB has

primary examination

and enforcement authority

over FirstBank and

other banks with

over $10 billion

in assets with

respect to consumer financial products and services.

CFPB regulations

issued over

the past

few years

implement 2010

amendments

to the

Equal Credit

Opportunity

Act, the

Truth

Lending

Act

(“TILA”),

and

the

Real

Estate

Settlement

Procedures

Act

(“RESPA”).

general,

among

other

changes,

these

regulations

collectively:

(i)

require

lenders

make

reasonable,

good

faith

determination

prospective

residential

mortgage

borrower’s ability

to repay

based on

specific underwriting

criteria and

set standards

related to

the determination

by mortgage

lenders

consumer’s

ability

repay

the

mortgage;

(ii)

require

stricter

underwriting

“qualified

mortgages,”

discussed

below,

that

presumptively

satisfy

the

ability

pay

requirement

(thereby

providing

the

lender

safe

harbor

from

non-compliance

claims);

(iii)

specify new limitations on

loan originator compensation and establish

criteria for the qualifications

of, and registration or licensing

of,

loan originators;

(iv) expand

the coverage

of the

Home Ownership

and Equity

Protections Act

of 1994

to high-cost

mortgage loans;

(v) expand mandated

loan escrow accounts

for certain loans;

(vi) establish appraisal

requirements under

the Equal Credit Opportunity

Act and

require lenders

to provide

a free

copy of

all appraisals to

applicants for

first lien

loans; (vii)

establish appraisal

standards for

most

“higher-risk

mortgages”

under

TILA;

(viii)

combine

single

form

required

loan

disclosures

under

TILA

and

RESPA;

(ix)

define

“qualified

mortgage”

;

and

(x)

afford

safe

harbor

legal

protections

for

lenders

making

qualified

loans

that

are

not

“higher

priced.”

The

CFPB

also

has

issued

regulations

setting

forth

new

mortgage

servicing

rules

that

apply

the

Bank.

The

regulations

affect

notices

given

consumers

delinquency,

foreclosure

alternatives

and

loss

mitigation,

modification

applications,

interest

rate

adjustments and options for avoiding “force-placed” insurance.

Further,

the

CFPB

has

adopted

rules

and

forms

that

combine

certain

disclosures

that

consumers

receive

connection

with

applying

for

and

closing

mortgage

loan

under

the

TILA

and

the

RESPA.

Consistent

with

this

requirement,

the

CFPB

amended

Regulation

X (RESPA)

and

Regulation

Z (TILA)

establish

disclosure

requirements

and

forms

Regulation

Z for

most

closed

-end

consumer

credit

transactions

secured

real

property.

addition

combining

the

existing

disclosure

requirements

and

implementing

new

requirements

imposed

federal

law,

the

rule

provides

extensive

guidance

regarding

compliance

with

those

requirements.

Stress-Testing

and Capital Planning Requirements

Federal

regulations

currently

not

impose

formal

stress-testing

requirements

banking

organizations

with

total

assets

less

than $100 billion,

such as the

Corporation and

FirstBank.

The federal banking

agencies have indicated

through interagency guidance

that the capital

planning and risk

management practices

of institutions with total

of assets of

less than $100

billion will continue

to be

reviewed

through the

regular supervisory

process.

Although

the Corporation

will continue

to monitor

its capital

consistent with

the

safety

and

soundness

expectations

the

federal regulators,

the

Corporation

will no

longer conduct

company-run

stress testing

as a

result of

the legislative

and regulatory

amendments.

However,

the Corporation

continues to

use customized

stress testing

to support

the business and as part of its capital planning process.

The Volcker

Rule

Section 13 of

the Bank Holding

Company Act (commonly

known as the

Volcker

Rule) , subject

to important exceptions,

generally

prohibits a banking

entity such as the Corporation

or the Bank from

acquiring or retaining any

ownership in, or acting

as sponsor to, a

hedge

fund

private

equity

fund

(“covered

fund”).

The

Volcker

Rule

also

prohibits

these

entities

from

engaging,

for

their

own

account, in short-term proprietary trading of certain securities, derivatives,

commodity futures and options on these instruments.

Final

regulations

implementing

the

Volcker

Rule

have

been

adopted

the

financial

regulatory

agencies

and

are

now

generally

effective.

The Corporation and

the Bank are not engaged

in “proprietary trading” as

defined in the Volcker

Rule. In addition, the

Corporation

undertook

review

its

investments

determine

any

meet

the

Volcker

Rule’s

definition

“covered

funds”.

Based

that

review, the Corporation

concluded that its investments are not considered covered funds under the Volcker

Rule.

Community Reinvestment Act and Home Mortgage Disclosure Act Regulations

The CRA encourages

banks to help

meet the credit

needs of the

local communities

in which a

bank offers

their services, including

low- and moderate-income individuals, consistent with the safe and

sound operation of the bank.

The

CRA

requires

the

federal

supervisory

agencies,

part

the

general

examination

supervised

banks,

assess

bank’s

record of meeting

the credit needs of

its community,

assign a performance rating,

and take such record

and rating into account

in their

evaluation of certain applications

by such bank. The

CRA also requires all institutions

to make public disclosure

of their CRA ratings.

FirstBank received a “satisfactory” CRA rating in its most recent examination

by the FDIC.

Failure

adequately

serve

the

communities

could

result

the

denial

the

regulators

proposals

merge,

consolidate

acquire new assets, as well as expand or relocate branches.

The federal bank

regulatory agencies have

amended their respective

CRA regulations primarily

to conform to

changes made by

the

CFPB

Regulation

C, which

implements

the Home

Mortgage

Disclosure

Act.

The Home

Mortgage

Disclosure Act

requires

many

financial institutions to maintain, report, and publicly disclose loan-level

information about mortgages.

USA PATRIOT

Act and Other Anti-Money Laundering Requirements

As a regulated

depository institution,

FirstBank is subject

to the

Bank Secrecy

Act, which imposes

a variety of

reporting and

other

requirements,

including

the requirement

to file

suspicious

activity and

currency

transaction

reports that

are designed

to assist

in the

detection and prevention

of money laundering,

terrorist financing and

other criminal activities.

In addition, under

Title III

of the USA

PATRIOT

Act of 2001, also

known as the International

Money Laundering Abatement

and Anti-Terrorism

Financing Act of 2001,

all

financial

institutions

are

required

to,

among

other

things,

identify

their

customers,

adopt

formal

and

comprehensive

anti-money

laundering programs,

scrutinize or

prohibit altogether

certain transactions

of special

concern, and

be prepared

to respond

to inquiries

from U.S. law enforcement agencies concerning their customers and

their transactions.

January

2021,

major

legislative

amendments

U.S.

anti-money

laundering

requirements

became

effective

through

the

enactment

Division

the

National

Defense

Authorization

Act

for

fiscal

year

2021,

otherwise

known

the

Anti-Money

Laundering Act

of 2020

(“AML Act”).

The new

legislation includes

a variety

of provisions

that are

designed to

modernize the

anti-

money laundering regulatory regime

and remediate gaps in the U.S.’s

approach to anti-money laundering

and countering the financing

of terrorism, including the creation

of a national database of absence

corporate beneficial ownership along

with significantly enhanced

reporting

requirements,

increased

penalties

for

Bank

Secrecy

Act

violations,

clarification

Suspicious

Activity

Report

filing

and

sharing

requirements,

and

provisions

addressing

the

adverse

consequences

“de-risking,”

namely,

the

practice

financial

institutions’ termination or

limitation of business relationships

with clients or classes

of clients in order

to manage the risks associated

with such clients.

Regulations implementing the Bank Secrecy Act and the

USA PATRIOT

Act are published and primarily enforced

by the Financial

Crimes Enforcement Network (“FinCEN”), a bureau

of the U.S. Treasury.

Failure of a financial institution, such as the Corporation or

the

Bank,

comply

with

the

requirements

the

Bank

Secrecy

Act

the

USA

PATRIOT

Act

could

have

serious

legal

and

reputational

consequences

for

the

institution,

including

the

possibility

regulatory

enforcement

other

legal

actions,

such

significant

civil

monetary

penalties.

The

Corporation

also

required

comply

with

federal

economic

and

trade

sanctions

requirements enforced by the Office of Foreign Assets Control

(“OFAC”), a bureau

of the U.S. Treasury.

The Corporation believes

it has adopted appropriate

policies, procedures and controls

to address compliance with

the Bank Secrecy

Act, USA

PATRIOT

Act and

economic/trade

sanctions requirements,

and to

implement banking

agency,

FinCEN, OFAC

and

other

U.S. Treasury

regulations.

Further,

FinCEN is

expected to

propose regulations

in the

near future

that implement

the requirements

the

AML

Act,

and

the

Corporation

will

adjust

its

policies,

procedures

and

controls

accordingly

upon

the

adoption

any

final

regulations.

State Chartered Non-Member Bank and Banking Laws and Regulations

in General

FirstBank is

subject to

regulation and

examination by

the OCIF,

the CFPB

and the

FDIC, and

is subject

to comprehensive

federal

and

state

(Commonwealth

Puerto

Rico)

regulations

that

regulate,

among

other

things,

the

scope

their

businesses,

their

investments, their reserves

against deposits, the

timing and availability

of deposited funds,

and the nature

and amount of

collateral for

certain loans.

The

OCIF,

the

CFPB

and

the

FDIC

periodically

examine

FirstBank

test

the

Bank’s

conformance

safe

and

sound

banking

practices

and

compliance

with

various

statutory

and

regulatory

requirements.

This

regulation

and

supervision

establish

comprehensive framework and oversight

of activities in which the Bank

can engage.

The regulation and supervision by the

FDIC also

are intended

for the

protection of

the FDIC’s

insurance fund

and depositors.

The regulatory

structure gives

the regulatory

authorities

discretion in

connection with their

supervisory and

enforcement activities and

examination policies, including

policies with respect

the classification

of assets

and

the establishment

of adequate

loan

loss reserves

for

regulatory

purposes.

This enforcement

authority

includes,

among

other

things,

the

ability

assess

civil

monetary

penalties,

issue

cease-and-desist

removal

orders,

and

initiate

injunctive

actions

against

banking

organizations

and

institution-affiliated

parties.

general,

these

enforcement

actions

may

initiated for

violations of

laws and

regulations and

for engaging

in unsafe

or unsound

practices. In

addition, certain

bank actions

are

required

statute

and

implementing

regulations.

Other

actions

failure

act

may

provide

the

basis

for

enforcement

action,

including the filing of misleading or untimely reports with regulatory

authorities.

Dividend Restrictions

The Federal Reserve Board’s

“Applying Supervisory Guidance

and Regulations on the

Payment of Dividends, Stock

Redemptions,

and

Stock

Repurchases

Bank

Holding

Companies”

(the “Supervisory

Letter”)

discusses the

ability

of bank

holding

companies

declare

dividends

and

repurchase

equity

securities.

The

Supervisory

Letter

generally

consistent

with

prior

Federal

Reserve

supervisory policies and guidance, although it places greater emphasis on

discussions with the regulators prior to dividend declarations

and

redemption

or repurchase

decisions

even

when not

explicitly required

by the

regulations.

The

Federal

Reserve

Board

provides

that the principles discussed in the Supervisory Letter are applicable to all bank

holding companies.

The

Supervisory

Letter

also

includes

policy

statement

that,

matter

prudent

banking,

bank

holding

company

should

generally

not

maintain

given

rate

cash

dividends

unless

its

net

income

available

common

shareholders

for

the

past

four

quarters, net of dividends

previously paid during that period,

has been sufficient

to fully fund the dividends

and the prospective rate of

earnings

retention

appears

consistent

with

the

organization’s

capital

needs,

asset

quality,

and

overall

current

and

prospective

financial

condition. The

Corporation

is subject

to certain

restrictions generally

imposed on

Puerto

Rico corporations

with respect

the declaration

and payment

of dividends

(

i.e

., that

dividends may

be paid

out only

from the

Corporation’s

capital surplus

or,

in the

absence

of such

excess, from

the Corporation’s

net earnings

for

such fiscal

year

and/or the

preceding

fiscal year).

Furthermore,

the

Federal

Reserve Board’s

regulatory capital

rule (Regulation

Q) limits

the amount

of capital

a bank

holding

company may

distribute

under

certain

circumstances.

Regulation

helps

ensure

banks

maintain

strong

capital

positions

that

will

enable

them

continue

lending

creditworthy

households

and

businesses

even

after

unforeseen

losses

and

during

severe

economic

downturn.

banking

organization must

maintain a capital

conservation buffer

of CET1 capital

in an amount

greater than 2.5%

of total risk

weighted assets

to avoid being subject to limitations on capital distributions.

The

principal

source

funds

for

the

Corporation’s

parent

holding

company

dividends

declared

and

paid

its

subsidiary,

FirstBank. The ability

of FirstBank to declare

and pay dividends on

its capital stock is

regulated by the Puerto

Rico Banking Law,

the

Federal

Deposit

Insurance

Act

(the

“FDIA”),

and

FDIC

regulations.

general

terms,

the

Puerto

Rico

Banking

Law

provides

that

when

the

expenditures

bank

are

greater

than

receipts,

the

excess

expenditures

over

receipts

shall

charged

against

undistributed profits

of the bank

and the

balance, if

any,

shall be charged

against the required

reserve fund

of the bank.

If the reserve

fund

is not

sufficient

to cover

such

balance

in whole

in part,

the outstanding

amount must

charged

against the

bank’s

capital

account. The Puerto Rico Banking

Law provides that, until said capital

has been restored to its original

amount and the reserve fund to

20%

the

original

capital,

the

bank

may

not

declare

any

dividends.

general,

the

FDIA

and

the

FDIC

regulations

restrict

the

payment of

dividends when

a bank

is undercapitalized

(as discussed

Prompt

Corrective

Action

below), when

a bank

has failed

pay insurance assessments, or when there are safety and soundness concerns

regarding such bank.

Refer

Part

II,

Item

“Market

for

Registrant’s

Common

Equity,

Stockholder

Matters

and

Issuer

Purchases

Equity

Securities” of this Annual Report on Form 10-K

for further information on the Corporation’s

distribution of dividends and repurchases

of equity securities.

Financial Privacy and Cybersecurity

The

federal

financial

institution

regulations

limit

the

ability

banks

and

other

financial

institutions

disclose

non-public

information about

consumers to non-affiliated

third parties. These

limitations require

disclosure of privacy

policies to consumers

and,

some

circumstances,

allow

consumers

prevent

disclosure

certain

personal

information

non-affiliated

third

party.

These

regulations affect how consumer information is used

in diversified financial companies and conveyed to outside vendors.

The

federal

banking

regulators

regularly

issue

guidance

regarding

cybersecurity

intended

enhance

cyber

risk

management

standards among financial

institutions. A financial

institution is expected

to establish multiple

lines of defense

and to ensure

their risk

management processes

address the

risk posed

by potential

threats to

the institution.

A financial

institution’s

management is

expected

maintain

sufficient

processes

effectively

respond

and

recover

the

institution’s

operations

after

cyber-attack.

financial

institution

also

expected

develop

appropriate

processes

enable

recovery

data

and

business

operations

critical

service

provider

the

institution

falls

victim

this

type

cyber-attack.

The

Corporation’s

Information

Security

Program

reflects

these

requirements.

Limitations on Transactions with Affiliates

and Insiders

Certain transactions between FDIC-insured

banks financial institutions such

as FirstBank and its affiliates

are governed by Sections

23A and

23B of the

Federal Reserve Act

and by

Federal Reserve

Regulation W.

An affiliate

of a bank

is, in general,

any corporation

or entity that controls, is controlled by,

or is under common control with the bank.

In a holding company context, the parent bank holding

company and any companies that are controlled by such

parent bank holding

company are affiliates

of the bank.

Generally,

Sections 23A and

23B of the

Federal Reserve Act

(i) limit the

extent to which

the bank

its subsidiaries

may

engage

“covered

transactions”

(defined

below)

with

any

one

affiliate

amount

equal

to 10%

such

bank’s

capital stock

and surplus,

and contain

an aggregate

limit on

all such

transactions with

all affiliates

to an

amount equal

to 20%

of such

bank’s

capital stock

and surplus

and (ii) require

that all “covered

transactions” be

on terms

that are substantially

the same, or

at least as favorable to the bank or affiliate,

as those provided to a non-affiliate. The term “covered

transaction” includes the making of

loans,

purchase

assets,

issuance

guarantee,

credit

derivatives,

securities

lending

and

other

similar

transactions

entailing

the

provision of financial

support by the bank

to an affiliate.

In addition, loans or

other extensions of credit

by the bank to

the affiliate are

required to be collateralized in accordance with the requirements set forth in

Section 23A of the Federal Reserve Act.

addition,

Sections

22(h)

and

(g)

the

Federal

Reserve

Act,

implemented

through

Regulation

place

restrictions

commercial bank loans to executive

officers, directors, and principal stockholders

of the bank and its affiliates.

Under Section 22(h) of

the Federal Reserve

Act, bank loans to

a director, an

executive officer,

a greater than 10%

stockholder of the

bank, and certain related

interests of these persons,

may not exceed, together

with all other outstanding

loans to such persons

and affiliated interests,

the bank’s

limit on loans

to one borrower,

which is generally

equal to 15%

of the bank’s

unimpaired capital and

surplus in the

case of loans

that

are not fully secured,

and an additional 10% of

the bank's unimpaired capital

and unimpaired surplus in

the case of loans that

are fully

secured by

readily marketable

collateral having

a market

value at

least equal

to the

amount of

the loan.

Section 22(h)

of the

Federal

Reserve Act also requires

that loans to directors,

executive officers, and

principal stockholders be made

on terms that are substantially

the same

as offered

in comparable

transactions to

other persons

and also

requires prior

board approval

for certain

loans. In

addition,

the

aggregate

amount

extensions

credit

bank

insiders

cannot

exceed

the

bank’s

unimpaired

capital

and

surplus.

Furthermore, Section 22(g) of the Federal Reserve Act places additional

restrictions on loans to executive officers.

Executive Compensation

The federal banking agencies have

adopted interagency guidance governing

incentive-based compensation programs,

which applies

all

banking

organizations

regardless

asset

size.

This

guidance

uses

principles-based

approach

ensure

that

incentive-based

compensation arrangements

appropriately tie

rewards to

longer-term performance

and do

not undermine

the safety

and soundness

banking organizations

or create

undue risks

to the

financial system.

The interagency

guidance is

based on

three major

principles: (i)

balanced risk-taking

incentives; (ii) compatibility

with effective

controls and

risk management; and

(iii) strong

corporate governance.

The guidance further provides

that, where appropriate, the

banking agencies will take supervisory

or enforcement action to ensure

that

material deficiencies that pose a threat to the safety and soundness of the

organization are promptly addressed.

May

2016,

the

federal

banking

agencies,

along

with

other

federal

regulatory

agencies,

proposed

regulations

(first

proposed

2011)

governing

incentive-based

compensation

practices

covered

banking

institutions,

which

would

include,

among

others,

all

banking organizations

with assets of

$1 billion

or greater.

These proposed

rules are

intended to

better align

the financial rewards

for

covered

employees

with

institution’s

long-term

safety

and

soundness.

Portions

these

proposed

rules

would

apply

the

Corporation

and

FirstBank.

Those

applicable

provisions

would

generally

(i)

prohibit

types

and

features

incentive-based

compensation arrangements that encourage

inappropriate risk because they are “excessive”

or “could lead to material financial

loss” at

the

banking

institution;

(ii)

require

incentive-based

compensation

arrangements

adhere

three

basic

principles:

(1)

balance

between risk and reward;

(2) effective risk

management and controls;

and (3) effective

governance; and (iii) require

appropriate board

of directors

(or committee)

oversight

and recordkeeping

and disclosures

to the

banking institution’s

primary regulatory

agency.

The

nature and substance of any final action to adopt these proposed rules, and the

timing of any such action, are not known at this time.

Prompt Corrective Action

The

Prompt

Corrective

Action

(“PCA”)

provisions

the

FDIA

require

the

federal

bank

regulatory

agencies

take

prompt

corrective action against any insured depository institution

(“institutions”) that are undercapitalized.

The FDIA establishes five capital

categories:

well-capitalized,

adequately

capitalized,

undercapitalized,

significantly

undercapitalized,

and

critically

undercapitalized.

Well-capitalized

institutions significantly exceed the required minimum level

for each relevant capital measure.

bank’s

capital

category,

determined

applying

the

prompt

corrective

action

provisions

the

law,

may

not

constitute

accurate

representation

the

overall

financial

condition

prospects

bank,

such

the

Bank,

and

should

considered

conjunction with other available information regarding the financial condition

and results of operations of the bank.

Deposit Insurance

The

increase

in deposit

insurance coverage

to up

to $250,000

per customer,

the FDIC’s

expanded

authority to

increase insurance

premiums,

well

the

increase

the

number

bank

failures

after

the

2008

financial

crisis,

resulted

increase

deposit

insurance assessments

for all

banks, including

FirstBank. The

FDIA further

requires that

the designated

reserve ratio

for the

DIF for

any year

not be

less than

1.35% of

estimated insured

deposits or

the comparable

percentage of

the new

deposit assessment

base.

addition, the FDIC must take the

necessary actions for the reserve ratio to

reach 1.35% of estimated insured deposits by September

30,

2020.

The FDIC managed to reach the goal early,

achieving a reserve ratio of 1.36% in September 2018. However,

in the third quarter

of 2020,

the FDIC announced

that the

reserve ratio

of the

DIF fell 9

basis points

between the

first and

second quarters

of 2020,

from

1.39%

1.30%.

The

decline

was

attributed

unprecedented

surge

deposits.

The

FDIC approved a

plan

that is

expected

to restore the

DIF to

at least

1.35% within

eight years,

as required

by the

FDIA. Under

the plan,

the FDIC

will maintain

the current

schedules of

assessment

rates

for

all banks; monitor

deposit

balance

trends,

potential

losses and

other

factors

that

affect

the

reserve

ratio; and

provide updates

to its

loss and

income projections

at least

twice a

year.

The FDIC

has also

adopted a

final rule

raising its

industry

target ratio

of reserves

to insured

deposits to

2%, 65

basis points

above the

statutory minimum,

but the

FDIC has

indicated

that it does not project that goal to be met for several years.

FDIC Insolvency Authority

Under Puerto Rico banking laws (discussed

below), the OCIF may appoint the

FDIC as conservator or receiver of

a failed or failing

FDIC-insured Puerto Rican bank,

such as the Bank, and

the FDIA authorizes the FDIC to

accept such an appointment.

In addition, the

FDIC

has

broad

authority

under

the

FDIA

appoint

itself

conservator

receiver

failed

failing

state

bank,

including

Puerto Rican

bank. If

the FDIC is

appointed conservator

or receiver

of a

bank upon

the bank’s

insolvency or

the occurrence

of other

events, the

FDIC may sell

or transfer some,

part or all

of a bank’s

assets and liabilities

to another bank,

or liquidate the

bank and pay

out insured depositors, as well as uninsured depositors

and other creditors to the extent of the closed bank’s

available assets. As part of

its insolvency

authority,

the FDIC has

the authority,

among other

things, to

take possession

of and

administer the

receivership estate,

pay out

estate claims,

and repudiate

or disaffirm

certain types

of contracts

to which

the bank

was a

party if

the FDIC

believes such

contract is burdensome and

its disaffirmance will aid

in the administration of

the receivership.

In resolving the estate of

a failed bank,

the

FDIC,

receiver,

will

first

satisfy

its

own

administrative

expenses.

The

claims

holders

U.S.

deposit

liabilities

also

have

priority over those of other general unsecured creditors.

Activities and Investments

The

activities

“principal”

FDIC-insured,

state-chartered

banks,

such

FirstBank,

are

generally

limited

those

that

are

permissible for national

banks. Similarly,

under regulations dealing

with equity investments, an

insured state-chartered bank generally

may not directly

or indirectly acquire

or retain any equity

investments of a

type, or in an

amount, that is not

permissible for a national

bank.

Federal Home Loan Bank System

FirstBank is

a member

of the

FHLB system.

The FHLB

system consists

of eleven

regional FHLBs

governed and

regulated by

the

Federal

Housing

Finance

Agency.

The

FHLBs

serve

reserve

credit

facilities

for

member

institutions

within

their

assigned

regions.

FirstBank is a member

of the FHLB of

New York

and, as such,

is required to

acquire and hold

shares of capital

stock in the

FHLB

of New York

in an amount calculated

in accordance with the

requirements set forth in

applicable laws and regulations.

FirstBank is in

compliance

with

the

stock

ownership

requirements

the

FHLB

New

York.

All

loans,

advances

and

other

extensions

credit

made

by the

FHLB to

FirstBank

are secured

by a

portion

of FirstBank’s

mortgage

loan portfolio,

certain other

investments and

the

capital stock of the FHLB held by FirstBank.

Ownership and Control

Because

FirstBank’s

status

FDIC-insured

bank,

defined

the

Bank

Holding

Company

Act,

the

Corporation,

the

owner of

FirstBank’s

common stock,

is subject to

certain restrictions and

disclosure obligations

under various

federal laws, includin

the

Bank

Holding

Company

Act

and

the

Change

Bank

Control

Act

(the

“CBCA”).

Regulations

adopted

pursuant

the

Bank

Holding Company Act and

the CBCA generally require prior

Federal Reserve Board or other

federal banking agency approval or

non-

objection

for an acquisition of control

of an “insured institution”

(as defined in the

Act) or holding company

thereof by any person

(or

persons acting in

concert). Control is deemed

to exist if, among

other things, a person

(or group of persons

acting in concert)

acquires

25% or more

of any class of

voting stock of

an insured institution

or holding company

thereof. Under the

CBCA, control is presumed

to exist

subject to

rebuttal if

a person

(or group

of persons

acting in

concert) acquires

10% or

more of

any class

of voting

stock and

either (i)

the corporation

has registered securities

under Section

12 of

the Exchange Act,

or (ii) no

person (or

group of persons

acting

concert)

will own,

control

hold

the

power

vote

greater

percentage

of that

class of

voting

securities

immediately

after

the

transaction. The

concept of acting

in concert is

very broad

and is subject

to certain rebuttable

presumptions, including,

among others,

that relatives,

business partners,

management officials,

affiliates and

others are

presumed to

be acting

in concert

with each

other and

their businesses. The regulations of the FDIC implementing the CBCA are generally

similar to those described above.

The Puerto

Rico Banking

Law requires

the approval

of the

OCIF for

changes in

control of

a Puerto

Rico bank.

See “Puerto

Rico

Banking Law” below for further detail.

Standards for Safety and Soundness

The

FDIA

requires

the

FDIC

and

the

other

federal

bank

regulatory

agencies

prescribe

standards

safety

and

soundness,

regulations or

guidelines, relating

generally to

operations and

management, asset

growth, asset quality,

earnings, stock

valuation, and

compensation.

The

implementing

regulations

and

guidelines

the

FDIC

and

the

other

federal

bank

regulatory

agencies

establish

general

standards

relating

internal

controls

and

information

systems,

internal

audit

systems,

loan

documentation,

credit

underwriting,

interest

rate

exposure,

asset

growth,

and

compensation,

fees

and

benefits.

general,

the

regulations

and

guidelines

require,

among

other

things,

appropriate

systems

and

practices

identify

and

manage

the

risks

and

exposures

specified

the

guidelines.

The

regulations

and

guidelines

prohibit

excessive

compensation

unsafe

and

unsound

practice

and

describe

compensation

excessive

when

the

amounts

paid

are

unreasonable

disproportionate

the

services

performed

executive

officer, employee,

director or principal shareholder.

Failure to comply with these standards can

result in administrative enforcement or

other adverse actions against the bank.

Brokered Deposits

FDIC regulations

adopted

under the

FDIA govern

the receipt

of brokered

deposits by

banks. Well

-capitalized

institutions are

not

subject

limitations

brokered

deposits,

while

adequately-capitalized

institutions

are

able

accept,

renew

rollover

brokered

deposits only

with a

waiver from

the FDIC

and subject

to certain

restrictions on

the interest

paid on

such deposits.

Undercapitalized

institutions

are

not

permitted

brokered

deposits.

October

2020,

the

FDIC

adopted

revisions

its

brokered

deposit

regulations that

became effective

on April

1, 2021,

with full

compliance extended

for financial

institutions to

put in

place systems

implement

the

new

regulatory

regime

and

allow

the

FDIC

develop

internal

processes

and

systems

ensure

consistent

and

robust review process until January 1, 2022.

The Coronavirus Aid, Relief and Economic Security Act (the “ CARES Act of 2020”)

In response to the

economic effects of

the COVID-19 pandemic, on

March 27, 2020, the

U.S. Government enacted the

CARES Act

2020,

amended

the

Consolidated

Appropriations

Act,

2021.

The

CARES

Act

2020,

amended,

includes

numerous

provisions

applicable

financial

institutions,

including

(i)

permitting

banks

suspend

requirements

under

GAAP

for

loan

modifications to borrowers

affected by COVID-19,

provided that such loans

were not more than

30 days past due

as of December

31,

2019, that

would otherwise

result in

a loan’s

classification as

TDR or

evaluation for

impairment, until

the earlier

of 60

days after

the

termination

date of

the pandemic

emergency

or January

1, 2022

(as amended

and extended),

(ii) permitting

borrowers whose

loans

are

federally

backed

request

forbearance

for

180

days,

which

can

extended

for

additional

180

days

the

borrower’s

timely

request,

without

incurring

fees,

penalties

interest

beyond

those

the

borrower

would

have

incurred

had

the

borrower made all scheduled payments, and without exposing

the lender to adverse supervisory action, (iii) as discussed further

above,

permitting financial

institutions that

implement CECL

during the

2020 calendar

year the

option to

delay for

two years

an estimate

CECL's effect

on regulatory

capital, relative

to the

incurred loss

methodology's effect

on regulatory

capital, followed

by a

three-year

transition period, and (iv) creation

of the SBA PPP program under

which small businesses may obtain

loans guaranteed by the SBA

pay payroll

and group

health costs, salaries

and commissions,

mortgage and

rent payments, utilities,

and interest

and other

qualifying

expenses.

The

SBA

fully-guarantees

SBA

PPP

loans,

and

SBA

PPP

loans

may

forgiven

the

SBA

long

as, during

the

applicable

loan

forgiveness

covered

period, employee

and compensation

levels

the

business are

maintained

and

60%

the

loan

proceeds

are used

for payroll

expenses,

with the

remaining 40%

of the

loan proceeds

used for

other qualifying

expenses. SBA

PPP

loans carry an interest

rate of 1% and have

a two-year term (or five

years for loans originated

after June 5, 2020).

For loans originated

under the

SBA’s

PPP loan

program, interest

and principal

payment on

these loans

were originally

deferred for

six months

following

the

funding

date,

during

which

time

interest

would

continue

accrue.

October

2020,

the

Paycheck

Protection

Program

Flexibility Act of 2020 (the “Flexibility

Act”) extended the deferral period for borrower

payments of principal, interest, and fees

on all

SBA PPP

loans

the

date

that

the

SBA remits

the

borrower’s

loan

forgiveness

amount to

the

lender

(or,

if the

borrower

does

not

apply for

loan forgiveness,

10 months

after the

end of

the borrower’s

loan forgiveness

covered period).

The extension

of the

deferral

period under the

Flexibility Act automatically

applied to all SBA

PPP

loans. The Corporation

has chosen to support

its customers and

the communities

it serves by

participating in

the SBA PPP

loan program

and loan modifications

in compliance

with the provisions

the CARES Act of 2020.

COVID-Related Regulatory Activities

During 2020, the federal

banking agencies took several

actions to mitigate the

stress on regulated banks

resulting from the COVID-

pandemic.

These

actions

were

generally

designed

facilitate

the

ability

banks

provide

responsible

credit

and

liquidity

businesses and

individuals affected

by the COVID-19

pandemic, and mitigate

the distorting effects

under regulatory

capital and other

requirements

resulting

from

the

pandemic.

addition

the

CECL

regulatory

capital

relief

discussed

above,

the

banking

agencies

adopted regulations

that, among

other things:

neutralized the

regulatory

capital and

liquidity effects

of banks

participating in

certain

COVID-related

Federal

Reserve

liquidity

facilities;

deferred

appraisal

and

valuation

requirements

after

the

closing

certain

residential

and

commercial

real

estate

transactions;

provided

temporary

relief

for

banks

from

the

FDIC’s

audit

and

reporting

requirements

for banks

that experienced

large

cash inflows

resulting

from participation

in the

SBA’s

PPP and

other COVID-related

facilities, or

otherwise resulting

from the

effects of

government stimulus

efforts.

These regulatory

actions were

taken in

conjunction

with

federal

financial

regulatory

efforts

encourage

banks

and

other

depositories

provide

responsible

credit

and

other

financial

assistance to consumers and small businesses in response to the pandemic.

Puerto Rico Banking Law

commercial

bank

organized

under

the

laws

the

Commonwealth

Puerto

Rico,

FirstBank

subject

supervision,

examination and regulation by the

commissioner of OCIF (the “Commissioner”)

pursuant to the Puerto Rico

Banking Law of 1933, as

amended (the “Banking Law”).

The Banking

Law contains various

provisions relating to

FirstBank and its

affairs, including

its incorporation and

organization, the

rights and responsibilities of its

directors, officers and

stockholders and its corporate powers,

lending limitations, capital requirements,

and investment requirements. In addition,

the Commissioner is given extensive rule-making

power and administrative discretion under

the Banking Law.

The Banking Law requires

every bank to maintain

a legal reserve, which shall

not be less than

20% of its demand

liabilities, except

government deposits (federal,

state and municipal) that

are secured by actual

collateral. The reserve is required

to be composed of

any

the

following

securities

combination

thereof:

(i) legal

tender

the

United

States;

(ii) checks

banks

trust

companies

located in any

part of Puerto

Rico that are

to be presented

for collection during

the day following

the day on

which they are

received;

(iii) money deposited

in other

banks provided

said deposits

are authorized

by the

Commissioner and

subject to

immediate collection;

(iv) federal

funds

sold

to any

Federal

Reserve

Bank

and

securities

purchased

under

agreements to

resell

executed

by the

bank

with

such funds

that are

subject to

be repaid

to the

bank on

or before

the close

of the

business day;

and

(v) any other

asset that

the

Commissioner identifies from time to time.

Section

the

Banking

Law

permits

Puerto

Rico

commercial

banks

make

loans

any

one

person,

firm,

partnership

corporation in an aggregate

amount of up to

15% of the sum of:

(i) the bank’s

paid-in capital; (ii) the bank’s

reserve fund; (iii) 50% of

the bank’s

retained earnings, subject

to certain limitations;

and (iv) any other

components that the

Commissioner may determine

from

time to time. If such loans are secured by

collateral worth at least 25% of the amount of the

loan, the aggregate maximum amount may

reach 33.33% of

the sum of

the bank’s

paid-in capital, reserve

fund, 50% of

retained earnings, subject

to certain limitations,

and such

other components

that the

Commissioner may

determine from

time to

time. There

are no

restrictions under

the Banking

Law on

the

amount of loans that

may be wholly secured

by bonds, securities and

other evidences of indebtedness

of the government of

the United

States,

the

Commonwealth

Puerto

Rico,

bonds,

not

default,

municipalities

instrumentalities

the

Commonwealth of Puerto Rico.

The Banking Law

requires that Puerto

Rico commercial banks prepare

each year a balance

summary of their

operations and submit

such balance

summary

for approval

at a

regular meeting

of stockholders,

together with

an explanatory

report thereon.

The Banking

Law also requires

that at least

10% of the

yearly net income

of a Puerto

Rico commercial bank

be credited annually

to a reserve

fund

until such reserve fund is in amount equal to the total paid-in-capital of the bank.

The

Banking

Law

also

provides

that

when

the

expenditures

Puerto

Rico

commercial

bank

are

greater

than

its

receipts,

the

excess

of the expenditures over

receipts must be charged

against the undistributed profits

of the bank, and

the balance, if any,

charged

against

the

reserve

fund,

as a

reduction

thereof.

there

is no

reserve

fund

sufficient

to cover

such balance

whole or

in part,

the

outstanding amount

must be

charged against

the capital

account and

no dividend

may be declared

until said

capital has

been restored

to its original amount and the amount in the reserve fund equals 20% of

the original capital.

The Finance Board, which

is composed of nine members

from enumerated Puerto Rico

Government agencies, instrumentalities and

public

corporations,

including

the

Commissioner,

has

the

authority

regulate

the

maximum

interest

rates

and

finance

charges

that

may be

charged on

loans to

individuals

and unincorporated

businesses in

Puerto Rico.

The current

regulations of

the Finance

Board

provide that the applicable

interest rate on loans

to individuals and unincorporated

businesses, including real estate

development loans

but excluding

certain other personal

and commercial loans

secured by mortgages

on real estate

properties, is

to be determined

by free

competition. Accordingly,

the regulations do

not set a maximum

rate for charges

on retail installment

sales contracts, small

loans, and

credit card purchases. Furthermore, there

is no maximum rate set for installment sales contracts involving

motor vehicles, commercial,

agricultural and industrial equipment, commercial electric appliances and

insurance premiums.

International Banking Center Regulatory Act of Puerto Rico (“IBE Act 52”)

The business and operations

of FirstBank International Branch

(“FirstBank IBE” or the “IBE

division of FirstBank”)

and FirstBank

Overseas Corporation (the IBE

subsidiary of FirstBank) are

subject to supervision and

regulation by the Commissioner.

FirstBank and

FirstBank

Overseas

Corporation

were

created

under

Puerto

Rico

Act

52-1989,

amended,

known

the

“International

Banking

Center

Regulatory

Act”

(the

IBE

Act

52),

which

provides

for

total

Puerto

Rico

tax

exemption

net

income

derived

IBE

operating in

Puerto Rico

on the specific

activities identified

in the

IBE Act 52.

An IBE

that operates

as a

unit of a

bank pays

income

taxes at the corporate standard

rates to the extent that

the IBE’s net

income exceeds 20% of the bank’s

total net taxable income. Under

the IBE Act 52, certain

sales, encumbrances, assignments, mergers,

exchanges or transfers of shares,

interests or participation(s) in the

capital

IBE

may

not be

initiated

without

the

prior

approval

of the

Commissioner.

The

IBE

Act

and

the regulations

issued

thereunder

the

Commissioner

(the

“IBE

Regulations”)

limit

the

business

activities

that

may

carried

out

IBE.

Such

activities are limited in part to persons and assets located outside of Puerto

Rico.

Pursuant to

the IBE Act

52 and the

IBE Regulations,

each of FirstBank

IBE and FirstBank

Overseas Corporation

must maintain

Puerto

Rico

books

and

records

its

transactions

the

ordinary

course

business.

FirstBank

IBE

and

FirstBank

Overseas

Corporation are

also required

thereunder to

submit to

the Commissioner

quarterly and

annual reports

of their

financial condition

and

results of operations, including annual audited financial statements.

The IBE Act

52 empowers

the Commissioner

to revoke

or suspend,

after notice

and hearing, a

license issued thereunder

if, among

other things, the IBE fails to

comply with the IBE Act 52, the IBE

Regulations or the terms of its license,

or if the Commissioner finds

that the business or affairs of the IBE are conducted in a manner

that is not consistent with the public interest.

In 2012, the Puerto Rico

government approved Act Number

273 (“Act 273”).

Act 273 replaces, prospectively,

IBE Act 52 with the

objective of

improving the

conditions for

conducting international

financial transactions

in Puerto Rico.

An IBE

existing on

the date

of approval

of Act

273, such

as FirstBank

IBE and

FirstBank Overseas

Corporation, can

continue operating

under IBE

Act 52,

or,

can

voluntarily

convert

International

Financial

Entity

(“IFE”)

under

Act

273

may

broaden

its

scope

Eligible

IFE

Activities, as defined below,

and obtain a grant of tax exemption under Act 273.

IFEs are

licensed by

the Commissioner,

and authorized

to conduct

certain

Act 273

specified

financial transactions

(“Eligible IFE

Activities”). Once licensed, an

IFE can request a grant

of tax exemption (“Tax

Grant”) from the Puerto

Rico Department of Economic

Development

and Commerce,

which will

enumerate

and secure

the following

tax benefits

provided by

Act 273

as contractual

rights

(

i.e.

, regardless of future changes in Puerto Rico law) for a 15-year period:

(i)

to the IFE:

●

a fixed

4% Puerto Rico income tax rate on the net income derived by the IFE from

its Eligible IFE Activities; and

●

full property and municipal license tax exemptions on such activities.

(ii)

to its shareholders:

●

6% income tax rate on distributions to Puerto Rico resident

shareholders of earnings and profits derived from the

Eligible IFE

Activities; and

●

full Puerto Rico income tax exemption on such distributions to non

-Puerto Rico resident shareholders.

The primary purpose of IFEs

is to attract Unites States and

foreign investors to Puerto Rico.

Consequently,

Act 273 authorizes IFEs

to engage

in traditional

banking and

financial transactions,

principally

with non-residents

of Puerto

Rico. Furthermore,

the scope

Eligible IFE Activities encompasses a wider variety of transactions

than those previously authorized to IBEs.

Act

187,

amended,

enacted

November

17,

2015,

requires

IBE

obtain

from

the

Commissioner

Certificate

Compliance every two years that certifies its compliance with the provisions

of IBE Act 52.

the

date

the

issuance

this

Annual

Report

Form

10-K,

FirstBank

IBE

and

FirstBank

Overseas

Corporation

are

operating under IBE Act 52.

Future Legislation and Regulation

Financial

legislation

and

regulation

dynamic

nature,

and

subject

regular

changes.

With

the

change

presidential

administrations and the assumption

by the Democratic party

of control of Congress,

legislative and regulatory action

of a “regulatory”

nature

possible,

although

the

agenda

the

Biden

administration

financial

services

legislative

and

regulatory

matters

has

not

been

specifically

outlined

this

time.

Additional

consumer

protection

laws

may

enacted,

and

the

FDIC,

Federal

Reserve,

and

CFPB

have

adopted,

and

may

adopt

the

future,

new

regulations

that

address,

among

other

things,

banks’

credit

card,

overdraft,

collection, privacy

and mortgage lending

practices.

Similarly,

changes in

Puerto Rico law

or actions by

the Commissioner

may have

impact

FirstBank’s

financial

condition

and

activities.

Additional

consumer

protection

regulatory

activity

possible

the

future.

Any proposals

and legislation,

if finally

adopted and

implemented, could

change banking

laws and

our operating

environment and

that

our

subsidiaries

ways

that

would

substantial

and

unpredictable.

cannot

determine

whether

such

proposals

and

legislation will be adopted,

or the ultimate effect

that such proposals and

legislation, if enacted, or

regulations issued to implement

the

same, would have upon our financial condition or results of operations.

Puerto Rico Income Taxes

Under the

Puerto Rico Internal

Revenue Code

of 2011,

as amended (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,

obtain

tax

benefit

from

net

operating

loss

(“NOL”),

particular

subsidiary

must

able

demonstrate

sufficient

taxable

income

within

the

applicable

NOL

carry-forward

period.

The 2011

PR Code

provides

a dividend

received

deduction

of 100%

on dividends

received from

“controlled”

subsidiaries subject to taxation in Puerto Rico and 85% on dividends

received from other taxable domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

maximum

statutory

rate

Puerto

Rico,

which

has

resulted

mainly

from

investments

government

obligations

and

MBS

exempt

from

U.S.

and

Puerto

Rico

income

taxes

and

from

doing

business through an

IBE unit of the

Bank, and through the

Bank’s subsidiary,

FirstBank Overseas Corporation,

whose interest income

and gain on sales is exempt from Puerto Rico income taxation.

United States Income Taxes

Puerto

Rico

corporation,

First

BanCorp.

treated

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.

Insurance Operations Regulation

FirstBank Insurance Agency

is registered as an

insurance agency with

the Insurance Commissioner of

Puerto Rico and is subject

regulations

issued

the

Insurance

Commissioner

and

the

Division

Banking

and

Insurance

Financial

Regulation

the

USVI

relating

to,

among

other

things,

the

licensing

employees

and

sales

and

solicitation

and

advertising

practices,

and

the

Federal

Reserve as to certain consumer protection provisions mandated by

the Gramm-Leach-Bliley Act and its implementing regulations.

Mortgage Banking Operations

addition

FDIC

and

CFPB

regulations,

FirstBank

subject

the

rules

and

regulations

the

FHA,

VA,

FNMA,

FHLMC,

GNMA, and

the U.S.

Department of

Housing and

Urban Development

(“HUD”)

with respect

to originating,

processing,

selling and

servicing mortgage

loans and the

issuance and

sale of MBS.

Those rules

and regulations, among

other things,

prohibit discrimination

and

establish

underwriting

guidelines

that

include

provisions

for

inspections

and

appraisals,

require

credit

reports

prospective

borrowers

and

fix

maximum

loan

amounts,

and,

with

respect

loans,

fix

maximum

interest

rates.

Moreover,

lenders

such

FirstBank are required

annually to submit

audited financial statements

to the FHA, VA,

FNMA, FHLMC, GNMA and

HUD and each

regulatory entity

has its

own financial

requirements. FirstBank’s

affairs are

also subject

to supervision

and examination

by the

FHA,

VA,

FNMA,

FHLMC,

GNMA

and

HUD

all

times

assure

compliance

with

applicable

regulations,

policies

and

procedures.

Mortgage origination activities are subject

to, among other requirements, the Equal

Credit Opportunity Act, TILA and

the RESPA

and

the

regulations

promulgated

thereunder

that,

among

other

things,

prohibit

discrimination

and

require

the

disclosure

of certain

basic

information to

mortgagors concerning

credit terms

and settlement

costs. FirstBank

is licensed

by the

Commissioner under

the Puerto

Rico

Mortgage

Banking

Law,

and,

such,

subject

regulation

the

Commissioner,

with

respect

to,

among

other

things,

licensing requirements and the establishment of maximum origination

fees on certain types of mortgage loan products.

Item 1A.

Risk Factors

There

follows

discussion

about

material

risks

and

uncertainties

that

could

impact

the

Corporation’s

businesses,

results

operations

and financial

condition, including

by causing

the Corporation’s

actual results

to differ

materially from

those projected

any

forward-looking

statements.

Other

risks

and

uncertainties,

including

those

not

currently

known

the

Corporation

its

management and those that the Corporation or its management

currently deems to be immaterial, could also affect

the Corporation in a

materially adverse

way in

future periods.

Thus, the

following should

not be

considered a

complete discussion

of all

of the

risks and

uncertainties the Corporation may face. See the discussion

under “Forward-Looking

Statements,”

in this Annual

Report on Form

10-K.

RISKS RELATING

TO THE CORPORATION’S

BUSINESS

Our level of non-performing assets may adversely affect our future results from

operations.

As of December 31, 2021,

we continued to have a

relevant amount of nonaccrual

loans, even though nonaccrual loans

decreased by

$94.4

million

$110.7

million

December

31,

2021,

46%,

from

$205.1

million

December

31,

2020.

Our

nonaccrual

loans represent

approximately 1%

of our

$11.1

billion loan

portfolio as

of December

31, 2021.

Non-performing

assets decreased

$135.4 million to $158.1 million as

of December 31, 2021,

or 46%, from $293.5

million as of December

31, 2020. If we

are unable to

effectively maintain the quality

of our loan portfolio, our financial

condition and results of operations

may be materially and adversely

affected.

Certain funding sources may not be available to us and our funding sources may

prove insufficient and/or costly to replace.

FirstBank

relies

primarily

customer

deposits,

the

issuance

brokered

CDs,

and

advances

from

the

FHLB

New

York

maintain its lending

activities and to replace

certain maturing liabilities.

As of December 31,

2021, we had $100.4

million in brokered

CDs

outstanding,

representing

approximately

our

total

deposits,

and

reduction

$115.8

million

from

the

year

ended

December

31, 2020.

Approximately

$63.6 million

in brokered

CDs mature

over the

twelve months

ending December

31, 202

2, and

the average

term to

maturity of

the brokered

CDs outstanding

as of

December 31,

2021 was

approximately

1.2 years.

None of

these

CDs

are

callable

the

Corporation’s

option.

addition,

the

Corporation

had

$200

million

FHLB

advances

outstanding

December 31, 2021 that are scheduled

to mature during 2022.

Although FirstBank has historically

been able to replace maturing deposits

and advances, we may not be

able to replace these funds

in the future if our financial condition or general

market conditions change. If we are unable to maintain access to

funding sources, our

results of operations and liquidity would be adversely affected.

Alternate

sources

funding

may

carry

higher

costs

than

sources

currently

utilized.

are

required

rely

heavily

expensive funding sources, profitability would be adversely affected.

may

determine

seek

debt

financing

the

future

achieve

our

long-term

business

objectives.

Additional

borrowings,

sought, may not be available to us, or if available,

may not be on acceptable terms. The availability of additional

financing will depend

variety

factors,

such

market

conditions,

the

general

availability

credit,

our

credit

ratings

and

our

credit

capacity.

addition,

FirstBank may seek to sell loans as an additional source of liquidity.

If additional financing sources are unavailable or are not

available on acceptable terms,

our profitability and future prospects could be adversely affected.

We depend

on cash dividends from FirstBank to meet our cash obligations.

As a holding company,

dividends from FirstBank, our banking subsidiary,

have provided a substantial portion of our cash flow used

service

the

interest

payments

our

TRuPs

and

other

obligations.

FirstBank

limited

law

its

ability

make

dividend

payments

and other

distributions

to us

based on

its earnings

and

capital position.

A failure

FirstBank

to generate

sufficient

cash

flow to make

dividend payments to

us may have

a negative impact

on our results

of operation

and financial

condition. Also, a

failure

the

bank

holding

company

access

sufficient

liquidity

resources

meet

all

projected

cash

needs

the

ordinary

course

business may have a detrimental impact on our financial condition and ability

to compete in the market.

Our allowance for credit losses may not be adequate to cover actual losses, and we may be

required to materially increase our

allowance, which may adversely affect our capital

ratios, financial condition and results of operations.

We are subject,

among other things, to the risk of loss from loan

defaults and foreclosures with respect to the loans we originate

and

purchase. We

recognize periodic

credit loss

expenses on

loans, which

leads to

reductions in

our income

from operations,

in order

maintain

our ACL

on loans

at a

level that

our management

deems to

be appropriate

based upon

an assessment

of the

quality

of the

loan and

lease portfolios.

Management may

fail to

accurately estimate

the level

of loan

and lease

losses or

may have

to increase

our

credit loss

expense on

loans in

the future

as a

result of

new information

regarding existing

loans, future

increase in

nonaccrual loans

beyond

what

was

forecasted,

foreclosure

actions

and

loan

modifications,

changes

current

and

expected

economic

and

other

conditions affecting

borrowers or

for other

reasons beyond

our control.

In addition,

the bank

regulatory agencies

periodically review

the

adequacy

of our

ACL on

loans

and

may

require

increase in

the

credit loss

expense on

loans or

the recognition

additional

classified loans and loan charge-offs, based

on judgments that differ from those of management.

The

level

the

allowance

reflects

management’s

estimates

based

upon

various

assumptions

and

judgments

specific

credit

risks,

its

evaluation

industry

concentrations,

loan

loss

experience,

current

loan

portfolio

quality,

present

economic,

political

and

regulatory

conditions,

unidentified

losses

inherent

the

current

loan

portfolio

and,

since

the

beginning

2020,

reasonable

and

supportable forecasts. The determination of

the appropriate level of the ACL on

loans inherently involves a high degree of

subjectivity

and

requires

management

to make

significant

estimates and

judgments

regarding

current credit

risks and

future

trends, all

of which

may undergo

material changes.

If our

estimates prove

to be

incorrect, our

ACL on

loans may

not be

sufficient to

cover losses

in our

loan portfolio and our credit loss expense on loans could increase substantially.

In addition, any increases in our credit loss expense on

loans or any loan losses in excess of our ACL on loans could have a material

adverse effect on our future capital ratios, financial

condition and results of operations.

The Corporation’s force-placed

insurance policies could be disputed by the customer.

The Corporation

maintains force-placed

insurance policies

that have

been put

into place

when a

borrower’s

insurance policy

on a

property has been

canceled, lapsed or was

deemed insufficient and

the borrower did not

secure a replacement policy.

A borrower may

make

a claim

against the

Corporation

under

such force

-placed insurance

policy and

the failure

of the

Corporation

to resolve

such a

claim

the

borrower’s

satisfaction

may

result

dispute

between

the

borrower

and

the

Corporation,

which

not

adequately

resolved, could have an adverse effect on the Corporation

Downgrades in our credit ratings could further increase the cost of

borrowing funds.

The

Corporation’s

ability to

access new

non-deposit

sources of

funding

could be

adversely

affected

by downgrades

in our

credit

ratings. The Corporation’s

liquidity is to a

certain extent contingent upon

its ability to obtain

external sources of funding

to finance its

operations. The

Corporation’s

current credit

ratings and

any downgrades

in such

credit ratings

can hinder

the Corporation’s

access to

new

forms

external

funding

and/or

cause

external

funding

expensive,

which

could

turn

adversely

affect

results

operations.

Defective and repurchased loans may harm our business and financial condition.

connection

with

the

sale

and

securitization

loans,

are

required

make

variety

customary

representations

and

warranties relating

to the

loans sold

or securitized.

Our obligations

with respect

to these

representations and

warranties are

generally

outstanding

for

the

life

the

loan,

and

relate

to,

among

other

things:

(i)

compliance

with

laws

and

regulations;

(ii)

underwriting

standards; (iii)

the accuracy

of information

in the

loan documents

and loan

files; and

(iv) the

characteristics and

enforceability of

the

loan.

A loan that

does not comply

with the representations

and warranties made

may take longer

to sell, may

impact our ability to

obtain

third-party

financing

for

the

loan,

and

may

not

saleable

may

saleable

only

significant

discount.

such a

loan

sold

before

detect

non-compliance,

may

obligated

to repurchase

the

loan

and

bear

any

associated

loss directly,

may

obligated

indemnify

the purchaser

against

any

loss,

either

which

could

reduce

our cash

available

for

operations

and

liquidity.

Management

believes

that

it has

established

controls

ensure

that

loans

are

originated

accordance

with

the

secondary

market’s

requirements, but certain employees may make mistakes or may deliberately

violate our lending policies.

Our controls and procedures

may fail or be circumvented,

our risk management policies and

procedures may be inadequate

and

operational risks could adversely affect our consolidated

results of operations.

may fail

to identify

and manage

risks related

to a

variety of

aspects of

our business,

including, but

not limited

to, operational

risk,

interest-rate

risk,

trading

risk,

fiduciary

risk,

legal

and

compliance

risk,

liquidity

risk

and

credit

risk.

have

adopted

and

periodically

improve

various

controls,

procedures,

policies

and

systems

monitor

and

manage

risk.

Any

improvements

our

controls, procedures,

policies and

systems, however,

may not

be adequate

to identify

and manage

the risks

in our

various businesses.

If our

risk framework

is ineffective,

either because

it fails to

keep pace

with changes in

the financial

markets or

our businesses or

for

other

reasons,

could

incur

losses,

suffer

reputational

damage,

find

ourselves

out

compliance

with

applicable

regulatory

mandates or expectations.

We may also be

subject to disruptions from external events,

such as natural disasters and cyber-attacks, which could cause delays

disruptions

operational

functions,

including

information

processing

and

financial

market

settlement

functions.

addition,

our

customers,

vendors

and

counterparties

could

suffer

from

such

events.

Should

these

events

affect

us,

the

customers,

vendors

counterparties with

which we

conduct business,

our consolidated

results of

operations could

be negatively

affected. When

we record

balance

sheet

reserves

for

probable

loss

contingencies

operational

losses,

may

unable

accurately

estimate

our

potential

exposure,

and

any

reserves

establish

cover

operational

losses

may

not

sufficient

cover

our

actual

financial

exposure, which

may have

a material

impact on

our consolidated

results of

operations or

financial condition

for the

periods in

which

we recognize the losses.

Our businesses may be adversely affected by litigation.

have, in

the past,

been party

to claims

and legal

actions by

our customers,

or subject

to regulatory

supervisory actions

by the

government on

behalf of

customers, relating

to our

performance of

fiduciary or

contractual responsibilities.

In the

past, we

have also

been

subject

securities

class

action

litigation

our

shareholders

and

have

also

faced

employment

lawsuits

and

other

legal

claims. In

any future

claims or

actions, demands

for substantial

monetary damages

may be

asserted against

us, resulting

in financial

liability

adverse

effect

our

reputation

among

investors

customer

demand

for

our

products

and

services.

securities

class

action

suit

against

the

future

could

result

substantial

costs,

potential

liabilities

and

the

diversion

management’s

attention

and

resources.

may

unable

accurately

estimate

our

exposure

litigation

risk

when

record

balance

sheet

reserves

for

probable

loss

contingencies.

result,

reserves

establish

cover

any

settlements

judgements

may

not

sufficient

to cover

our actual

financial

exposure, which

has occurred

in the

past and

may occur

in the

future, resulting

in a

material

adverse impact on our consolidated results of operations or financial condition.

the

ordinary

course

our

business,

are

also

subject

various

regulatory,

governmental

and

law

enforcement

inquiries,

investigations

and subpoenas.

These may

be directed

generally to

participants in

the businesses

in which

we are

involved or

may be

specifically directed

at us. In

regulatory enforcement

matters, claims for

disgorgement, the

imposition of

penalties and

the imposition

of other remedial sanctions are possible.

The resolution

of legal

actions or

regulatory

matters, when

unfavorable, has

had, and

could in

the future

have, a

material adverse

effect on our consolidated results of operations for

the quarter in which such actions or matters are resolved or a reserve is established.

Our businesses may be negatively affected by adverse

publicity or other reputational harm.

Our relationships

with many of

our customers

are predicated upon

our reputation

as a fiduciary

and a service

provider that adheres

the

highest

standards

ethics,

service

quality

and

regulatory

compliance.

Adverse

publicity,

regulatory

actions,

litigation,

operational

failures,

the failure

to meet

customer

expectations

and

other

issues with

respect

to one

more of

our

businesses could

materially and

adversely affect

our reputation,

or our

ability to

attract and

retain customers

or obtain

sources of

funding for

the same

or other businesses. Preserving

and enhancing our reputation

also depends on maintaining

systems and procedures that

address known

risks

and

regulatory

requirements,

well

our

ability

identify

and

mitigate

additional

risks

that

arise

due

changes

our

businesses,

the

market

places

which

operate,

the

regulatory

environment

and

customer

expectations.

fail

promptly

address matters that bear on our reputation,

our reputation may be materially adversely affected and our

business may suffer.

Any impairment of our goodwill or other intangible assets may adversely affect

our operating results.

If our goodwill or other intangible assets become impaired, we may be

required to record a significant charge to earnings.

Goodwill is

tested for

impairment on

an annual

basis, and

more frequently

if events

or circumstances

lead management

to believe

the values of

goodwill may

be impaired.

Other intangible assets

are amortized

over the projected

useful lives of

the related intangible

asset,

generally

straight-line

basis,

and

these

assets

are

reviewed

periodically

for

impairment

when

event

changes

circumstances

indicate

that

the

carrying

amount

may

not

exceed

their

fair

value.

Factors

that

may

considered

change

circumstances

indicating

that

the

carrying

value

the

goodwill

amortizable

intangible

assets

may

not

recoverable

includes

reduced future

cash flow estimates,

decreases in the

current market

price of

our common

shares, negative

information concerning

the

terminal value of similarly situated insured depository institutions

and slower growth rates in the industry.

The goodwill

annual impairment

evaluation process

includes a

qualitative assessment

of events

and circumstances

that may

affect

the reporting

unit's fair

value to

determine whether

it was

more likely

than not

that the

fair value

of any

reporting unit

was less

than

it’s

carrying

amount,

including

goodwill.

the

result

the

qualitative

assessment

indicates

that

likely

than

not

that

the

carrying

value

goodwill

exceed

its

fair

value,

quantitative

analysis

made

determine

the

amount

goodwill

impairment.

Analyzing

goodwill

includes

consideration

various

factors

that

continue

rapidly

evolve

and

for

which

significant

uncertainty

remains, including

the impact of

the COVID-19 pandemic

on the economy.

Further weakening

in the economic

environment, such

decline in the performance of the reporting

units or other factors, could cause the fair value of one

or more of the reporting units to fall

below

their

carrying

value,

resulting

goodwill

impairment

charge.

Actual

values may

differ

significantly

from this

assessment.

Such differences

could result in

future impairment of

goodwill that would,

in turn, negatively

impact our results

of operations and

the

reporting

unit to

which the

goodwill relates.

During the

fourth

quarter of

2021, management

performed

a qualitative

analysis of

the

carrying

amount

goodwill,

and

concluded

that

more-likely-than-not

that

the

fair

value

the

reporting

units

exceeded

its

carrying value.

As of

December 31,

2021, the

book value

of our

goodwill was

$38.6 million,

which was

recorded at

FirstBank.

If an

impairment

determination

made

future

reporting

period,

our

earnings

and

book

value

goodwill

will

reduced

the

amount

the

impairment. If an impairment

loss is recorded, it

will have little or no

impact on the tangible book

value of our Common Stock,

or our

regulatory capital

levels, but such

an impairment

loss could significantly

reduce FirstBanks’ earnings

and thereby restrict

FirstBank’s

ability to make dividend payments to us without prior

regulatory approval, because Federal Reserve policy states

that the bank holding

company dividends should be paid from current earnings.

Recognition of deferred tax assets is dependent upon the generation of future taxable

income by the Bank.

December

31,

2021,

the

Corporation

had

deferred

tax

asset

$208.5

million

(net

valuation

allowance

$107.3

million,

including

valuation

allowance

$69.7

million

against the

deferred

tax

assets

FirstBank).

Under

Puerto

Rico

law,

the

Corporation

and its

subsidiaries, including

FirstBank, are

treated as

separate taxable

entities and

are not

entitled to

file consolidated

tax

returns.

Accordingly,

obtain

tax

benefit

from

net

operating

losses

(“NOLs”),

particular

subsidiary

must

able

demonstrate sufficient

taxable income.

obtain the

full benefit

of the

applicable deferred

tax asset

attributable to

NOLs, FirstBank

must have sufficient taxable income within

the applicable carryforward period. Pursuant to the 2011

PR Code, the carryforward period

for NOLs

incurred during

taxable years

that commenced

after December

31, 2004

and ended

before January

1, 2013

is 12

years; for

NOLs incurred

during taxable

years commencing

after December

31, 2012,

the carryover

period is

10 years.

Accounting for

income

taxes

requires

that

companies

assess

whether

valuation

allowance

should

recorded

against

their

deferred

tax

asset based

assessment of

the amount

of the

deferred tax

asset that

is more

likely than

not to

be realized.

Due to

significant estimates

utilized in

determining

the valuation

allowance and

the potential

for changes

in facts

and circumstances,

in the

future, the

Corporation may

not

be able to reverse the remaining valuation allowance or may need to increase

its current deferred tax asset valuation allowance.

The Corporation’s

judgments regarding

tax accounting

policies and

the resolution

of tax

disputes may

impact the

Corporation’s

earnings and cash

flow, and

changes in the

tax laws of

multiple jurisdictions can

materially affect

our operations, tax

obligations,

and effective tax rate.

Significant

judgment

required

determining

the

Corporation’s

effective

tax

rate

and

evaluating

its

tax

positions.

The

Corporation

provides

for

uncertain

tax

positions

when

such

tax

positions

not

meet

the

recognition

thresholds

measurement

criteria prescribed by applicable GAAP.

Fluctuations in federal,

state, local, and foreign

taxes or a change

to uncertain tax positions,

including related interest

and penalties,

may impact

the Corporation’s

effective tax

rate. When particular

tax matters arise,

a number

of years

may elapse before

such matters

are audited

and finally

resolved. In

addition,

the Puerto

Rico Department

of Treasury

(“PRTD”),

the U.S.

Internal

Revenue Service

(“IRS”),

and

the

tax

authorities

the

jurisdictions

which

operate

may

challenge

our

tax

positions

and

may

estimate

and

provide

for

potential liabilities

that may

arise out

of tax

audits to

the extent

that uncertain

tax positions

fail to

meet the

recognition

standard under

applicable GAAP.

Unfavorable resolution

of any

tax matter

could increase

the effec

tive tax

rate and

could result

in a

material increase in our tax expense. Resolution of a tax issue may require

the use of cash in the year of resolution.

First BanCorp. is subject

to Puerto Rico income

tax on its income

from all sources. FirstBank

is treated as a

foreign corporation for

U.S. and USVI income

tax purposes and is

generally subject to U.S.

and USVI income tax

only on its income

from sources within the

U.S.

and

USVI

income

effectively

connected

with

the

conduct

trade

business

those

regions.

The

USVI

jurisdiction

imposes

income

taxes

based

the

U.S.

Internal

Revenue

Code

under

the

“mirror

system”

established

the

Naval

Service

Appropriations Act of 1922. However,

the USVI jurisdiction also imposes an additional 10% surtax on the USVI tax liability,

if any.

These

tax

laws

are

complex

and

subject

different

interpretations.

must

make

judgments

and

interpretations

about

the

application

these

inherently

complex

tax

laws

when

determining

our

provision

for

income

taxes,

our

deferred

tax

assets

and

liabilities, and

our valuation

allowance. In

addition, legislative

changes, particularly

changes in

tax laws,

could adversely

impact our

results of operations.

Changes in applicable

tax laws in

Puerto Rico, the

U.S., or other

jurisdictions or tax

authorities’ new interpretations

could result in

increases in our overall taxes and the Corporation’s

financial condition or results of operations may be adversely impacted.

Our ability to use our net operating loss (“NOL”) carryforwards may be

limited.

The

Corporation

has

Puerto

Rico,

U.S.

and

USVI

sourced

NOL

carryforwards.

Section

382

the

U.S.

Internal

Revenue

Code

(“Section 382”) limits the ability

to utilize U.S. and USVI

NOLs for income tax purposes,

respectively,

at such jurisdictions following

event

ownership

change.

Generally,

“ownership

change”

occurs

when

certain

shareholders

increase

their

aggregate

ownership

than

percentage

points

over

their

lowest

ownership

percentage

over

three-year

testing

period.

Section

1034.04(u)

of the

2011

PR Code

is significantly

similar to

Section 382.

However,

Act 60-2019

amended the

PR Code

to repeal

the

corporate NOL carryover limitations upon change in control for taxable

years beginning after December 31, 2018.

Upon the occurrence of a Section 382 ownership change, the use of

NOLs attributable to the period prior to the ownership change is

subject

limitations

and

only

portion

the

U.S.

and

USVI

NOLs,

applicable,

may

used

the

Corporation

offset

the

annual

U.S.

and

USVI

taxable

income,

any.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning of Section 382 covering

a comprehensive period, and concluded

that an ownership change, for U.S. and

USVI purposes only,

had

occurred

during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

than

would have incurred in the absence of such limitation.

It is possible that

the utilization of our

U.S. and USVI NOLs

could be further

limited due to future

changes in our stock

ownership,

result

either

sales

our

outstanding

issuances

new

that

could

separately

cumulatively

trigger

ownership

change

and,

consequently,

Section

382

limitation.

Any

further

Section

382

limitations

may

result

greater

U.S.

and

USVI tax

liabilities than

we would

incur

in the

absence

of such

a limitation

and

any

increased liabilities

could

adversely affect

our

earnings and cash

flow.

may be able

to mitigate the adverse

effects associated with

a Section 382

limitation in the U.S.

and USVI

to the extent that we could credit any resulting

additional U.S. and USVI tax liability against our tax

liability in Puerto Rico. However,

our

ability

reduce

our

Puerto

Rico

tax

liability

through

such

credit

deduction

will

depend

our

tax

profile

each

annual

taxable period, which is dependent on various factors.

RISKS RELATED

TO THE BSPR

ACQUISITION

We may not be able

to realize the anticipated benefits of the BSPR acquisition.

Our future

growth and

profitability depend,

in part,

on the

ability to

successfully manage

the operations

we acquired

in the

BSPR

Acquisition. The

success of

the BSPR Acquisition

will depend

on, among

other things,

the accuracy

of our

assessment of

the quality

of the acquired

assets, and our

ability to realize

anticipated cost savings

and manage the

acquired companies in

a manner that

permits

growth

opportunities

and

does

not

materially

disrupt

our

the

acquired

business’s

existing

customer

relationships

and

service

result in

decreased revenue

resulting from

any loss

of customers.

The loss of

key employees

in connection

with the

acquisition could

adversely affect our ability to successfully conduct

the combined operations. If we are not able to successfully

achieve our objective to

realize the

anticipated benefits

of the

acquisition and

fully integrate

BSPR’s

business, that

could be

a material

adverse effect

on our

business or financial condition, results of operations, and future prospects.

RISKS RELATING

TO TECHNOLOGY AND CYBERSECURITY

must respond to

rapid technological changes,

and these changes

may be more

difficult or expensive

than anticipated.

may

also

negatively

affected

fail

identify

and

address

operational

risks

associated

with

the

introduction

changes

products and services.

most

financial

institutions,

FirstBank

significantly

depends

technology

deliver

its

products

and

other

services

and

otherwise conduct

business. To

remain technologically

competitive and

operationally efficient,

FirstBank invests

in system

upgrades,

new

technological

solutions,

and

other

technology

initiatives.

competitors

introduce

new

products

and

services

embodying

new

technologies,

or if

new industry

standards and

practices emerge,

our existing

product

and service

offerings,

technology and

systems

may become obsolete.

Furthermore, if we fail

to adopt or develop

new technologies or

to adapt our products

and services to emerging

industry

standards, we

may lose

current

and future

customers, which

could have

a material

adverse effect

on our

business, financial

condition and

results of

operations. The

financial services

industry is

changing rapidly

and, in

order to

remain competitive,

we must

continue

enhance

and

improve

the

functionality

and

features

our

products,

services

and

technologies.

These

changes

may

more difficult or expensive to implement than we anticipate.

When

launch

new

product

service,

introduce

new

platform

for

the

delivery

distribution

products

services

(including mobile

connectivity and

cloud computing),

or make changes

to an existing

product or service,

we may not

fully appreciate

identify

new operational

risks that

may

arise

from those

changes,

we may

fail

implement

adequate

controls

to mitigate

the

risks

associated

with

those

changes.

Significant

failure

this regard

could

diminish

our ability

operate

our

business or

result

potential

liability

our

customers

and

third

parties,

increased

operating

expenses,

weaker

competitive

standing,

and

significant

reputational, legal

and regulatory

costs. Any

of the

foregoing consequences

could materially

and adversely

affect our

businesses and

results of operations.

Our operational or security systems or

infrastructure, or those of third parties,

could fail or be breached. Any such

future incidents

could potentially

disrupt our business

and adversely

impact our

results of

operations, liquidity,

and financial

condition, as

well as

cause legal or reputational harm.

The potential

for operational

risk exposure

exists throughout our

business and,

as a result

of our

interactions with, and

reliance on,

third

parties,

not

limited

our

own

internal

operational

functions.

Our

operational

and

security

systems

and

infrastructure,

including our computer systems,

data management, and internal

processes, as well as those

of third parties that

perform key aspects of

our

business

operations,

such

data

processing,

information

security,

recording

and

monitoring

transactions,

online

banking

interfaces and services,

internet connections, and

network access are

integral to our

performance. We

rely on our

employees and third

parties in

our day-to-day

and ongoing

operations,

who may,

because of

human error,

misconduct,

malfeasance,

failure, or

breach of

our or of third-party systems or infrastructure, expose us to risk.

Our ability to

implement backup systems

and other safeguards

with respect to

third-party systems is more

limited than with

respect

our

own

systems.

addition,

our

financial,

accounting,

data

processing,

backup,

other

operating

security

systems

and

infrastructure may fail to

operate properly or become

disabled, damaged, or otherwise

compromised as a result of

a number of factors,

including

events that

are wholly

or partially

beyond our

control.

may

need to

take our

systems offline

if they

become infected

with malware or a computer

virus or because of another form of

cyberattack. If backup systems are utilized,

they may not process data

as quickly as our primary

systems and some data might

not have been saved to backup

systems, potentially resulting in a temporary

permanent loss of such data.

frequently update

our systems

to support

our operations

and growth

and to

remain compliant

with applicable

laws, rules,

and

regulations. In

addition, we

review and

strengthen our

security systems

in response

to any

cyber incident.

Such strengthening

entails

significant

costs

and

risks

associated

with

implementing

new

systems

and

integrating

them

with

existing

ones,

including

potential

business

interruptions

and

the

risk

that

this

strengthening

may

not

one-hundred

percent

effective.

Implementation

and

testing

controls

our

computer

systems,

security

monitoring,

and

retaining

and

training personnel

required

operate our

systems

also entail significant

costs. Such operational

risk exposures could

adversely impact

our operations,

liquidity,

and financial condition,

as well as

cause reputational

harm. In

addition, we may

not have adequate

insurance coverage

to compensate

for losses from

a major

interruption.

Cyber-attacks,

system

risks

and

data

protection

breaches

could

adversely

affect

our

ability

conduct

business,

manage

our

exposure to risk or

expand our business, result

in the disclosure or

misuse of confidential

or proprietary information,

increase our

costs to

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 customer services

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

destructive

code,

phishing

attacks,

denial

service

attacks,

other

security

breach

tactics

that

could

result

the

unauthorized

release,

gathering,

monitoring,

misuse,

loss,

destruction,

theft

confidential,

proprietary,

and

other

information,

including

intellectual

property,

ours,

our

employees,

our

customers,

third

parties,

damages

systems,

otherwise

material

disruption to our or our customers’ or other third parties’ network

access or 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

vendor management program

to oversee third party and

vendor risks, there is no

guarantee that we will not

exposed to or

be affected by

a cybersecurity incident.

Cyber threats are

rapidly changing and

future attacks or

breaches could lead

other

security

breaches

the networks,

systems,

devices

that

our

customers

use

access our

integrated

products

and

services,

which,

turn,

could

result

unauthorized

disclosure,

release,

gathering,

monitoring,

misuse,

loss

destruction

confidential,

proprietary,

and

other

information

(including

account

data

information)

data

security

compromises.

cyber

threats

continue

evolve, we

may be required

to expend significant

additional resources

to modify or

enhance our protective

measures, investigate,

and

remediate any information security vulnerabilities or incidents and

develop our capabilities to respond and recover.

The full extent of a

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 us

to determine

the complete

scope of

information compromised,

at which time

the

impact

on the

Corporation and

measures

to recover

and restore

to a

business as

usual state

may be

difficult

to assess.

These factors

may

also

inhibit

our

ability

provide

full

and

reliable

information

about

the

cyberattack

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 Corporation

is subject

to stringent

and changing

privacy laws,

regulations, and

standards as

well as

policies, contracts,

and

other

obligations

data

privacy

and

security.

Our

failure

comply

with

privacy

laws and

regulations,

well as

other

legal obligations, could have a material adverse effect

on our business.

State,

federal,

and

foreign

governments

are

increasingly

enacting

laws

and

regulations

governing

the

collection,

use,

retention,

sharing,

transfer,

and security

of personally

identifiable information

and data.

A variety

of federal,

state, local,

and foreign

laws and

regulations,

orders,

rules,

codes,

regulatory

guidance,

and

certain

industry

standards

regarding

privacy,

data

protection,

consumer

protection,

information

security,

and

the

processing

personal

information

and

other

data

apply

our

business.

State

laws

are

changing

rapidly,

and

new

legislation

proposed

enacted

number

other

states

imposes,

has

the

potential

impose,

additional obligations

on companies

that process

confidential, sensitive

and personal

information, and

will continue

to shape

the data

privacy

environment

nationally.

The U.S.

federal

government

is also

significantly

focused on

privacy

matters.

Any failure

by us

any of our business partners to comply with applicable laws, rules,

and regulations may result in investigations or actions against us by

governmental entities, private

claims and litigation, fines,

penalties or other liabilities.

Such events may increase

our expenses, expose

us to

liabilities, and

impair our reputation,

which could have

a material

adverse effect

on our business.

While we

aim to comply

with

applicable data

protection laws and

obligations in all

material respects, there

is no assurance

that we will

not be subject

to claims that

have

violated

such

laws

and

obligations,

will

able

successfully

defend

against

such

claims,

will

not

subject

significant fines

and penalties

in the

event of

non-compliance. Additionally,

to the

extent multiple

state-level laws

are introduced

the U.S. with

inconsistent or conflicting

standards and there

is no federal

law to preempt

such laws, compliance

with such laws

could

difficult

and

costly

achieve,

impossible

achieve,

and

could

subject

fines

and

penalties

the

event

non-

compliance.

RISKS RELATING

TO THE BUSINESS ENVIRONMENT AND OUR

INDUSTRY

The currently evolving situation related to the ongoing COVID-19 pandemic has

had a

material adverse effect and may

continue to

have a materially

adverse effect

on the Corporation’s

business,

financial

condition

and results

of operations.

The

ongoing

COVID-19

pandemic

created

global

public-health

crisis

that

resulted

challenging

economic

conditions

for

our

business

and

likely

continue

so.

The

economic

impact

the

COVID-19

pandemic

has

caused

significant

volatility

and

disruption

the

financial

markets

Puerto

Rico

and

the

other

markets

which

the

Corporation

operates.

The

uncertainty

surrounding

the

future

economic

conditions

has

been

challenge

management's

ability

estimating

the

pandemic's

impact

credit quality, revenues,

and assets values.

While many areas of

consumer spending have rebounded

since the initial outbreak

of the COVID-19 pandemic

on March 11,

2020,

new variants of

the virus continue

to emerge, such

as the recent Omicron

variant, which have

resulted in a rapid

increase in infections

and

disruptions

the

economic

recovery.

December

31,

2021,

certain

guidelines

and

executives’

orders,

issued

the

governments

which

the

Corporation

operates,

remained

effect

and

continue

impact

how

individuals

interact

and

how

businesses and

the governments

operate. The

operations and

financial results

of the

Corporation have

been and

could continue

to be

adversely affected by some of these guidelines, executives’

orders, and any new strain of the virus.

Considering

the

effects

the

COVID-19

pandemic

the

economy

and

market

conditions,

the

U.S.

government

and

local

governments have enacted stimulus packages and other programs

and forms of relief, such as the SBA PPP program established

by the

CARES

Act

2020.

Loans

that

the

Corporation

grants

under

the

SBA

PPP

are

below

market

interest

rates.

The

Corporation’s

participation

in the

SBA PPP,

Main Street

and any

other such

programs or

stimulus packages

may give

rise to

claims, including

governments,

regulators,

customers

through

class action

lawsuits,

judgments

against the

Corporation

that

may

result

the

payment of

damages or

the imposition

of fines,

penalties or

restrictions by

regulatory authorities,

or result

in reputational

harm. The

occurrence

any

the

foregoing

could

have

material

adverse

effect

the

Corporation’s

results

operations

financial

condition.

The Company continues to

follow all safety guidelines

and government mandates

regarding COVID-19 protocols

and vaccinations,

and announced

that all employees,

service providers,

and consultants of

the Corporation must

have the booster

shot of the COVID-19

vaccine

March

2022,

with

few

exceptions.

The

extent

which

the

COVID-19

pandemic

impacts

our

business,

results

operations,

and financial

condition, as

well as

our regulatory

capital and

liquidity ratios,

will depend

on future

developments, which

are

highly

uncertain

and

cannot

predicted,

including

the

scope

and

duration

the

COVID-19

pandemic

and

actions

taken

governmental authorities and other third parties in response to the pandemic

The Corporation’s

credit quality

and

the value

of our

portfolio of

Puerto Rico

government

securities has

been and

in the

future

may

adversely

affected

Puerto

Rico’s

economic

condition,

and

may

affected

actions

taken

the

Puerto

Rico

government

or the PROMESA oversight board to address the ongoing fiscal and economic

challenges in Puerto Rico.

A significant

portion

of the

Corporation’s

business activities

and credit

exposure

is concentrated

in the

Commonwealth of

Puerto

Rico, which has experienced an economic and fiscal crisis for more

than a decade.

In March

2020, on

top of

the hurricanes

and earthquakes

experienced in

2017 and

2020, respectively,

Puerto Rico

confronted the

COVID-19

pandemic,

which created

an unprecedented

public health

crisis. The

COVID-19

pandemic

has been

a devastating

health

crisis for

the Island,

causing over

4,000 deaths

and spikes

in unemployment

due to

impacts on

the tourism

industry and

government

lockdowns

put

in place

to curb

the spread

of the

disease.

The

shock

of the

pandemic

on employment,

and related

local and

federal

stimulus funding, impacted

Puerto Rico’s economy

in a variety of ways.

While economic activity was

severely reduced, extraordinary

unemployment

insurance

and

other

direct

transfer

programs

than

offset

the

estimated

income

loss

due

less

activity.

result,

personal

income

has

temporarily

increased

net

basis.

Puerto

Rico

also

received

additional

federal

support,

with

the

Coronavirus Response and

Relief Supplemental Appropriations

Act (CRRSA) and

American Rescue Plan

(ARP) Act bringing

around

and

$18

billion,

respectively,

federal

funding

to be

available

for

recovery

efforts

in 2021.

Significantly,

the ARP

Act

created

new

and

permanent

economic

support

programs

for

Puerto Rico

such

as,

expanded

Earned

Income

Tax

Credit

(EITC)

program,

with up

to $600

million

in federal

support,

and permanent

expansion

of eligibility

criteria of

the Child

Tax

Credit (CTC).

Both are

projected

to have

permanent effects

on income

and growth,

and the

EITC expansion

is expected

to support

timely realization

of the

human capital and welfare structural reform benefits.

Based

the

most

recent

fiscal

plan

certified

the

PROMESA

oversight

board

January

27,

2022,

Puerto

Rico’s

real

GNP

decline in

fiscal year

2020 will

be followed

by a

forecasted rebound

in fiscal

year 2021

and fiscal year

2022 as

the full impact

of the

federal economic support takes hold.

However,

there remains

considerable uncertainty

about the

ultimate duration

and magnitude

of the

pandemic with

new variants

the virus emerging

and expected to continue

to emerge, and thus

the size of

the associated economic

losses. The 2021 Certified

Fiscal

Plan accounted for the impact of federal funds

granted through several government programs, including

the CARES Act of 2020 and a

$787 million

local package of

direct assistance

to workers

and businesses

(the “Puerto

Rico COVID-19

Stimulus Package”).

Updates

in the 2022

fiscal plan are

limited in scope and

do not revisit the

broad range of

forecasts and assumptions

included in the

2021 fiscal

plan. The 2022 fiscal

plan also incorporates

terms of the confirmed

plan of adjustments, detail

on the use of

funds from the

Municipal

Revenue Collection

Center (CRIM,

by its

Spanish acronym),

and on

the status

of PayGo

payments. Finally,

the plan

includes details

on the

LUMA transaction

and costs

related to

the mobilization

of certain

previous Puerto

Rico Electric

Power Authority

(“PREPA”)

employees

to Commonwealth

agencies as

well as

certain budgetary

decisions and

adjustments that

were part

of the

fiscal year

2022

budget.

Furthermore,

January

18, 2022,

U.S.

District Court

Puerto

Rico

confirmed

the

Commonwealth

Plan

Adjustment,

which

restructures

approximately

$35

billion

debt

and

other

claims

against

the

Commonwealth

Puerto

Rico,

the

Public

Buildings

Authority (“PBA”),

and the

Employee Retirement

System (“ERS”),

as well

as more

than $50

billion of

unfunded pension

liabilities.

The Plan

of Adjustment

saves Puerto

Rico more

than $50

billion in

debt service

and reduces

outstanding obligations

to just

over $7

billion.

In addition,

the 2021 Certified

Fiscal Plan also

provides a

roadmap for

a series of

fiscal and

structural reforms

in areas such

as: (i)

human

capital

and

labor,

(ii)

ease

doing

business,

(iii)

power

sector

reform,

and

(iv)

infrastructure

reform,

and

other

fiscal

measures;

however,

the

certified

fiscal

plan

provides

one-year

delay

most

categories

government

rightsizing

allow

the

government

to focus

its efforts

on implementation

of efficiency

reforms.

Also, the

Plan of

Adjustment

includes

a mechanism

to set

aside resources to fund the Puerto Rico’s

pension obligations, which has been historically neglected and underfunded.

As of December

31, 2021, the

Corporation had $360.1

million of direct

exposure to the

Puerto Rico government,

its municipalities

and

public

corporations,

compared

$394.8

million

December

31,

2020.

December

31,

2021,

approximately

$187.8

million of the

exposure consisted of loans

and obligations of municip

alities in Puerto Rico

that are supported by

assigned property tax

revenues

and

for

which,

most cases,

the

good

faith,

credit,

and

unlimited

taxing

power of

the

applicable

municipality

have

been

pledged to

their repayment,

and $122.8

million consisted

of municipal

revenue and

special obligation

bonds. Approximately

61% of

the Corporation’s

exposure to

Puerto Rico’s

government consisted

primarily of

senior priority

obligations concentrated

in four

of the

largest

municipalities

Puerto

Rico.

The

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required for the payment of all of their respective general obligation

bonds and notes.

addition,

December

31,

2021,

the

Corporation

had

$92.8

million

exposure

residential

mortgage

loans

that

are

guaranteed

the

Puerto

Rico

Housing

Finance

Authority

(“PRHFA”),

compared

$106.5

million

December

31,

2020.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees

serve

cover

shortfalls in collateral in the event of a borrower

default. The Puerto Rico government guarantees up to $75

million of the principal for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements

the

PRHFA, as of June

30, 2019, the PRHFA’s

mortgage loans insurance program covered loans in an

aggregate amount of approximately

$557 million. The regulations adopted

by the Authority require the establishment

of adequate reserves to guarantee the

solvency of the

mortgage loans

insurance program;

as of

June 30,

2019, the

Authority was

not in

compliance with

the regulations.

At June

30, 2019,

the Authority had an unrestricted deficit of approximately $5.2 million

in the mortgage loans insurance program.

As of December

31, 2021, the

Corporation had

$2.7 billion of

public sector deposits

in Puerto Rico,

compared to $1.8

billion as of

December 31,

2020. Approximately

19% of

the public

sector deposits

as of December

31, 2021

is from municipalities

and municipal

agencies

Puerto

Rico

and

81%

from

public

corporations,

the

central

government

and

agencies,

and

U.S.

federal

government

agencies in Puerto Rico.

Further deterioration

in economic

activity,

delays in

the receipt

of disaster

relief funds

allocated to

Puerto Rico,

and the

potential

impact on

asset values

resulting from

past or

future natural

disaster events,

when added

to Puerto

Rico’s

ongoing fiscal

crisis, could

materially

adversely affect our business, financial condition, liquidity,

results of operations and capital position.

Difficult market conditions have affected

the financial industry and may adversely affect us in the future.

Given that most of our business is in Puerto Rico and

the U.S. and given the degree of interrelation

between Puerto Rico’s economy

and that

of the

U.S., we

are exposed

to downturns

in the

U.S. economy,

including factors

such as

employment levels

in the

U.S. and

real estate

valuations. The

deterioration of

these conditions

adversely affected

us in

the past

and, in

the future

could adversely

affect

the

credit

performance

mortgage

loans,

and

result

significant

write-downs

asset

values

financial

institutions,

including

government-sponsored entities as well as major commercial banks

and investment banks.

In particular, we may face the following

risks:

●

Our

ability

assess

the

creditworthiness

our

customers

may

impaired

the

models

and

approaches

use

select, manage, and underwrite the loans become less predictive of future behaviors.

●

The

models

used

estimate

losses

inherent

the

credit

exposure,

particularly

those

under

CECL,

require

difficult,

subjective,

and

complex

judgments,

including

forecasts

economic

conditions

and

how

these

economic

predictions

might impair the ability of the borrowers to repay

their loans, which may no longer be capable of accurate

estimation and

which may, in turn, impact

the reliability of the models.

●

Our ability

to borrow from

other financial

institutions or

to engage

in sales of

mortgage loans

to third parties

(including

mortgage

loan securitization

transactions with

government-sponsored

entities and

repurchase agreements)

on favorable

terms,

all,

could

adversely

affected

further

disruptions

the

capital

credit

markets

other

events,

including deteriorating investor expectations.

●

Competitive

dynamics

the

industry

could

change

result

consolidation

financial

services

companies

connection with current market conditions.

●

Expected

future

regulation

our

industry

may

increase

our

compliance

costs

and

limit

our

ability

pursue

business

opportunities.

●

There may be downward pressure on our stock price.

Any

future

deterioration

economic

conditions

the

U.S.

and

disruptions

the

financial

markets

could

adversely

affect

our

ability to access capital, our business, financial condition, and results of

operations.

Additionally,

the

residential

mortgage

loan

origination

business

impacted

home

values

and

has

historically

been

cyclical,

enjoying periods of strong growth and profitability followed by periods

of shrinking volumes and industry-wide losses. During periods

rising

interest

rates,

the

refinancing

many

mortgage

products

tends

decrease

the

economic

incentives

for

borrowers

refinance their existing mortgage loans are reduced.

The actual

rates of delinquencies,

foreclosures, and

losses on loans

have been higher

during the economic

slowdown in the

U.S. in

the late

2000s and

early 2010s

and in

Puerto Rico

since 2006.

Unemployment, volatile

interest rates,

and declines

in housing

prices

have had a

negative effect on

the ability of

borrowers to repay

their mortgage loans.

Any sustained period

of increased delinquencies,

foreclosures,

losses could

adversely

affect

our

ability to

sell loans,

the prices

receive

for

loans,

the values

of mortgage

loans

held for

sale, or

residual interests

in securitizations,

which could

adversely affect

our financial

condition and

results of

operations. In

addition, any additional material decline in real estate

values would further weaken the loan-to-value

ratios and increase the possibility

of loss if a

borrower defaults. In

such event, we

will be subject to

the risk of loss

on such real estate

arising from borrower

defaults to

the extent not covered by third-party credit enhancement.

Continuation

the

economic

slowdown

and

decline

the

U.S.

Virgin

Islands

and

British

Virgin

Islands

could

continue

harm our results of operations.

For

many

years,

the

USVI

has

been

experiencing

number

fiscal

and

economic

challenges

that

have

deteriorated

the

overall

financial

and

economic

conditions

the

area.

According

the

United

States

Bureau

Economic

Analysis

(“BEA”),

real

gross

domestic product

(“GDP”) estimates

show that

the economy

grew by

5.7% in

2021 in

contrast to

a decrease

of 3.4

percent in

2020.

Growth

2021

reflected

increases

all

major

subcomponents,

led

personal

consumption

expenditures,

nonresidential

fixed

investment, export, residential

fixed investment and

private inventory investment.

Additionally, disaster-related

insurance payouts and

federal assistance supported

the reconstruction

and major repairs

of businesses and

homes that were

destroyed or heavily

damaged by

two major

hurricanes in

2017. Nevertheless,

the COVID-19

pandemic has

been an

impactful and

unprecedented health

crisis for

the

USVI, causing

numerous deaths

and spikes

in unemployment

due to

impacts on

the tourism

industry and

government lockdowns

put

in place to curb the spread of the disease.

result

the

COVID-19

pandemic,

similar

Puerto

Rico,

the

USVI

government

has

been

processing

stimulus

checks

and

unemployment

compensation

checks.

According

information

published

the

USVI

government,

January

2022,

the

government

had

issued

53,684

unemployment

insurance

checks

and

additional

29,451

Federal

Pandemic

Unemployment

Compensation

checks,

totaling

approximately

$94

million.

addition,

May

16,

2021,

the

government

announced

that

1,620

businesses from Virgin

Islands have been approved for the SBA PPP,

totaling more than $120.3 million.

On December

8, 2021,

Moody’s

Investor Services

(“Moody’s”)

announced the

completion of

its periodic

review of

ratings of

the

Virgin

Islands

Water

and

Power

Authority

(“VI

WAPA”).

The

Caa2

electric

system

revenue

bonds

rating

constrained

WAPA’s

limited unrestricted

liquidity sources,

unsustainable debt

load and

capital expenditures,

including its

inability to file

audited

financial

statements on

a timely

basis, according

to the

rating

agency.

On May

28, 2020,

Moody’s

announced

the completion

of its

periodic

rating

review

the

USVI

government.

Despite

the

recent

improvement

the

government’s

liquidity

and

short-term

financial position,

the Caa3 rating

reflects the risk

that the reemergence

of a significant

structural deficit,

combined with the

expected

insolvency of the Government Employees’ Retirement System (“GERS”), will lead

the government to restructure its debt.

PROMESA

does

not

apply

the

USVI

and,

such,

there

currently

federal

legislation

permitting

the

restructuring

the

debts of

the USVI

and

its public

corporations

and instrumentalities.

the extent

that the

fiscal condition

of the

USVI government

continues to

deteriorate, the

U.S. Congress

or the government

of the

USVI may enact

legislation allowing

for the restructuring

of the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of

December 31,

2021, the

Corporation had

$39.2 million

in loans

to USVI

government and

public corporations,

compared to

$61.8 million as of December 31,

2020. As of December 31, 2021,

all loans were currently performing

and up to date on principal

and

interest payments.

With

respect

the BVI

region,

the government

has

indicated

that

the economic

impact of

the COVID-19

pandemic

is felt

most

strongly

the

tourism

sector,

which

accounts

for

roughly

one

third

its

GDP.

Recent

reports

published

the

BVI

government

projects

a GDP

decline

of 13%

to 17%

in 2020,

given the

prevailing

conditions in

the tourism

sector.

In the

BVI, the

borders were

closed

to tourism

for approximately

nine

months in

2020 and

was among

the last

to reopen

its border

to commercial

air traffic.

December

2020,

the

government

began

its

third

phase

the

border

reopening

process

allowing

international

travel

and

the

re-

opening of

the tourism

industry albeit

with strict

restrictions in

place, including

multiple tests

and a

mandatory

four-day quarantine.

Additionally,

seaports in

the BVI

reopened

on April

5, 2021

for international

travel. As

of December

31, 2021,

the Corporation

had

loans

totaling

$142.7

million

with

exposure

the

BVI

region,

primarily

residential

mortgage

and

commercial

mortgage

loans,

which $15.4 million are in nonaccrual status.

Further deterioration

in economic

conditions in

USVI and

the BVI

region could

adversely affect

our business,

financial condition,

liquidity, results of operations

and capital position.

Credit quality may result in additional losses.

Our business depends

on the creditworthiness

of our customers

and counterparties

and the value

of the assets

securing our loans

underlying our

investments. A

material decrease

in the

credit quality

of the

customer base

or material

changes in

the risk profile

of a

market, industry

or group of

customers could materially

and adversely affect

our business, financial

condition, allowance levels,

asset

impairments, liquidity,

capital and results of operations.

had a

commercial and

construction loan

portfolio held

for investment

in the

amount of

$5.2

billion as

of December

31, 2021.

Due to

their nature,

these loans

entail a

higher credit

risk than

consumer and

residential mortgage

loans, since

they are larger

in size,

concentrate

risk

single

borrower

and

are

generally

sensitive

economic

downturns.

Furthermore,

the

case

slowdown

in the

real estate

market,

it may

be difficult

to dispose

of the

properties

securing

these loans

upon any

foreclosure of

the

properties. We

may incur losses over

the near term, either because of continued deterioration

in the quality of loans or because of sales

problem

loans,

which

would

likely

accelerate

the

recognition

losses. Any

such

losses

could

adversely

impact

our

overall

financial performance and results of operations.

Changes in collateral values of properties located in stagnant or distressed

economies may require increased reserves

Further

deterioration

the

value

real

estate

collateral

securing

our

construction,

commercial

and

residential

mortgage

loan

portfolios,

whether

located

Puerto

Rico

elsewhere,

would

result

increased

credit

losses. As

December

31,

2021,

approximately

19% and

27% of

our loan

portfolio

held for

investment

consisted

of commercial

mortgage

and residential

real estate

loans, respectively.

Whether the collateral

that underlies our

loans is located

in Puerto Rico, the

USVI, the BVI, or

the U.S. mainland,

the performance

of our

loan portfolio

and the

collateral value

backing the

transactions are

dependent upon

the performance

of, and

conditions within,

each specific

real estate market. Puerto

Rico, where most

of the collateral

is located, has

been through

a period of

sustained recession

since 2006.

Construction

and commercial

loans, mostly

secured by

commercial

and residential

real estate

properties,

entail a

higher

credit risk

than consumer

and residential

mortgage loans

since they

are larger

in size,

may have

less collateral

coverage, concentrate

more risk

in a

single borrower

and are

generally more

sensitive to

economic

downturns. As

of December

31, 2021,

our commercial

mortgage

and

construction

real

estate

loans

held

for

investment

Puerto

Rico

amounted

$1.7

billion,

73%

the

total

$2.3

billion

commercial

mortgage

and

construction

real

estate loan

portfolios,

which

constituted

21%

the

total

loan

portfolio

held

for

investment.

measure credit

losses for

collateral dependent

loans based

on the

fair value

of the

collateral, which

is generally

obtained from

appraisals, adjusted

for undiscounted

selling costs

as appropriate.

Updated appraisals

are obtained

when we

determine that

loans are

collateral

dependent

and

are

updated

annually

thereafter.

addition,

appraisals

are

also

obtained

for

certain

residential

mortgage

loans on a spot

basis based on specific

characteristics, such as delinquency

levels, and age of

the appraisal. The appraised

value of the

collateral may decrease, or we may

not be able to recover collateral at

its appraised value. A significant decline

in collateral valuations

for

collateral

dependent

loans

has

required

and,

the

future,

may

require,

increases

our

credit

loss

expense

loans. Any

such

increase would have an adverse effect on our future financial condition

and results of operations.

Interest rate

shifts, such

as increases

in interest

rates that

may

reduce demand

for mortgage

and other

loans, may

reduce net

interest income.

Shifts in

short-term

interest rates

have

reduced net

interest income

in the

past and,

in the

future, may

reduce net

interest income,

which

is the

principal

component

of our

earnings. Net

interest income

is the

difference

between

the amounts

received by

us on

our

interest-earning assets and the

interest paid by us on

our interest-bearing liabilities. Differences

in the re-pricing structure of

our assets

and liabilities

may result

in changes

in our

profits when

interest rates

change.

For instance,

higher interest

rates increase

the cost

mortgage and

other loans

to consumers

and businesses

and may

reduce future

demand for

such loans,

which may

negatively impact

our profits by reducing the amount of loan interest income due to declines

in volume.

Additionally,

basis risk is

the risk of

adverse consequences resulting

from unequal changes

in the difference,

also referred to

as the

“spread” or

basis, between

the rates

for two

or more

different

instruments with

the same

maturity and

occurs when

market rates

for

different financial

instruments or

the indices

used to

price assets and

liabilities change

at different

times or

by different

amounts. For

example, the interest expense

for liability instruments might

not change by the

same amount as interest income

received from loans or

investments.

the

extent

that

the

interest

rates

loans

and

borrowings

change

different

rates

and

different

amounts,

the

margin between

our variable rate-based

assets and the cost

of the interest-bearing

liabilities might be

compressed and adversely

affect

net interest income.

Accelerated prepayments may adversely affect net interest income.

general,

fixed-income

portfolio

yields

decrease

pre-payment

amounts

are

invested

lower

rates. Net

interest

income

could

also

affected

prepayments

MBS.

Acceleration

the

prepayments

MBS

would

lower

yields

these

securities,

the

amortization of

premiums paid

upon the

acquisition of

these securities would

accelerate. Conversely,

acceleration

in the prepayments

of MBS would

increase yields on

securities purchased at

a discount, as

the accretion of

the discount would

accelerate. These risks

are

directly linked

to future

period market

interest rate

fluctuations. Also,

net interest

income in

future periods

might be

affected by

our

investment in callable securities because decreases in interest rates might

prompt the early redemption of such securities.

The discontinuation of LIBOR could adversely affect

the interest rates we pay or receive, could prompt regulatory questions, result

in costly disputes about relevant alternative interest rates and require costly systems and

analytics changes.

In July

2017, the

United Kingdom’s Financial Conduct Authority (the

“FCA”), which regulates LIBOR, officially announced that

intended to

stop persuading

or compelling

banks to submit

information

to the administrator

of LIBOR after

2021. In March

2021, the FCA

confirmed that publication of the

overnight and one

month, three-month, six-month, and twelvemonth U.S. Dollar LIBOR settings will

cease or become

no longer

representative

of the market

the rates

seek to measure

(i.e., non-representative)

immediately

after June

30, 2023,

and all other U.S. Dollar

LIBOR settings,

including the one week

and two-month U.S. Dollar

LIBOR settings,

became non-representative

immediately after December 31, 2021. The Federal Reserve, the Office of

the Comptroller of the Currency,

and the FDIC

also released

supervisory guidance encouraging banks to

cease entering into

new contracts that

use U.S.

Dollar LIBOR as

reference rate as

soon as

practicable and in any event by

December 31, 2021. Banking regulators in the U.S. and

globally have increased regulatory scrutiny

and

intensified

supervisory

focus of

financial

institutions

LIBOR transition

plans, preparations,

and readiness.

Significant amounts of

loans, mortgages,

securities, derivatives, and

other

financial instruments are

referenced to

LIBOR, and

any

inability of

market

participants and

regulators to

successfully introduce benchmark

rates

replace

LIBOR

and

implement effective

transitional

arrangements

to address the

discontinuation

of LIBOR could result

in disruption

in the financial

markets. Therefore,

regulators

and market participants

in various jurisdictions

have been working to recommend

alternative

rates to LIBOR for each respective

currency

that are compliant

with the International

Organization

of Securities

Commission’s standards

for transaction-based

benchmarks.

In the U.S.

the Alternative Reference Rate

Committee (“AARC”), a

group of

market participants convened by

the Federal

Reserve, identified the

Secured Overnight

Financing

Rate (“SOFR”)

as its recommended

alternative

to LIBOR. The

Federal Reserve

started publishing

the SOFR

in April 2018. The

SOFR is a

broad measure of the cost

of overnight borrowings collateralized

by Treasury securities in the repurchase

agreement market. During 2021, the ARRC

recommended using the

Chicago Mercantile Exchange Group’s (“CME”) forward-looking

Term

SOFR

rates

for

cash

products

and

derivatives, limited

end-users

hedging

cash

products.

end-user

described

any

counterparty

to the underlying

cash product,

such as a

borrower, lender,

or guarantor.

These parties

may enter

into Term SOFR

rates swaps,

caps, swaptions,

or other derivatives

to hedge cash product

exposures.

The market transition

away from LIBOR to an

alternative

reference

rate is complex and could

have a range of adverse effects

on our business, financial

condition, and

results of operations.

In particular, any

such transition

could:

●

Adversely

affect the

interest

rates received

or paid on,

the revenue

and expenses

associated

with or the

value of

the Corporation’s

LIBOR-based assets

and

liabilities, which include

certain variable

rate

loans, primarily

commercial and

construction loans,

private

label

MBSs,

the

Corporation’s

junior

subordinated

debentures,

and

certain

other

financial

arrangements

such

derivatives. As of December 31, 2021, the most significant

of the Corporation’s LIBOR-based assets and liabilities

consists of

$2.0

billion of

commercial and

construction loans, $134.4

million of

Puerto Rico

municipalities bonds held

part

the

Corporation’s

held-to-maturity

investment

securities

portfolio,

and $183.8

million

of junior

subordinated

debentures;

●

Prompt inquiries

or other

actions from

regulators

in respect

of the Corporation’s

preparation

and readiness

for the replacement

LIBOR with

an alternative

reference

rate; and

●

Result in

disputes,

litigation

or other actions

with counterparties

regarding

the interpretation

and enforceability

of certain

fallback

language

in LIBOR-based

contracts.

The transition away from LIBOR to an alternative reference

rate will require the transition to, or development of, appropriate

systems

and analytics to effectively

transition the Corporation’s

risk management and other

processes from LIBOR-based

products to those based

on the applicable

alternative

reference

rate, such

as SOFR.

The Corporation

has developed

a LIBOR

Transition Working Group

(“LTWG”)

define the

scope and

potential impact

that

the

replacement of

LIBOR

will have

across the

Corporation's LIBOR-based assets and

liabilities outstanding

overseen by the

Corporation’s Management Investments

& Asset-Liability Committee and the Board of

Directors

Asset-Liability

Committee.

The LTWG is composed by officers of the major areas affected,

including: Treasury, Legal,

Corporate Loans,

Credit, Operations,

Systems,

Asset-Liability

Management,

Risk, Accounting,

Financial

Reporting,

Public Relations,

and Strategic

Planning,

which together,

developed a

LIBOR Transition

workplan

and timetable

their respective areas;

identifying the systems,

models, and

applications

impacted

by the transition;

and the resources

necessary

for the transition.

As part of

this transition

plan, the

Corporation

started

including fallback

language on new and renewed

contracts tied

to LIBOR to provide for the determination

of an ARR and had adhered to

the

LIBOR

Fallbacks Protocol of

the

International Swaps and

Derivatives Association. In

addition, effective

December 31,

2021

the

Corporation discontinued entering into

new

contracts that

use

U.S. Dollar

LIBOR as

the reference

rate. Currently,

the

Corporation is

primarily offering CME’s Term SOFR rate as the ARRs to LIBOR. The Bank may also offer other industry-accepted

benchmark interest

rates

that

can

supported for

commercial transactions. The

Corporation continues

working

with

the

update

systems, processes,

documentation and models, with additional

updates expected through 2023.There

can be no guarantee that these efforts will successfully

mitigate

the operational

risks associated

with the

transition

away from

LIBOR to

an alternative

reference

rate.

The manner

and impact

of the transition

from LIBOR

to an alternative

reference

rate, as

well as

the effect

of these

developments

on our

funding costs,

loan and

investment

securities

portfolios,

asset-liability

management,

and business,

is uncertain.

We are subject to Environmental,

Social and Governance (ESG) risks that could adversely affect

our reputation and the market

price of our securities.

The Corporation

is subject

to a variety

of risks

arising

from ESG

matters.

ESG matters

include

climate

risk, hiring

practices,

the diversity

of our

work force, and racial and

social justice issues involving our personnel, customers and third parties with whom we

otherwise do

business.

Risks arising

from ESG

matters

may adversely

affect, among

other things,

our reputation

and the

market price

of our securities.

For example,

we may be exposed

to negative

publicity

based on the

identity and

activities

of those to whom

we lend and with

which we

otherwise do

business and

the

public’s

view

the

approach and

performance of

our

customers and

business partners

with

respect

to ESG matters.

Any such

negative

publicity

could arise

from adverse

news coverage

in traditional

media and

could also

spread through

the

use of social media platforms.

The Corporation’s relationships

and reputation with

its existing and prospective

customers and third

parties

with which we

do business

could be damaged

if we were to become

the subject

of any such negative

publicity. This,

in turn, could

have an

adverse effect on our ability to

attract and retain customers and employees and could have a negative impact on

our business,

financial

condition and results of operations.

Additionally, concerns over

the

long-term impacts of

climate change

have

led and

will continue

lead to

governmental efforts to

mitigate

those

impacts. Consumers

and

businesses also

may

change

their

behavior on

their

own

result

these

concerns. The

Corporation and its customers will need to

respond to new laws

and regulations as well as

consumer and business preferences resulting

from climate

change concerns.

Finally,

shareholders,

customers

and

other

stakeholders

have

begun

consider

how

corporations

are

addressing

ESG

issues.

Investor

advocacy

groups,

investment

funds

and

influential

investors

are

also

increasingly

focused

these

practices,

especially

they

relate

the

environment,

health

and

safety,

diversity,

labor

conditions

and

human

rights.

Increased ESG related

compliance costs could

result in increases to

our overall operational

costs.

Failure to adapt to

or comply with regulatory

requirements

investor

stakeholder

expectations

and

standards

could

negatively

impact

our

reputation,

ability

business

with

certain

partners,

and

our

stock

price.

New

government

regulations

could

also

result

new

or more

stringent

forms

of ESG

oversight

and

expanding mandatory and voluntary reporting, diligence, and disclosure.

Our results of

operations could be

adversely affected

by natural disasters, political

crises, negative global

climate patterns or other

catastrophic events.

Natural

disasters, which

nature and

severity may

be impacted

by climate

change,

such as

hurricanes,

floods, extreme

cold

events

and

other

adverse

weather

conditions;

political

crises,

such

terrorist

attacks,

war,

labor

unrest,

other

political

instability,

trade

policies and

sanctions, including

the repercussions

of the

attack by

Russia on

Ukraine; negative

global climate

patterns, especially

water

stressed

regions;

or other

catastrophic

events,

such as

fires

or other

disasters

occurring

at our

locations,

whether

occurring

Puerto

Rico,

the

U.S.,

internationally,

could

cause

significant

adverse

effect

the

economy

and

disrupt

our

operations.

For

example,

Puerto

Rico

experienced

hurricanes

and

earthquakes

2017

and

2020,

which

had

adverse

effect

our

operations

created

decreases

loan

demand

and

deposit

level.

Further,

climate

change

may

increase

both

the

frequency

and

severity

extreme weather conditions and natural

disasters, which may affect our

business operations, either in a particular

region or globally,

well as the

activities of our

customers. The Corporation

is also not able

to predict the

positive or negative

effects that future

events or

changes to the U.S. or global economy,

financial markets, or regulatory and business environment could have on our operations.

Climate change may materially adversely affect the Corporation's

business and results of operations.

Concerns over

the long-term effects

of climate change

have led and

will continue to

lead to governmental

efforts around

the world

to mitigate

those impacts.

Consumers and

businesses also

may

voluntarily

change their

behavior

as a

result of

these concerns.

The

Corporation

and

its

customers

will

need

respond

new

laws

and

regulations

well

consumer

and

business

preferences

resulting

from

climate

change

concerns.

The

Corporation

and

its

customers

may

face

cost

increases,

asset

value

reductions

and

operating process

changes. The

impact on

our customers

will likely

vary depending

on their

specific attributes,

including reliance

or role in fossil fuel activities. Among the impacts to the Corporation,

we could face reductions in creditworthiness on the part of some

customers

or in

the value

of assets

securing

loans. The

Corporation’s

efforts

to take

these risks

into account

in making

lending and

other

decisions,

including

increasing

our

business

with

climate-responsible

companies,

may

not

effective

protecting

the

Corporation from the negative impact of new laws and regulations or changes in

consumer or business behavior.

Labor shortages and constraints in the supply chain could adversely affect

our clients’ operations as well as our operations.

Many sectors

in Puerto Rico,

the United States,

Virgin

Islands and around

the world are

experiencing a shortage

of workers. Many

of our commercial clients have

been impacted by this shortage

along with disruptions and constraints

in the supply chain, which

could

adversely

impact their

operations

and could

lead to

reduced cash

flow and

difficulty

in making

loan repayments.

The Corporation’s

industry has also been affected by the shortage

of workers, with respect to certain roles, as well as increasing

wages for entry level and

certain professional roles.

This may lead to open

positions remaining unfilled for

longer periods of time,

which may affect the

level of

service provided by the Corporation, or a need to increase wages to attract workers.

The failure of other financial institutions could adversely affect

us.

Our ability to engage

in routine financing transactions

could be adversely affected

by future failures of financial

institutions and the

actions and

commercial soundness

of other

financial institutions.

Financial institutions

are interrelated

as a result

of trading,

clearing,

counterparty

and

other relationships.

have

exposure

to different

industries

and

counterparties

and

routinely

execute

transactions

with counterparties

in the financial

services industry,

including brokers

and dealers,

commercial banks,

investment banks,

investment

companies and other

institutional clients. In

certain of these transactions,

we are required to

post collateral to

secure the obligations

the

counterparties.

In the

event

a bankruptcy

insolvency

proceeding

involving

one of

such counterparties,

may

experience

delays in recovering

the assets posted as

collateral, or we

may incur a

loss to the extent

that the counterparty

was holding collateral in

excess of the obligation to such counterparty or under other circumstances.

In addition, many of these transactions

expose us to credit risk in

the event of a default by our

counterparty or client. The credit

risk

may be exacerbated when

the collateral held by us cannot

be realized or is liquidated

at prices not sufficient

to recover the full amount

of the loan

or derivative

exposure due to

us. Any losses

resulting from

our routine funding

transactions may

materially and adversely

affect our financial condition and results of operations.

RISK RELATING

TO THE REGULATION

OF OUR INDUSTRY

We are subject to certain regulatory

restrictions that may adversely affect our operations.

are subject

to supervision

and regulation

by the

Federal Reserve

Board and

the FDIC.

are a

bank holding

company and

financial holding

company under

the Bank

Holding Company

Act of

1956, as

amended. The

Bank is

also subject

to supervision

and

regulation by the Puerto Rico Office of the Commissioner of Financial

Institutions.

Under

federal

law,

financial

holding

companies

are

permitted

engage

broader

range

“financial”

activities

than

those

permitted

bank

holding

companies

that

are

not

financial

holding

companies.

financial

holding

company

that

ceases

meet

certain

standards

subject

variety

restrictions,

depending

the

circumstances,

including

the

prohibition

from

undertaking

new activities

or acquiring

shares or

control of

other companies.

If we

fail to

comply with

the requirements

from our

regulators,

may

become

subject

regulatory

enforcement

action

and

other

adverse

regulatory

actions

that

might

have

material

and

adverse

effect on our operations.

The FDIC insures

deposits at

FDIC-insured depository

institutions up

to certain limits

(currently,

$250,000 per

depositor account).

The FDIC charges insured

depository institutions premiums to

maintain the DIF.

In the event of a bank

failure, the FDIC takes control

of a failed

bank and, if

necessary,

pays all insured

deposits up to

the statutory deposit

insurance limits using

the resources of

the DIF.

The FDIC

is required

by law to

maintain adequate

funding of

the DIF,

and the

FDIC may

increase premium

assessments to

maintain

such

funding.

The

Dodd-Frank

Wall

Street

Reform

and

Consumer

Protection

Act

(the

“Dodd-Frank

Act”)

requires

the

FDIC

increase the DIF’s

reserves against future losses, which

will require institutions with assets

greater than $10 billion, such as

FirstBank,

to bear an increased responsibility for funding the prescribed reserve to

support the DIF.

The

FDIC

may

increase

FirstBank’s

premiums

impose

additional

assessments

prepayment

requirements

the

future.

The

Dodd-Frank Act removed the statutory cap for the reserve ratio, leaving

the FDIC free to set this cap going forward.

Our

compensation

practices

are

subject

oversight

the

Federal

Reserve

Board

and

the

FDIC.

Any

deficiencies

our

compensation

practices

may

incorporated

into

our

supervisory

ratings,

which

can

affect

our

ability

make

acquisitions

perform other actions. In addition,

the regulation of our compensation practices may change in the future.

Our

compensation

practices

are

subject

oversight

the

Federal

Reserve

Board

and

the

FDIC.

discussed

above,

the

Corporation currently

is subject

to the

2010 interagency

guidance governing

the incentive

compensation activities

of regulated

banks

and bank

holding companies.

Our failure

to satisfy

these restrictions

and guidelines

could expose

us to

adverse regulatory

criticism,

lowered

supervisory

ratings,

and

restrictions

our

operations

and

acquisition

activities.

addition,

the

federal

banking

agencies

have

proposed

regulations

under

the

Dodd-Frank

Act

that

place

restrictions

the

incentive

compensation

practices

banking

organizations with $1 billion or more in assets.

The scope

and content of

the U.S. banking

regulators’ policies on

executive compensation

are continuing

to develop and

are likely

to continue evolving in

the future. It cannot be

determined at this time whether

compliance with such policies

will adversely affect the

ability of the Corporation and its subsidiaries to hire, retain and motivate

their key employees.

are

subject

regulatory

capital

adequacy

guidelines,

and,

fail

meet

these

guidelines,

our

business

and

financial

condition will be adversely affected.

are subject

to stringent

regulatory

capital requirements.

Although

the Corporation

and FirstBank

met general

well-capitalized

capital ratios

as of

December 31,

2021 and

we expect

both companies

will continue

to exceed

the minimum

risk-based and

leverage

capital

ratio

requirements

for

well-capitalized

status

under

the

current

capital

rules,

cannot

assure

that

will

remain

such

levels.

fail

meet

these

minimum

capital

guidelines

and

other

regulatory

requirements,

our

business

and

financial

condition

will

materially

and

adversely

affected.

fail

maintain

certain

capital

levels,

are

deemed

not

well

managed

under

regulatory

exam

procedures,

experience

certain

regulatory

violations,

our

status

financial

holding

company,

and

our

ability to offer

certain financial products will be

compromised and our financial

condition and results of operations

could be adversely

affected.

Monetary

policies

and

regulations

the

Federal

Reserve

Board

could

adversely

affect

our

business,

financial

condition

and

results of operations.

In addition

to being

affected

by general

economic conditions,

our earnings

and growth

are affected

by the

policies of

the Federal

Reserve Board. An important

function of the Federal

Reserve Board is to regulate

the money supply and

credit conditions. Among the

instruments

used

the

Federal

Reserve

Board

implement

these

objectives

are

open

market

operations

U.S.

government

securities,

adjustments

the

discount

rate

and

changes

reserve

requirements

for

bank

deposits.

These

instruments

are

used

varying combinations to

influence overall economic

growth and the

distribution of credit,

bank loans, investments

and deposits. Their

use also affects interest rates charged on

loans or paid on deposits.

The

monetary

policies

and

regulations

the

Federal

Reserve

Board

have

had

significant

effect

the

operating

results

commercial

banks

the

past

and

are

expected

continue

the

future.

The

effects

such

policies

upon

our

business,

financial condition and results of operations may be adverse.

are

subject

numerous

laws

designed

protect

consumers,

including

the

Community

Reinvestment

Act

and

fair

lending

laws, and failure to comply with these laws could lead to a wide variety of sanctions.

The

Community

Reinvestment

Act,

the

Equal

Credit

Opportunity

Act,

the

Fair

Housing

Act

and

other

fair

lending

laws

and

regulations impose nondiscriminatory

lending requirements

on financial institutions.

The U.S. Department

of Justice and other

federal

agencies

are

responsible

for

enforcing

these

laws and

regulations.

successful

regulatory

challenge

institution's

performance

under the Community Reinvestment

Act, the Equal Credit

Opportunity Act, the Fair

Housing Act or any

of the other fair lending

laws

and regulations

could result in

a wide variety

of sanctions, including

damages and civil

money penalties, injunctive

relief, restrictions

on mergers and acquisitions

activity, restrictions

on expansion and restrictions on entering

new business lines. Private parties may

also

have the

ability to

challenge an

institution's performance

under fair

lending laws

in private

class action

litigation. Such

actions could

have a material adverse effect on our business, financial

condition and results of operations.

face

risk

noncompliance

and

enforcement

action

the

Bank

Secrecy

Act

and

other

anti-money

laundering

statutes and regulations.

The

Bank

Secrecy

Act,

the

USA

PATRIOT

Act,

and

other

laws

and

regulations

require

financial

institutions

institute

and

maintain

effective

anti-money

laundering

program

and

file

suspicious

activity

and

currency

transaction

reports

appropriate,

among

other

duties.

The

Financial

Crimes

Enforcement

Network

authorized

impose

significant

civil

money

penalties

for

violations

those

requirements

and

has

recently

engaged

coordinated

enforcement

efforts

with

the

individual

federal

banking

regulators, as well

as the U.S. Department

of Justice’s

Drug Enforcement Administra

tion. We

are also subject

to increased scrutiny

our compliance with

trade and economic sanctions

requirements and rules

enforced by OFAC.

If our policies, procedures

and systems

are deemed

deficient, we

would be

subject to

liability,

including fines

and regulatory

actions, which

may include

restrictions on

our

ability to pay dividends and the necessity to obtain

regulatory approvals to proceed with certain aspects

of our business plan, including

our acquisition plans. Failure

to maintain and implement adequate

programs to combat money laundering

and terrorist financing could

also have serious reputational

consequences for us. Any

of these results could have

a material adverse effect

on our business, financial

condition and results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of January 13, 2022, First BanCorp. owned the following three

main offices located in Puerto Rico:

Headquarters

–

Located

First

Federal

Building,

1519

Ponce

León

Avenue,

Santurce,

Puerto

Rico,

16-story

office

building. Approximately

51% of

the building,

including 100,000

square feet

underground three

level parking

garage and

adjacent parking lot are occupied by the Corporation.

Service

Center –

a building

located

on 1130

Muñoz

Rivera Avenue,

Hato Rey,

Puerto

Rico. These

facilities

accommodate

branch

operations,

First

Mortgage,

Collections

and

Loss

Mitigation,

data

processing

and

administrative

and

certain

headquarter offices. The

building houses 180,000

square feet of modern

facilities, over 1,000 employees

from operations, the

FirstBank Insurance

Agency headquarters,

and the

customer service

department. In

addition, it

has parking

for 750

vehicles

and

training

rooms,

including

classrooms

for

training

tellers

and

computer

room

for

interactive

trainings,

well

spacious cafeteria for employees and customers. This facility is fully occupied

by the Corporation.

Consumer Lending

Center –

A three-story

building with

29,000 square

feet and

a three-level

parking garage

located at

876

Muñoz Rivera

Avenue,

Hato Rey,

Puerto Rico. This

facility is fully

occupied by

the Corporation.

Other uses include

a retail

branch, Money Express, Auto Financing and Leasing and a First Insurance

office, among other.

The

Corporation

owns 20

retail branch

es and

77 office

premises and

parking

lots.

leases 96

branch

premises,

loan

and

office

centers and other facilities. In certain situations, financial

services such as mortgage and insurance businesses and commercial

banking

services

are

the

same

building

branch.

All

these

premises

are

Puerto

Rico,

Florida,

the

USVI

and

the

BVI.

Management

believes that the Corporation’s properties

are well maintained and are suitable for the Corporation’s

business as presently conducted.

Item 3. Legal Proceedings

Reference

made

Note

33,

“Regulatory

Matters,

Commitments

and

Contingencies,”

the

consolidated

financial

statements

Item 8 of this Annual Report on Form 10-K, which is incorporated herein

by reference.

Item 4. Mine Safety Disclosure.

Not applicable.

PART

Item 5. Market for Registrant’s Common Equity

and Related Stockholder Matters and Issuer Purchases of

Equity Securities

Information about Market and Holders

The Corporation’s

common stock

is traded

on the

New York

Stock Exchange

(“NYSE”) under

the symbol

FBP.

On February

15,

2022, there

were 307 holders

of record

of the Corporation’s

common stock,

not including

beneficial owners

whose shares are

held in

the name of brokers or other nominees.

December 31,

2021

and

December 31,

2020,

the

Corporation

had

21,836,611

and

4,799,284

held

as treasury

stock,

respectively.

Refer to

“Purchase of

equity securities

by the

issuer and

affiliated

purchasers”

section below

for more

information

common stock repurchases during 2021, also held as treasury stock.

Information

regarding transactions

related to

common

stock and

securities authorized

for issuance

under the

Corporation’s

equity

compensation

plan is

set forth

in Note

22 -

“Stock-Based

Compensation”

of the

Notes to

Consolidated

Financial

Statements

and

Part III, Item 12 of this Annual Report on Form 10-K.

Dividends

Since

November

2018,

the

Corporation

has

been

making

quarterly

cash

dividend

payments

its

common

stock.

October 22, 2021 the Corporation

announced that it had increased the quarterly

cash dividend payment on common stocks,

from $0.07

$0.10

per

share,

commencing

the

fourth

quarter

2021.

February

10,

2022

the

Corporation

announced

that

its

Board

Directors declared

a quarterly cash

dividend, of $0.

10 per common

share, payable on

March 11,

2022 to shareholders

of record at

the

close of

business on

February 25,

2022. 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

consideration

and

approval by the Corporation’s

Board Directors at the relevant

times. On November 30, 2021

(the “Redemption Date”) the Corporation

redeemed

all of

its 1,444,146

outstanding

non-convertible,

non-cumulative

perpetual

monthly

income

Series

A through

Preferred

Stock

for

its

liquidation

value

$25

per

$36.1

million.

Monthly

dividend

payments

non-convertible,

non-

cumulative perpetual monthly income

preferred stock were paid by the

Corporation until the Redemption Date.

Information regarding

restrictions on dividends,

as required by this

Item, is set forth

in Item 1: “Business

– Dividend Restrictions”

and incorporated into

this

Item by reference.

The 2011

PR Code, as

amended, requires the

withholding of income

taxes from dividend

income sourced

within Puerto Rico

to be

received

any

individual,

resident

Puerto

Rico

not,

trusts

and

estates

and

non-resident

custodians,

partnerships,

and

corporations.

Residents of Puerto Rico

A special tax of 15% withheld at

source is imposed, in lieu of a regular

tax, on any eligible dividends paid to

individuals, trusts, and

estates.

Eligible

dividends

include

dividends

paid

domestic

Puerto

Rico

corporation.

However,

the

taxpayer

can

perform

election to be excluded from the 15% special tax and be taxed at regular

rates. Once this election is made it is irrevocable. The election

allows the

taxpayer to

include in

ordinary income

the eligible

dividends received

and take

a credit

for the

amount of

tax withheld

excess, if any.

Individuals that

are residents

of Puerto

Rico are

subject to

an alternative

minimum tax

(“AMT”) on

the AMT

Net Income

if their

regular

tax

liability

less

than

the

alternative

minimum

tax

liability.

The

AMT

applies

individual

taxpayers

whose

AMT

Net

taxable

income exceeds

$25,000.

The individual

AMT rate

ranges

from 1%

to 24%

depending

on the

AMT Net

Income. The

AMT

Net Income

includes

various categories

of tax-exempt

income and

income subject

to preferential

rates as

provided by

the PR

Code,

such as

dividends on

the Corporation’s

common stock

and long-term

capital gains

recognized on

the disposition

of the Corporation’s

common stock.

Nonresident U.S. Citizens

Dividends paid to a U.S. citizen who is not a resident of Puerto Rico will be subject

to a 15% income tax.

Nonresident U.S. citizens

have the right to partial

or total exemptions when

a Withholding Tax

Exemption Certificate (PR Treasury

Department Form AS 2732)

is properly

completed and

filed with

the Corporation.

The Corporation,

as withholding

agent, is

authorized to

withhold a

tax of

15%

only from the excess of the income paid over the applicable tax-exempt

amount.

Nonresident individuals that are

not US citizens

Dividends paid to any

individual who is not a

citizen of the United States and

who is not a resident

of Puerto Rico will generally

subject to a 15% Puerto Rico income tax which will be withheld at source.

Foreign Corporations and Partnerships

Corporations

and partnerships

not organized

under Puerto

Rico

laws that

have

not engaged

in a

trade

or business

in Puerto

Rico

during

the

taxable

year

which

the

dividend,

any,

paid

are

subject

the

10%

dividend

tax

withholding.

Corporations

partnerships not organized

under the laws of

Puerto Rico that have

engaged in a trade

or business in Puerto

Rico are not subject

to the

10% withholding, but they must declare any dividend as ordinary income

on their Puerto Rico income tax return.

Purchase of equity securities by the issuer and affiliated

purchasers

The following

table provides

information relating

to the Corporation’s

purchases of

shares of its

common stock

and redemption

its preferred stock in the fourth quarter of 2021.

Approximate Dollar

Value of

Total

Number of

That May Yet

Shares Purchased

Purchased Under

Average

as Part of Publicly

These Plans or

Total

number of

Price

Announced Plans

Programs

Period

shares purchased

Paid

Or Programs

(In thousands)

(1)

October 1, 2021 to October 31, 2021:

Common Stock

498,917

13.67

498,300

November 1, 2021 to November 30, 2021:

Common Stock

2,400,000

14.21

2,400,000

Preferred Stock, Series A

197,386

25.00

197,386

Preferred Stock, Series B

296,146

25.00

296,146

Preferred Stock, Series C

249,852

25.00

249,852

Preferred Stock, Series D

285,522

25.00

285,522

Preferred Stock, Series E

415,240

25.00

415,240

December 1, 2021 to December 31, 2021:

Common Stock

1,720,714

13.35

1,720,714

Total

6,063,777

(2)(3)

6,063,160

50,000

(1)

As of December 31,

2021, the Corporation was

authorized to purchase up to

$300 million of the

Corporation’s stock under the

program, that was publicly

announced

on April 26,

2021 and expires

on June 30,

2022, of which

$250 million had

been utilized.

The remaining $50 million

in the table

represents the amount available

repurchase shares under

the program as

of December 31,

2021.

The program does not

obligate the Corporation to

acquire any specific

number of shares.

Under the

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 617 shares of common stock acquired by the Corporation to cover minimum tax withholding obligations upon the vesting

of restricted stock and performance

units.

The

Corporation

intends

continue

satisfy

statutory

tax

withholding

obligations

connection

with

the

vesting

outstanding

restricted

stock

and

performance units through the withholding of shares.

(3)

Includes 3,869,014 shares of common stock repurchased in the open market

at an average price of $13.74 for a total purchase price of approximately $53.2 million,

and

750,000 shares of common stock repurchased through privately negotiated transactions at

an average price of $14.33 for a

total purchase price of approximately $10.7

million.

On April

26, 2021,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation

may repurchase

up to

$300 million

of its

outstanding stock,

including common

and preferred

stock, commencing

in the

second

quarter

2021

through

June

30,

2022.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions

plans,

including

under

plans

complying

with

Rule

10b5-1

under the Exchange Act.

During 2021, the Corporation repurchased

16,740,467 shares of its common stock

for $213.9 million and, as

mentioned

above,

Corporation

redeemed

all of

its outstanding

shares of

non-convertible,

non-cumulative

perpetual

monthly

income

Series A through E Preferred Stock for its liquidation value of $36.1

million.

STOCK PERFORMANCE GRAPH

The

following

Performance

Graph

shall

not

deemed

incorporated

reference

any

general

statement

incorporating

reference

this Annual

Report

Form 10-K

into any

filing under

the

Securities Act

(collectively,

“the

Acts”)

the Exchange

Act,

except

the

extent

that First

BanCorp.

specifically

incorporates

this

information

reference,

and

shall not

otherwise

deemed

filed under these Acts.

The

graph

below

compares

the

cumulative

total

stockholder

return

First

BanCorp.

during

the

measurement

period

with

the

cumulative

total

return,

assuming

reinvestment

dividends

the

S&P

500

Index

and the

S&P

Supercom

Banks

Index

(the

“Peer

Group”).

The Performance

Graph assumes

that $100

was invested

on December

31, 2016

in each

of First

BanCorp. common

stock,

the S&P

500 Index

and the

Peer Group.

The comparisons

in this

table are

set forth

in response

to SEC

disclosure requirements,

and

are therefore not intended to forecast or be indicative of future performance

of First BanCorp.’s common

stock.

The

cumulative

total

stockholder

return

was

obtained

dividing

(i) the

cumulative

amount

dividends

per

share,

assuming

dividend

reinvestment

since

the

measurement

point,

December 31,

2016

plus

(ii) the

change

the

per

price

since

the

measurement date, by the share price at the measurement date.

Item

6. [Reserved]

Item 7. Management’s

Discussion

and Analysis

of Financial

Condition

and Results

of Operations

(“MD&A”)

The following MD&A

relates to the

accompanying audited consolidated

financial statements of

First BanCorp. (the

“Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

conjunction

with such

financial statements

and the

notes thereto.

This

section

also

presents

certain

financial

measures

that

are

not

based

generally

accepted

accounting

principles

the United

States

(“GAAP”).

See “Basis of

Presentation” below

for information

about why the

non-GAAP financial

measures are

being presented

and

the reconciliation of

the non-GAAP financial measures

to the most comparable

GAAP financial measures for

which the reconciliation

is not presented earlier.

The detailed financial discussion that follows focuses on

2021 results compared to 2020.

For a discussion of 2020 results compared

2019,

see

Item

Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

included

the

Corporation’s Annual

Report on Form 10-K for the year ended December 31, 2020, which is incorpora

ted herein by reference.

DESCRIPTION OF BUSINESS

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

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the

Corporation

operates

Puerto

Rico,

the

USVI, the BVI, and the state of Florida, concentrating

on commercial banking, residential mortgage loans,

finance leases, credit cards,

personal loans, small loans, auto loans, and insurance agency activities.

SIGNIFICANT EVENTS

Stock Repurchase Program

On April

26, 2021,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation

may repurchase

up to

$300 million

of its

outstanding stock,

including common

and preferred

stock, commencing

in the

second

quarter of

2021 through

June 30,

2022. During

the year

ended December

31, 2021,

the Corporation

repurchased 16,740,467

shares of

its common

stock for

$213.9 million.

In addition,

on November

30, 2021,

the Corporation

redeemed all

of its

outstanding

shares of

non-convertible, non-cumulative

perpetual monthly

income, Series

A through

E Preferred

Stock for

its liquidation

value of

$36.1 million.

Furthermore,

during the

first quarter

of 2022

the Corporation

repurchased 3,409,697

million shares

of common

stock

for the remaining $50 million authorized under the stock repurchase

program.

COVID-19 Pandemic and Economy

The

ongoing

COVID-19

pandemic

has

caused

unprecedented

and

continuing

uncertainty,

volatility

and

disruption

financial

markets

and

governmental,

commercial

and

consumer

activity

worldwide,

including

the

markets

which

the

Corporation

operates. In

response, federal,

state, and

local governments

have taken

and continue

to take

actions designed

to mitigate

the effect

the virus on

public health and

to address the

economic impact of

the virus. As

restrictive measures were

eased during the

end of 2020

and into 2021, based

upon positive signs of

recovery driven by

vaccination and government

stimulus programs, economic

activity has

improved.

February

18,

2022,

approximately

6.6

million

vaccines

COVID-19

have

been

administered.

Approximately

2.9

million

people

have received

at least

one

dose of

the COVID-19

vaccine and

approximately 2.6

million

people,

or approximately

84.9% of

Puerto Rico’s eligible population,

have completed the vaccination process and 54.3% have received the booster

shot.

The

Corporation

continues

operate

consistent

with

guidance

from

federal

and

local

authorities.

The

Corporation’s

banking

branches

are

operating

during

regular

hours

following

health

and

safety

requirements

comply

with

federal

and

local

health

mandates, including, among other things, deep cleaning, face mask requirements

and strict social distancing measures. On February 8,

2022,

the

Corporation

announced

that

part

COVID-19

protocols,

all

employees,

service

providers

and

consultants

the

Corporation

must

have

the

booster

shot

the

COVID-19

vaccine

March

2022,

with

few

exceptions.

Additional

vaccine

mandates

have

been announced

in jurisdictions

in which

our businesses

operate.

Adoption

of electronic

channels continues

to grow

significantly during

the ongoing

pandemic,

with active

digital banking

users growing

by 16%

during 2021

while capturing

over 40%

of deposits through digital and self-service channels.

Our

results

operations

for the

year

2021

continue

to reflect

improvement

from

the

disruption

caused

the COVID-19

pandemic. However,

we maintain a

cautious view

of the

macroeconomic outlook

due to

continuing uncertainty

regarding the

pace of

recovery

in the

economy and

uncertainty

related to

the COVID-19

pandemic,

including the

emergence

of new

variants of

the virus,

such as

the Omicron

variant, which

appears to

be the

most transmissible

variant to

date. Uncertainties

associated with

the pandemic

include

the

duration

the

COVID-19

outbreak

and

any

infections,

including

those

from

new

variants

the

virus,

the

effectiveness of

COVID-19 vaccines,

vaccination rates

among the

population, the

impact on

our customers,

employees,

and vendors,

and the impact to the economy as a whole.

The

CARES

Act

“CARES

Act

2020”,

amended

the

Consolidated

Appropriations

Act,

2021,

included

an allocation

$659

billion

for

SBA PPP

loans.

SBA

PPP loans

are

forgivable,

whole

or in

part,

if the

proceeds

are

used for

payroll and

other

permitted

purposes in

accordance

with the

requirements

of the

program.

These loans

carry a

fixed

rate of

1.00% and

a term

of two

years

(loans

made

before

June

2020)

five

years

(loans

made

after

June

2020),

not

forgiven,

whole

part.

Payments are

deferred until either

the date on

which the SBA

remits the amount

of forgiveness proceeds

to the lender

or the date

that

is 10

months after

the last

day of

the covered

period if

the borrower

does not

apply for

forgiveness within

that 10-month

period. On

December

27,

2020,

President

Trump

signed

another

COVID-19

relief

bill

that

extended

and

modified

several

provisions

the

program.

This

included

additional

allocation

$284

billion.

The

SBA

reactivated

the

program

January

11,

2021

and

the

program ended on May 31, 2021.

December

31,

2021,

the

Corporation’s

SBA

PPP

loan

portfolio

amounted

$145.0

million,

net

unearned

fees

$7.9

million.

As applicable,

the unearned

fees are

accreted

into income

based

on the

contractual period

two or

five years.

Upon

SBA

forgiveness,

unamortized

fees

are

then

recognized

into

interest

income.

During

the

years

ended

December

31,

2021

and

2020,

the

Corporation

received

forgiveness

remittances

and

consumer

payments

approximately

$543.6

million

and

$48.9

million,

respectively,

in principal balance of

SBA PPP loans. As

of December 31,

2021, we have processed

forgiveness to approximately

80%

of our customers.

Forgiveness remittances in the year ended 2021 accelerated

the fee income recognition by $13.2 million.

Total

deposits, excluding

brokered deposits

and government

deposits, continued

to increase

and were

$14.2

billion as

of December

31,

2021,

increase

$1.4

billion

from

December

31,

2020.

addition,

government

deposits

increased

$1.2

billion

$3.3

billion as of December 31, 2021,

compared to $2.1 billion as of December

31, 2020. The strong growth in deposits

continues to reflect

the effect

of government

relief programs

on the

liquidity levels

of our

customers, including

increases in

the balance

of transactional

accounts

of municipalities

in Puerto

Rico and

the local

government

of the

USVI in

connection

with the

American

Rescue Plan

Act

(“ARPA”)

funding for states and local

governments. Our liquidity levels

and capital position remain strong,

with capital ratios that are

well

above

regulatory

requirements.

This

robust

liquidity

and

capital

levels

provide

with

significant

flexibility

maintain

the

strength

our

balance

sheet

and

return

capital

shareholders

through

repurchases

and

dividend

payments,

subject

regulatory considerations.

During

2021

economic

conditions

started

show

significant

signs

recovery,

which

included

improved

consumer

demand

evidenced by rise

in retail sales, auto

and home sales

and recovery in

the payroll employment

in Puerto Rico

where it reached

98% of

the

pre-pandemic

level. The

early

signs of

economic

recovery have

impacted positively

the

Corporation

which

among

other

things,

during

2021 grew

total loan

originations

by approximately

17% when

compared

to 2020

and

is reflecting

a strong

commercial

loan

pipeline. Additionally,

on January 27,

2022, the PROMESA

oversight board certified

the 2022 Fiscal Plan

for Puerto Rico

(the “2022

Fiscal Plan”).

The 2022

Fiscal Plan reflects

the Commonwealth

Plan of Adjustment

recently confirmed

by the U.S.

District Court for

the District of

Puerto Rico. Relative to

the previous fiscal

plan, the 2022 Fiscal

Plan incorporates a

new set of expenditure

projections

that

factor

the

now-established

debt

service

requirements

pursuant

the

Plan

Adjustment,

well

additional

investments

enabled

the

increased

resources

available

the

government.

The

2022

Fiscal

Plan

prioritizes

resource

allocations

across

three

major

themes:

(i)

investing

the

operational

capacity

the

government

deliver

services

with

Civil

Service

Reform,

(ii)

prioritizing obligations to current and future retirees, and (iii) creating

a fiscally responsible post-bankruptcy government.

Integration

of BSPR

During the

year ended

December 31, 2021,

the Corporation completed

the conversion

of all BSPR’s

core systems into

FirstBank’s

systems.

conjunction

with

the

conversion

BSPR’s

core

systems,

the

Corporation

had

consolidated

total

nine

banking

branches

and

the

Corporation

decided

late

during

the

fourth

quarter

2021

consolidate

four

additional

branches,

which

are

expected to be completed during the first half of 2022.

addition,

during

the

year

ended

December

31,

2021,

the

Corporation

continued

execute

reducing

personnel

and

service

contract

expenses

and

completing

other

business

rationalization

activities.

Cumulative

merger

and

restructuring

expenses

$64.4

million have been incurred through December

31, 2021, of which $26.4 million

was incurred during 2021. The total amount

of merger

and

restructuring

costs

the

BSPR acquisition

was

originally

estimated

approximately

$65

million.

The

Corporation

does not expect any

additional significant merger

and restructuring expenses

during 2022. The Corporation

also has estimated that

the

combined

entities

will

achieve

total

annual

pre-tax

savings

approximately

$49

million,

which

are

expected

fully

realized

during 2022.

LIBOR Transition

Following

the

2017

announcement

the

United

Kingdom’s

Financial

Conduct

Authority

(the

“FCA”)

that

would

longer

compel

participating

banks

submit

rates

for

the

London

Interbank

Offered

Rate

(LIBOR)

after

2021,

regulators

and

market

participants

various

jurisdictions

have

identified

recommended

replacement

rates

for

LIBOR,

and

many

have

published

recommended

conventions to

allow new

and existing

products to

incorporate

fallbacks or

that reference

these Alternative

Reference

Rates

(“ARRs”).

March

2021,

the

FCA

confirmed

that

publication

the

overnight

and

one

month,

three-month,

six-month

and

twelve-month U.S.

Dollar LIBOR settings

will cease or

become no longer

representative of the

market the rates

seek to measure

(i.e.,

non-representative) immediately after June 30, 2023, and all other

U.S. Dollar LIBOR settings, including the one week and two-month

U.S. Dollar LIBOR settings,

became non-representative

after December 31,

2021. The Federal

Reserve, the Office

of the Comptroller

the

Currency,

and

the

FDIC

also

released

supervisory

guidance

encouraging

banks

cease

entering

into

new

contracts

that

use

U.S. Dollar

LIBOR as

reference

rate as

soon as

practicable and

in any

event by

December 31,

2021. Banking

regulators in

the U.S.

and

globally

have

increased

regulatory

scrutiny

and

intensified

supervisory

focus

financial

institutions

LIBOR

transition

plans,

preparations and readiness.

Significant

amounts

financial

instruments

the

market

are

referenced

U.S.

Dollar

LIBOR,

and

any

inability

market

participants

and

regulators

successfully

introduce

benchmark

rates

replace

LIBOR

and

implement

effective

transitional

arrangements to

address the

discontinuation of

LIBOR could

result in

disruption in

the financial

markets. In

the U.S.,

the Alternative

Reference Rates

Committee (“ARRC”),

a group

of market

participants convened

by the

Federal Reserve,

recommended the

Secured

Overnight Financing

Rate (“SOFR”) as

a replacement

index for U.S.

Dollar LIBOR-indexed

contracts. SOFR is

an overnight

interest

rate based

on U.S.

Dollar Treasury

repurchase agreements.

On March

2, 2020

the New

York

Fed began

daily publication

of 30,

90,

and 180-day compound

historical averages of

SOFR. In addition,

the ARRC has developed

a detailed supporting framework

for using

SOFR, including

tools such

as fallbacks

and recommended

conventions for

new use

of SOFR in

various products.

On July

29, 2021,

the ARRC

formally

recommended the

Chicago Mercantile

Exchange Group’s

(“CME”) forward-looking

Term

SOFR rates

for one

three-,

six-

and

twelve-month

tenors,

marking

the

final

step

the

ARRC’s

Paced

Transition

Plan

released

2017.

The

ARRC

recommended using

the CME’s

Term

SOFR rates

for cash

products and

derivatives, limited

to end-users

hedging cash

products. An

end-user is

described as

any counterparty

to the underlying

cash product,

such as a

borrower,

lender, or

guarantor.

These parties

may

enter into Term

SOFR rates swaps, caps, swaptions,

or other derivatives to

hedge cash product exposures.

The Corporation may offset

such exposure with an upstream dealer.

The

Corporation

continues

execute

its

LIBOR

Transition

workplan.

part

this

transition

plan,

the

Corporation

started

including fallback language on new and renewed

contracts tied to LIBOR to provide for the determination

of an ARR and had adhered

to the LIBOR Fallbacks Protocol of the International

Swaps and Derivatives Association. In addition, effective

December 31, 2021 the

Corporation discontinued entering

into new contracts that

use the use U.S. Dollar

LIBOR as reference rate.

Currently,

the Corporation

is primarily

offering

CME’s

Term

SOFR rate

as the

ARRs to

LIBOR. The

Bank may

also offer

other industry-accepted

benchmark

interest

rates

that

can

supported

for

commercial

transactions.

The

Corporation

continues

working

with

the

update

systems,

processes, documentation, and models, with additional updates expected

through 2023.

As of

December 31,

2021, the

most significant

of the

Corporation’s

LIBOR-based assets

and liabilities

consists of

$2.0 billion

variable rate

commercial and

construction loans,

approximately $58.4

million of

U.S. agencies

debt securities

and private

label MBS

held as part of

the Corporation’s

available-for-sale investment

securities portfolio, $134.4

million of Puerto Rico

municipalities bonds

held

part

the

Corporation’s

held-to-maturity

investment

securities

portfolio,

and

$183.8

million

junior

subordinated

debentures.

The Corporation

is monitoring

the development

and adoption

of SOFR

and

other

credit sensitive

ARRs and

their liquidity

in the

market. The manner and impact

of the transition from LIBOR to

an ARR, as well as the effect

of these developments on our

loans and

investment securities portfolios, asset-liability management, systems, processes,

and business, is uncertain.

OVERVIEW OF RESULTS

OF OPERATIONS

First

BanCorp.'s

results

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:

(i)

the

interest rate environment;

(ii) the volumes, mix,

and composition of interest-earning

assets and (iii) interest-bearing

liabilities; and the

re-pricing characteristics

of these assets

and liabilities.

The Corporation's

results of operations

also depend

on the provision

for credit

losses,

non-interest

expenses

(such

personnel,

occupancy,

the

deposit

insurance

premium

and

other

costs),

non-interest

income

(mainly

service

charges

and

fees

deposits,

and

insurance

income),

gains

(losses)

sales

investments,

gains

(losses)

mortgage banking activities, and income taxes.

The

Corporation

had

net

income

$281.0

million,

$1.31

per

diluted

common

share,

for

the

year

ended

December

31,

2021,

compared to

$102.3 million,

or $0.46

per diluted

common share,

for the

year ended

December 31,

2020. The

Corporation completed

the acquisition

of BSPR effective

September 1,

2020.

The Corporation’s

financial statements

for the

year ended

December 31,

2020

include

four

months

BSPR’s

operations,

post-acquisition,

which

impacts

the

comparability

the

fiscal

year

2021

results

the

fiscal year 2020 results.

Other relevant selected financial data for the periods presented is included below:

December 31,

2021

December 31,

2020

Key Performance Indicator:

Return on Average

Assets

1.38

0.67

Return on Average

Total Equity

12.56

4.59

Efficiency Ratio

57.45

59.62

The key

drivers of

the Corporation’s

GAAP financial

results for

the year

ended December

31, 202

1, compared

to the

year ended

December 31, 2020, include the following:

●

Net interest income for

the year ended December

31, 2021 was $729.9

million, compared to $600.3

million for the year ended

December

31,

2020.

The increase

was driven

a $5.1

billion

increase

average

interest-earning

assets reflecting

the

late

third-quarter 2020 acquisition

of BSPR, as well

as higher investment

securities and interest-bearing

cash balances and

a lower

cost

deposits.

The

increase

net

interest

income

additionally

includes

the

effect

approximately

$13.2

million

accelerated

deferred

PPP loans

fees

recognized

upon receipt

of forgiveness

payments from

the SBA.

These variances

were

partially offset by the effect of lower market

interest rates on investment yields.

The net

interest margin

decreased by

42 basis

points to

3.73% for

the year

ended December

31, 2021,

compared to

4.15% for

the

year ended

December 31,

2020. The decrease

reflected the impact

of lower

interest rates and

changes in the

balance sheet mix

with a

higher

proportion

lower-yielding

assets,

such

interest-bearing

cash

deposited

the

New

York

Fed

and

investment

securities

from continued

strong deposit growth,

to total interest-earning

assets. The total

average balance

of interest-bearing

cash balances and

investment securities

increased by $3.8 billion

to 42% of

total average interest-earning

assets, compared to

30% in 2020.

In addition,

the proportion

of average

total loan

portfolio balance

to total

average interest-earning

assets in

2021 decreased

to 58%,

compared to

70% in 2020.

See “Net Interest Income” below for additional information.

●

The

provision

for

credit losses

loans,

finance

leases, and

debt

securities

decreased

by $236.7

million

a net

benefit,

provision

recapture,

of $65.7

million

for

the year

ended

December

31,

2021,

compared

to an

expense

of $171.0

million

for

2020. The

variance reflects

the effect

of reserve

releases in

2021, primarily

due to

continued improvements

in the

outlook of

certain

macroeconomic

variables

and

lower

loans

outstanding.

The

expense

recorded

2020

included

the

effects

significant

reserve

builds due

to the

deterioration

of the

macroeconomic

outlook

as a

result of

the impact

of the

COVID-19

pandemic,

well

charge

$38.9

million

to the

Day

reserves

required

the

current

expected

credit

losses

(“CECL”) methodology

for non-PCD

loans and

unfunded lending

commitments acquired

in conjunction

with the

acquisition

of BSPR.

Net

charge-offs

totaled

$55.1

million

for

the

year

ended

December

31,

2021,

0.48%

average

loans,

increase

$7.2

million,

compared

to net

charge-offs

$47.9 million,

or 0.48%

of average

loans, for

the year

ended December

31, 2020.

Total

net

charge-offs for

the year ended

December 31,

2021 included $23.1

million in net

charge-offs related

to a bulk

sale of $52.5

million of

residential mortgage

nonaccrual loans and

related servicing advance

receivables.

Adjusted for those

net charge-offs,

total net charge-

offs

in 2021

were $32.0

million, or

0.28% of

average loans.

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

$121.2 million

for the

year ended

December 31,

2021, compared

to $111.2

million

for

2020.

The

increase

was

primarily

to:

(i)

$21.6

million

total

increase

transactional

fee

income

from

service

charges

and

fees

deposits,

ATMs

fees,

credit,

and

debit

cards

and

POS

interchange

fees,

and

merchant-related

activities due

to the

effect

of the

BSPR acquisition

as well

as increased

transaction volumes

due to

the adverse

effect

of the

COVID-19 pandemic and related stay-at-home orders

on economic activity in the first half of 2020; (ii)

a $2.9 million increase

revenues

from

mortgage

banking

activities

reflecting

both a

higher volume

of loan

sales and

increase

servicing

fee

income; and (iii)

a $2.6 million increase

in insurance commissions

income driven by

a higher volume of

loan originations and

higher sell of annuities and accidental death policies.

These variances were partially offset

by: (i) a $13.2 million gain on sales

of investment securities recorded in 2020; and (ii) a $5.0

million benefit recorded in 2020 resulting from

the final settlement of

the Corporation’s

business interruption

insurance

claim associated

with lost

profits

caused

Hurricanes Irma

and Maria

2017. See “Non-Interest Income” below for additional information.

●

Non-interest expenses

for the year

ended December 31,

2021 were

$489.0 million, compared

to $424.2 million

in 2020. Non-

interest

expenses

for

2021

included

$26.4

million

merger

and

restructuring

costs

associated

with

the

acquisition

and

integration

BSPR, compared

$26.5

million

2020.

Total

non-interest

expenses

2021

also

included

$3.0

million

COVID-19

pandemic-related

expenses,

primarily

additional

cleaning,

safety

materials,

and

security

measures,

compared to

$5.4 million

in 2020.

Total

non-interest expenses

in 2020

are also

net of

a $1.2

million benefit

from hurricane-

related expenses

insurance recoveries.

Adjusted for

the above-mentioned

merger,

COVID-19 expenses,

and hurricane-related

expenses insurance

recoveries, total

non-interest expenses

increased by

$66.1 million

compared to

2020, primarily

related to

incremental expenses

associated with

operations, personnel

and branches

acquired from

BSPR.

See “Non-Interest

Expenses”

below for additional information.

●

For the year ended December 31,

2021, the Corporation recorded an

income tax expense of $146.8 million,

compared to $14.1

million for 2020.

The increase was primarily

related to higher

pre-tax income driven

by credit losses reserve

releases in 2021,

compared to

significant charges

to the provision

recorded during

2020, and a

higher level of

taxable income.

In addition,

the

income tax expense

reported in 2020

was net of

the effect

of an $8.0

million partial reversal

of the Corporation’s

deferred tax

asset valuation allowance.

●

As of December

31, 2021, total

assets were approximately

$20.8 billion,

an increase of

$2.0 billion from

December 31, 2020.

The

increase

was

primarily

$1.8

billion

increase

investment

securities,

driven

purchases

U.S.

agencies

MBS and U.S. agencies callable

and bullet debentures, and an increase

of $1.0

billion in cash and cash equivalents

attributable

to the liquidity obtained

from the growth in deposits

and loan repayments.

These variances were partially

offset by a decrease

of $731.8

million in total

loans, consisting of

a $558.2

million decrease

in residential mortgage

loans (including

as a result

the

bulk

sale

$52.5

million

nonaccrual

loans),

and

$452.0

million

decrease

commercial

and

construction

loans

(including

$260.9

million

decrease

the

SBA

PPP

loan

portfolio),

partially

offset

increase

$278.4

million

consumer loans and finance leases.

See “Financial Condition and Operating Data Analysis” below for

additional information.

●

December

31,

2021,

total

liabilities

were

$18.7

billion,

increase

$2.2

billion

from

December

31,

2020.

The

increase

was

mainly

driven

$2.6

billion

growth

total

deposits,

excluding

brokered

deposits,

partially

offset

the

repayment at maturity of $240.0 million of FHLB advances and a

$93.8 million decrease in brokered deposits.

The increase of

$2.6 million

in non-brokered

deposits included

a $1.6

billion growth

in demand

deposits, as

well as

a $1.2

billion growth

government

deposits,

partially

offset

reductions

time

deposits.

See

“Risk

Management

–

Liquidity

Risk

and

Capital

Adequacy” below for additional information about the Corporation’s

funding sources.

●

December

31,

2021,

the

Corporation’s

stockholders’

equity

was

$2.1

billion,

decrease

$173.4

million

from

December

31,

2020.

The

decrease

was

driven

the

approximately

$317.8

million

capital

returned

the

Corporation’s

stockholders during 2021

consisting of: (i) the repurchase

of 16.7 million shares

of common stock for

a total purchase price of

approximately $213.9 million; (ii) common and preferred

stock dividends totaling $67.8 million; and (iii) the redemption of

all

of its outstanding

shares of Series A

through E Preferred

Stock for its total

liquidation value of

$36.1 million. The

decrease in

total

stockholders’

equity

also

included

the

effect

$139.5

million

decrease

Other

Comprehensive

Income

mostly

attributable to

the decrease

in the

fair value

of available-for-sale

investment securities.

These variances

were partially

offset

by earnings generated

during 2021.

The Corporation

increased

its common

stock dividend twice

during 2021, increasing

the

quarterly

dividend rate

from $0.05

in the

fourth quarter

of 2020

to $0.07

in the

first quarter

of 2021

and $0.10

in the

fourth

quarter of

2021.

The Corporation’s

common

equity tier

1 (“CET1”)

capital, tier

1 capital,

total capital

and leverage

ratios

were 17.80%, 17.80%,

20.50%, and 10.14%,

respectively,

as of December

31, 2021, compared

to CET1 capital,

tier 1 capital,

total capital,

and leverage ratios

of 17.31%, 17.61%,

20.37%, and 11.26%,

respectively,

as of December

31, 2020.

See “Risk

Management – Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments, but excluding

the utilization activity

on outstanding

credit cards,

was $4.8 billion

for the

year ended

December

31, 2021, compared to $4.2 billion for 2020.

As mentioned above, the Corporation originated

$283.6

million of SBA PPP loans

during 2021, compared to $390.3 million in 2020.

In addition, during the year ended December 31,

2020, the Corporation also

participated in

the Main

Street Lending

Program (“Main

Street”) and

originated approximately $184.4

million of

Main Street

loans.

This program, authorized under

the CARES Act of 2020 and established

by the Federal Reserve, was designed

to support

lending

small

and

medium-sized

businesses

that

were

sound

financial

condition

before

the

onset

the

COVID-19

pandemic. Excluding

SBA PPP

and Main

Street loan

originations, total

loan originations

increased by

$940.9 million

to $4.5

billion in 2021,

compared to $3.6

billion for 2020,

consisting of: (i)

a $510.9

million increase in

commercial and construction

loan originations,

primarily in

the Florida

region; (ii)

a $366.7

million increase

in consumer

loan originations,

predominantly

auto loans and finance leases, reflecting the effect of the disruptions caused by the COVID-19 pandemic-related lockdowns and

quarantines;

and

(iii)

$63.3

million

increase

residential

mortgage

loan

originations,

benefited

from

larger

volume

conforming loan

originations and

refinancings driven

by the

effect

of lower

mortgage loan

interest rates

and increased

home

purchase activity during 2021.

●

Total

non-performing

assets

were

$158.1

million

December

31,

2021,

decrease

$135.4

million,

46%,

from

December

31,

2020.

The

decrease

was

primarily

to:

(i)

$70.2

million

decrease

nonaccrual

residential

mortgage

loans, primarily

as a

result of

the bulk

sale of

$52.5

million of

nonaccrual loans;

(ii) a

$42.2

million decrease

in the

OREO

portfolio balance, including the sale

of two commercial OREO

properties in the Puerto

Rico region totaling $30.7 million;

(iii)

$18.3

million

decrease

nonaccrual

commercial

and

construction

loans;

and

(iv)

$5.8

million

decrease

nonaccrual

consumer loans and finance leases.

See “Risk Management – Non-Accruing and Non-Performing Assets” below for additional

information.

●

Adversely classified commercial and construction loans increased by $22.1 million to $177.3 million as of

December 31, 2021,

compared to

December 31,

2020. The

increase was

driven by

the downgrade

of four

commercial relationships

totaling $76.5

million. Partially offset by the upgrades

of two commercial relationship in the Puerto

Rico region totaling $31.3 million,

the sale

of $3.1

million construction

loan in

the Puerto

Rico region

and the

sale of

a $15.1

million classified

commercial loan

in the

Florida

region.

The

Corporation

closely

monitoring

its

loan

portfolio

identify

potential

at-risk

segments,

payment

performance,

the

need

for

permanent

modifications,

and

the

performance

different

sectors

the

economy

all

the

markets where the Corporation

operates.

The Corporation’s

financial results for

2021

and 2020 included

the following items

that management believes

are not reflective

core

operating

performance,

are

not

expected

reoccur

with

any

regularity

may

reoccur

uncertain

times

and

uncertain

amounts (the “Special Items”):

Year

ended December 31, 2021

●

Merger and restructuring

costs of $26.4

million ($16.5 million

after-tax) in connection

with the BSPR acquisition

integration

process

and

restructuring

initiatives.

Merger

and

restructuring

costs

2021

included

approximately

$6.5

million

related to

the previously

announced Employee

Voluntary

Separation Program

(the “VSP”)

as well

as involuntary

separation

actions

implemented

the

Puerto

Rico

region.

addition,

these

costs

included

costs

system

conversions,

accelerated

depreciation

charges

planned

closures

and

consolidation

branches

accordance

with

the

Corporation’s integration

and restructuring plan, and other integration related efforts.

●

Costs

$3.0

million

($1.9

million

after-tax)

the

COVID-19

pandemic

response

efforts,

consisting

primarily

costs related to additional cleaning, safety materials, and security measures.

Year

ended December 31, 2020

●

Merger

and

restructuring

costs

$26.5

million

($16.6

million

after-tax)

connection

with

the

acquisition

BSPR

and

restructuring

initiatives.

Merger

and

restructuring

costs

2020

primarily

included

consulting,

legal,

valuation,

and

other

professional

service

fees

associated

with

the

acquisition,

VSP

offered

eligible

employees,

retention

and

other

compensation bonuses, and expenses related to system conversions

and other integration-related efforts.

●

Gain on

sales of

U.S. agencies

MBS and

U.S Treasury

notes of

$13.2 million.

The gain

on tax-exempt

securities or

realized

at the tax-exempt international banking entity subsidiary level had

no effect on the income tax expense recorded in 2020.

●

Tax benefit of $8.0 million

related to the partial reversal of the deferred tax asset valuation allowance.

●

Costs of

$5.4 million

($3.4 million

after-tax)

related to

the COVID-19

pandemic response

efforts,

primarily costs

related to

additional cleaning, safety materials, and security measures.

●

Gain of $0.1

million realized on

the repurchase

of $0.4 million

of trust-preferred

securities (“TRuPs”).

The gain,

realized at

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

in 2020.

●

Benefit

$6.2

million

($3.8

million

after-tax)

from

insurance

recoveries.

Insurance

recoveries

2020

included

$5.0

million benefit related

to the final

settlement of the

Corporation’s

business interruption

insurance claim related

to lost profits

caused by Hurricanes Irma and Maria in 2017.

The following

table reconciles

for 2021

and 2020

the reported

net income

to adjusted

net income,

a non-GAAP

financial measure

that excludes the Special Items identified above:

Year

Ended December 31,

2021

2020

(In thousands)

Net income, as reported (GAAP)

281,025

102,273

Adjustments:

Merger and restructuring costs

26,435

26,509

Gain on sales of investment securities

(13,198)

Partial reversal of deferred tax asset valuation allowance

(8,000)

COVID-19 pandemic-related expenses

2,958

5,411

Gain on early extinguishment of debt

(94)

Benefit from hurricane-related insurance recoveries

(6,153)

Income tax impact of adjustments

(1)

(11,023)

(9,663)

Adjusted net income (Non-GAAP)

299,395

97,085

(1)

See "Basis of Presentation" below for the individual tax impact related

to reconciling items

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

accounting

principles

of 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.

The

Corporation’s

critical

accounting

estimates

that

are

particularly

susceptible

significant

changes

include:

(i)

the

ACL;

(ii)

valuation

financial

instruments;

(iii)

acquired

loans;

and

(iv)

income

taxes.

Actual

results could differ from estimates and assumptions if

different outcomes or conditions prevail.

Allowance for Credit Losses

The Corporation

maintains an ACL

for loans

and finance

leases based upon

management’s

estimate of the

lifetime expected

credit

losses in the loan portfolio, as of the balance sheet date,

excluding loans held for sale. Additionally,

the Corporation maintains an ACL

for

debt

securities

classified

either

held-to-maturity

available-for-sale,

and

other

off-balance

sheet

credit

exposures

(

e.g.

, unfunded

loan commitments).

For loans

and

finance leases,

unfunded

loan

commitments, and

held-to-maturity

debt

securities,

the

estimate

lifetime

credit

losses

includes

the

use

quantitative

models

that

incorporate

forward-looking

macroeconomic

scenarios

that

are

applied

over

the

contractual

lives

the

portfolios,

adjusted,

appropriate,

for

prepayments

and

permitted

extension

options

using

historical

experience.

The

ACL

for

available-for-sale

debt

securities

measured

using

risk-adjusted

discounted cash flow

approach that also

considers relevant current

and forward-looking economic

variables and the

ACL is limited to

the difference

between the

fair value

the security

and its

amortized

cost. Judgment

is specifically

applied

in the

determination of

economic assumptions, the length of

the initial loss forecast period, the

reversion of losses beyond the initial

forecast period, historical

loss expectations, usage of macroeconomic

scenarios, and qualitative factors, which may

not be adequately captured in the

loss model,

as further discussed below.

The macroeconomic

scenarios utilized by

the Corporation include

variables that have

historically been key

drivers of increases and

decreases

credit

losses.

These

variables

include,

but

are

not

limited

to,

unemployment

rates,

housing

and

commercial

real

estate

prices, gross domestic

product levels, retail

sales, interest-rate forecasts,

corporate bond spreads,

and changes in

equity market prices.

The

Corporation

derives

the

economic

forecasts

uses

its

ACL

model

from

Moody's

Analytics.

The

latter

has

large

team

economists, data-base managers and operational engineers with a history

of producing monthly economic forecasts for over 25 years.

As of December 31, 2021, the Corporation used

the base-case economic scenario from Moody’s

Analytics in its estimation of credit

losses. The Corporation

has currently set

an initial forecast

period (“reasonable

and supportable

period”) of two

years and a

reversion

period of up to three

years, utilizing a straight-line

approach and reverting back

to the historical macroeconomic

mean for Puerto Rico

and the Virgin

Islands regions. For the

Florida region, the methodology

considers a reasonable and

supportable forecast period

and an

implicit

reversion

towards

the historical

trend

that

varies for

each

macroeconomic

variable,

achieving

the steady

state by

year

five.

After the

reversion period,

a historical

loss forecast

period covering

the remaining

contractual life,

adjusted for

prepayments, is

used

based

the

change

key

historical

economic

variables

during

representative

historical

expansionary

and

recessionary

periods.

Changes in economic forecasts impact

the probability of default (“PD”),

loss-given default (“LGD”), and

exposure at default (“EAD”)

for each instrument,

and therefore influence

the amount of

future cash flows

for each instrument

that the Corporation

does not expect

to collect.

Although

one

economic

variable

can

fully

demonstrate

the

sensitivity

the

ACL

calculation

changes

the

economic

variables

used

the

model,

the

Corporation

has

identified

certain

economic

variables

that

have

significant

influence

the

Corporation’s

model

for

determining

the

ACL.

December 31,

2021,

the

Corporation’s

ACL

model

considered

the

following

assumptions for key economic variables in the base-case scenario:

●

Average

Commercial

Real Estate

Price Index

year-over-year

appreciation

of approximately

2.90%

in the

first quarter

2022,

followed

increases

ranging

from

0.52%

–

5.16%

during

the

remainder

2022.

The

average

projected

commercial real estate price index appreciation for 2023 is forecasted

at 8.68%.

●

Regional Home

Price Index

in Puerto Rico

(purchase only

prices), year-over-year

increase of

approximately 1.59%

in the

first quarter of 2022,

followed by estimates ranging

from (0.53)% - 2.77%

during the remainder of

2022 and 2023. For the

Florida region

(all transactions, including

refinances), year-over-year

increase of approximately

8.11%, in

the first quarter

2022,

followed

estimates

ranging

from

(2.42)%

–

2.18%

for

the

Florida

region

during

the

remainder

of 2022

and

2023.

●

Levels

regional

unemployment

Puerto

Rico

approximately

7.60%

the

first

quarter

2022,

followed

improvements

throughout

the

remainder

2022

approximate

level

7.32%

the

end

2022.

For

the

Florida

region and the

U.S. mainland, unemployment

rate of 3.71% and

4.07%, respectively,

in the first

quarter of 2022,

followed

by modest improvements

throughout the

remainder of 2022

to an approximate

level of 2.81%

in Florida and

3.51% in the

U.S. mainland by

the end of

2022. The average

unemployment for the

Puerto Rico, Florida

and the U.S.

mainland regions

for 2023 is forecasted at 7.60%, 2.88%,

and 3.49%, respectively.

●

A year-over-year increase in real gross domestic

product (“GDP”) in the U.S. mainland of approximately 5.33%

in the first

quarter of

2022, followed

by increasing

levels of real

GDP growth

between 2.74%

– 4.54% during

the remainder

of 2022

and 2023.

Further,

the

Corporation

periodically

considers

the

need

for

qualitative

adjustments

the

ACL.

Qualitative

adjustments

may

related to and include, but not be limited to, factors

such as: (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

credit

concentrations,

collateral

specific

risks,

nature,

and

size

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

qualitative factors

that carried the

most significant

weight as of

December 31,

2021 were

the economic

uncertainty

the

recent

strain

the

COVID-19

virus

and

the

potential

lag

recovery

certain

industries,

such

the

transportation

and hospitality

industries,

and loan

modifications related

to commercial

real estate

loans as

a result

of the

COVID-19

situation. The

qualitative factors

applied at

December 31,

2021, and

the importance

and levels of

the qualitative

factors applied,

may

change in future periods

depending on the level

of changes to items such

as the uncertainty of

economic conditions and management's

assessment of

the level of

credit risk within

the loan portfolio

as a result

of such changes,

compared to the

amount of ACL

calculated

by the model. The evaluation of qualitative factors is inherently imprecise

and requires significant management judgment.

The ACL can also be

impacted by factors outside the Corporation’s

control, which include unanticipated

changes in asset quality of

the portfolio, such as increases in risk rating downgrades in our

commercial portfolio, deterioration in borrower delinquencies or credit

scores in our residential real estate and consumer portfolio.

Further, the current fair value of

collateral is utilized to assess the expected

credit losses when a financial asset is considered to be collateral dependent.

difficult

estimate

how

potential

changes

any

one

factor

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

the

same

rate

and

may

not

consistent

across

all

geographies

product

types,

and

changes

factors

and

inputs

may

directionally

inconsistent, such

that improvement

in one

factor or

input may

offset

deterioration

in others.

However,

to demonstrate

the

sensitivity

credit

loss

estimates

macroeconomic

forecasts

December

31,

2021,

management

compared

the

modeled

estimates under the base scenario against a more

adverse scenario. Under this adverse scenario,

as an example, average unemployment

rate for

the Puerto

Rico region increases

to 8.75%

for year 2022

and 8.24% dur

ing 2023 compared

to 7.38% and

7.60%, respectively

for the same periods, on the base scenario projection.

demonstrate the sensitivity

to key economic

parameters used in

the calculation of

our ACL at December

31, 2021, management

calculated the difference

between our quantitative

ACL and this adverse

scenario. Excluding consideration

of qualitative adjustments,

this sensitivity analysis

would result in

a hypothetical increase

in our ACL

of approximately $40

million at December

31, 2021.

This

analysis

relates

only

the

modeled

credit

loss estimates

and

is not

intended

to estimate

changes

the overall

ACL as

it does

not

reflect

any

potential

changes

other

adjustments

the

qualitative

calculation,

which

would

also

influenced

the

judgment

management

applies to

the modeled

lifetime

loss estimates

to reflect

the uncertainty

and imprecision

of these

modeled

lifetime loss

estimates

based

current

circumstances

and

conditions.

Recognizing

that

forecasts

macroeconomic

conditions

are

inherently

uncertain,

particularly

light

the

recent

economic

conditions,

management

believes

that

its

process

consider

the

available

information

and

associated

risks

and

uncertainties

appropriately

governed

and

that

its

estimates

expected

credit

losses

were

reasonable and appropriate for the period ended December 31, 2021.

As of

December 31,

2021, the

total ACL

for loans,

held-to-maturity and

available-for-sale

securities, and

off-balance

sheet credit

exposure decreased to $280.2

million, from $401.1 million

as of December 31, 2020.

The ACL reduction of

$120.9 million during the

year

ended

December

31,

2021

consisted

net

charge-offs

$55.2

million

and

provision

for

credit

losses

net

benefit

$65.7

million.

The

provision

for

credit

losses

net

benefit

recorded

during

2021

primarily

reflects

improvement

the

outlook

macroeconomic

variables

which

the

reserve

correlated,

including

improvements

the

commercial

real

estate

price

index

and

unemployment rate forecasts, and the overall decrease

in the size of the residential mortgage and the commercial and construction

loan

portfolios.

Our

process

for

determining

the

ACL

further

discussed

Note

–

Nature

Business

and

Summary

Significant

Accounting Policies, to the

accompanying audited consolidated financial

statements included in Item 8

of this Annual Report on Form

10-K.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The Corporation

holds debt

and equity

securities, derivatives,

and other

financial instruments

at fair

value. The

Corporation holds

its

investments

and

liabilities

mainly

to manage

liquidity

needs and

interest rate

risks.

The Corporation’s

significant

assets reflected

fair value on the Corporation’s financial

statements consisted of available-for-sale investment

securities.

The

Corporation

categorizes

the

fair

value

its

available-for-sale

debt

securities

using

three-level

hierarchy

for

fair

value

measurements

that

distinguishes

between

market

participant

assumptions

developed

based

market

data

obtained

from

sources

independent

the

Corporation

(observable

inputs)

and

the

Corporation’s

own

assumptions

about

market

participant

assumptions

developed

based

the

best

information

available

the

circumstances

(unobservable

inputs).

The

hierarchy

inputs

used

determining

the

fair

value

maximizes

the

use

observable

inputs

and

minimizes

the

use

unobservable

inputs

requiring

that

observable inputs be

used when available.

The hierarchy level assigned

to each security

in the Corporation’s

investment portfolio was

based on management’s

assessment of the transparency and reliability of the

inputs used to estimate the fair values at the measurement

date. See Note 30

– Fair Value,

to the audited consolidated

financial statements included

in Item 8 of

this Annual Report on

Form 10-

K for additional

information.

The fair

value of

available-for-sale investment

securities was

the market

value based

on quoted

market prices

(as is

the case

with

U.S. Treasury

notes), when

available (Level

1). If

quoted market

prices are

unavailable, the

fair value

is based

on market

prices for

identical

comparable

assets

(as

the

case

with

MBS

and

callable

U.S.

agency

debt)

that

are

based

observable

market

parameters,

including

benchmark

yields,

reported

trades,

quotes

from

brokers

dealers,

issuer

spreads,

bids,

offers,

and

reference

data, including

market research

operations (Level

2). Observable

prices in

the market

already consider

the risk

of nonperformance.

listed prices or

quotes are not

available, fair value

is based upon

discounted cash

flow models that

use unobservable

inputs due to

the

limited market activity of the instrument, as is the case with private label

MBS held by the Corporation (Level 3).

Private label MBS

are collateralized

by fixed-rate

mortgages on single-family

residential properties

in the U.S.;

the interest rate

the securities is variable,

tied to 3-month LIBOR

and limited to the

weighted-average coupon of

the underlying collateral.

The market

valuation represents

the estimated

net cash

flows over

the projected

life of

the pool

of underlying

assets applying

a discount

rate that

reflects market

observed floating

spreads over

LIBOR, with

a widening

spread based

on a nonrated

security.

The market

valuation is

derived

from

model

that

utilizes

relevant

assumptions

such

the

prepayment

rate,

default

rate,

and

loss

severity

loan

level

basis. The

Corporation modeled

the cash

flow from

the fixed-rate

mortgage collateral

using

a static

cash flow

analysis according

collateral attributes

of the

underlying mortgage

pool (

i.e.

, loan

term, current

balance, note

rate, rate

adjustment type,

rate adjustment

frequency,

rate

caps,

and

others)

combination

with

prepayment

forecasts

based

historical

portfolio

performance.

The

Corporation models the variable cash flow of the security using the 3-month

LIBOR forward curve.

Under

ASC 326,

adopted on

January

1, 2020,

declines in

fair value

that are

credit-related are

now recorded

on the

balance sheet

through

ACL

with

corresponding

adjustment

earnings

and

declines

that

are

noncredit-related

are

recognized

through

other

comprehensive income/loss.

If the

Corporation intends

to sell a

debt security

in an

unrealized loss

position or

determines that

it is more

likely than

not that

the

Corporation

will be

required

to sell

a debt

security before

it recovers

its amortized

cost basis,

the debt

security is

impaired

and it

written down to fair

value with all losses recognized

in earnings.

As of December 31, 2021,

the Corporation did not

intend to sell any

debt securities

in an

unrealized

loss position

and it

is not

more likely

than not

that the

Corporation

will be

required to

sell any

debt

securities before recovery of their amortized cost basis.

For

debt

securities

an unrealized

loss position

for

which the

Corporation

does not

intend

to sell

the debt

security

and

it is

not

more likely than

not that the

Corporation will

be required to

sell the debt

security,

the Corporation determines

whether the loss

is due

credit-related

factors

noncredit-related

factors.

For

debt

securities

unrealized

loss

position

for

which

the

losses

are

determined to

be the result

of both credit

-related and noncredit-related

factors, the

credit loss is

determined as

the difference

between

the present value of the cash flows expected to be collected, and the amortized

cost basis of the debt security.

Available-for-sale

debt securities

held by

the Corporation

at year-end

primarily consisted

of securities

issued by

U.S. government-

sponsored entities

(“GSEs”), and

the aforementioned

private label

MBS.

Given the

explicit and

implicit guarantees

provided by

the

U.S. federal government, the Corporation believes the credit risk

in securities issued by the GSEs is low.

For the year ended December

31,

2021,

the

Corporation

determined

the

credit

losses

for

private

label

MBS

based

risk-adjusted

discounted

cash

flow

methodology

that

considers

qualitative

and

quantitative

factors

specific

the

instruments,

including

PDs

and

LGDs

that

consider,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables,

such

regional

unemployment

rates

and

the

housing

price

index

obtained

from

the

economic

scenarios

described in the ACL discussion above.

The

Corporation

recognized

provision

benefit

available-for-sale

debt

securities,

$0.1 million

during

the

year

ended

December 31, 2021, compared to $1.6 million provision expense for

the year ended December 31, 2020.

Acquired Loans

Loans

acquired

through

purchase

business

combination

are

recorded

their

fair

value

the

acquisition

date.

The

acquisition method

of accounting

allows for

a measurement

period to

make adjustments

to an

acquisition for

up to

one year

after the

acquisition date

for new

information that

existed at

the acquisition

date but

may not

have been

known or

available at

that time.

The

Corporation

performs

assessment

acquired

loans

first

determine

such

loans

have

experienced

than

insignificant

deterioration

in credit

quality since

their origination

and thus

should be

classified and

accounted

for as

purchased credit

deteriorated

(“PCD”) loans. For loans that

have not experienced

more than insignificant deterioration

in credit quality since

origination, referred to

as non-PCD loans, the Corporation

records such loans at fair

value, with any resulting

discount or premium accreted

or amortized into

interest income

over the

remaining life

of the

loan using

the interest

method. Additionally,

upon the

purchase or

acquisition of

non-

PCD loans,

the

Corporation

measures

and

records

ACL based

the Corporation’s

methodology

for

determining

the

ACL.

The

ACL for non-PCD loans is recorded through a charge

to the provision for credit losses in the period in which

the loans were purchased

or acquired.

Acquired loans that

are classified as

PCD are recognized

at fair value.

The ACL estimated

for PCD loans

as of the acquisition

date

is recorded

as a gross

-up of

the loan balance

and the ACL.

Any remaining

discount or

premium after

the gross-up

is then recognized

as an

adjustment to

yield over

the remaining

life of

the loan.

After the

acquisition date,

the accounting

for acquired

loans and

leases,

including

PCD

and

non-PCD

loans,

follows

the

same

accounting

guidance

loans

and

leases

originated

the

Corporation.

Characteristics

relevant

the

classification

PCD

loans

include:

delinquency,

payment

history

since

origination,

credit

scores

migration, and/or

other factors

the Corporation

may become

aware of

through its

initial analysis

of acquired

loans that

may indicate

there

has

been

than

insignificant

deterioration

credit

quality

since

loan’s

origination.

connection

with

the

BSPR

acquisition

September

2020,

the

Corporation

acquired

PCD

loans

and

non-PCD

loans

with

aggregate

fair

value

approximately $752.8 million and

$1.8 billion, respectively.

The fair value of the

loans acquired from BSPR was estimated

based on a

discounted

cash flow

method under

which the

present value

of the

contractual

cash flows

was calculated

based on

certain valuation

assumptions

such

default

rates,

loss

severity,

and

prepayment

rates,

consistent

with

the

Corporation’s

CECL

methodology,

and

discounted using a market

rate of return that accounts

for both the time value

of money and investment

risk factors.

The discount rate

utilized to analyze

fair value considered

the cost of funds

rate, capital charge,

servicing costs, and liquidity

premium, mostly based

industry

standards. For

further information,

refer to

Note 2

– Business

Combination

to the

audited consolidated

financial statements

included in Item 8 of this Annual Report on Form 10-K for additional information.

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,

“Loans and

Debt Securities

Acquired

with Deteriorated

Credit Quality”

(“ASC Subtopic

310-30”), the

Corporation adopted CECL using the prospective

transition approach. As allowed by CECL, the Corporation

elected to maintain pools

loans

accounted

for

under

ASC

Subtopic

310-30

as “units

accounts,”

conceptually

treating

each

pool

single

asset.

December

31,

2021,

such

PCD

loans

consisted

$115.1

million

residential

mortgage

loans

and

$2.4

million

commercial

mortgage loans acquired by

the Corporation as part

of previously completed asset

acquisitions. As the Corporation

elected to maintain

pools of units

of account for

loans previously accounted

for under ASC

Subtopic 310-30,

the Corporation

is not able

to remove loans

from the pools until they are paid off, written

off, or sold (consistent with the Corporation’s

practice prior to adoption of CECL), but is

required

to follow

CECL for

purposes

of the

ACL. Regarding

interest income

recognition for

PCD loans

that existed

at the

time of

adoption of

CECL, the prospective

transition approach

for PCD loans

required by

CECL was applied

at a 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

that

the

Corporation

has

elected

maintain

previously

existing

pools

pursuant

the

policy

election

right

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 for use in operations

or improving the

collateral

for

resale.

Thus,

the

Corporation

continues

exclude

these

pools

PCD

loans

from

nonaccrual

loan

statistics.

accordance

with

CECL,

the

Corporation

did

not

reassess

whether

modifications

individual

acquired

loans

accounted

for

within

pools were TDR as of the date of adoption.

Income Taxes

The Corporation is required to estimate income taxes in preparing

its consolidated financial statements. This involves the estimation

current

income

tax

expense

together

with

assessment

temporary

differences

between

the

carrying

amounts

assets

and

liabilities

for

financial

reporting

purposes

and

the

amounts

used

for

income

tax

purposes.

The

determination

current

income

tax

expense

involves

estimates

and

assumptions

that

require

the

Corporation

assume

certain

positions

based

its

interpretation

current tax regulations. Management assesses the relative benefits

and risks of the appropriate tax treatment of transactions, taking

into

account statutory,

judicial and regulatory

guidance, and recognizes

tax benefits

only when deemed

probable. Changes

in assumptions

affecting estimates

may be required

in the future

and estimated tax

liabilities may need

to be increased

or decreased accordingly.

The

Corporation

adjusts the

accrual of

tax contingencies

in light

of changing

facts and

circumstances, such

as the

progress of

tax audits,

case law

and emergi

ng legislation.

The Corporation’s

effective tax

rate includes

the impact

of tax

contingencies and

changes to

such

accruals,

considered

appropriate

management.

When

particular

tax

matters

arise,

number

years

may

elapse

before

such

matters are

audited by

the taxing

authorities and

finally resolved.

Favorable resolution

of such matters

or the

expiration of

the statute

of limitations may result in the release of tax contingencies that

the Corporation recognizes as a reduction to its effective

tax rate in the

year of resolution.

Unfavorable settlement

of any particular

issue could increase

the effective

tax rate and

may require the

use of cash

in the year of resolution.

The

determination

deferred

tax

expense

benefit

based

changes

the

carrying

amounts

assets

and

liabilities

that

generate

temporary differences.

The carrying

value

of the

Corporation’s

net deferred

tax asset

assumes

that the

Corporation

will be

able

generate

sufficient

future

taxable

income

based

estimates

and

assumptions.

these

estimates

and

assumptions

change, the

Corporation may

be required

to record valuation

allowances against

its deferred

tax assets, resulting

in additional

income

tax expense

in the

consolidated statements

of income.

Management evaluates

its deferred

tax assets

on a

quarterly basis

and assesses

the need

for a valuation

allowance, if any.

A valuation allowance

is established when

management believes

that it is

more likely

than

not that

some portion

of its

deferred tax

assets will

not be

realized. The

determination of

whether a

valuation allowance

for deferred

tax assets

is appropriate

is subject to

considerable judgment

and requires

the evaluation

of positive

and negative

evidence that

can be

objectively

verified.

Positive

evidence

necessary

overcome

the

negative

evidence

includes

whether

future

taxable

income

sufficient

amounts

and

character

within

the

carryforward

periods

is available

under

the tax

law.

Consideration

must

be given

all

sources

taxable

income,

including,

applicable,

the

future

reversal

existing

temporary

differences,

future

taxable

income

forecasts exclusive

of the

reversal of

temporary

differences and

carryforwards,

and tax

planning strategies.

When negative

evidence

(e.g.,

cumulative

losses

recent

years,

history

operating

loss

tax

credit

carryforwards

expiring

unused)

exists,

positive

evidence

than negative

evidence will

be necessary.

The Corporation

has concluded

that based

on the

level of

positive evidence,

it is

likely

than not

that the

deferred

tax asset

will be

realized,

net of

the existing

valuation allowances

at December

31,

2021 and

2020. However,

there is

no guarantee

that the

tax benefits

associated with

the deferred

tax assets

will be

fully realized.

The positive

evidence

considered by

management in

arriving at

its conclusion

included factors

such as:

FirstBank’s

four-year

cumulative income

position;

sustained

periods

profitability;

management’s

proven

ability

forecast

future

income

accurately

and

execute

tax

strategies; forecasts

of future

profitability

under several

potential scenarios

that support

the partial

utilization of

NOLs prior

to their

expiration

from

2022

through

2024;

and

the

utilization

NOLs

over

the

past

four-years.

The

negative

evidence

considered

management

included:

uncertainties

about

the

state

the

Puerto

Rico

economy,

including

considerations

relating

the

effect

hurricane and pandemic

recovery funds together

with Puerto Rico government

debt restructuring and

the ultimate sustainability

of the

latest fiscal plan certified by the PROMESA oversight board.

Refer to Note

28 - Income

Taxes,

to the audited

consolidated financial

statements included

in Item 8

of this Form

10-K for further

information related to Income Taxes.

OTHER ESTIMATES

In addition

to the

critical accounting

estimates we

make in connection

with the

ACL, fair

value measurements,

and the accounting

for income taxes,

goodwill and identifiable

intangible assets, pension

and postretirement benefit

obligations, and provisions

for losses

that

may

arise

from

litigation

and

regulatory

proceedings

(including

governmental

investigations)

are

also

based

estimates

and

assumptions.

Goodwill is assessed

for impairment

annually in the

fourth quarter or

more frequently

if events occur

or circumstances change

that

indicate an

impairment may

exist. When

assessing goodwill

for impairment,

first, a

qualitative assessment

can be

made to

determine

whether it is more

likely than not that

the estimated fair value

of a reporting unit

is less than its estimated

carrying value. If the results

of the

qualitative assessment

are not

conclusive, a

quantitative goodwill

test is

performed. Alternatively,

a quantitative

goodwill test

can

performed

without

performing

qualitative

assessment.

Identifiable

intangible

assets

are

tested

for

impairment

whenever

events or

changes in

circumstances suggest

that an

asset’s

or asset

group’s

carrying value

may not

be fully

recoverable. Judgment

required

evaluate

whether

indications

potential

impairment

have

occurred,

and

test

intangible

assets

for

impairment,

required. The

amortization of identified

intangible assets recognized

in a business

combination is based

upon the

estimated economic

benefits

received

over

their

economic

life,

which

also

subjective.

Customer

attrition

rates

that

are

based

historical

experience

are

used

determine

the

estimated

economic

life

certain

intangibles

assets,

including

but

not

limited

to,

customers

deposit intangible.

See Note 1 –

Nature of Business

and Summary

of Significant Accounting

Policies, Note 2

– Business Combination

and Note 14

–

Goodwill and Other Intangibles, to the audited consolidated

financial statements included in Item 8 of this Annual

Report on Form 10-

K for further information

about goodwill and identifiable

intangible assets, including intangible

assets recorded in connection

with the

acquisition of BSPR.

As part of the BSPR acquisition,

the Corporation maintains two frozen

qualified noncontributory defined benefit

pension plans, and

a related

complementary post-retirements

benefits plan

covering medical

benefits and

life insurance

after retirement.

Calculation of

the

obligations

and

expenses

under

these

plans

requires

the

use

actuarial

valuation

methods

and

assumptions,

which

are

subject

management

judgment

and

may

differ

different

assumptions

are

used.

See

Note

–

Employee

Benefit

Plans,

the

audited consolidated financial

statements included in

Item 8 of this

Annual Report on

Form 10-K for disclosures

related to the benefit

plans.

As necessary,

also estimate

and

provide

for potential

losses that

may

arise out

of litigation

and

regulatory

proceedings to

the

extent

that

such losses

are

probable

and

can be

reasonably

estimated.

Judgment

is required

in making

these

estimates

and

our

final

liabilities

may

ultimately

materially

different.

Our

total

estimated

liability

respect

litigation

and

regulatory

proceedings

determined

on a case-by-case

basis and

represents an

estimate of

probable losses

after considering,

among other

factors, the

progress

of each

case, proceeding

or investigation,

our experience

and the

experience of

others in

similar cases,

proceedings or

investigations,

and the opinions and views of legal counsel.

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 of

the Corporation’s

assets and

liabilities.

Net interest

income for

the year

ended December

31, 2021

was $729.9

million,

compared to $600.3

million for 2020.

On a tax-equivalent basis

and excluding the

changes in the fair

value of derivative instruments,

net

interest

income

for

the

year

ended

December

31,

2021

was

$753.7

million

compared

$621.4

million

for

the

year

ended

December 31, 2020.

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

in the

fair

value

derivative

instruments

is a

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

"Basis

Presentation" below.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Year Ended December

31,

2021

2020

2021

2020

2021

2020

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

2,012,617

1,258,683

2,662

3,388

0.13

0.27

Government obligations

(2)

2,065,522

878,537

27,058

21,222

1.31

2.42

MBS

4,064,343

2,236,262

57,159

48,683

1.41

2.18

FHLB stock

28,208

32,160

1,394

1,959

4.94

6.09

Other investments

10,254

6,238

0.59

0.66

Total investments

(3)

8,180,944

4,411,880

88,334

75,293

1.08

1.71

Residential mortgage loans

3,277,087

3,119,400

177,747

166,019

5.42

5.32

Construction loans

181,470

168,967

12,766

9,094

7.03

5.38

Commercial and Industrial and Commercial Mortgage loans

5,228,150

4,387,419

261,333

214,830

5.00

4.90

Finance leases

518,757

440,796

38,532

32,515

7.43

7.38

Consumer loans

2,207,685

1,952,120

239,725

216,263

10.86

11.08

Total loans

(4)(5)

11,413,149

10,068,702

730,103

638,721

6.40

6.34

Total interest-earning assets

19,594,093

14,480,582

818,437

714,014

4.18

4.93

Interest-bearing liabilities:

Interest-bearing checking accounts

3,667,523

2,197,980

5,776

5,933

0.16

0.27

Savings accounts

4,494,757

3,190,743

6,586

11,116

0.15

0.35

Retail certificates of deposit ("CDs")

2,636,303

2,741,388

26,138

43,350

0.99

1.58

Brokered CDs

141,959

357,965

2,982

7,989

2.10

2.23

Interest-bearing deposits

10,940,542

8,488,076

41,482

68,388

0.38

0.81

Loans payable

8,415

0.25

Other borrowed funds

484,244

475,492

15,098

13,000

3.12

2.73

FHLB advances

354,055

505,478

8,199

11,251

2.32

2.23

Total interest-bearing liabilities

11,778,841

9,477,461

64,779

92,660

0.55

0.98

Net interest income on a tax-equivalent

basis and excluding valuations

753,658

621,354

Interest rate spread

3.63

3.95

Net interest margin

3.85

4.29

(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

fully

tax-equivalent

basis.

Therefore,

management

believes

these

measures

provide

useful

information

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.

(2)

Government obligations include debt issued by government-sponsored

agencies.

(3)

Unrealized gains and losses on available-for-sale securities

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

Interest income

on loans

includes $10.5

million and

$7.3 million

for the

years ended

December 31,

2021 and

2020, respectively,

of income

from prepayment

penalties and late fees related to the Corporation’s

loan portfolio.

Part II

2021 Compared to 2020

Increase (decrease)

Due to:

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

1,513

(2,239)

(726)

Government obligations

22,111

(16,275)

5,836

MBS

32,753

(24,277)

8,476

FHLB stock

(223)

(342)

(565)

Other investments

(5)

Total investments

56,179

(43,138)

13,041

Residential mortgage loans

8,509

3,219

11,728

Construction loans

713

2,959

3,672

Commercial and Industrial and Commercial Mortgage loans

41,940

4,563

46,503

Finance leases

5,789

228

6,017

Consumer loans

28,032

(4,570)

23,462

Total loans

84,983

6,399

91,382

Total interest income

141,162

(36,739)

104,423

Interest expense on interest-bearing liabilities:

Brokered CDs

(4,563)

(444)

(5,007)

Non-brokered interest-bearing deposits

14,669

(36,568)

(21,899)

Loans Payable

(21)

Other borrowed funds

243

1,855

2,098

FHLB advances

(3,438)

386

(3,052)

Total interest expense

6,890

(34,771)

(27,881)

Change in net interest income

134,272

(1,968)

132,304

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 “Income

Taxes”

below for

additional information).

Management believes

that the

presentation of

interest income

on an

adjusted

tax-equivalent

basis facilitates

the comparison

of all

interest data

related to

these assets.

The Corporation

estimated the

tax

equivalent yield by dividing the interest rate spread on exempt

assets by 1 less the Puerto Rico statutory tax rate (37.5%) and

adding to

it the average

cost of 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

(“valuations”)

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 on an 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:

Year Ended December 31,

2021

2020

(Dollars in thousands)

Interest income - GAAP

794,708

692,982

Unrealized gain on derivative instruments

(24)

(27)

Interest income excluding valuations

794,684

692,955

Tax-equivalent adjustment

23,753

21,059

Interest income on a tax-equivalent basis

and excluding valuations

818,437

714,014

Interest expense - GAAP

64,779

92,660

Net interest income - GAAP

729,929

600,322

Net interest income excluding valuations

729,905

600,295

Net interest income on a tax-equivalent basis

and excluding valuations

753,658

621,354

Average Balances

Loans and leases

11,413,149

10,068,702

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

cash balances

8,180,944

4,411,880

Average Interest-Earning Assets

19,594,093

14,480,582

Average Interest-Bearing Liabilities

11,778,841

9,477,461

Average Yield/Rate

Average yield on interest-earning assets - GAAP

4.06%

4.79%

Average rate on interest-bearing liabilities - GAAP

0.55%

0.98%

Net interest spread - GAAP

3.51%

3.81%

Net interest margin - GAAP

3.73%

4.15%

Average yield on interest-earning assets excluding valuations

4.06%

4.79%

Average rate on interest-bearing liabilities

0.55%

0.98%

Net interest spread excluding valuations

3.51%

3.81%

Net interest margin excluding valuations

3.73%

4.15%

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

basis and excluding valuations

4.18%

4.93%

Average rate on interest-bearing liabilities

0.55%

0.98%

Net interest spread on a tax-equivalent basis

and excluding valuations

3.63%

3.95%

Net interest margin on a tax-equivalent basis and excluding

valuations

3.85%

4.29%

Interest

income

interest-earning

assets

primarily

represents

interest

earned

loans

held

for

investment

and

investment

securities.

Interest

expense

interest-bearing

liabilities

primarily

represents

interest

paid

brokered

CDs,

retail

deposits,

repurchase

agreements, advances from the FHLB, and junior subordinated debentures.

Unrealized

gains or

losses on

derivatives

represent

changes in

the

fair value

of derivatives,

primarily

interest

rate

caps used

for

protection against rising interest rates.

Net

interest

income

amounted

$729.9

million

for

the

year

ended

December

31,

2021,

increase

$129.6

million,

when

compared to $600.3

million for the

year ended December

31, 2020.

The $129.6 million

increase in net

interest income was

primarily

due to:

●

A $47.4 million

increase

in interest

income on

commercial

and construction

loans, mainly

due to an $853.2

million

increase

in the

average balance

of this portfolio

that reflects

the effect of both

loans acquired

in conjunction

with the BSPR acquisition

and SBA

PPP loans originated

through 2020

and 2021. Total discount

accretion

related to

fair value

marks on commercial

and construction

loans acquired

in the BSPR

acquisition

amounted

to $9.2 million

in 2021,

compared

to $5.5 million

in 2020. Additionally,

interest

income

for

2021

includes

$20.9

million

earned

SBA

PPP

loans,

including $13.2

million

accelerated PPP

loan

fees

recognized upon

receipt of forgiveness

payments in 2021, compared

to $7.5 million interest

income on SBA PPP loans recorded

in 2020. This variance also reflects

the benefit of interest income

of $2.9 million realized from deferred

interest recognized

on a

construction

loan paid-off

in 2021.

These variances

were partially

offset by lower

interest rates.

As of December

31, 2021, the interest

rate on approximately

39% of

the Corporation’s commercial

and construction loans, excluding

SBA PPP loans, was based upon LIBOR indices and 16% was

based upon the Prime rate index.

For the year ended December 31, 2021, the average

one-month LIBOR rate declined

42 basis

points,

the

average three-month

LIBOR

rate

declined 49

basis

points,

and

the

average Prime

rate

declined 29

basis

points

compared

to the

average

rate of

such indices

in 2020.

●

A $29.5 million increase

in interest income

on consumer loans

and finance leases,

mainly due to a $333.5 million

increase in the

average balance

of this portfolio,

largely related to

auto loans and finance

leases. The increase

in the average balance

reflects the

effect of

both consumer

loans acquired

in connection

with the

BSPR acquisition

and organic

growth.

●

A $27.9 million decrease in total interest expense, primarily due to: (i) a $21.9 million decrease in interest expense on interest-

bearing checking, savings and non-brokered time deposits, primarily

related to the effect

of lower rates paid

in response to the

current level of the Federal Fund target

rate that more than offset the effect

of the $2.7 billion increase in average

balance; (ii) a

$5.0 million

decrease

in interest

expense on

brokered

CDs, primarily

related to

the $216.0

million decrease

in the average

balance

related deposits; (iii)

$3.1 million

decrease in

interest expense on

FHLB advances, primarily related

$151.4 million

decrease

the

average

balance

FHLB

advances;

and

(iv)

$1.2

million

decrease

interest

expense

the

downward

repricing of

floating-rate junior

subordinated debentures

tied to

the three-month

LIBOR index.

These variances

were partially

offset by

a $3.3 million

increase in interest

expense on

repurchase agreements

primarily related

to the upward

repricing

$200

million

repurchase

agreements

(flipper

repos)

for

which

its

interest

rate

changed

early

2021

from

variable rates tied to 3-month LIBOR to a fixed rate of 3.90%.

●

11.3

million increase in

interest income on

residential mortgage loans,

primarily related to

$157.7 million

increase the

average

balance of

this portfolio,

primarily

to loans

acquired

in the BSPR

acquisition.

●

An $14.3 million increase in interest income on

investment securities,

driven by a

$3.0 billion increase in the average balance,

primarily U.S. agencies

MBS and

debt securities,

partially offset

by higher

premium amortization

expense related

to higher

prepayment rates of U.S. agencies MBS and lower reinvestment yields.

Partially offset by:

●

A $0.7 million decrease

in interest income

from interest-bearing

cash balances,

which consisted

primarily of deposits

maintained

the

New

York

Fed.

Balances at

the

New

York

Fed

earned 0.13%

during 2021,

compared to

0.44%

2020,

decrease

attributable to declines

in the Federal Funds target rate in the latter part of the first quarter of 2020. The adverse effect of lower

rates was

partially

offset by a $753.9

million increase

in the average

balance of

interest-bearing

cash balances,

primarily

related to

the strong

growth in

deposits.

The net

interest margin

decreased by

42 basis

points to

3.73% for

2021, compared

to 4.15%

for 2020.

The decrease

for the

2021

periods was

primarily attributable

to a

higher proportion

of lower-yielding

assets, such

as interest-bearing

cash deposited

at the

New

York

Fed and investment securities from

continued strong deposit growth,

to total interest-earning assets. The

total average balance of

interest-bearing

cash

balances

and

investment

securities

increased

by $3.8

billion

42%

total

average

interest-earning

assets,

compared to 30% for the same period of 2020.

Provision for Credit Losses

The provision for credit

losses consists of provisions for

credit losses on loans and

finance leases, unfunded loan

commitments, and

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

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 decreased by $230.4 million to a net benefit of $61.7

million for the year

ended

December 31,

2021,

compared

an expense

of $168.7

million

for 2020.

The results

for

the year

ended December

31, 2020

included

$37.5

million

Day

provision

for

credit

losses

non-PCD

loans

acquired

conjunction

with

the

BSPR

acquisition. Meanwhile, the provision

for credit losses for year 2020 do not

include $28.7 million of reserves established

at acquisition

date for

PCD loans

acquired

in conjunction

with the

BSPR acquisition.

Unlike non-PCD

loans, the

initial ACL

for PCD

loans was

established through an adjustment

to the acquired loan balance

and not through a charge

to the provision for credit

losses in the period

in which the loans were acquired. The variances by major portfolio

category are as follow:

●

Provision for credit losses for

the commercial and construction

loans portfolio was a net

benefit of $65.3 million

for the year

ended December 31,

2021, compared to

an expense of

$89.9 million for

the year ended

December 31, 2020.

The net benefit

recorded

2021,

reflects

continued

improvements

the

long-term

outlook

forecasted

macroeconomic

variables,

primarily

in the

commercial real

estate price

index, and

the overall

decrease in

the size

of this

portfolio in

the Puerto

Rico

region. The significant reserve builds

in the prior year were due to

the deterioration in forecasted economic

conditions due to

the COVID-19 pandemic reflected across multiple sectors with higher

increases in the ACL made for loans in the hospitality,

office and

retail real

estate industries.

The expense

for the year

2020 included

a $13.8 million

Day 1

provision recorded

for

non-PCD commercial and construction loans acquired in conjunction with

the BSPR acquisition.

●

Provision for credit

losses for the

consumer loan and

finance lease portfolio

was $20.6 million

for the year

ended December

31, 2021, compared

to $56.4 million for

the year ended December

31, 2020. The charges

to the provision

in 2021 reflect the

effect of increases

in cumulative historical

charge-off levels related

to the credit card

and personal loan portfolios,

as well as

charges to

the provision

for auto loans

and finance

leases that, among

other things, accounted

for the overall

increase in the

size of

these portfolios.

The significant

reserve builds

in the

prior year

were due

to the

deterioration of

the macroeconomic

outlook as a result of the COVID-19

pandemic primarily reflected in auto loans,

finance leases, and credit card loans,

as well

$10.1

million

Day

provision

recorded

for

non-PCD

consumer

loans

acquired

conjunction

with

the

BSPR

acquisition.

●

Provision

for

credit losses

for

the residential

mortgage

loan portfolio

was a

net benefit

of $17.0

million

for the

year ended

December

31,

2021,

compared

expense

$22.4

million

for

the

year

ended

December

31,

2020.

The

net

benefit

recorded

in 2021

reflects the

effect

of both

continued improvements

in the

long-term

outlook

of macroeconomic

variables,

such as regional unemployment rates

and Home Price Index, and the overall

portfolio decrease. The significant reserve builds

in the

prior year

were due

to the

deterioration of

the macroeconomic

outlook

as a

result of

the COVID-19

pandemic

and a

$13.6

million

Day

provision

recorded

for

non-PCD

residential

mortgage

loans

acquired

conjunction

with

the

BSPR

acquisition.

See

“Risk

Management

–

Credit

Risk

Management”

below

for

analysis

the

ACL,

non-performing

assets,

and

information,

and

see

“Financial

Condition

and

Operating

Data

Analysis

–

Loan

Portfolio

and

Risk

Management

—

Credit

Risk

Management”

below for

additional information

concerning the

Corporation’s

loan

portfolio exposure

in the

geographic

areas where

the Corporation does business.

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

$3.6 million

for the year

ended December

31, 2021,

compared to

a charge

of $1.2

million recorded

for the

year 2020.

The

net

benefit

recorded

2021

periods

was

mainly

continued

improvements

forecasted

macroeconomic

variables.

The

provision

recorded

2020

primarily

consisted

$1.3

million

charge

recorded

connection

with

unfunded

loan

commitments

assumed in the BSPR acquisition.

Provision for credit losses for

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

securities

As of

December 31,

2021, the

held-to-maturity

debt securities

portfolio

consisted of

Puerto Rico

municipal bonds.

The provision

for credit losses for

held-to-maturity securities was

a net benefit of

$0.2 million for the

year ended December 31,

2021, compared to a

benefit of

$0.6 million

for year

ended December

31, 2020.

The net

benefit recorded

in 2021

was mainly

related to

improvements in

forecasted macroeconomic variables

and the repayment of

certain bonds, partially

offset by changes

in some issuers’ financial

metrics

based

their most

recent

financial

statements.

The

net

benefit

recorded

in 2020

was primarily

to the

repayment

certain

bonds.

the

third

quarter

2020,

the

Corporation

recorded

$1.3

million

initial

reserve

for

PCD

debt

securities

acquired

conjunction

with

the

BSPR acquisition.

Similar

PCD loans,

such

initial

reserve

for PCD

debt

securities

acquired

conjunction

with

the

BSPR

acquisition

was

not

established

through

charge

the

provision

for

credit

losses,

but

rather

through

initial

adjustment

the

debt

securities’

amortized

cost

basis.

Meanwhile,

the

ACL

for

available-for-sale

securities

$1.1

million

December 31, 2021 remained

relatively unchanged since the

beginning of the year.

The Corporation recorded charges

to the provision

for

credit

losses

for

available-for-sale

securities

$1.6

million

during

2020.

These

charges

were

connection

with

private

label

MBS and a residential mortgage

pass-through MBS issued by

the PRHFA

and resulted from a

decline in the present value

of expected

cash

flows

based

upon

the

performance

the

underlying

mortgages

and

the

effect

deterioration

forecasted

economic

conditions due to the COVID-19 pandemic.

Non-Interest Income

The following table presents the composition of non-interest income for

the indicated periods:

Year ended

December 31,

2021

2020

(In thousands)

Service charges on deposit accounts

35,284

24,612

Mortgage banking activities

24,998

22,124

Insurance income

11,945

9,364

Other operating income

48,937

41,834

Non-interest income before net gain on investment securities

and gain on early extinguishment of debt

121,164

97,934

Net gain on sale of investment securities

13,198

Gain on early extinguishment of debt

Total

121,164

111,226

Non-interest

income

primarily

consists

income

from

service

charges

deposit

accounts,

commissions

derived

from

various

banking and insurance activities, gains and losses on

mortgage banking activities, interchange and other

fees related to debit and credit

cards, and net gains and losses on investment securities.

Service charges

on deposit

accounts include

monthly fees,

overdraft fees,

and other

fees on

deposit accounts,

as well

as corporate

cash management fees.

Income

from

mortgage

banking

activities

includes

gains

sales

and

securitizations

loans,

revenues

earned

for

administering

residential

mortgage

loans

originated

the

Corporation

and

subsequently

sold

with

servicing

retained,

and

unrealized

gains

and

losses

forward

contracts

used

hedge

the

Corporation’s

securitization

pipeline.

addition,

lower-of-cost-or-market

valuation

adjustments to

the Corporation’s

residential mortgage

loans held-for-sale

portfolio and

servicing rights

portfolio, if

any,

are recorded

as part of mortgage banking activities.

Insurance

income consists

mainly of

insurance

commissions

earned by

the Corporation’s

subsidiary, FirstBank

Insurance

Agency, Inc.

The other operating

income category

is composed of miscellaneous

fees such as debit, credit

card and POS interchange

fees, as well as

contractual

shared

revenues

from merchant

contracts.

The

net gain

(loss)

on investment

securities

reflects

gains or

losses as

result

of sales

that

are

consistent with

the

Corporation’s

investment policies.

The gain

on early

extinguishment

of debt

is related

to the

repurchase in

2020 of

$0.4 million

in TRuPs

of FBP

Statutory

Trust

The

Corporation

repurchased

TRuPs

resulted

commensurate

reduction

the

amount

the

floating

rate

junior

subordinated debentures

(“Subordinated Debt”).

The Corporation’s

purchase price equated

to 75% of

the $0.4 million

par value.

The

25%

discount

resulted

gain

$0.1

million

which

reflected

the

consolidated

statements

income

Gain

early

extinguishment of debt. As of December 31, 2021, the

Corporation still had Subordinated Debt outstanding in

the aggregate amount of

$183.8 million.

Non-interest income amounted

to $121.2 million

for the year ended

December 31, 2021, compared

to $111

.2 million for 2020.

The

$10.0 million increase in non-interest income was primarily due

to:

●

$10.7

million

increase

service

charges

deposits

accounts, driven

the

income

generated

the

acquired

BSPR

operations,

primarily

reflecting

increase

the

number

cash

management

transactions

commercial

clients,

and

increase in the monthly service fee charged on certain checking

and savings products.

●

A $2.9 million increase in

revenues from mortgage banking activities,

driven by a $2.9 million incre

ase in service fee income

and a $1.8 million

increase in realized gain

on sales of residential

mortgage loans in

the secondary market, partially

offset by

a $1.1 million decrease related to the net change in mark-to-market

gains and losses from both interest rate lock commitments

and

To-Be-Announced

(“TBA”)

MBS

forward

contracts

and

$0.9

million

increase

net

amortization

and

impairment

charges related to

mortgage servicing rights. Total

loans sold in the secondary

market to U.S. GSEs during

2021 amounted to

$519.6 million,

with a

related net

gain of

$20.0 million

(net of

realized losses

of $0.9

million on

TBA hedges,

compared to

total loans

sold in

the secondary

market in

2020 of

$476.4 million,

with a

related net

gain of

$18.1 million

(net of

realized

losses of $2.0 million on TBA hedges).

●

$7.1

million

increase

Other

operating

income

the

table

above,

primarily

reflecting:

(i)

$10.9

million

increase

transactional fee

income from credit

and debit

cards, ATMs,

POS, and

merchant-related activity

reflecting both

the effect

the BSPR

acquisition

as well

as increased

transaction volumes

due to

the impact

of the

COVID-19

pandemic on

economic

activity

2020;

(ii)

$1.0

million

increase

fees

and

commissions

from

other

banking

services

such

wire

transfers,

insurance

referrals,

and

official

checks;

and

(iii)

$0.7

million

increase

non-deferrable

loan

fees,

such

unused

commitment loan

fees. These

variances were

partially offset

by the

effect of

the $5.0

million benefit

recorded in

the second

quarter of 2020

resulting from the

final settlement of

the Corporation’s

business interruption

insurance claim associated

with

lost profits caused by Hurricanes Irma and Maria in 2017.

●

A $2.6

million increase in insurance

income, driven by higher property

insurance commissions, impacted by

a higher volume

of residential

mortgage loan

originations during

2021, when

compared to

2020, and

higher sells

of annuities

and accidental

death policies.

The above-described

increases were

partially offset

by the

effect in

2020 of

a $13.2

million gain

on sales

of investment

securities

consisting

of: (i)

a $13.0

million gain

on sales

of approximately

$392.2

million on

available-for-sale

U.S. agencies

MBS; and

(ii) a

$0.2 million gain on sales of approximately $803.3 million of available

-for-sale U.S. Treasury notes acquired

in the BSPR acquisition.

Non-Interest Expenses

The following table presents the components of non-interest expenses for

the indicated periods:

Year

ended December 31,

2021

2020

(In thousands)

Employees' compensation and benefits

200,457

177,073

Occupancy and equipment

93,253

74,633

FDIC deposit insurance premium

6,544

6,488

Taxes, other than

income taxes

22,151

17,762

Professional fees:

Collections, appraisals and other credit-related fees

4,715

5,563

Outsourced technology services

41,106

33,974

Other professional fees

14,135

13,096

Credit and debit card processing expenses

22,169

19,144

Business promotion

15,359

12,145

Communications

9,387

8,437

Net (gain) loss on OREO and OREO operations expenses

(2,160)

3,598

Merger and restructuring costs

26,435

26,509

Other

35,423

25,818

Total

488,974

424,240

Non-interest expenses

for the

year ended

December 31,

2021 were

$489.0 million,

compared to

$424.2 million

for the

year ended

December 31, 2020.

Included in non-interest expenses are the following Special Items:

●

Merger and

restructuring costs

associated with

the acquisition

of BSPR of

$26.4 million

in 2021,

compared to

$26.5 million

for 2020. These

costs in 2021 primarily

included charges related

to voluntary and

involuntary employee separation

programs

implemented

the

Puerto

Rico

region,

well

consulting

fees,

expenses

system

conversions,

and

other

integration related efforts, such

as service contracts cancellation penalties, accelerated

depreciation charges related to

planned

closures,

and consolidation of branches in accordance with the Corporation’s

integration and restructuring plan.

●

COVID-19 pandemic-related expenses of $3.0 million in 2021

compared

$5.4

million

2020.

2021

these

costs

primarily

consisted

of:

(i)

expenses

$2.6

million

associated

with

cleaning

and

security

protocols,

included

part

Occupancy and

equipment costs

in the

table above;

(ii) $0.3

million in

sales and

use taxes,

included as

part of

Taxes,

other

than income taxes in the table above;

and (iii) expenses of $0.1 million in

connection with employee-related expenses such

expenses for

the administration

and referrals

of COVID-19

tests, recorded

as part

of Employees’

compensation and

benefits

in the table

above.

For the year ended

December 31, 2020, these

costs primarily

consisted of: (i)

expenses of $1.8

million in

connection with bonuses

paid to branch personnel

and other essential employees

for working during the

pandemic, as well as

employee-related expenses

such as

expenses for

the administration

of COVID-19

tests, and

purchases of

personal protective

materials,

recorded

part

Employees’

compensation

and

benefits

the

table

above

;

(ii)

expenses

$2.7

million

associated with

cleaning and

security protocols,

included as

part of

Occupancy and

equipment costs

in the

table above;

(iii)

expenses

$0.6

million

communications

established

with

customers,

included

part

Business

promotion

expenses in the table

above; (iv) $0.3 million

in sales and use

taxes, included as part

of Taxes,

other than income taxes

in the

table above; and (v) $0.1 million in other miscellaneous expenses, included

as part of Other expenses in the table above.

●

Benefit from

hurricane-related expenses

insurance recoveries

recorded as

contra-expense in

2020 amounting

to $1.2 million,

primarily related to repairs and

maintenance expenses, included as

a contra expense of Occupancy

and equipment costs in the

table above.

non-GAAP

basis,

adjusted

non-interest

expenses,

excluding

the

effect

the

Special

Items

mentioned

above,

amounted

$459.6 million for 2021, compared

to $393.5 million for 2020.

The $66.1 million increase in adjusted

non-interest expenses primarily

reflects the effect of operations,

personnel, and branches acquired from

BSPR. Some of the most significant variances

in adjusted non-

interest expenses follows:

●

$25.1

million

increase

adjusted

employees’

compensation

and

benefit

expenses,

primarily

driven

incremental

expenses related to personnel retained from the acquisition of BSPR.

●

$17.9

million

increase

adjusted

occupancy

and

equipment

expenses,

primarily related

incremental

expenses

associated with

the BSPR

acquired

operations including,

among others,

depreciation, software

maintenance, electricity,

and

rental expenses.

●

A $7.2 million

increase in

adjusted professional

service fees,

including an

increase of

approximately $7.0

million related

temporary technology

processing costs of

the acquired BSPR

operations up

to the completion

of system conversions

early in

the third quarter

of 2021, and

a $0.7 million

increase in consulting

and legal fees.

These variances were,

partially offset

by a

$0.5 million decrease in attorneys’ collection fees, appraisals, and other credit-related

fees.

●

A $

9.6

million

increase

in adjusted

Other

non-interest

expense,

the table

above, including

$5.5

million increase

the

amortization

intangible

assets, primarily

associated

with

the

intangibles

assets

recognized

connection

with

the

BSPR

acquisition,

and

$2.8

million

increase

insurance

and

supervisory

expenses,

primarily

associated

with

higher

costs

insurance policies.

●

$4.4

million

increase

adjusted

taxes,

other

than

income

taxes

expenses,

primarily

incremental

municipal

license taxes and property taxes of the acquired operations.

●

A $3.6

million increase

in adjusted

business promotion

expenses, primarily

related to

a $2.4

million increase

in advertising,

marketing, and public relations activities, and a $1.1 million increase in the

cost of the credit card rewards program.

●

$3.0

million

increase

credit

and

debit

card

processing

expenses, primarily

incremental

expenses

the

acquired

operations

and higher

transaction volumes

due to

the effect

of the

COVID-19 pandemic

on economic

activity last

year.

●

$1.0

million

increase

communication

expenses, primarily

incremental

expenses

telephone,

data,

and

postage related to the acquired operations.

The above-described increases were

partially offset by a $5.8

million decrease in the net

loss on OREO operations, primarily

due to

higher realized gains on sales of residential and commercial OREO properties.

Income Taxes

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

The

Corporation

subject

Puerto

Rico

income

tax

its

income

from

all

sources.

Puerto

Rico

corporation,

First

BanCorp.

treated

foreign

corporation

for

U.S.

and

USVI

income

tax

purposes

and,

accordingly,

generally

subject

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,

as amended (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 to utilize

losses from one

subsidiary to offset

gains in another

subsidiary.

Accordingly,

in order to

obtain a tax

benefit from

NOL, a

particular subsidiary

must be

able to

demonstrate sufficient

taxable income

within the

applicable NOL

carry-forward period.

Pursuant to

the 2011

PR Code, the

carry-forward period

for NOLs incurred

during taxable years

that commenced

after December

31,

2004 and ended before January 1, 2013 is 12 years;

for NOLs incurred during taxable years commencing after

December 31, 2012, the

carryover

period

years.

The

2011

Code

provides

dividend

received

deduction

100%

dividends

received

from

“controlled” subsidiaries subject to taxation in Puerto Rico and 85% on

dividends received from other taxable domestic corporations.

The

Corporation

has

maintained

effective

tax

rate

lower

than

the

maximum

statutory

rate

37.5%

mainly

investing

government

obligations

and

MBS

exempt

from

U.S.

and

Puerto

Rico

income

taxes

and

by doing

business

through

International

Banking Entity

(“IBE”) unit

of the Bank,

and through

the Bank’s

subsidiary,

FirstBank Overseas Corporation,

whose interest income

and gains on sales is

exempt from Puerto

Rico income taxation. The

IBE unit and FirstBank Overseas

Corporation were created under

the

International

Banking

Entity

Act

Puerto

Rico,

which provides

for

total

Puerto

Rico

tax

exemption

on net

income derived

IBEs operating in Puerto Rico on the specific activities

identified in the IBE Act. An IBE that operates

as a unit of a bank pays income

taxes at the corporate standard rates to the extent that the IBE’s

net income exceeds 20% of the bank’s

total net taxable income.

The CARES

Act of

2020 includes

several provisions

to stimulate

the U.S.

economy in

the midst

of the

COVID-19 pandemic.

The

CARES Act

of 2020

includes tax

provisions that

temporarily modified

the taxable

income limitations

for NOL

usage to

offset future

taxable income, NOL

carryback provisions and other

related income and

non-income based tax

laws. Due to the

fact that the COVID-

pandemic

is still

ongoing,

the

federal

government

extended

some

the

benefits

and

continued

the

economic

stimulus

from

the

CARES Act of 2020. The Corporation

has evaluated such provisions and determined

that the impact of the CARES Act on

the income

tax provision and deferred tax assets as of December 31, 2021 was not significant.

For

the

year

ended

December

31,

2021,

the

Corporation

recorded

income

tax

expense

$146.8

million

compared

$14.1

million

for

2020.

The variances

were

primarily

to higher

pre-tax

income driven

by credit

losses reserve

releases in

the

year

ended

December

31,

2021,

compared

significant

charges

the

provision

recorded

during

2020,

and

higher

level

taxable

income. The

Corporation’s

effective tax

rate for

2021, excluding

entities from

which a

tax benefit

cannot be

recognized and

discrete

items,

increased

33.9%,

compared

17%

for

2020.

The

income

tax

expense

reported

2020

was

net

the

effect

$8.0

million partial

reversal of the

Corporation’s

deferred tax

asset valuation

allowance recorded after

consideration of

significant positive

evidence on the utilization of NOLs due to the acquisition of BSPR.

Total

deferred

tax

assets

FirstBank,

the

banking

subsidiary,

amounted

$208.4

million

December

31,

2021,

net

valuation

allowance

$69.7 million,

compared

total deferred

tax asset

$329.1

million,

net

valuation

allowance

$59.9

million, as

of December

31, 2020.

The decrease

in deferred

tax assets

was mainly

driven by

the aforementioned

credit losses reserve

releases

and

the

usage

net

operating

losses.

The

increase

the

valuation

allowance

was

primarily

the

change

the

market

value

available-for-sale

securities.

The

Corporation

maintains

full

valuation

allowance

for

its

deferred

tax

assets

associated

with

capital

losses

carry

forward.

Therefore,

changes

the

unrealized

losses

available-for-sale

securities

result

change in the deferred tax asset and an equal change in the valuation allowance

without having an effect on earnings.

After completion

of the deferred

tax asset

valuation allowance

analysis for

the fourth

quarter of

2021 management

concluded that,

as of

December 31,

2021, it

is more

likely than

not that

FirstBank, will

generate sufficient

taxable income

to realize

$66.3 million

its deferred tax assets related to NOLs within the applicable carry-forward

periods.

The

positive evidence

considered

by management

in arriving

at its

conclusion

includes factors

such as:

(i) FirstBank’s

three-year

cumulative

income

position;

(ii)

sustained

periods

profitability;

(iii)

management’s

proven

ability

forecast

future

income

accurately

and

execute

tax

strategies;

(iv)

forecasts

future

profitability

under

several

potential

scenarios

that

support

the

partial

utilization of

NOLs prior

to their

expiration from

2022 through

2024; (v)

and the

utilization of

NOLs over

the past

three-years.

The

negative

evidence

considered

management

includes

uncertainties

around

the

state

the

Puerto

Rico

economy,

including

considerations on

the impact of

the pandemic recovery

funds together with

the ultimate sustainability

of the latest

fiscal plan certified

by the PROMESA oversight board.

Management’s

estimate

future

taxable

income

based

internal

projections

that

consider

historical

performance,

multiple

internal scenarios and

assumptions, as well as

external data that

management believes is

reasonable. If events

are identified that affect

the Corporation’s

ability to utilize

its deferred tax

assets, the analysis

will be updated

to determine if

any adjustments to

the valuation

allowance

are

required.

actual

results

differ

significantly

from

the

current

estimates

future

taxable

income,

even

caused

adverse

macro-economic

conditions,

the

remaining

valuation

allowance

may

need

increased.

Such

increase

could

have

material

adverse

effect

the

Corporation’s

financial

condition

and

results

operations.

Conversely,

higher

than

projected

proportion

taxable

income to

exempt

income

could

lead to

higher

usage

available NOLs

and

lower

amount of

disallowed

NOLs from projected

levels of tax-exempt income,

per the 2011

PR code, which in

turn could result in

further releases to the

deferred

tax valuation

allowance; any

such decreases

could have

a material positive

effect on

the Corporation’s

financial condition

and results

of operations.

As of December

31, 2021, approxima

tely $177.9 million

of the deferred

tax assets of

the Corporation

are attributable to

temporary

differences or tax credit

carryforwards that have no expiration date,

compared to $210.7 million in the

year ended December 31, 2020.

The

valuation

allowance

attributable

FirstBank’s

deferred

tax

assets

$69.7

million

December

31,

2021

the

estimated

NOL

disallowance

attributable

projected

levels

tax-exempt

income,

NOLs

attributable

the

Virgin

Islands

jurisdiction,

and

capital

losses. The

remaining

balance

of $37.6

million

the

Corporation’s

deferred

tax

asset valuation

allowance

non-attributable to FirstBank is mainly related to NOLs and capital

losses at the holding company level. The Corporation will continue

provide

valuation

allowance

against

its

deferred

tax

assets

each

applicable

tax

jurisdiction

until

the

need

for

valuation

allowance is eliminated.

The need for

a valuation allowance

is eliminated when

the Corporation determines

that it is

more likely than

not the

deferred tax

assets will

be realized.

The ability

to recognize

the remaining

deferred tax

assets that

continue to

be subject

to a

valuation allowance

will be evaluated

on a quarterly

basis to determine

if there are

any significant events

that would affect

the ability

to utilize these deferred tax assets.

The Corporation

has U.S.

and USVI

sourced NOL

carryforwards. Section

382 of

the U.S.

Internal Revenue

Code (“Section

382”)

limits the ability

to utilize U.S. and

USVI NOLs for income

tax purposes in

such jurisdictions following

an event that is considered

be an “ownership change.”

Generally, an

“ownership change” occurs when

certain shareholders increase their

aggregate ownership by

than

percentage

points

over

their

lowest

ownership

percentage

over

three-year

testing

period.

Upon

the

occurrence

Section 382

ownership change,

the use

of NOLs

attributable to

the period

prior to

the ownership

change is

subject to

limitations and

only a portion of the U.S. and USVI NOLs may be used by the Corporation

to offset its annual U.S. and USVI taxable income, if any.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

covering

comprehensive

period

and

concluded

that

ownership

change

had

occurred

during

such

period.

The

Section

382

limitation

has

resulted

higher

U.S.

and

USVI

income

tax

liabilities

than

would

have

incurred

the

absence

such

limitation.

The

Corporation has mitigated to an extent the adverse effects

associated with the Section 382 limitation as any such tax paid in

the U.S. or

USVI is

creditable against

Puerto Rico

tax liabilities

or taken

as a

deduction against

taxable income.

However,

our ability

to reduce

our

Puerto

Rico

tax

liability

through

such

credit

deduction

depends

our

tax

profile

each

annual

taxable

period,

which

dependent

various

factors.

For

2021,

2020

and

2019,

the

Corporation

incurred

income

tax

expense

approximately

$6.8

million, $4.9 million,

and $4.5 million,

respectively,

related to its U.S.

operations.

The limitation did not

impact the USVI operations

in 2021, 2020, and 2019.

The Corporation

accounts for uncertain

tax positions under

the provisions

of ASC Topic

740. The Corporation’s

policy is to

report

interest and penalties

related to unrecognized

tax benefits in income

tax expense. As

of December 31,

2021, the Corporation

had $0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $1.0

million that

it acquired

from BSPR,

which,

if recognized,

would decrease

the

effective

income tax

rate in

future

periods. The

amount

unrecognized

tax benefits

may

increase

decrease

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

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 of

limitations

under the 2011

PR code is four years;

the statute of limitations for

U.S. and USVI income tax

purposes is three years after

a tax return

is due or filed, whichever

is later. The

completion of an audit by the

taxing authorities or the expiration

of the statute of limitations for

given

audit

period

could

result

adjustment

the

Corporation’s

liability

for

income

taxes.

Any

such

adjustment

could

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

to 2017

remain open

to examination.

For Puerto

Rico tax

purposes, all tax years subsequent to 2016 remain open to examination.

OPERATING SEGMENTS

Based

upon

the

Corporation’s

organizational

structure

and

the

information

provided

the

Chief

Executive

Officer

the

Corporation,

the operating

segments are

based primarily

on the

Corporation’s

lines of

business for

its operations

in Puerto

Rico, the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

December

31,

2021,

the

Corporation

had

six

reportable

segments:

Commercial

and

Corporate

Banking;

Consumer

(Retail)

Banking;

Mortgage

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. For additional information regarding First BanCorp.’s

reportable

segments, please

refer to

Note 36

- Segment

Information, to

the audited

consolidated financial

statements included

in Item

8 of

this

Annual Report on Form 10-K.

The accounting policies of the segments are the same

as those described in Note 1 - Nature of

Business and Summary of Significant

Accounting

Policies,

the

audited

consolidated

financial

statements

included

Item

this Annual

Report

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 on

the average volume of their interest-earning

assets

less

the

ACL.

For

the

years

ended

December

31,

2021

and

2020,

other

operating

expenses

not

allocated

particular

segment

amounted

to $192.2

million and

$165.4 million,

respectively.

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.

The

Treasury

and

Investments

segment

lends

funds

the

Consumer

(Retail)

Banking,

Mortgage

Banking,

Commercial

and

Corporate

Banking

and United

States operations

segments

to finance

their lending

activities and

borrows

from those

segments. The

Consumer

(Retail)

Banking

segment

also

lends

funds

other

segments.

The

Corporation

allocates

the

interest

rates

charged

credited by the

Treasury and

Investment and the

Consumer (Retail) Banking

segments based on

market rates. The

difference between

the

allocated

interest

income

expense

and

the

Corporation’s

actual

net

interest

income

from

centralized

management

funding

costs is reported in the Treasury and Investments

segment.

Commercial and Corporate Banking

The

Commercial

and

Corporate

Banking

segment

consists

the

Corporation’s

lending

and

other

services

for

large

customers

represented

by specialized

and middle

-market clients

and

the public

sector.

FirstBank has

developed

expertise in

a wide

variety

industries.

The

Commercial

and

Corporate

Banking

segment

offers

commercial

loans,

including

commercial

real

estate

and

construction

loans, as

well as

other products,

such as

cash management

and business

management

services. A

substantial portion

the commercial

and corporate

banking portfolio

is secured

by the

underlying real

estate collateral

and the

personal guarantees

of the

borrowers. Since

commercial loans

involve greater

credit risk

than a

typical residential

mortgage loan

because they

are larger

in size

and

risk

concentrated

single

borrower,

the

Corporation

has

and

maintains

credit

risk

management

infrastructure

designed

to mitigate

potential losses

associated with

commercial lending,

including underwriting

and loan

review functions,

sales of

loan participations, and continuous monitoring of concentrations within

portfolios.

The highlights

of the

Commercial and

Corporate Banking

segment’s

financial results

for the

years ended

December 31,

2021

and

2020 include the following:

●

Segment

income

before

taxes

for

the

year

ended

December

31,

2021

increased

$239.3

million,

compared

$45.0

million for 2020, for the reasons discussed below.

●

Net

interest

income

for

the year

ended

December

31,

2021

was $191.9

million,

compared

to $135.6

million

for 2020.

The increase in net interest

income was primarily

attributable to the increase

in the average balance

of the loan portfolio,

driven by

the effect

of commercial

loans acquired

in conjunction

with the

BSPR acquisition,

and accelerated

PPP loans

fees recognized upon receipt of forgiveness payments from

the SBA in 2021.

●

For 2021, the provision for

credit losses was a net benefit

of $67.5 million net benefit,

compared to a net charge

of $74.6

million

for

2020.

The

net

benefit

recorded

2021

reflects

continued

improvements

the

long-term

outlook

forecasted macroeconomic

variables, primarily

in the commercial

real estate price

index, and

the overall

decrease in the

size

this

portfolio

the

Puerto

Rico

region.

The

charge

the

provision

2020

included

$13.8

million

charge

related to the

initial reserves required

for non-PCD commercial loans

acquired in conjunction

with the BSPR acquisition

and higher

reserve builds

reflecting the

effect of

the COVID-19

pandemic on

forecasted macroeconomic

variables used

in the Corporation’s CECL model.

●

Total

non-interest income

for the

year ended

December 31,

2021 amounted

to $16.0

million compared

to $12.6

million

for 2020.

The increase was mainly related to a $4.2 million increase in service charges

on deposits, primarily due to cash

management

fee income

from corporate

customers, partially

offset

by the

effect

in 2020

of fee

income of

$0.5 million

recorded in

connection with

participation interests

sold on Main

Street loans

originated in

the Puerto

Rico region,

and a

benefit of approxim

ately $0.8 million

related to the

portion of the

business interruption

insurance recoveries allocated

this operating segment.

●

Direct non-interest

expenses for

the year

ended December

31, 2021

were $36.2

million, compared

to $28.6

million for

2020. The increase primarily

reflects the effect

of incremental expenses

related to the acquired

commercial operations of

BSPR, primarily employees’ compensation and professional service fees related

to this operating segment.

Consumer (Retail) Banking

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities

conducted

mainly

through

FirstBank’s

branch

network

and

loan

centers

Puerto

Rico.

Loans

consumers

include

auto,

boat,

and

personal

loans, credit

card loans,

and lines

of credit.

Deposit products

include interest-bearing

and non-interest

bearing checking

and savings

accounts, individual

retirement accounts

(“IRAs”), and

retail CDs.

Retail deposits

gathered through

each branch

of FirstBank’s

retail

network serve as one of the funding sources for the lending and investment

activities.

Consumer lending

historically has

been mainly

driven by

auto loan

originations. The

Corporation follows

a strategy

of seeking

provide outstanding service to selected auto dealers that provide the

channel for the bulk of the Corporation’s

auto loan originations.

Personal

loans, credit

cards,

and,

to a

lesser extent,

boat

loans also

contribute

to interest

income

generated

on consumer

lending.

Management

plans

continue

active

the

consumer

loan

market,

applying

the

Corporation’s

strict

underwriting

standards.

Other activities included in this segment are finance leases and insurance

activities in Puerto Rico.

The

highlights

the

Consumer

(Retail)

Banking

segment’s

financial

results

for

the

years

ended

December

31,

2021

and

2020

include the following:

●

Segment

income

before

taxes

for

the

year

ended

December

31,

2021

increased

$165.8

million,

compared

$86.4

million for 2020, for the reasons discussed below.

●

Net

interest

income

for

the year

ended

December

31,

2021

was $281.7

million,

compared

to $220.7

million

for 2020.

The

increase

was

mainly

due

increase

the

average

volume

consumer

loans

Puerto

Rico

that

reflects

the

effect of

both consumer

loans acquired

in conjunction

with the

BSPR acquisition

and organic

growth, as

well as

higher

income

from

funds

loaned

other

business

segments

due

the

growth

non-brokered

deposits,

mainly

demand

deposits, that, among other things, served as a funding source for lending activities

of other operating segments.

●

The

provision

for

credit

losses

for

the

year

ended

December

31,

2021

decreased

$33.8

million

$20.3

million,

compared to

$54.1 million

for the year

ended

December 31,

2020. The

decrease reflects

the effect

of significant

reserve

builds in

2020 due

to the

deterioration of

the macroeconomic

outlook as

a result

of the

COVID-19 pandemic

primarily

reflected

auto

loans,

finance

leases,

and

credit

card

loans,

well

the

effect

2020

the

$10.1

million

Day 1

provision recorded for non-PCD consumer loans acquired in conjunction

with the BSPR acquisition.

●

Non-interest income for the

year ended December 31, 2021

was $69.8 million, compared

to $51.0 million for 2020.

The

increase was

primarily

related to

a $6.4

million increase

in service

charges

on deposits

primarily

related to

the income

generated

the

acquired

BSPR

operations,

well

increase

the

monthly

service

fee

charged

certain

checking

and

savings

products.

addition,

transaction

fee

income

from

credit

and

debit

cards

and

merchant-related

activities

increased

$9.9

million,

and

insurance

commission

income

Puerto

Rico

increased

$2.4

million,

primarily

to an

increased customer

activity as

compared

to year

2020 that

was adversely

affected

by pandemic

stay-at-home orders

and related interruptions.

These variances were

partially offset

by the effect

in 2020 of

a benefit of

approximately

$2.4

million

the

portion

the

business

interruption

insurance

recoveries

allocated

this

operating segment.

●

Direct non-interest expenses for

the year ended December

31, 2021 were $165.4 million,

compared to $131.1 million

for

2020.

The

increase

was

primarily

due

incremental

expenses

the

acquired

operations

BSPR,

primarily

employees’

compensation,

occupancy

and

equipment,

temporary

technology

processing

costs,

credit

and

debit

cards

processing fees, municipal taxes and core deposit intangible amortization

related to this operating segment.

Mortgage Banking

The

Mortgage

Banking

segment

conducts

its

operations

mainly

through

FirstBank.

The

segment’s

operations

consist

the

origination, sale, and

servicing of a variety

of residential mortgage loan

products. Originations are

sourced through different

channels,

such

FirstBank

branches

and

purchases

from

mortgage

bankers,

and

association

with

new

project

developers.

The

mortgage

banking segment

focuses on

originating

residential real

estate loans,

some of

which conform

to the

Federal Housing

Administration

(the

“FHA”),

the

Veterans

Administration

(the

“

”),

and

U.S.

Department

Agriculture

Rural

Development

(“RD”)

standards.

Loans originated that meet

the FHA’s

standards qualify for

the FHA’s

insurance program whereas loans

that meet the standards

of the

or the U.S. Department of Agriculture Rural Development (“RD”) are

guaranteed by their respective federal agencies.

Mortgage

loans that

do not

qualify under

the FHA,

VA,

or RD

programs

are referred

to as

conventional

loans. Conventional

real

estate loans can

be conforming or

non-conforming.

Conforming loans are

residential real estate

loans that meet

the standards for

sale

under

the

U.S.

Federal

National

Mortgage

Association

(“FNMA”)

and

the

U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”) programs.

Loans that

do not

meet FNMA

or FHLMC

standards are

referred to

as non-conforming

residential real

estate

loans. The

Corporation’s

strategy is

to penetrate

markets by

providing customers

with a

variety of

high quality

mortgage products

serve

their

financial

needs

through

faster

and

simpler

process

and

competitive

prices.

The

Mortgage

Banking

segment

also

acquires and

sells mortgages

in the

secondary markets.

Residential real

estate conforming

loans are

sold to

investors like

FNMA and

FHLMC.

The Corporation has commitment authority to issue GNMA MBS.

The highlights

of the

Mortgage Banking

segment’s

financial results

for the

years ended

December 31,

2021 and

2020 include

the

following:

●

Segment

income

before

taxes

for

the

year

ended

December

31,

2021

increased

$115.8

million,

compared

$42.5

million for 2020, for the reasons discussed below.

●

Net interest income for

the year ended December

31, 2021 was $104.6

million, compared to

$76.0 million for 2020.

The

increase in

net interest

income was

mainly due

to both

the increase

in the

average balance

of residential

mortgage loans

in the Puerto

Rico region driven

by residential mortgage

loans acquired in

conjunction with the

BSPR acquisition, and

decrease in the

cost of funds borrowed

from other segments

resulting from overall

lower short-term market

interest rates

as compared to 2020 overall levels.

●

The provision

for credit losses

for 2021

was a net

benefit of $16.0

million, compared

to an expense

of $22.5 million

for

2020.

The

net

benefit

recorded

2021

reflects

the

effect

reserve

releases

associated

with

both

continued

improvements

the

long-term

outlook

macroeconomic

variables,

such

regional

unemployment

rates

and

Home

Price

Index,

and

the

overall

portfolio

decrease.

The

significant

reserve

builds

the

prior

year

were

due

the

deterioration of the

macroeconomic outlook

as a result

of the COVID-19

pandemic and a

$13.6 million Day

1 provision

recorded for non-PCD residential mortgage loans acquired in conjunction

with the BSPR acquisition.

●

Non-interest income for the

year ended December 31, 2021

was $24.3 million, compared

to $22.1 million for 2020.

The

increase

was mainly

due

to a

$1.5

million

increase

in service

fee income

and

a $1.9

million increase

in realized

gains

from sales of

residential mortgage

loans.

These variances were

partially offset

by the effect

in 2020 of

a benefit of

$0.7

million related to the portion of the business interruption insurance

recoveries allocated to this operating segment.

●

Direct non-interest

expenses for

the year

ended December

31, 2021

were $29.1

million, compared

to $33.1

million for

2020.

The decrease

was

mainly

to a

$5.4

million decrease

in losses

OREO operations,

primarily

higher

gains realized

the sale

of residential

OREO properties,

partially

offset

by the

effect

of incremental

expenses

related to the acquired operations of BSPR, primarily employees’ compensation

related to this operating segment.

Treasury and

Investments

The

Treasury

and

Investments

segment

responsible

for

the

Corporation’s

treasury

and

investment

management

functions.

The

treasury function, which

includes funding and

liquidity management, lends

funds to the

Commercial and Corporate

Banking segment,

the Mortgage

Banking segment,

the Consumer

(Retail) Banking

segment,

and the

United States

operations

segment

to finance

their

respective lending

activities and

borrows from

those segments.

The Treasury

function also

obtains funds

through brokered

deposits,

advances from the FHLB, and repurchase agreements involving investment

securities, among other possible funding sources.

The investment function is intended to implement a leverage strategy

for the purposes of liquidity management, interest rate risk

management and earnings enhancement.

The interest rates charged or credited by Treasury

and Investments are based on market rates.

The

highlights

the

Treasury

and

Investments

segment’s

financial

results

for

the

years

ended

December

31,

2021

and

2020

include the following:

●

Segment

income

before

taxes

for

the

year

ended

December

31,

2021

decreased

$55.6

million,

compared

$95.4

million for 2020, for the reasons discussed below.

●

Net interest

income for

the year ended

December 31,

2021 was $59.

million, compared

to net

interest income

of $87.9

million for 2020.

The decrease was mainly related

to lower income from funds

loaned to other business segments

due to

a higher proportion

of the lending

activities of other

operating segments being

funded by the

growth in demand

deposits

of the

Consumer

(Retail) Banking

operating

segment,

partially offset

by the

overall

increase in

the average

balance

U.S. agencies MBS and debt securities.

●

Non-interest income

for the

year ended

December 31,

2021 amounted

to $0.2

million, compared

to non-interest

income

$13.7

million

for

2020.

The

variance

primarily

reflects

the

effect

the

$13.2

million

gain

realized

sales

available-for-sale investment securities in 2020.

●

Direct non-interest expenses

for 2021 were $4.1

million, compared to $3.4

million for 2020.

The increase was primarily

reflected in employees’ compensation expense and professional service

fees.

United States Operations

The

United

States Operations

segment

consists of

all banking

activities conducted

by FirstBank

the U.S.

mainland.

FirstBank

provides

wide

range

banking

services

individual

and

corporate

customers

primarily

southern

Florida

through

banking

branches.

The United

States Operations

segment

offers

an array

of both

consumer and

commercial

banking products,

and

services.

Consumer banking

products include

checking, savings

and money

market accounts,

retail CDs,

internet banking

services, residential

mortgages, and

home equity

loans and

lines of

credit. Retail

deposits, as

well as

FHLB advances

and brokered

CDs, allocated

to this

operation serve as funding sources for its lending activities.

The commercial banking services include

checking, savings and money market

accounts, retail CDs, internet banking services,

cash

management services, remote data capture,

and automated clearing house, or ACH, transactions.

Loan products include the traditional

commercial and industrial (“C&I”) and commercial real estate products,

such as lines of credit, term loans, and construction loans.

The highlights of the

United States operations segment’s

financial results for the years

ended December 31, 2021 and

2020, include

the following:

●

Segment

income

before

taxes

for

the

year

ended

December

31,

2021

increased

$37.0

million,

compared

$12.3

million for 2020, for the reasons discussed below.

●

Net interest income

for the year

ended December 31,

2021 was $66.0

million, compared to

$54.0 million for

2020.

The

increase was mainly due

to a decrease in interest

expense associated with lower

average volumes of FHLB

advances and

brokered

CDs

allocated

this

operating

segment,

well

accelerated

PPP

loan

fees

recognized

upon

receipt

forgiveness

payments

from

SBA

2021.

These

variances

than

offset

the

effect

the

downward

repricing

variable-rate commercial and construction loans due to lower prevailing market

interest rates during 2021.

●

For 2021, the

provision for

credit losses was

a net benefit

of $1.0 million,

compared to a

net charge

of $12.6 million

for

2020.

The

net

benefit

recorded

2021,

reflects

continued

improvements

the

long-term

outlook

forecasted

macroeconomic variables,

primarily in the

commercial real estate

price index,

and the overall

decrease in the

size of the

residential portfolio

in this

operating segment.

The significant

reserves builds

in the

prior year

reflects the

effect of

the

COVID-19 pandemic on forecasted macroeconomic variables used in

the Corporation’s CECL model.

●

Total non

-interest income for the year

ended December 31, 2021

amounted to $4.0 million,

compared to $4.6 million

for

2020.

The decrease was primarily related to

the effect in 2020 of fee

income of $1.0 million recorded in connection

with

the

sale

the

95%

participation

interests

Main

Street

loans

originated

2020,

partially

offset

$0.3

million

increase in service fee income.

●

Direct non-interest

expenses for

the year

ended December

31, 2021

were $33.9

million, compared

to $33.8

million for

2020.

The

increase

was

mainly

due

decrease

deferred

loan

origination

costs,

including

the

effect

lower

volume of SBA

PPP loans originated

in 2021, partially

offset by a

decrease in professional

service fees and

in the FDIC

insurance premium expense allocated to this segment.

Virgin

Islands Operations

The Virgin

Islands Operations

segment consists

of all

banking activities

conducted by

FirstBank in

the USVI

and BVI,

including

consumer

and commercial

banking

services,

with

a total

of eight

banking

branches

currently

serving

the islands

the USVI

of St.

Thomas,

St.

Croix,

and

St.

John,

and

the

island

Tortola

the

BVI.

The

Virgin

Islands

Operations

segment

driven

its

consumer, commercial lending, and deposit

-taking activities.

Loans

consumers

include

auto

and

boat

loans,

lines

credit,

and

personal

and

residential

mortgage

loans.

Deposit

products

include

interest-bearing

and

non-interest-bearing

checking

and

savings

accounts,

IRAs,

and

retail

CDs.

Retail

deposits

gathered

through each branch serve as the funding sources for its own lending activities.

The

highlights

the

Virgin

Islands

operations’

financial

results

for

the

years

ended

December

31,

2021

and

2020

include

the

following:

●

Segment income before

taxes for the year

ended December 31, 2021

increased to $6.5 million,

compared to $0.2 million

for 2020, for the reasons discussed below.

●

Net interest income

for the year

ended December 31,

2021 was $26.4

million, compared to

$26.1 million for

2020.

The

increase in

net interest

income was

primarily related

to the decrease

in the

interest rate

paid on

interest-bearing deposits

attributed to lower market

interest rates, and accelerated

PPP loan fees recognized

upon receipt of forgiveness

payments

from SBA

in 2021,

partially offset

by a

decrease in

the average

balance of

residential mortgage

loans in

this operating

segment.

●

The

Corporation

recognized

provision

for

credit

losses

net

benefit

$1.3

million

for

the

year

ended

December

31,

2021, compared to

a provision expense of

$4.4 million for 2020.

The variance was

primarily related to reserve

builds in

2020

connection

with

the

effect

the

COVID-19

pandemic

macroeconomic

variables

employed

the

Corporation’s CECL model,

primarily for the commercial portfolios.

●

Non-interest

income for

the year

ended December

31, 2021

was $6.9

million, compared

to $7.3

million for

2020.

The

decrease was mainly

related to the

effect in 2020

of a $1.0

million benefit recorded

in connection with

hurricane-related

insurance

recoveries,

primarily

due

the

portion

the

business

interruption

insurance

recoveries

allocated

this

operating

segment.

This

variance

was

partially

offset

$0.4

million

increase

fee-based

income

from

credit

and

debit

cards

well

merchant-related

activities,

and

$0.1

million

increase

service

charges

deposits,

both

affected in 2020 by disruptions in business activities caused by the

COVID-19 pandemic.

●

Direct non

-interest expenses

for

the year

ended December

31,

2021 were

$28.1

million compared

to $28.8

million

for

2020.

The

decrease

was

mainly

due

reduction

$1.1

million

net

OREO

losses,

primarily

higher

realized gains

on sales

of residential

OREO properties,

and a

decrease of

$0.8 million

in employees’

compensation and

benefits.

These variances

were partially

offset by

accelerated depreciation

charges related

to the

closing of

branches in

the Virgin

Islands region and an increase in professional service fees.

FINANCIAL CONDITION AND OPERATING

DATA

ANALYSIS

Financial Condition

The following table presents an average balance sheet of the Corporation for the following

years:

December 31,

2021

2020

2019

(In thousands)

ASSETS

Interest-earning assets:

Money market and other short-term investments

2,012,617

1,258,683

649,065

U.S. and Puerto Rico government obligations

2,065,522

878,537

632,959

MBS

4,064,343

2,236,262

1,382,589

FHLB stock

28,208

32,160

40,661

Other investments

10,254

6,238

3,403

Total investments

8,180,944

4,411,880

2,708,677

Residential mortgage loans

3,277,087

3,119,400

3,043,672

Construction loans

181,470

168,967

97,605

Commercial loans

5,228,150

4,387,419

3,731,499

Finance leases

518,757

440,796

370,566

Consumer loans

2,207,685

1,952,120

1,738,745

Total loans

11,413,149

10,068,702

8,982,087

Total interest-earning

assets

19,594,093

14,480,582

11,690,764

Total non-interest-earning

assets

(1)

708,940

752,064

761,370

Total assets

20,303,033

15,232,646

12,452,134

LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing liabilities:

Interest-bearing checking accounts

3,667,523

2,197,980

1,320,458

Savings accounts

4,494,757

3,190,743

2,377,508

Retail CDs

2,636,303

2,741,388

2,540,289

Brokered CDs

141,959

357,965

500,766

Interest-bearing deposits

10,940,542

8,488,076

6,739,021

Loans payable

8,415

Other borrowed funds

484,244

475,492

294,798

FHLB advances

354,055

505,478

715,433

Total interest-bearing

liabilities

11,778,841

9,477,461

7,749,252

Total non-interest-bearing

liabilities

(2)

6,285,942

3,525,101

2,542,708

Total liabilities

18,064,783

13,002,562

10,291,960

Stockholders' equity:

Preferred stock

32,938

36,104

Common stockholders' equity

2,205,312

2,193,980

2,124,070

Stockholders' equity

2,238,250

2,230,084

2,160,174

Total liabilities and stockholders'

equity

20,303,033

15,232,646

12,452,134

_________

(1) Includes, among other things, the ACL on loans and finance leases and debt securities.

(2) Includes, among other things, non-interest-bearing deposits.

The Corporation’s

total average assets

were $20.3

billion for the

year ended December

31, 2021, compared

to $15.2 billion

for the

year

ended

December

31,

2020,

increase

$5.1

billion.

The

variance

primarily

reflects:

(i)

increase

$3.8

billion

the

average

balance

investment

securities

and

interest-bearing

cash

balances,

reflecting

both

increased

purchases

investment

securities and

growth in

cash balances supported

by strong deposit

growth during

2021; and (ii)

a $1.3 billion

increase in the

average

balance of total

loans, reflecting the

effect of loans

acquired in conjunction

with the BSPR

acquisition,

the volume of SBA

PPP loans

originated in 2020 and 2021, and organic growth of the Corporation’s

consumer loan portfolio.

The

Corporation’s

total

average

liabilities

were

$18.1

billion

December

31,

2021,

increase

$5.1

billion

compared

December 31, 2020. The

increase was mainly related to

a $2.7 billion increase in

the average balance of non-brokered

interest-bearing

deposits and

a $2.8 million

increase in the

average balance of

non-interest-bearing deposits,

primarily reflecting

the effect of

deposits

assumed in

conjunction with

the BSPR

acquisition, as

well as

the effect

of government

relief programs

on the

liquidity levels

of our

customers,

including

government

entities.

The

aforementioned

variances

were

partially

offset

$216.0

million

decrease

the

average balance of brokered CDs and a $151.4 million decrease in the average balance

of FHLB advances.

Assets

The

Corporation’s

total assets

were $20.8

billion

as of

December 31,

2021, an

increase of

$2.0 billion

from December

31, 2020.

The

increase

was

primarily

$1.8

billion

increase

investment

securities,

mainly

driven

purchases

U.S.

agencies

MBS and

U.S. agencies

callable and

bullet debentures

and an

increase of

$1.0 billion

in cash

equivalents attributable

to the

liquidity

obtained

from the

growth in

deposits and

loan repayments.

These variances

were partially

offset

by a

decrease of

$731.8 million

total loans, as further discussed below.

Loans Receivable, including Loans Held for Sale

The following

table presents the

composition of

the Corporation's

loan portfolio,

including loans

held for

sale, as of

the end

of each of the last five years:

2021

2020

2019

2018

2017

(In thousands)

Residential mortgage loans

2,978,895

3,521,954

2,933,773

3,163,208

3,290,957

Commercial loans:

Commercial mortgage loans

2,167,469

2,230,602

1,444,586

1,522,662

1,614,972

Construction loans

138,999

212,500

111,317

79,429

111,397

Commercial and Industrial loans

(1)

2,887,251

3,202,590

2,230,876

2,148,111

2,083,253

Total commercial loans

5,193,719

5,645,692

3,786,779

3,750,202

3,809,622

Consumer loans and finance leases

2,888,044

2,609,643

2,281,653

1,944,713

1,749,897

Total loans held for investment

11,060,658

11,777,289

9,002,205

8,858,123

8,850,476

Less:

Allowance for credit losses for loans and finance

leases

(269,030)

(385,887)

(155,139)

(196,362)

(231,843)

Total loans held for investment, net

10,791,628

11,391,402

8,847,066

8,661,761

8,618,633

Loans held for sale

35,155

50,289

39,477

43,186

32,980

Total loans, net

10,826,783

11,441,691

8,886,543

8,704,947

8,651,613

(1)

As of December 31, 2021 and 2020, includes $145.0 million and

$406.0 million, respectively, of SBA

PPP loans.

As of

December 31,

2021, the

Corporation’s

total loan

portfolio, before

the ACL,

amounted to

$11.1

billion, a

decrease of

$731.8

million

when

compared

December

31,

2020. The

decrease

consisted

reductions

$611.6

million

the

Puerto

Rico

region,

$75.1

million

the

Virgin

Islands

region,

and

$45.1

million

the

Florida

region.

portfolio

basis,

the

decrease

consisted

reductions

$558.2

million

residential

mortgage

loans

and

$452.0

million

commercial

and

construction

loans

(including

$261.0 million decrease

in the SBA PPP loan

portfolio), partially offset

by an increase of

$278.4 million in consumer

loans, including

$377.1

million

increase

auto

loans

and

leases.

further

discussed

below,

the

decrease

commercial

and

construction

loans

reflects, among other

things, the effect

of the payoff

of loans related

to six large

commercial relationships totaling

$211.1 million

and

the

sale

four

criticized

commercial

loan

participations

totaling

$43.1

million

the Florida

region. The

decline

the

residential

mortgage loan

portfolio reflects

the $52.5

million bulk

sale of

nonaccrual loans,

as well

as repayments

and charge

-offs, which

than offset the volume of new loan originations kept on the balance

sheet.

As of December 31,

2021, the loans held

for the Corporation’s

investment portfolio was comprised

of commercial and construction

loans

(47%),

residential

real

estate

loans

(27%),

and

consumer

and

finance

leases

(26%).

the

total

gross

loan

portfolio

held

for

investment

$11.1

billion

December

31,

2021,

the

Corporation

had

credit

risk

concentration

approximately

79%

the

Puerto Rico region,

18% in the

United States region

(mainly in the

state of Florida),

and 3% in

the Virgin

Islands region, as

shown in

the following table:

As of December 31, 2021

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,361,322

188,251

429,322

2,978,895

Commercial mortgage loans

1,635,137

67,094

465,238

2,167,469

Construction loans

38,789

4,344

95,866

138,999

Commercial and Industrial loans

(1)

1,867,082

79,515

940,654

2,887,251

Total commercial

loans

3,541,008

150,953

1,501,758

5,193,719

Consumer loans and finance leases

2,820,102

52,282

15,660

2,888,044

Total loans held

for investment, gross

8,722,432

391,486

1,946,740

11,060,658

Loans held for sale

33,002

177

1,976

35,155

Total loans, gross

8,755,434

391,663

1,948,716

11,095,813

(1) As of December 31, 2021, includes $145.0 million of SBA PPP loans

consisting of $102.8 million in the Puerto Rico region, $8.2

million in the Virgin Islands region,

and

$34.0 million in the United States region.

As of December 31, 2020

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,788,827

213,376

519,751

3,521,954

Commercial mortgage loans

1,793,095

60,129

377,378

2,230,602

Construction loans

73,619

11,397

127,484

212,500

Commercial and Industrial loans

(1)

2,135,291

129,440

937,859

3,202,590

Total commercial

loans

4,002,005

200,966

1,442,721

5,645,692

Consumer loans and finance leases

2,531,206

51,726

26,711

2,609,643

Total loans held

for investment, gross

9,322,038

466,068

1,989,183

11,777,289

Loans held for sale

44,994

681

4,614

50,289

Total loans, gross

9,367,032

466,749

1,993,797

11,827,578

(1) As of December 31, 2020, includes $406.0 million of SBA PPP loans

consisting of $301.1 million in the Puerto Rico region, $27.4

million in the Virgin Islands region,

and

$77.5 million in the United States region.

First

BanCorp.

relies

primarily

its

retail

network

branches

originate

residential

and

consumer

personal

loans.

The

Corporation

manages

its construction

and

commercial

loan originations

through

centralized

units

and

most

its originations

come

from existing customers,

as well as through referrals and direct solicitations.

The following table sets forth certain additional data (including loan production)

related to the Corporation's loan portfolio net of

the ACL on loans and finance leases as of and for the dates indicated:

For the Year

Ended December 31,

2021

2020

2019

2018

2017

(Dollars in thousands)

Beginning balance as of January 1

11,441,691

8,886,543

8,704,947

8,651,613

8,731,276

Residential real estate loans originated

and purchased

623,290

560,012

491,210

531,971

549,147

Construction loans originated

102,538

126,499

69,440

65,243

58,103

C&I and commercial mortgage loans

originated and purchased

2,994,893

2,751,058

2,411,863

1,737,366

1,729,659

Finance leases originated

240,419

152,254

178,986

164,334

93,670

Consumer loans originated

1,287,487

915,107

1,194,650

991,950

785,516

Total loans originated

and purchased

5,248,627

4,504,930

4,346,149

3,490,864

3,216,095

Loans acquired from BSPR

2,514,700

Sales of loans

(620,227)

(657,498)

(433,079)

(420,549)

(375,754)

Repayments and prepayments

(5,495,131)

(3,661,289)

(3,717,874)

(2,959,438)

(2,788,758)

Other increases (decreases)

(1)

251,823

(145,695)

(13,600)

(57,543)

(131,246)

Net (decrease) increase

(614,908)

2,555,148

181,596

53,334

(79,663)

Ending balance as of December 31

10,826,783

11,441,691

8,886,543

8,704,947

8,651,613

Percentage (decrease) increase

(5.37)%

28.75%

2.09%

0.62%

(0.91)%

_____________

(1)

Includes, among other things, the change in the ACL on loans

and finance leases and cancellation of loans due to the repossession

of the collateral and loans repurchased

Residential Real Estate Loans

As of December

31, 2021,

the Corporation’s

total residential mortgage

loan portfolio,

including held

for sale, decreased

by $558.2

million, as compared

to the balance

as of December

31, 2020. The

decline reflects reductions

in all regions

driven by repayments

and

charge-offs,

which

more than

offset

the volume

of new

loan

originations

kept

on the

balance

sheet. In

addition,

the decrease

the

residential mortgage loan portfolio

reflects the sale of $52.5 million

of non-performing residential mortgage

loans. Consistent with the

Corporation’s

strategies, the

residential mortgage

loan portfolio

decreased by

$439.5 million

in the

Puerto Rico

region, $93.1

million

in the Florida region, and $25.6

million in the Virgin

Islands region. Approximately 88%

of the $499.7 million in residential

mortgage

loan

originations

the

Puerto

Rico

region

during

2021

consisted

conforming

loan

originations

and

refinancings.

Conforming

mortgage

loans

are

generally

originated

with

the

intent

sell

the

secondary

market

GNMA

and

U.S.

government-sponsored

agencies.

The majority

of the

Corporation’s

outstanding balance

of residential

mortgage loans

in the

Puerto Rico

and Virgin

Islands regions

consisted of

fixed-rate loans

that traditionally

carry higher yields

than residential

mortgage loans

in the

Florida region.

In the

Florida

region,

approximately

55%

the

residential

mortgage

loan

portfolio

consisted

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.

Residential

mortgage

loan

originations

for

the

year

ended

December

31,

2021

amounted

$623.3

million,

compared

$560.0

million

for 2020.

The increase

in residential

mortgage loan

originations

of $63.3

million reflect

increases

of $96.0

million and

$1.6

million,

the

Puerto

Rico

and

Virgin

Islands

regions,

respectively,

partially

offset

decrease

$34.3

million

the

Florida

region.

The overall increase

reflects

the effect

of a higher

volume of

refinanced loans and

conforming loan

originations driven

by the

effect of lower mortgage

loan interest rates and increased home

purchase activity,

in particular during the first half

of the year,

and the

effect

2020

disruptions in the

loan underwriting and

closing processes caused by

the almost

two-month lockdown related to

the

COVID-19 pandemic

that was

implemented

in Puerto

Rico on

March 16,

2020.

Commercial and Construction Loans

As of

December 31,

2021, the

Corporation’s

commercial and

construction loan

portfolio decreased

by $452.0

million (including

$261.0 million

decrease in

the SBA

PPP loan

portfolio),

to $5.2

billion, as

compared to

the balance

as of

December 31,

2020.

The

decrease

in commercial

and

construction

loans was

primarily

reflected

in the

Puerto

Rico region,

which declined

by $461.0

million

(including a $198.3

million decrease in the

SBA PPP loan portfolio),

as compared to the

balance as of December

31, 2020. Excluding

the $198.3 million

decrease in the SBA

PPP loan portfolio, commercial

and construction loans in

the Puerto Rico region

decreased by

$262.7

million,

driven

the

payoff

five

large

commercial

mortgage

loan

relationships

totaling

$156.8

million,

$22.9

million

decrease

in the

outstanding balance

of loans

extended

to municipalities

and

other government

units, a

$13.8

million decrease

in the

balance of

floor plan

lines of

credit, several

commercial and

industrial term

loans individually

in excess

of $3

million that

were paid

off

during

the

2021

and

totaled

approximately

$26.5

million,

principal

repayments

that

reduced

$79.9

million

the

balance

revolving lines of credit related to ten commercial and industrial relationships

and additional repayments.

In the

Virgin

Islands region,

commercial and

construction loans

decreased by

$50.0 million

(including a

$19.2 million

decrease in

the SBA

PPP loan

portfolio) as

compared to

the balance

as of December

31, 2020.

Excluding the

$19.2 million

decrease in

the SBA

PPP loan portfolio,

commercial and construction

loans in the Virgin

Islands region decreased by

$30.8 million primarily

due to a $6.0

million repayment of a nonaccrual construction loan and the early payoff

of a $23.2 million government loan.

In the

Florida region,

commercial and

construction

loans increased

by $59.0

million (net

of a

$43.5

million

decrease in

the SBA

PPP loan

portfolio).

Excluding the

$43.0

million decrease

in the

SBA PPP

loan

portfolio, commercial

and construction

loans in

the

Florida region increased by $102.5 million, driven by

the origination of several commercial loans individually in excess of $10

million

thirteen

commercial

and

industrial

relationships

and

totaling

$249.5

million,

partially

offset

the

sale

four

criticized

commercial loan participations totaling $43.1 million and the early payoff

of a $54.3 million commercial loan.

As mentioned

above, the SBA

reactivated the

PPP in January

2021. The Corporation

originated additional

PPP loans up

to the end

the

program

May

31,

2021.

December

31,

2021,

SBA

PPP

loans,

net

unearned

fees

$7.9

million,

totaled

$145.0

million, compared

to $406.0

million as

of December

31, 2020.

In 2021,

the Corporation

originated $283.6

million in

PPP loans

and

received forgiveness remittances and customer payments

of approximately $543.6 million in the principal balance of PPP loans.

As of

December

31,

2021,

the Corporation

had

$178.4

million

outstanding

loans

extended

the Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

$201.3

million

December

31,

2020.

December

31,

2021,

approximately $100.3 million

consisted of loans

extended to municipalities

in Puerto Rico that

are supported by assigned

property tax

revenues

and

$32.2

million

consisted

municipal

special

obligation

bonds.

addition

loans

extended

municipalities,

the

Corporation’s exposure

to the Puerto Rico government

as of December 31, 2021

included $12.5 million in loans granted

to an affiliate

of PREPA

and $33.4 million in loans to an agency of the Puerto Rico central government.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

December

31,

2021,

the

Corporation

had

$39.2

million in

loans to

USVI government

and public

corporations, compared

to $61.8

million as

of December

31, 2020.

All the

amount

outstanding

December

31,

2021,

owed

the

public

corporations

the

USVI.

December

31,

2021,

all

loans

were

currently performing and up to date on principal and interest payments.

December

31,

2021,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including

unused

commitments)

amounted

$918.6

million,

compared

$882.9

million

December

31,

2020.

December

31,

2021,

approximately

$148.5

million

the

SNC

exposure

the

portfolio

Puerto

Rico

region

and

$770.1

million

the

portfolio in the Florida region.

Commercial

and

construction

loan

originations

(excluding

government

loans)

amounted

$3.1

billion

for

the

year

ended

December 31, 2021, compared to $2.8 billion

for 2020. Total commercial

and construction loan originations in 2021 include

SBA PPP

loan originations

of $283.6

million, compared

to $390.2

million in

2020.

Excluding SBA

PPP loans

and the

$184.4 million

of Main

Street

loans

originated

2020,

commercial

and

construction

loan

originations

increased

$510.9

million

compared

2020.

The

increase consisted of increases

of $184.9 million, $302.6

million, and $23.4 million

in the Puerto Rico, Florida,

and the Virgin

Islands

regions, respectively.

The increase

in 2021

reflects an

increase in

the utilization

of floor

plan and

other commercial

lines of

credit in

the Puerto Rico

region,

as compared to

2020, as well as

a higher volume

of commercial and

industrial loan originations

in the Florida

region. The increase also

reflects

the effect in 2020

of disruptions caused by the

COVID-19 pandemic and related

restrictive measures

on economic activities.

Government

loan

originations

for

2021

amounted

$62.8

million,

compared

$41.3

million

for

2020.

Government

loan

originations

both

years

primarily

consisted

the

refinancing

and

renewal

certain

facilities

both

the

Virgin

Islands

and

the

Puerto

Rico

regions,

well

the

utilization

arranged

overdraft

line

credit

government

entity

the

Virgin

Islands

region.

The

composition

the

Corporation’s

construction

loan

portfolio

held

for

investment

December

31,

2021

and

2020

category and geographic location follows:

As of December 31, 2021

Puerto Rico

Virgin Islands

United

States

Total

(In thousands)

Loans for residential housing projects:

Mid-rise

(1)

956

Single-family, detached

5,924

8,621

14,545

Total for residential housing projects

5,924

956

8,621

15,501

Construction loans to individuals secured by residential properties

Loans for commercial projects

27,839

2,251

86,348

116,438

Land loans – residential

4,137

1,137

897

6,171

Land loans – commercial

841

Total construction loan portfolio, gross

38,789

4,344

95,866

138,999

ACL

(942)

(210)

(2,896)

(4,048)

Total construction loan portfolio, net

37,847

4,134

92,970

134,951

(1)

Mid-rise relates to buildings of up to 7 stories.

As of December 31, 2020

Puerto Rico

Virgin Islands

United

States

Total

(In thousands)

Loans for residential housing projects:

Mid-rise

(1)

116

956

1,072

Single-family, detached

14,685

459

4,980

20,124

Total for residential housing projects

14,801

1,415

4,980

21,196

Construction loans to individuals secured by residential properties

Loans for commercial projects

48,185

8,635

120,888

177,708

Land loans – residential

5,685

1,347

1,616

8,648

Land loans – commercial

4,900

Total construction loan portfolio, gross

73,619

11,397

127,484

212,500

ACL

(1,752)

(880)

(2,748)

(5,380)

Total construction loan portfolio, net

71,867

10,517

124,736

207,120

(1)

Mid-rise relates to buildings of up to 7 stories.

The

following

table

presents

further

information

the

Corporation’s

construction

portfolio

and

for

the year

ended

December 31, 2021:

(Dollars in thousands)

Total undisbursed funds under existing commitments

197,917

Construction loans held for investment in nonaccrual status

2,664

Net recoveries - Construction loans

ACL - Construction loans

4,048

Nonaccrual construction loans to total construction loans

1.92

ACL of construction loans to total construction loans held

for investment

2.91

Net recoveries to total average construction loans

(0.04)

Consumer Loans and Finance Leases

As of December

31, 2021, the

Corporation’s

consumer loan and

finance lease portfolio

increased by $278.4

million to $2.9

billion,

as compared

to the portfolio

balance of

$2.6 billion

as of December

31, 2020.

The increase

primarily reflects

increases in

auto loans,

and finance leases

which increased by

$275.1 million and

$102.0 million, respectively,

partially offset by

reductions in personal

loans

and credit cards loans of $61.8

million and $29.6 million, respectively.

The growth in consumer loans is

mainly reflected in the Puerto

Rico region and was driven by an increased level of loan originations

Originations

auto

loans

(including

finance

leases)

2021

amounted

$932.7

million,

compared

$614.9

million

for

2020.

Personal

loan

originations

2021,

other

than

credit

card

loans,

amounted

$172.7

million,

compared

$123.8

million

2020. Most of

the increase

in consumer

loan originations

in 2021,

when compared

to 2020,

was in

the Puerto

Rico region,

reflecting

the

effect

2020

quarantines

and

lockdowns

non-essential

businesses

connection

with

the

COVID-19

pandemic

during

2020. The utilization activity

on the outstanding

credit card portfolio in

2021

amounted to approximately

$422.5 million, compared

$328.7 million in 2020.

Maturities of Loans Receivable

The

following

table

presents

the

loans

held

for

investment

portfolio

December

31,

2021

contractual

maturities

and

interest

rates:

After One Year

After Five Years

Total Portfolio

One Year or Less

Through Five Years

Through 15 Years

After 15 Years

(In thousands)

Residential mortgage

64,573

448,302

1,323,446

1,142,574

2,978,895

Construction loans

119,177

17,262

1,907

653

138,999

Commercial mortgage loans

821,786

1,135,248

203,547

6,888

2,167,469

C&I loans

1,156,946

1,389,138

333,884

7,283

2,887,251

Consumer loans

873,285

1,800,464

213,330

965

2,888,044

Total loans

(1)

3,035,767

4,790,414

2,076,114

1,158,363

11,060,658

Amount due in one year or less at:

Amount due after one year:

Total Portfolio

Fixed Interest Rates

Variable Interest Rates

Fixed Interest Rates

Variable Interest Rates

Residential mortgage

57,846

6,727

2,670,020

244,302

2,978,895

Construction loans

3,442

115,735

4,918

14,904

138,999

Commercial mortgage loans

578,848

242,938

818,898

526,785

2,167,469

C&I loans

258,576

898,370

516,992

1,213,313

2,887,251

Consumer loans

665,193

208,092

2,005,308

9,451

2,888,044

Total loans

(1)

1,563,905

1,471,862

6,016,136

2,008,755

11,060,658

(1)

Scheduled repayments are included in the maturity category in which the payment is due.

The amounts provided do not reflect prepayment assumptions related to the loan portfolio.

Investment Activities

As part

of its

liquidity,

revenue

diversification,

and

interest rate

risk

strategies,

First BanCorp.

maintains

an investment

portfolio

that is

classified as

available-for-sale

or held

to maturity.

The Corporation’s

total available-for-sale

investment securities

portfolio as

of December

31, 2021

amounted to $6.5

billion, a $1.8

billion increase

from December

31, 2020. The

increase was mainly

driven by

purchases

approximately

$3.4

billion

U.S.

agencies

MBS and

U.S.

agencies

callable

and

bullet

debentures,

partially

offset

prepayments of

$1.1 billion

of U.S. agencies

MBS, approximately

$267.8 million

of U.S. agencies

bonds that

matured or were

called

prior to maturity

during 2021, and

a $143.1 million decrease

in the fair value

of available-for-sale investment

securities attributable to

changes in

market interest

rates. Long-term

market interest

remain at

low levels

but are

expected to

increase during

2022 and

2023,

which

could

impact

prepayment

speed

and

valuation

the

investment

portfolio.

These

risks

are

directly

linked

future

period

market interest rate fluctuations.

December

31,

2021,

approximately

99%

the

Corporation’s

available-for-sale

securities

portfolio

was

invested

U.S.

government

and

agencies

debentures

and

fixed-rate

GSEs’

MBS

(mainly

GNMA,

FNMA,

and

FHLMC

fixed-rate

securities).

addition, as

of December

31, 2021,

the Corporation

held a

bond issued

by the

PRHFA,

classified as

available for

sale, specifically

residential pass-through

MBS in

the aggregate

amount of

$3.6 million

(fair value

- $2.9

million). This

residential pass-through

MBS

issued

the

PRHFA

collateralized

certain

second

mortgages

originated

under

program

launched

the

Puerto

Rico

government

2010

and

had

unrealized

loss

$0.7

million

December

31,

2021,

which

$0.3

million

due

credit

deterioration

and

was charged

against

earnings through

an ACL

during

2020.

Due to

deterioration

in the

delinquency

status of

the

underlying second mortgage loans of this MBS issued by the PRHFA,

the Corporation classified the investment in nonaccrual status in

the second quarter of 2021.

As of December

31, 2021,

the Corporation’s

held-to-maturity investment

securities portfolio,

before the

ACL, amounted

to $178.1

million, compared to $189.5 million

as of December 31, 2020.

As of December 31, 2021, the

ACL for held-to-maturity debt

securities

was $8.6

million, down

$0.2 million

from $8.8

million as of

December 31,

2020. Held-to-maturity

investment securities

consisted of

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

as securities,

but

which were underwritten as loans with

features that are typically found in commercial

loans. These obligations typically are

not issued

bearer

form,

are

not

registered

with

the

SEC,

and

are

not

rated

external

credit

agencies.

These

bonds

have

seniority

the

payment

operating

costs

and

expenses

the

municipality

and,

most

cases,

are

supported

assigned

property

tax

revenues.

Approximately

73% of

the Corporation’s

municipality

bonds consisted

of obligations

issued by

four of

the largest

municipalities

Puerto Rico.

The municipalities are

required by law

to levy special

property taxes

in such amounts

as are required

for the payment

all of their

respective general obligation

bonds and loans.

Given the uncertainties

as to the effects

that the fiscal

position of the

Puerto

Rico central government,

the COVID-19 pandemic,

and the measures taken,

or to be taken,

by other government entities

may have on

municipalities, the Corporation cannot be certain whether

future charges to the ACL on these securities will be required.

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

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

dates:

December 31,

2021

2020

(In thousands)

Money market investments

2,682

60,572

Investment securities available for sale, at fair value:

U.S. government and agencies obligations

2,405,468

1,187,674

Puerto Rico government obligations

2,850

2,899

MBS

4,044,443

3,455,796

Other

1,000

650

Total investment

securities available for sale, at fair value

6,453,761

4,647,019

Investment securities held to maturity,

at amortized cost:

Puerto Rico municipal bonds

178,133

189,488

ACL for held-to-maturity debt securities

(8,571)

(8,845)

169,562

180,643

Equity securities, including $21.5 million and $31.2 million of FHLB stock

as of December 31, 2021 and 2020, respectively

32,169

37,588

Total money market

investments and investment securities

6,658,174

4,925,822

MBS as of the indicated dates consisted of:

December 31,

2021

2020

(In thousands)

Available for

sale:

FHLMC certificates

1,418,670

1,149,871

GNMA certificates

388,344

699,492

FNMA certificates

1,704,585

1,320,281

Collateralized mortgage obligations issued or

guaranteed by FHLMC, FNMA or GNMA

525,610

277,724

Private label MBS

7,234

8,428

Total MBS

4,044,443

3,455,796

The carrying values of investment securities classified as available for sale and held to maturity

as of

December 31, 2021 by contractual maturity (excluding MBS) are shown

below:

Carrying

Amount

Weighted-Average

Yield %

(In thousands)

U.S. government and agencies obligations:

Due after one year through five years

1,996,352

0.61

Due after five years through ten years

393,104

0.90

Due after ten years

16,012

0.63

2,405,468

0.66

Puerto Rico government and municipalities obligations:

Due within one year

2,995

5.39

Due after one year through five years

14,785

2.35

Due after five years through ten years

90,584

4.25

Due after ten years

72,619

3.87

180,983

3.96

Other investment securities

Due within one year

500

0.72

Due after one year through five years

500

0.84

1,000

0.78

Total

2,587,451

0.89

MBS

4,044,443

1.26

ACL on held-to-maturity debt securities

(8,571)

Total investment

securities available for sale and held to maturity

6,623,323

1.11

Net

interest

income

future

periods

could

affected

prepayments

MBS.

Any

acceleration

the

prepayments

MBS

would lower yields

on these securities,

since the amortization

of premiums paid

upon acquisition of

these securities would

accelerate.

Conversely,

acceleration

the

prepayments

MBS

would

increase

yields

securities

purchased

discount,

since

the

amortization of

the discount

would accelerate.

These risks

are directly

linked to

future period

market interest

rate fluctuations.

Also,

net

interest

income

future

periods

might

affected

the

Corporation’s

investment

callable

securities.

December

31,

2021,

the Corporation

had approximately

$2.0 billion

in debt

securities (U.S.

agencies

government

securities)

with embedded

calls,

primarily purchased at par

or at a discount, and

with an average yield

of 0.66%. See “Risk Management”

below for further analysis of

the

effects

changing

interest

rates

the

Corporation’s

net

interest

income

and

the

Corporation’s

interest

rate

risk

management

strategies.

Also

refer

Note

–

Investment

Securities,

the

audited

consolidated

financial

statements

included

Item

this

Annual Report on Form 10-K, for additional information regarding

the Corporation’s investment 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 risk and reward 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 11 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.

Risk Definition

Liquidity Risk

Liquidity risk is the risk to earnings or capital arising from the possibility that the

Corporation will not have sufficient cash to meet

its short-term liquidity demands, such as from deposit redemptions or loan

commitments. See Liquidity Risk and Capital Adequacy

below for further details.

Interest Rate Risk

Interest rate risk is the risk arising from adverse movements in interest rates. See

Interest Rate Risk Management

below for further

details.

Market Risk

Market

risk

the

risk

arising

from

adverse

movements

market

rates

prices,

such

interest

rates

equity

prices.

The

Corporation

evaluates

market

risk

together

with

interest

rate

risk.

Both

changes

market

values

and

changes

interest

rates

are

evaluated and forecasted.

See

Interest Rate Risk Management

below for further details.

Credit Risk

Credit risk

is the

risk arising

from a

borrower’s or

a counterparty’s

failure to

meet the

terms of

a contract

with the

Corporation or

otherwise to perform as agreed. See

Credit Risk Management

below for further details.

Operational Risk

Operational

risk

the

risk

arising

from

problems

with

the

delivery

services

products.

This

risk

function

internal

controls,

information

systems,

employees

and

operating

processes.

also

includes

risks

associated

with

the

Corporation’s

preparedness

for

the

occurrence

unforeseen

event.

This

risk

inherent

across

all

functions,

products,

and

services

the

Corporation. See

Operational Risk

below for further details.

Legal and Regulatory Risk

Legal

and

regulatory

risk is

the risk

arising

from

the Corporation’s

failure

to comply

with laws

regulations

that can

adversely

affect the Corporation’s

reputation and/or increase its exposure to litigation or penalties.

Reputational Risk

Reputational

risk

the

risk

arising

from

any

adverse

effect

the

Corporation’s

market

value,

capital,

earnings

arising

from

negative public opinion,

whether true or not.

This risk affects the

Corporation’s

ability to establish new

relationships or services,

or to

continue servicing existing relationships.

Model Risk

Model risk

is the potential

for adverse

consequences from

decisions based

upon incorrect

or misused

model outputs

and reports

based upon

an incomplete or

inaccurate model.

The use of

models exposes the

Corporation to some

level of model

risk. Model errors

can

contribute

incorrect

valuations

and

lead

operational

errors,

inappropriate

business

decisions,

incorrect

financial

entries.

The Corporation seeks to reduce model risk through rigorous model identification

and validation.

Capital Risk

Capital risk

is the

risk that

the Corporation

may lose

value on

its capital

or have

an inadequate

capital plan,

which would

result in

insufficient capital

resources to meet

minimum regulatory

requirements (the Corporation’s

authority to operate

as a bank is dependent

upon the maintenance of adequate capital resources), support its credit rating,

or support its growth and strategic options.

Strategic Risk

Strategic

risk

the

risk

arising

from

adverse

business

decisions,

poor

implementation

business

decisions,

lack

responsiveness

changes

the

banking

industry,

and

operating

environment.

This

risk

function

the

compatibility

the

Corporation’s strategic

goals, the business strategies

developed to achieve

those goals, the resources deployed

against these goals, and

the quality of implementation.

Information Technology

Risk

Information technology

risk is

the risk

arising from

the loss of

confidentiality,

integrity,

or availability

of information

systems and

risk

cyber

incidents

data

breaches.

includes

business

risks

associated

with

the

use,

ownership,

operation,

involvement,

influence, and adoption of information technology within the Corporation.

Risk Governance

The

following

discussion

highlights

the

roles

and

responsibilities

the

key

participants

the

Corporation’s

risk

management

framework:

Board of Directors

The

Board

of Directors

oversees the

Corporation’s

overall

risk governance

program

with the

assistance

of the

Board

committees

discussed below.

Risk Committee

The Board of

Directors of the Corporation

appoints the Risk Committee

to assist the Board

in fulfilling its responsibility

to oversee

the

Corporation’s

management

its

company-wide

risk

management

framework.

The

committee’s

role

one

oversight,

recognizing

that management

is responsible

for designing,

implementing,

and maintaining

an effective

risk management

framework.

The committee’s primary

responsibilities are to:

●

Review and discuss management’s

assessment of the Corporation’s

aggregate enterprise-wide profile

and the alignment of the

Corporation’s risk profile with

the Corporation’s strategic plan,

goals, and objectives;

●

Review and recommend to the Board the parameters and establishment of

the Corporation’s risk tolerance and risk

appetite;

●

Receive

reports

from

management

and,

appropriate,

other

Board

committees,

regarding

the

Corporation’s

policies

and

procedures

the

Corporation’s

adherence

risk

limits

and

its

established

risk

tolerance

and

risk

appetite

selected risk topics;

●

Oversee the strategies,

policies, procedures, and

systems established by

management to identify,

assess, measure, and

manage

the

major

risks

facing

the

Corporation,

which

may

include

overview

the

Corporation’s

credit

risk,

operational

risk,

technology risk,

compliance risk,

interest rate

risk, liquidity

risk, market

risk, and

reputational risk,

as well

as management’s

capital management, planning,

and process;

●

Oversee management’s activities with

respect to capital planning, including stress testing and model risk;

●

Review and discuss with management risk assessments for new products

and services; and

●

Oversee the Corporation’s regulatory

compliance.

Asset and Liability Committee

The

Board of

Directors

appoints the

Asset and

Liability

Committee

to assist

the Board

in its

oversight

of the

Corporation’s

asset

and liability

management policies

related to

the management

of the

Corporation’s

funds, investments,

liquidity,

and interest

rate risk,

and the use of derivatives. In doing so, the committee’s

primary functions involve:

●

The establishment of a process to enable the identification, assessment, and

management of risks that could affect the

Corporation’s assets and liabilities management;

●

The identification of the Corporation’s

risk tolerance levels for yield maximization relating to its assets and liabilities

management; and

●

The evaluation of the adequacy,

effectiveness,

and compliance with the Corporation’s

risk management process relating to

the Corporation’s assets and liabilities management,

including management’s role in

that process.

Credit Committee

The Board of Directors appoints the Credit Committee to assist the

Board in its oversight of the Corporation’s

policies related to the

Corporation’s lending function,

hereafter “Credit Management.” The committee’s

primary responsibilities are to:

●

Review the quality of the Corporation’s

credit portfolio and the trends affecting that portfolio;

●

Oversee the effectiveness and administration of credit-related

policies;

●

Approve loans as required by the lending authorities approved by

the Board; and

●

Report to the Board regarding Credit Management.

Audit Committee

The

Board

Directors

appoints

the

Audit

Committee

assist

the

Board

Directors

fulfilling

its

responsibility

oversee

management regarding:

●

The

conduct

and

integrity

the

Corporation’s

financial

reporting

any

governmental

regulatory

body,

stockholders,

other users of the Corporation’s financial

reports and the public;

●

The performance of the Corporation’s

internal audit function;

●

The Corporation’s internal

control over financial reporting and disclosure controls and procedures;

●

The

qualifications,

engagement,

compensation,

independence,

and

performance

the

Corporation’s

independent

auditors,

their

conduct

the

annual

audit

the

Corporation’s

financial

statements,

and

their

engagement

provide

any

other

services;

●

The application of the Corporation’s

related parties transaction policy as established by the Board of Directors;

●

The

application

the

Corporation’s

code

business

conduct

and

ethics

established

management

and

the

Board

Directors;

●

The preparation

of the

Audit Committee

report required

to be

included

in the

proxy statement

for the

Corporation’s

annual

stockholders’ meeting by the rules of the SEC; and

●

Oversee the Corporation’s legal risk.

Corporate Governance and Nominating Committee

The

Board

of Directors

appoints the

Corporate

Governance

and

Nominating

Committee

to develop,

review,

and assess

corporate

governance principles.

The Corporate

Governance and

Nominating Committee

is responsible

for director

succession, orientation

and

compensation,

identifying

and

recommending

new

director

candidates,

overseeing

the

evaluation

the

Board

and

management,

recommending

the

Board

the

designation

candidate

hold

the

position

the

Chairman

the

Board,

and

directing

and

overseeing

the

Corporation’s

executive

succession

plan.

addition,

the

Corporate

Governance

and

Nominating

Committee

responsible for overseeing the Corporation’s

ESG policies.

Compensation and Benefits Committee

The

Board

Directors

appoints

the

Compensation

and

Benefits

Committee

oversee

compensation

policies

and

practices

including

the

evaluation

and

recommendation

the

Board

the

proper

and

competitive

salaries

and

incentive

compensation

programs of

the executive

officers and

key employees

of the

Corporation. The

Committee recommends

guidelines and

principles for

compensation

programs of

executive officers

and key

employees of

the Corporation,

including establishing

a clear

link between

pay

and performance and safeguards against the encouragement of excessive risk-taking.

Trust Committee

The

Board

Directors

the

Bank

appoints

the

Trust

Committee

assist

the

Board

Directors

fulfilling

its

oversight

responsibilities with respect to the Trust

Department and its fiduciary responsibilities. The

Trust Committee’s

main responsibilities are

ensure

proper

exercise

the

fiduciary

powers

the

Bank

and

review

the

activities

the

Trust

Department.

The

Trust

Committee shall have jurisdiction over all aspects of the Trust

Department and may act on behalf of the Board of Directors.

Management Roles and Responsibilities

While

the

Board

Directors

has

the

responsibility

oversee

the

risk

governance

program,

management

responsible

for

implementing

the necessary

policies and

procedures,

and internal

controls. To

carry out

these responsibilities,

the Corporation

has a

clearly

defined

risk governance

culture. To

ensure that

risk management

is communicated

at all

levels of

the Corporation,

and each

area understands

its specific

role, the

Corporation has

established several

management level

committees to

support risk

oversight, as

follows:

Executive Risk Management Committee

The

Executive

Risk

Management

Committee

responsible

for

exercising

oversight

information

regarding

First

BanCorp.’s

enterprise

risk

management

framework,

including

the

significant

policies,

procedures,

and

practices

employed

manage

the

identified

risk

categories

(credit

risk,

operational

risk,

legal

and

regulatory

risk,

reputational

risk,

model

risk,

and

capital

risk).

carrying

out

its

oversight

responsibilities,

each

committee

member

entitled

rely

the

integrity

and

expertise

those

people

providing

information

the committee

and

the

accuracy

and

completeness

such

information,

absent

actual

knowledge

inaccuracy.

The

Chief

Executive

Officer

appoints

the

Executive

Risk Management

Committee

and members

the Corporation’s

senior

and

executive management have

the opportunity to

share their insights about

the types of risks

that could impede

the Corporation’s

ability

to achieve

its business

objectives. The

Chief Risk

Officer

of the

Corporation directs

the agenda

for

the meetings

and the

Enterprise

Risk Management

(“ERM”) and

Operational Risk

Director serves

as secretary

of the

committee and

maintains the

minutes on

behalf

of the committee. The General Auditor also participates of the committee as an

observer.

The

committee

provides

assistance

and

support

the

Chief

Risk

Officer

promote

effective

risk

management

throughout

the

Corporation.

The

Chief

Risk

Officer

and

the

ERM

and

Operational

Risk

Director

report

the

Committee

matters

the

enterprise risk management framework of the Corporation, including, but not

limited to:

●

The risk governance structure;

●

The risk competencies of the Corporation;

●

The Corporation’s risk appetite

statement and risk tolerance; and

●

The risk management

strategy and associated risk

management initiatives and

how both support

the business strategy

and business model of the Corporation.

Other Management Committees

part

its

governance

framework,

the

Corporation

has

various

additional

risk

management

related-committees.

These

committees are

jointly responsible

for ensuring

adequate risk

measurement and

management in

their respective

areas of authority.

the management level, these committees include:

●

Management’s

Investment and

Asset Liability Committee

(the

“MIALCO”) – oversees

interest rate

and market

risk, liquidity

management

and

other

matters.

Refer

Liquidity

Risk

and

Capital

Adequacy

and

Interest

Rate

Risk

Management

below for further details.

●

Information Technology

Steering Committee –

oversees and counsels

on matters related

to information

technology and cyber

security, including

the development of information management policies and procedures

throughout the Corporation.

●

Bank Secrecy Act Committee – oversees, monitors,

and reports on the Corporation’s compliance

with the Bank Secrecy Act.

●

Credit Committees (consisting

of a Credit Management

Committee and a

Delinquency Committee) –

oversees and establishes

standards for credit

risk management processes

within the Corporation.

The Credit Management

Committee is responsible

for

the approval

of loans

above an

established size

threshold. The

Delinquency Committee

is responsible

for the

periodic review

(i) past-due

loans, (ii)

overdrafts,

(iii)

non-accrual

loans, (iv)

OREO assets,

and

(v)

the Bank’s

internal

credit-risk

rating

classification.

●

Vendor

Management

Committee

–

oversees

policies,

procedures,

and

practices

the

Corporation’s

vendor

management

efforts.

The

Vendor

Management

Committee’s

primary

functions

involve

the

establishment

processes

and

procedures to enable the recognition, assessment, management,

and monitoring of vendor management risks.

●

ESG

Committee

–

primarily

responsible

for

driving

the

Corporation’s

ESG

policies,

strategy

and

reporting

regularly

the

Corporate Governance and Nominating

Committee. The ESG Committee aligns

priorities and initiatives for

the year, provides

strategy recommendations and leads the reporting process on ESG related topics.

●

The Community

Reinvestment Act

Executive Committee

– oversees,

monitors,

and reports

on the

Corporation’s

compliance

with

Community

Reinvestment

Act

regulatory

requirements.

The

Bank

committed

developing

and

implementing

programs and products that

increase access to credit and

create a positive impact

on low and moderate

income individuals and

communities.

●

Anti-Fraud

Committee

–

oversees

the

Corporation’s

policies,

procedures

and

practices

relating

the

Corporation’s

anti-fraud measures.

●

Regulatory

Compliance

Committee

–

oversees

the

Corporation’s

Regulatory

Compliance

Management

System.

The

Regulatory

Compliance

Committee

reviews

and

discusses

any

regulatory

compliance

laws

and

regulations

that

impact

performance

regulatory

compliance

policies,

programs

and

procedures.

The

Regulatory

Compliance

Committee

also

ensures the coordination of regulatory compliance requirements throughout

departments and business units.

●

Regulatory Reporting Committee

– oversees and

assists the senior

officers in fulfilling

their responsibility for oversight

of the

accuracy

and

timeliness

the

required

regulatory

reports

and

policies

and

procedures,

addresses

changes

and/or

concerns

communicated

the

regulators,

and

addresses

issues

identified

during

the

regulatory

reporting

process.

The

Regulatory

Reporting

Committee

oversees,

and

updates,

necessary,

the

established

controls

and

procedures

designed

ensure that information in regulatory reports is recorded, processed, and

accurately reported and on a timely basis.

●

Complaints

Management

Committee

–

assists

overseeing

the

complaint

management

process

implemented

across

the

Corporation

within

the

Corporation’s

three

marketplaces;

Puerto

Rico,

the

Virgin

Islands,

and

Florida.

The

Complaints

Management

Committee

supports

the

Corporation’s

complaints

management

program

relating

resolution

complaints

within the

lines of

business. When

appropriate, the

Complaints Management

Committee evaluates

existing corrective

actions

within the lines of business related to complaints and complaint management practices

within those business units.

●

Project

Portfolio

Management

Committee

–

reviews

and

oversees

the

performance

the

portfolio

and

individual

projects

during

the

Project

Management

Cycle

(Initiation,

Planning,

Execution,

Control

Monitoring,

and

Closing).

The

Project

Portfolio

Management

Committee

balances

conflicting

demands

between

projects,

decides

priorities

assigned

each

project

based on

organizational

priorities

and

capacity,

and oversees

project

budgets, risks,

and

actions taken

to control

and

mitigate risks.

●

Current Expected Credit Losses (“CECL”)

Committee – oversees the Corporation’s

requirements for the calculation of CECL,

including the implementation

of new models,

if necessary,

selection of vendors

and monitoring of the

guidance from different

regulatory

agencies

with

regards

CECL

requirements.

The

CECL

Committee

reviews

estimated

credit

loss

inputs,

key

assumptions, and

qualitative overlays.

In addition,

the Committee

approves the

determination of

reasonable and

supportable

periods

used

with

respect

to macroeconomic

forecasts,

and

the

historical

loss reversion

method

and

parameters.

The CECL

Committee reports to the Audit Committee the results of the ACL each reporting

period.

●

Capital Planning

Committee –

oversees the

Capital Planning

Process and

is responsible

for operating

in accordance

with the

Capital

Policy

and

ensuring

compliance

with

its

guidelines.

The

Capital

Planning

Committee

develops

and

proposes

the

Board

changes

the

Capital

Policy

and

the

capital

plan

targets,

limits,

performance

metrics,

internal

stress

testing

and

guidelines for Capital Management Activities.

●

Business Continuity – responsible

to create governance

and planning structure that

will enable FirstBank to

craft an enterprise

Business Continuity

Management (BCM)

program that

ensures the

Bank is able

to continue business

operations after a

major

disruption occurs.

●

Emergency Committee

– Responsible to activate

and emergency or

disaster recovery procedure

to ensure the safety

of Bank’s

personnel and the continuity of critical Bank services.

Officers

As part of its governance framework, the following officers

play a key role in the Corporation’s risk

management process:

●

The Chief Executive

Officer (“CEO”) is

responsible for the

overall risk governance

structure of the Corporation.

The CEO is

ultimately responsible for business strategies, strategic objectives, risk management

priorities, and policies.

●

The

Chief Operating

Officer

(“COO”)

manages

the Corporation’s

operational

framework,

including

information

technology

(“IT”),

facilities,

banking

operations,

corporate

security,

and

enterprise

architecture.

The

COO

oversees

the

effective

and

efficient execution of the various technology initiatives

to support the Corporation’s growth and

improve overall efficiency.

●

The Chief Risk Officer

(“CRO”) is responsible for

the oversight of the

risk management of the

Corporation as well as

the risk

governance

processes.

The

CRO, together

with

the

ERM

and

Operational

Risk Director,

monitor

key

risks

and

manage the

operational

risk

program.

The

CRO

provides

the

leadership

and

strategy

for

the

Corporation’s

risk

management

and

monitoring

activities and

is responsible

for the

oversight

of regulatory

compliance, loan

review,

model risk,

and operational

risk

management.

The

CRO

supervises

talent

management

efforts,

maintains

adequate

succession

planning

practices

and

promotes

employee

engagement.

The

Human

Resources

Director

supports

the

CRO

the

human

capital

and

talent

management efforts.

●

Chief Credit Officer, Portfolio

Risk Manager, Loan Review Manager

and other Senior Executives are responsible for

managing and executing the Corporation’s

credit risk program.

●

The

Chief

Financial

Officer

(“CFO”),

together

with

the

Corporation’s

Treasurer

and

the

Asset

and

Liability

Management

(“ALM”) Director,

and Financial Risk Manager manage

the Corporation’s

interest rate and market and

liquidity risk programs

and,

together

with

the

Chief

Accounting

Officer

and

the

Corporate

Controller,

are

responsible

for

the

implementation

accounting

policies

and

practices

accordance

with

GAAP

and

applicable

regulatory

requirements.

The

ERM

and

Operational

Risk

Director

assists

the

CFO

the

review

the

Corporation’s

internal

control

over

financial

reporting

and

disclosure controls and procedures.

●

The

Chief

Accounting

Officer

and

the

Corporate

Controller

responsible

for

the

development

and

implementation

the

Corporation’s

accounting policies

and practices

and the

review and

monitoring of

critical accounts

and transactions

to ensure

that they are reported in accordance with GAAP and applicable regulatory

requirements.

●

The

Strategic

Planning

Director

responsible

for

the

development

the

Corporation’s

strategic

and

business

plan,

coordinating

and

collaborating

with

the

executive

team

and

all

corporate

bodies

concerned

with

the

strategic

and

business

planning process.

●

The Investors Relations and Capital Planning

Officer is responsible for improving

the effective communication with

investors,

while

enhancing

the

Corporation’s

capital

plan

based

the

stress

test

processes

and

proactively

managing

capital.

The

Investor

Relations

and

Capital

Planning

Officer

works

with

the

Treasury,

ALM

and

Financial

Analysis,

Corporate

Credit

Risk,

and

Strategic

Planning

units

order

holistic

approach

proactively

manage

risk

and

returns

for

shareholders under the stress testing framework.

●

The ERM and Operational Risk Director is responsible for

driving the identification, assessment, measurement, mitigation

and

monitoring of key risks throughout the Corporation. The ERM and

Operational Risk Director promotes and instills a culture of

risk

control,

identifies

and

monitors

the

resolution

major

and

critical

operational

risk

issues

across

the

Corporation,

and

serves

key

advisor

business

executives

with

regards

risk

exposure

the

organization,

corrective

actions

and

corporate

policies

and

best

practices

mitigate

risks.

The

Financial

and

Model

Risk

Manager,

Risk

Manager,

Retail

Quality Assurance Manager,

Regulatory Affairs

Manager and Corporate

Risk Managers assist

the ERM and

Operational Risk

Director in the monitoring of key risks and oversight of risk management

practices.

●

The

Compliance

Director

responsible

for

oversight

regulatory

compliance.

The

Compliance

Director

maintains

inventory of applicable regulations, implements an enterprise-wide

compliance risk assessment, and monitors compliance with

significant

regulations.

The Compliance

Director

is responsible

for

building

awareness

of,

and

educating

business units

and

subsidiaries on, regulatory risks.

●

The General

Counsel is

responsible

for

the oversight

of legal

risks, including

matters such

as contract

structuring,

litigation

risk,

and

all

legal-related

aspects.

The

Corporate

Affairs

Officer

assists

the

General

Counsel

with

various

legal

areas,

including, but not limited, to SEC reporting matters, insurance coverage

and liability, and contract

structuring.

●

The Chief

Information

Officer

(“CIO”)

is responsible

for overseeing

technology

services provided

by IT

vendors including:

(i) the

fulfillment of

contractual obligations

and responsibilities;

(ii) the

development

of policies

and standards

related to

the

technology;

(iii)

services

provided;

(iv)

billing

and

invoice

processing;

(v)

Service

Level

Agreement

(SLA)

metrics

and

compliance; and vi) the Business Continuity Strategy.

●

The Corporate

Security Officer

(“CSO”) is

responsible for

the oversight

of information

security policies

and procedures,

and

the ongoing

monitoring

of existing

and new

vendors’ due

diligence for

information security.

In addition,

the CSO

identifies

risk factors, and determines solutions to security needs.

Liquidity Risk and Capital Adequacy,

Interest Rate Risk, Credit Risk, Operational Risk,

Legal and Compliance Risk and

Concentration Risk Management

The

following

discussion

highlights

First

BanCorp.’s

adopted

policies

and

procedures

for

liquidity

risk

and

capital

adequacy,

interest rate risk, credit risk, operational risk, legal and compliance risk,

and concentration risk.

Liquidity Risk and Capital Adequacy

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,

which is

the holding

company

that owns

the banking

and non-banking

subsidiaries.

The second

is the

liquidity of

the banking

subsidiary.

During the

year

ended

December 31, 2021, the

Corporation continued to pay

quarterly interest payments on

the subordinated debentures

associated with its

TRuPs, the

monthly dividend

income on

its non-cumulative

perpetual monthly

income preferred

stock, and

quarterly dividends

its

common

stock.

addition, since

the

inception of

the

$300

million stock

repurchase program through

December 31,

2021, the

Corporation has repurchased 16.74 million

shares at

cost of

$213.9 million and

redeemed all of

its outstanding shares of

Series A

through E

Preferred

Stock for

its liquidation

value of

$36.1 million.

The

Asset

and

Liability

Committee

the

Corporation’s

Board

Directors

responsible

for

overseeing

management’s

establishment

the

Corporation’s

liquidity

policy,

well

approving

operating

and

contingency

procedures

and

monitoring

liquidity on an ongoing basis. The

MIALCO, which reports to the Board

of Directors’ Asset and Liability Committee,

uses measures

of liquidity developed by management that involve

the use of several assumptions to review the Corporation’s

liquidity position on a

monthly basis. The MIALCO oversees liquidity management, interest

rate 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 Business

Group

Director,

the Strategy

Management Director,

the Treasury

and Investments

Risk Manager,

the Financial Planning and ALM Director

and the Treasurer.

The Treasury and Investments

Division is responsible for planning and

executing the Corporation’s

funding activities and strategy,

monitoring liquidity availability on

a daily basis, and reviewing liquidity

measures

weekly

basis.

The

Treasury

and

Investments

Accounting

and

Operations

area

the

Comptroller’s

Department

responsible

for

calculating

the liquidity

measurements

used

the

Treasury

and

Investment

Division

review

the

Corporation’s

liquidity

position

monthly

basis.

The

Financial

Planning

and

ALM

Division

responsible

estimates

the

liquidity

gap

for

longer periods.

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 difficult

period, 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

maintain

the

ordinary

funding

the

banking

business.

The

MIALCO

developed

contingency

funding

plans

for

the

following

three scenarios:

a credit

rating downgrade,

an economic

cycle downturn

event, and

a concentration

event. The

Board of

Directors’

Asset and Liability Committee reviews and approves these plans on an annual

basis.

The Corporation

manages its

liquidity in

a proactive

manner,

in an

effort to

maintain a

sound liquidity

position. It

uses multiple

measures

monitor

the

liquidity

position,

including

core

liquidity,

basic

liquidity,

and

time-based

reserve

measures.

December 31,

2021, the

estimated core

liquidity reserve

(which includes

cash and

free liquid

assets) was

$5.6 billion,

or 27.0%

total

assets,

compared

$4.1

billion,

21.6%

total

assets

December

31,

2020.

The

basic

liquidity

ratio

(which

adds

available secured lines of credit to the core liquidity)

was approximately 32.7% of total assets as of December 31,

2021, compared to

27.9% of total

assets as of

December

31, 2020.

As of December

31, 2021, the

Corporation had $1.2

billion available

for additional

credit from the

FHLB. Unpledged liquid

securities, mainly fixed-rate

MBS and U.S. agency

debentures, amounted to

approximately

$3.1

billion as of

December 31, 2021.

The Corporation does

not rely on

uncommitted inter-bank

lines of credit

(federal funds lines)

to fund its

operations and does

not include them

in the basic liquidity

measure. As of

December 31, 2021,

the holding company

had

$20.8

million

cash

and

cash

equivalents.

Cash

and

cash

equivalents

the

Bank

level

December

31,

2021

were

approximately $2.5

billion. The Bank

had $100.4

million in brokered

CDs as of

December 31, 2021,

of which approximately

$63.6

million

mature

over

the

twelve

months.

addition,

the

Corporation

had

non-maturity

brokered

deposits

totaling

$247.5

million as of

December 31, 2021.

Liquidity at the

Bank level is

highly dependent

on bank deposits,

which fund

86% of the

Bank’s

assets (or 85%, excluding brokered CDs).

Furthermore, as

a provider of

financial services,

the Corporation routinely

enters into commitments

with off-balance

sheet risk to

meet the

financial needs

of its

customers. These

financial instruments

may include

loan commitments

and standby

letters of

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 December

31, 2021,

the Corporation’s

commitments to

extend credit

amounted to

approximately $2.3

billion,

which

$1.2

billion

credit

card

loans.

Commercial

and

financial

standby

letters

credit

amounted

approximately $151.1 million. Commitments

to extend credit are agreements

to lend to a customer

as long as there is

no violation of

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

the

commercial

lines

credit,

the

Corporation

has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

There

have

been

significant

unexpected draws

on existing

commitments. In

the case

of credit

cards and

personal lines

of credit,

the Corporation

can cancel

the

unused credit facility at any time and without cause.

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,

affecting 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 to make future

payments under contracts, amounting to approximately

$3.3 billion as of December

31,

2021.

Our

material

cash requirements

comprise

primarily

contractual

obligations

make

future

payments

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

to our

liquidity needs.

currently anticipate

that our

available funds,

credit

facilities, and cash flow from operations will be sufficient

to 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

funds

are

deposits,

including

brokered

deposits,

securities

sold

under

agreements

repurchase,

and

lines

credit with the FHLB.

The Asset and Liability Committee

reviews credit availability on

a regular basis. The Corporation has

also sold mortgage loans as

supplementary source

of funding and

participates in the

Borrower-in-Custody (“BIC”)

Program of the

FED. The Corporation

has also

obtained long-term funding in the past through the issuance of notes

and long-term brokered CDs.

As of December

31, 2021,

the amounts of

brokered CDs had

decreased by

$115.8 million

to $100.4

million from brokered

CDs of

$216.2 million

as of

December 31,

2020.

Non-maturity brokered

deposits, such

as money

market accounts

maintained by

a deposit

broker,

increased in

2021 by

$22.0 million

to $247.5

million as

of December

31, 2021.

Consistent with

its strategy,

the Corporation

has

been

seeking

add

core

deposits.

December

31,

2021,

the

Corporation’s

deposits,

excluding

brokered

deposits

and

government deposits,

increased by $1.4 billion to $14.2

billion, compared to $12.8 billion as of

December 31, 2020. This increase

was

primarily reflected in both commercial and retail demand deposits, partially

offset by a decrease in retail CDs.

The

Corporation

continues

have

access

financing

through

counterparties

repurchase

agreements,

the

FHLB,

and

other

agents, such

as wholesale funding

brokers. While liquidity

is an ongoing

challenge for all

financial institutions,

management believes

that

the

Corporation’s

available

borrowing

capacity

and

efforts

grow

retail

deposits

will

adequate

provide

the

necessary

funding for the Corporation’s business

plans in the foreseeable future.

The Corporation’s principal

sources of funding are discussed below:

Deposits

The following table presents the composition of total deposits as of the indicated

dates:

Weighted Average

Cost as of

As of December 31,

December 31, 2021

2021

2020

(Dollars in thousands)

Interest-bearing savings accounts

0.14%

4,729,387

4,088,969

Interest-bearing checking accounts

0.15%

3,492,645

3,651,806

CDs

0.86%

2,535,349

3,030,485

Interest-bearing deposits

0.31%

10,757,381

10,771,260

Non-interest-bearing deposits

7,027,513

4,546,123

Total

17,784,894

15,317,383

Interest-bearing deposits:

Average balance

outstanding

10,940,542

8,488,076

Non-interest-bearing deposits:

Average balance

outstanding

6,063,715

3,318,945

Weighted average

rate during

the period on interest-bearing deposits

0.38%

0.81%

Estimate of

Uninsured

Deposits

At December

31,

2021 and

2020,

the estimated

amount of

uninsured

deposits totaled

$8.9

billion

and $6.8

billion, respectively,

generally representing

the portion

of deposits

in domestic

offices that

exceed the

FDIC insurance

limit

of $250,000

and amounts

in any

other uninsured

deposit account.

The amount

of uninsured

deposits is

calculated based

on the

same

methodologies and assumptions used for our bank regulatory reporting

requirements.

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 December 31, 2021:

(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

(1)

233,079

104,043

184,501

179,085

700,708

Other uninsured deposits

23,378

9,911

14,881

4,917

53,087

(1)

Exclude $100.4 million

of CDs

issued to deposit

brokers in the

form of large

certificates of deposits

that are generally

participated out

by brokers in

shares of less

than the FDIC

insurance limit.

Brokered

CDs

– Total

brokered CDs decreased

during 2021

by $115.8

million to $100.4

million as of

December 31, 2021,

compared

to $216.2 million as of December 31, 2020.

The average remaining term to maturity of the brokered CDs outstanding

as of December 31, 2021 was approximately 1.2 years.

The

use

brokered

CDs

has

historically

been

additional

source

funding

for

the

Corporation.

provides

additional

efficient

channel

for

funding diversification

and

interest

rate management.

Brokered

CDs are

insured

the FDIC

up to

regulatory

limits; and can

be obtained faster than

regular retail deposits.

In addition, the

Corporation may obtain

funds from brokers deposited

non-maturity money market accounts tied to short-term money market rates

such as the Federal funds rate.

Government deposits

– As of

December 31,

2021, the Corporation

had $2.7 billion

of Puerto Rico

public sector deposits

($2.5 billion

in transactional accounts and $173.7 million

in time deposits), compared to $1.8 billion

as of December 31, 2020. Approximately

19%

the

public

sector

deposits

December

31,

2021

was

from

municipalities

and

municipal

agencies

Puerto

Rico

and

81%

was from

public

corporations,

the

central

government

and

agencies,

and

U.S.

federal

government

agencies

Puerto

Rico.

The

increase was primarily

related to the

funding of

certain operational

reserve accounts

of PREPA

to operate

Puerto Rico’s

electric grid,

as well as

increases in the

balance of transactional

deposit accounts of

certain municipalities in

connection with the

American Rescue

Plan Act (“ARPA”)

funding for states and local governments.

addition,

December

31,

2021,

the

Corporation

had

$568.4

million

government

deposits

the

Virgin

Islands

region

(December

31,

2020

- $280.2

million)

and

$9.6

million

the

Florida

region.

(December

31,

2020

$9.7

million).

The increase

government deposits in

the Virgin

Islands region also

reflects the effect

of ARPA

federal funds received

by the central

government in

the second quarter of 2021.

Retail deposits

– The

Corporation’s

deposit products

also include

regular savings

accounts, demand

deposit accounts,

money market

accounts,

and

retail

CDs.

Total

deposits,

excluding

brokered

deposits

and

government

deposits,

increased

$1.4

billion

$14.2

billion from

a balance of

$12.8 billion as

of December 31,

2020, reflecting

increases of $1.1

billion in the

Puerto Rico region,

$196.2

million

the

Florida

region,

and

$98.1

million

the

Virgin

Islands

region.

deposit

type

basis,

the

increase

was

primarily

reflected

in both

commercial

and

retail demand

deposits,

partially

offset

by a

decrease

in retail

CDs. The

BSPR system

conversion

resulted in a

net reclassification

of approximately

$724 million

in balances from

interest-bearing demand

deposits, and certain

saving

products, to non-interest-bearing products at the time of conversion on July

12, 2021.

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 years ended December 31, 2021 and 2020.

Borrowings

As of December 31, 2021, total borrowings amounted to $683.8 million, compared

to $923.8 million

as of December 31, 2020.

The following table presents the composition of total borrowings as of the dates indicated:

Weighted Average

Rate as of

As of December 31,

December 31, 2021

2021

2020

(Dollars in thousands)

Securities sold under agreements

to repurchase

3.35%

300,000

Advances from FHLB

2.16%

200,000

440,000

Other borrowings

2.80%

183,762

Total

683,762

923,762

Weighted average

rate during

the period

2.78%

2.47%

Securities

sold

under

agreements

repurchase

The

Corporation’s

investment

portfolio

funded

part

with

repurchase

agreements.

The

Corporation’s

outstanding

securities

sold

under

repurchase

agreements

amounted

$300

million

each

December 31,

2021 and

2020, respectively.

One of the

Corporation’s

strategies has

been the

use of

structured repurchase

agreements

and

long-term

repurchase

agreements

reduce

liquidity

risk

and

manage

exposure

interest

rate

risk

lengthening

the

final

maturities

its

liabilities

while

keeping

funding

costs

reasonable

levels.

addition

these

repurchase

agreements,

the

Corporation

has

been

able

maintain

access

credit

using

cost-effective

sources

such

FHLB

advances.

See

Note

–

Securities Sold Under Agreements to Repurchase, in the accompanying

audited consolidated financial statements included in Item 8 of

this Form 10-K, for further details about repurchase agreements outstanding

by counterparty and maturities.

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

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 is

a member of

the FHLB system

and obtains advances

to fund its

operations under a

collateral

agreement with the FHLB that requires the Bank to maintain

qualifying mortgages

and/or investments as collateral for advances taken.

As of

December 31,

2021, the

outstanding balance

of long-term

fixed rate

FHLB advances

was $200.0

million, compared

to $440.0

million as of

December 31, 2020.

As of December

31, 2021, the

Corporation had $1.2

billion available for

additional credit on

FHLB

lines of credit.

Trust-Preferred

Securities

–

2004,

FBP

Statutory

Trust

statutory

trust

that

wholly-owned

the

Corporation

and

not

consolidated

the

Corporation’s

financial

statements,

sold

institutional

investors

$100

million

its

variable-rate

TRuPs.

FBP

Statutory Trust

I used

the proceeds

of the

issuance, together

with the

proceeds of

the purchase

by the

Corporation of

$3.1 million

FBP Statutory

Trust

variable

rate

common

securities, to

purchase

$103.1

million

aggregate

principal

amount

of the

Corporation’s

junior subordinated deferrable debentures.

Also

2004,

FBP

Statutory

Trust

II,

statutory

trust

that

wholly-owned

the

Corporation

and

not

consolidated

the

Corporation’s

financial statements,

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,

purchase

$128.9

million

aggregate

principal

amount

the

Corporation’s

junior

subordinated

deferrable debentures.

The subordinated debentures

are presented in

the Corporation’s

consolidated statements of

financial condition as

other borrowings.

The variable-rate TRuPs are fully and unconditionally

guaranteed by the Corporation. The $100 million

junior subordinated deferrable

debentures

issued

the

Corporation

April

2004

and

the

$125

million

issued

September

2004

mature

June

17,

2034

and

September

20,

2034,

respectively;

however,

under

certain

circumstances,

the

maturity

the

subordinated

debentures

may

shortened (such shortening would result in a mandatory

redemption of the variable-rate TRuPs). The Collins Amendment of the Dodd-

Frank

Act

eliminated

certain

TRuPs

from

Tier

Capital.

Bank

holding

companies,

such

the

Corporation,

were

required

fully

phase out

these instruments

from Tier

I capital

by January

1, 2016;

however,

they may

remain in

Tier 2

capital until

the instruments

are redeemed or mature.

As of

each of

December 31,

2021

and 2020,

the Corporation

had subordinated

debentures outstanding

in the

aggregate amount

$183.8

million.

December

31,

2021,

the

Corporation

was

current

all

interest

payments

due

its

subordinated

debentures.

Other Sources of

Funds and Liquidity

- The Corporation’s

principal uses of funds are for

the origination of loans and the repayment

maturing deposits and borrowings.

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-

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 year

ended December 31,

2021, the

Corporation sold approximately

$191.4

million of FHA/VA

mortgage loans to GNMA, which packages them into MBS.

addition,

the

FED

has

taken

several

steps to

promote

economic

and

financial

stability

response

the significant

economic

disruption

caused by

the COVID-19

pandemic.

These

actions are

intended

to stimulate

economic

activity

by reducing

interest

rates

and provide

liquidity to

financial markets

so that

participants have

access to

needed funding.

Federal funds

target rate

remained at

range of

0% to

0.25%, making

the Primary

Credit FED

Discount Window

Program a

cost-efficient

contingent source

of funding

for

the Corporation given

the highly-volatile market

conditions. Although

currently not in

use, as of

December 31, 2021,

the Corporation

had approximately $1.2 billion available for funding under the FED’s

BIC Program.

Effect of Credit Ratings on Access to Liquidity

The

Corporation’s

liquidity

contingent

upon

its

ability

obtain

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 of 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

B+ by

S&P and

BB by

Fitch. As

of the

date hereof,

FirstBank’s

credit ratings

as a

long-term

issuer are

B1 by

Moody’s,

four notches

below their

definition

of investment

grade;

BB by

S&P,

two

notches

below

their

definition

investment

grade;

and

Fitch,

two

notches

below

their

definition

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.

Cash Flows

Cash and cash

equivalents were $2.5

billion as of

December 31, 2021,

an increase of

$1.0 billion when

compared to the

balance as

of December

31, 2020.

The following

discussion highlights

the major

activities and

transactions that

affected

the Corporation’s

cash

flows during 2021 and 2020:

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’

operating liquidity

needs for the

foreseeable

future.

For the years ended December

31, 2021 and 2020, net

cash provided by operating activities

was $399.7 million and

$297.7 million,

respectively.

Net cash generated

from operating

activities was higher

than reported

net income,

largely as

a result of

adjustments for

items such as deferred

income tax, depreciation,

and amortization, as

well as the cash

generated from sales of

loans held for sale,

and,

in 2020, the provision for credit losses expense.

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 investment

securities. For

the year

ended

December

31, 2021,

net cash

used in

investing

activities

was

$1.3

billion,

primarily

due

purchases

U.S.

agencies

investment

securities

and

liquidity

used

fund

commercial and

consumer loan

originations, partially

offset by

principal collected

on loans

and U.S.

agencies MBS

prepayments,

well as proceeds from U.S. agencies bonds called prior to

maturity, the bulk sale of

residential mortgage nonaccrual loans, and the sale

of criticized commercial and construction loans

For the year

ended December 31,

2020, net cash

used in investing

activities was $1.2

billion, primarily

resulting from purchases

U.S.

agencies,

MBS and

the funding

commercial

and

consumer

loan

originations,

partially

offset

by principal

collected

on loans

and

U.S. agencies

MBS prepayments,

proceeds from

U.S. agencies

bonds

that matured

or were

called

prior

to maturity,

and

the

excess of cash acquired in the BSPR acquisition over the cash consideration

paid at closing.

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

year

ended

December 31,

2021,

net

cash

provided

financing

activities

was $1.9

billion,

mainly

reflecting an

increase

non-brokered deposits, partially offset

by dividends paid on common and preferred

stock, repurchases of common and preferred

stock,

and repayment of matured FHLB advances and brokered CDs.

For the

year ended

December 31,

2020, net

cash provided by

financing activities

was $1.8

billion, mainly

reflecting an

increase in

non-brokered

deposits

and,

lesser

extent,

proceed

from

the

early

cancellation

long-term

reverse

repurchase

agreements

that

were previously

offset against

variable-rate repurchase

agreements, partially

offset by

dividends paid

on common and

preferred stock

and repayment of matured FHLB advances.

100

Capital

As of December 31, 2021, the Corporation’s

stockholders’ equity was $2.1 billion, a decrease

of $173.4 million from December 31,

2020. The decrease

was driven by

the approximately $317.8

million of capital

returned to the

Corporation’s

stockholders during 2021

consisting of:

(i) the

repurchase of

16.7 million

shares of

common stock

for a

total purchase

price of

approximately $213.9

million;

(ii) common

and preferred

stock dividends

totaling $67.8

million; and

(iii) the

redemption of

all of

its outstanding

shares of

Series A

through E

Preferred Stock

for its total

liquidation value

of $36.1

million. The

decrease in

total stockholders’

equity also

included the

effect of

a $139.5

million decrease

in Other

Comprehensive Income

mostly attributable

to the

decrease in

the fair

value of

available-

for-sale investment

securities. These variances

were partially offset

by earnings generated

during 2021.

The Corporation

increase its

common stock dividend

twice during 2021,

increasing the quarterly

dividend rate from

$0.05 in the fourth

quarter of 2020

to $0.07 in

the first

quarter of

2021 and

$0.10 in

the fourth

quarter of

2021.

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

the

consideration and approval by the Corporation’s

Board of Directors at the relevant times.

On April

26, 2021,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation may

repurchase up

to $300 million

of its outstanding

stock, commencing

in the second

quarter of

2021 through June

30,

2022.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

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

will

subject

various

factors,

including

the

Corporation’s

capital

position,

liquidity,

financial performance and

alternative uses of capital, stock

trading price, and

general market conditions.

The repurchase program may

be modified,

extended, suspended,

or terminated

at any

time at the

Corporation’s

discretion and

includes the

redemption of

the $36.1

million

outstanding

the

Corporation’s

Series

through

Noncumulative

Perpetual

Monthly

Income

Preferred

Stock.

The Corporation’s

share repurchase program

does not obligate

it to acquire

any specific number

of shares.

As of December

31, 2021,

the

Corporation

had

remaining

authorization

to repurchase

approximately

$50

million

of common

stock under

the

stock repurchase

program.

During

the first

quarter

of 2022,

the Corporation

repurchased

3.4

million

shares of

common

stock for

the

remaining $50

million

authorized under the aforementioned

$300 million stock repurchase

program.

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.

Set forth below are First BanCorp.'s and FirstBank's regulatory capital

ratios as of December 31, 2021 and 2020:

Banking Subsidiary

To be well

capitalized -

thresholds

First BanCorp.

(1)

FirstBank

(1)

As of December 31,

2021

Total capital ratio (Total

capital to risk-weighted assets)

20.50%

20.23%

10.00%

CET1 capital ratio

(CET1 capital to risk-weighted assets)

17.80%

18.12%

6.50%

Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)

17.80%

19.03%

8.00%

Leverage ratio

10.14%

10.85%

5.00%

Banking Subsidiary

To be well

capitalized -

thresholds

First BanCorp.

(1)

FirstBank

(1)

As of December 31, 2020

Total capital ratio (Total

capital to risk-weighted assets)

20.37%

19.91%

10.00%

CET1 capital ratio

(CET1 capital to risk-weighted assets)

17.31%

16.05%

6.50%

Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)

17.61%

18.65%

8.00%

Leverage ratio

11.26%

11.92%

5.00%

(1)

As permitted by the regulatory capital framework, the Corporation

elected to delay for two years the day-one impact related to

the adoption of CECL on January 1, 2020

plus 25% of the change in the ACL from January 1, 2020 to

December 31, 2021. Such effects, will be phased

in at 25% per year beginning on January 1, 2022.

101

The

Corporation

and

FirstBank

compute

risk-weighted

assets

using

the

standardized

approach

required

U.S.

Basel

III

capital

rules (“Basel

III rules”).

The Basel

III rules

require the

Corporation to

maintain an

additional capital

conservation buffer

of 2.5%

additional

CET1 capital

to avoid

limitations

on both

(i) capital

distributions

(

e.g.

, repurchases

capital instruments,

dividends

and

interest

payments

capital

instruments),

and

(ii)

discretionary

bonus

payments

executive

officers

and

heads

major

business

lines.

Under

the

Basel

III

rules,

order

considered

adequately

capitalized

and

not

subject

the

above

noted

limitations,

the

Corporation is

required to

maintain: (i) a

minimum CET1

capital to risk-weighted

assets ratio of

at least 4.5%,

plus the 2.5%

“capital

conservation buffer,”

resulting in a required

minimum CET1 capital

ratio of at

least 7%; (ii) a

minimum ratio of

total Tier 1

capital to

risk-weighted assets of at least

6.0%, plus the 2.5%

capital conservation buffer,

resulting in a required minimum

Tier 1 capital ratio

8.5%;

(iii)

minimum

ratio

total

Tier

plus

Tier

capital

risk-weighted

assets

least

8.0%,

plus

the

2.5%

capital

conservation buffer,

resulting in

a required

minimum total

capital ratio

of 10.5%;

and (iv)

a required

minimum leverage

ratio of

4%,

calculated as the ratio of Tier 1 capital to average

on-balance sheet (non-risk adjusted) assets.

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,

at the election

of a qualified

banking organization,

the initial impact

to retained

earnings

the

adoption

CECL

plus 25%

the

change

the

ACL

(excluding

PCD

loans)

from

January

2020

December

31,

2021

will

delayed

for

two

years

and

phased-in

at 25%

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

Accordingly,

December

31,

2021,

the

capital

measures

the

Corporation and

the Bank

shown in the

table above

excluded $64.8 million

that represents the

initial impact

to retained

earnings plus

25% of the increase in the ACL (as defined in the interim final rule)

from January 1, 2020 to December 31, 2021. The federal financial

regulatory agencies may

take other measures

affecting regulatory capital

to address the COVID-19

pandemic, although the

nature and

impact of such measures cannot be predicted at this time.

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 equity

less

preferred

equity,

goodwill,

core

deposit intangibles,

purchased credit card

relationship intangible

assets and insurance

customer relationship

intangible asset. Tangible

assets

are

total

assets

less

intangible

assets

such

goodwill,

core

deposit

intangibles,

purchased

credit

card

relationships

and

insurance customer asset relationships. See “Basis of Presentation”

below for additional information.

102

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 December 31, 2021 and 2020, respectively:

December 31,

(In thousands, except ratios and per share information)

2021

2020

Total equity

- GAAP

2,101,767

2,275,179

Preferred equity

(36,104)

Goodwill

(38,611)

(38,632)

Purchased credit card relationship intangible

(1,198)

(4,733)

Core deposit intangible

(28,571)

(35,842)

Insurance customer relationship intangible

(165)

(318)

Tangible common

equity

2,033,222

2,159,550

Total assets - GAAP

20,785,275

18,793,071

Goodwill

(38,611)

(38,632)

Purchased credit card relationship intangible

(1,198)

(4,733)

Core deposit intangible

(28,571)

(35,842)

Insurance customer relationship intangible

(165)

(318)

Tangible assets

20,716,730

18,713,546

Common shares outstanding

201,827

218,235

Tangible common

equity ratio

9.81%

11.54%

Tangible book

value per common share

10.07

9.90

The Banking Law

of the Commonwealth of

Puerto Rico requires that

a minimum of 10%

of FirstBank’s

net income for the

year be

transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital on

common and

preferred stock.

Amounts

transferred

the

legal

surplus

reserve

from

retained

earnings

are

not

available

for

distribution

the

Corporation,

including

for

payment

as dividends

to the

stockholders,

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

the

expenditures

over

receipts

must

charged

against

the

undistributed

profits

the

bank,

and

the

balance,

any,

must

charged against

the legal

surplus reserve,

as a

reduction thereof.

If the

legal surplus

reserve is

not sufficient

to cover

such balance

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.

During the

years ended

December

31, 2021 and

2020, the Corporation

transferred $28.3 million

and $11.7

million, respectively,

to the legal

surplus reserve. FirstBank’s

legal

surplus

reserve,

included

part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted to $137.6 and $109.3 million as of December 31, 2021

and 2020, respectively.

103

Interest

Rate Risk

Management

First

BanCorp

manages

its

asset/liability

position

limit

the

effects

changes

interest

rates

net

interest

income

and

maintain a stable

level of profitability under

varying interest rate scenarios.

The MIALCO oversees

interest rate risk, and,

in doing so,

the

MIALCO assesses,

among

other things,

current and

expected conditions

in world

financial markets,

competition and

prevailing

rates in the local deposit market, liquidity,

the pipeline of loan originations, securities market values, recent

or proposed changes to the

investment

portfolio,

alternative

funding

sources and

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 a monthly

and/or quarterly basis, the

Corporation performs a

consolidated net interest

income simulation analysis

to estimate the

potential change

in future

earnings from

projected changes

in interest

rates. These

simulations are

carried out

over a

one-to-five-year

time horizon and

assumes upward and

downward yield curve

shifts. The rate

scenarios considered in

these simulations reflect

gradual

upward

and

downward

interest

rate

movements

200

basis

points

during

twelve-month

period.

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

re-pricing 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 date of the simulations.

These

simulations

are

highly complex

and

are based

on many

assumptions

that are

intended

to reflect

the general

behavior

the

balance sheet components over

the period in question.

It is unlikely that actual

events will match these

assumptions in most cases.

For

this reason,

the results of

these forward-looking

computations are only

approximations of the

true sensitivity of

net interest income

changes in

market interest

rates. The

Corporation uses

several benchmarks

and market rate

curves in

the modeling

process, primarily

the

LIBOR/SWAP

curve,

Prime

Rate,

Treasury,

FHLB

rates,

brokered

CDs

rates,

repurchase

agreements

rates

and

the

years

mortgage commitment rate.

December

31,

2021,

the

Corporation

forecasted

the

12-month

net

interest

income

assuming

January

31,

2022

interest

rate

curves remain constant. Then,

net interest income was estimated

under rising and falling rates

scenarios. For rising rates

scenarios, the

Corporation

assumed

gradual

(ramp)

parallel

upward

shift

the

yield

curve

during

the

first

twelve

months

(the

“+200

ramp”

scenario). Conversely,

for the falling rates scenario,

it assumed a gradual (ramp) parallel downward

shift of the yield curves during

the

first

twelve

months

(the

“-200 ramp”

scenario).

However,

given

the current

low levels

interest

rates

and rate

compression

the

short term, along

with the current yield

curve slope, a

full downward shift

of 200 basis points

would represent an

unrealistic scenario.

Therefore,

under

the

falling

rate

scenario,

rates

move

downward

200

basis

points,

but

without

reaching

zero.

The

resulting

scenario shows interest rates close to zero in most cases, reflecting a flattening

yield curve instead of a parallel downward scenario.

The

Libor/Swap

curve

for

January

2022,

compared

December

2020,

reflected

basis

points

increase

the

short-term

horizon, between

one to 12

months, while market

rates increased by

126 basis points

in the medium

term, that is

between two

to five

years. In the

long-term, that is

over a five-year-time

horizon, market rates

increased by 93

basis points, as

compared to December

31,

2020

levels.

similar

pattern

market

rates

changes

were

observed

the

Treasury

curve

for

the

short,

medium,

and

long-term

horizons mentioned above with

a 26 basis points increase

in the short-term horizon, 123

basis points increase in the

medium term, and

65 basis points increase in the long-term horizon.

104

The following table presents the results of the simulations as of December 31, 2021

and 2020.

Consistent with prior years, these

exclude non-cash changes in the fair value of derivatives:

December 31, 2021

December 31, 2020

Net Interest Income Risk

(Projected for the next 12 months)

Static Simulation

Growing Balance Sheet

Static Simulation

Growing Balance Sheet

(Dollars in millions)

Change

% Change

Change

% Change

Change

% Change

Change

% Change

+ 200 bps ramp

34.5

4.81

39.1

5.17

32.3

4.53

36.0

4.96

- 200 bps ramp

(12.2)

(1.70)

(13.5)

(1.78)

(12.1)

(1.69)

(13.9)

(1.91)

The Corporation continues

to manage

its balance

sheet structure

to control

and limit

the overall

interest rate

risk. As

of December

31,

2021,

the

simulations

showed

that

the

Corporation

continues

maintain

asset-sensitive

position.

The

Corporation

has

continued repositioning the balance

sheet and improving the

funding mix, mainly driven

by increasing the average

balance of interest-

bearing deposits

with low-rate

elasticity and non

-interest-bearing deposits,

and reductions

in brokered

CDs, time deposits,

and FHLB

Advances.

The above-mentioned

growth in

deposits, along

with proceeds

from loan

repayments, U.S.

agency bonds

that matured

were

called

prior

maturity

and

prepayments

agency

MBS,

that

have

been

reinvested

contributed

fund

the

continued

increase in the investment securities portfolio, while maintaining higher

liquidity levels.

The increased

net interest

income sensitivity

for the +200bps

ramp as

compared to

December 31,

2020 was

driven by higher

cash

balances

with

short

term

repricing,

increase

the

investment

securities

portfolio

balance,

lower

prepayment

cash

flows

the

investment securities portfolio

due to the level

of securities purchased

during 2021 under a

low interest rate

environment as compared

to the higher

rates forecasted in

the short, medium

and long-term tenors,

and lower balances in

certificate of deposits.

The decrease in

net interest

income sensitivity

for the

-200bps ramp

under the

growing balance

sheet scenario

was driven

by the

current low

level of

interest

rates

that

resulted

reduced

prepayments

the

investment

securities

portfolio

lower

impact

from

short

term

repricing

categories.

Also, as

a result

of this

lower

rate environment,

near

floor levels,

a full

down parallel

movement of

-200bps will

not be

possible.

Taking

into consideration

the above-mentioned

facts for

modeling purposes,

as of December

31, 2021,

the net interest

income for

the

months

under

growing

balance

sheet

scenario

was

estimated

increase

$39.1

million

the

rising

rate

scenario,

compared to an

estimated increase of

$36.0 million as

of December 31,

2020.

Under the falling

rate, growing balance

sheet scenario,

the

net

interest

income

was

estimated

decrease

$13.5

million,

compared

estimated

decrease

$13.9

million

December 31, 2020,

reflecting the effect

of current low levels

of market interest

rates on the base

scenario and the model

assumptions

for the falling rate scenarios described above (i.e., no negative interest rates

modeled).

105

Derivatives

First

BanCorp.

uses derivative

instruments

and

other

strategies

manage

its exposure

interest

rate

risk

caused

changes

interest rates beyond management’s

control.

The following summarizes major strategies, including derivative activities

that the Corporation uses in managing interest rate risk:

Interest Rate

Cap Agreements

- Interest rate

cap agreements provide

the right to receive

cash if a referen

ce interest rate rises

above

a contractual

rate. The

value of

the interest

rate cap

increases as

the reference

interest rate

rises. The

Corporation enters

into interest

rate cap agreements for protection from rising interest rates.

Forward Contracts

- Forward contracts

are sales of TBA

MBS that will

settle over the

standard delivery date

and do not qualify

“regular-way”

security

trades.

Regular-way

security

trades

are

contracts

that

have

net

settlement

provision

and

market

mechanism

facilitate

net

settlement

and

that

provide

for

delivery

security

within

the

timeframe

generally

established

regulations

conventions

the

market-place

exchange

which

the

transaction

being

executed.

The

forward

sales

are

considered derivative

instruments that

need to be

marked-to-market. The

Corporation uses

these securities

to economically

hedge the

FHA/VA

residential

mortgage

loan

securitizations

the

mortgage-banking

operations.

The

Corporation

also

reports

forward

contracts the

mandatory mortgage

loan sales

commitments entered

into with

GSEs that

require or

permit net

settlement via

a pair-off

transaction

the

payment

pair-off

fee.

Unrealized

gains

(losses)

are

recognized

part

mortgage

banking

activities

the

consolidated statements of income.

Interest

Rate

Lock

Commitments

–

Interest

rate

lock

commitments

are

agreements

under

which

the

Corporation

agrees to

extend

credit to

a borrower

under certain

specified terms

and conditions

in which

the interest

rate and

the maximum

amount of

the loan

are

set prior

to funding.

Under each

agreement, the

Corporation commits

to lend

funds to

a potential

borrower generally

on a

fixed rate

basis, regardless of whether interest rates change in the market.

Interest rate

swaps

– The

Corporation acquired

interest rate

swaps as

a result

of the

BSPR acquisition.

An interest

rate swap

is an

agreement between

two entities to

exchange cash flows

in the future.

The agreements acquired

from BSPR consist

of the Corporation

offering

borrower-facing

derivative

products using

a “back-to-back”

structure in

which the

borrower-facing

derivative transaction

paired with

an identical,

offsetting transaction

with an

approved dealer-counterparty.

By using

a back-to-back

trading structure,

both

the commercial

borrower and

the Corporation

are largely

insulated from

market risk

and volatil

ity.

The agreements

set the

dates on

which the cash flows

will be paid and

the manner in which the

cash flows will be

calculated. The fair value

of interest rate swaps

are

recorded as components

of other assets

in the Corporation’s

consolidated statements

of financial condition.

Changes in the

fair values

interest

rate

swaps,

which

occur

due

changes

interest

rates,

are

recorded

the

consolidated

statements

income

component of interest income on loans.

For detailed information regarding

the volume of derivative activities (

e.g.

, notional amounts), location

and fair values of derivative

instruments

the

consolidated

statements

financial

condition

and

the

amount

gains

and

losses

reported

the

consolidated

statements of

income, see

Note 34

- Derivative

Instruments and

Hedging

Activities, to

the audited

consolidated financial

statements

included in Item 8 of this Annual Report on Form 10-K.

106

The following tables summarize the fair value changes in the Corporation’s

derivatives, as well as the sources of the fair values, as of

or for the indicated dates or periods:

Asset Derivatives

Liability Derivatives

Year

Ended

Year

Ended

(In thousands)

December 31, 2021

Fair value of contracts outstanding at the beginning of the year

2,482

(1,920)

Changes in fair value during the year

(977)

742

Fair value of contracts outstanding as of December 31, 2021

1,505

(1,178)

Sources of Fair Value

Payment due by Period

Maturity

Less Than

One Year

Maturity

1-3 Years

Maturity

3-5 Years

Maturity in

Excess of 5

Years

Total Fair

Value

(In thousands)

As of December 31, 2021

Pricing from observable market inputs

- Asset Derivatives

399

1,098

1,505

Pricing from observable market inputs - Liability Derivatives

(78)

(8)

(1,092)

(1,178)

321

327

Derivative instruments,

such as

interest rate

caps, are

subject to

market risk.

As is

the case

with investment

securities, the

market

value

derivative

instruments

largely

function

of the

financial

market’s

expectations

regarding

the future

direction

interest

rates.

Accordingly,

current

market

values

are

not

necessarily

indicative

the

future

impact

derivative

instruments

earnings.

This will depend, in part, on the level of interest rates, as well as the expectations

for rates in the future.

December

31,

2021

and

2020,

the

Corporation

considered

all

its

derivative

instruments

undesignated

economic

hedges.

The

use

derivatives

involves

market

and

credit

risk.

The

market

risk

derivatives

stems

principally

from

the

potential

for

changes in

the value

of derivative

contracts based

on changes

in interest

rates. The

credit risk

of derivatives

arises from

the potential

for

default of

the counterparty.

manage

this credit

risk, the

Corporation

deals with

counterparties

that it

considers

to be

of good

credit

standing,

enters

into

master

netting

agreements

whenever

possible

and,

when

appropriate,

obtains

collateral.

Master

netting

agreements

incorporate

rights

set-off

that

provide

for

the

net

settlement

contracts

with

the

same

counterparty

the

event

default.

107

Credit Risk

Management

First BanCorp.

is subject to credit

risk mainly with

respect to its portfolio

of loans receivable

and off-balance-sheet

instruments,

mainly

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 as for

loans made by

the Bank. See

“Liquidity Risk and Capital Adequacy” above for

further details. The Corporation manages its credit risk

through its

credit policy,

underwriting,

independent

loan review

and quality

control

procedures,

statistical

analysis,

comprehensive

financial

analysis,

and

established

management

committees.

The

Corporation

also

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. In

the

case

the

commercial and

industrial, commercial

mortgage and

construction

loan portfolios,

the Special Asset

Group (“SAG”)

focuses on 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

of default

in the securities

portfolio.

The securities

held

by 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 to achieve the Corporation’s credit risk goals and objectives.

Management

has documented

these goals

and objectives

in the

Corporation’s

Credit Policy.

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 be

subject to significant

change. 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.

December

31,

2021,

the

ACL

for

loans

and

finance

leases

was

$269.0

million,

down

$116.9

million

from

December

31,

2020.

The

decrease

the

ACL

for

loans

and

finance

leases

primarily

reflects

improvement

the

outlook

macroeconomic

variables to

which the

reserve is

correlated,

as well

as charge-offs

taken against

the previously-established

$20.9 million

reserve for

residential

mortgage

nonaccrual

loans

sold

the

third

quarter

2021.

Refer

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, in the audited consolidated financial

statements included in Item 8 of this Annual Report on

Form 10-

K, for additional information for description of the methodologies used

by the Corporation to determine the ACL.

The ratio

of the

ACL for

loans and

finance leases

to total

loans held

for investment

decreased to

2.43% as

of December

31, 2021,

compared to

3.28% as

of December

31, 2020.

On a

non-GAAP basis,

excluding SBA

PPP loans,

the ratio

of the

ACL for

loans and

finance leases to adjusted total

loans held for investment was 2.46%

as of December 31, 2021, compared

to 3.39% as of December 31,

2020.

For

the

definition

and

reconciliation

this

non-GAAP

financial

measure,

refer

the

discussion

“Basis

Presentation”

below. An explanation

of the change for each portfolio follows:

●

The

ACL

total

loans

ratio

for

the

residential

mortgage

portfolio

decreased

from

3.42%

December

31,

2020

2.51% as of

December 31, 2021.

The reduction is mainly

related to the bulk

sale of residential mortgage

nonaccrual in the

third quarter, as well as reductions related to

the improvement in the outlook of macroeconomic variables.

●

The

ACL to

total

loans

ratio

for

the

commercial

mortgage

portfolio

decreased

from

4.90% as

December

31,

2020

2.43%

as of December 31, 2021,

primarily reflecting an improvement

in the outlook of macroeconomic

variables to which

108

the

reserve

correlated,

including

improvements

the

commercial

real

estate

price

index

and

unemployment

rate

forecasts.

●

The ACL to total

loans ratio for the

commercial and industrial portfolio

increased slightly from 1.18%

as of December 31,

2020

1.19%

December

31,

2021.

non-GAAP

basis,

excluding

SBA

PPP

loans,

the

ratio

the

ACL

for

commercial

and

industrial

loans

adjusted

total

commercial

and

industrial

loans

held

for

investment

was

1.25%

December 31, 2021, compared

to 1.36% as of December

31, 2020, primarily reflecting the

effect of an improvement

in the

outlook

macroeconomic

variables

which

the

reserve

correlated,

including

improvements

unemployment

rate

forecasts and overall continued growth of gross domestic product

in the U.S. mainland.

●

The ACL

to total

loans ratio

for the

construction loan

portfolio increased

from 2.53%

as of

December 31,

2020 to

2.91%

December

31,

2021,

primarily

reflecting

the

effect

updated

borrowers’

financial

metrics,

partially

offset

the

release of the

reserve previously-established

for the $6.0

million nonaccrual construction

loan repaid in

the first quarter

2021.

●

The ACL to

total loans ratio

for the consumer

loan portfolio decreased

from 4.33% as

of December

31, 2020

to 3.57% as

December

31,

2021,

primarily

improvements

macroeconomic

variables,

well

the

shift

the

composition

this

portfolio

that

experienced

increases

in auto

loans

and

finance

leases

and

reductions

personal

and

small loan portfolios that carried a higher ACL coverage.

The ratio

of the

total ACL

for loans

and finance

leases to

nonaccrual

loans held

for investment

was 242.99%

as of

December 31,

2021, compared to 188.16% as of December 31, 2020.

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.

As shown

in the

following

table, the

ACL for

loans and

finance leases

amounted

to $269.0

million as

of December

31,

2021, or

2.43% of

total loans,

compared with

$385.9 million,

or 3.28%

of total

loans, as

of December

31, 2020.

See “Results

of Operation

Provision for Credit Losses” above for additional information.

109

The following table sets forth an analysis of the activity in the ACL for loans and finance

leases during the periods indicated:

Year Ended December

31,

2021

2020

2019

2018

2017

(Dollars in thousands)

Allowance for credit losses for loans and finance leases,

beginning of year

385,887

155,139

196,362

231,843

205,603

Impact of adopting CECL

81,165

Initial allowance on PCD loans

28,744

Provision for credit losses - (benefit) expense:

Residential mortgage

(1)

(16,957)

22,427

14,091

13,202

50,744

Commercial mortgage

(2)

(55,358)

81,125

(1,697)

23,074

30,054

Commercial and Industrial

(3)

(8,549)

6,627

(13,696)

(8,440)

1,018

Construction

(4)

(1,408)

2,105

(1,496)

7,032

4,835

Consumer and finance leases

(5)

20,552

56,433

43,023

24,385

57,603

Total provision for credit losses

- (benefit) expense

(6)

(61,720)

168,717

40,225

59,253

144,254

Charge-offs:

Residential mortgage

(33,294)

(11,017)

(22,742)

(24,775)

(28,186)

Commercial mortgage

(1,494)

(3,330)

(15,088)

(23,911)

(39,092)

Commercial and Industrial

(1,887)

(3,634)

(7,206)

(9,704)

(19,855)

Construction

(87)

(76)

(391)

(8,296)

(3,607)

Consumer and finance leases

(43,948)

(46,483)

(52,160)

(50,106)

(44,030)

Total charge offs

(80,710)

(64,540)

(97,587)

(116,792)

(134,770)

Recoveries:

Residential mortgage

4,777

1,519

2,663

3,392

2,437

Commercial mortgage

281

1,936

398

7,925

270

Commercial and Industrial

6,776

3,192

3,554

1,819

5,755

Construction

163

184

665

334

732

Consumer and finance leases

13,576

9,831

8,859

8,588

7,562

Total recoveries

25,573

16,662

16,139

22,058

16,756

Net charge-offs

(55,137)

(47,878)

(81,448)

(94,734)

(118,014)

Allowance for credit losses for loans and finance leases,

end of year

269,030

385,887

155,139

196,362

231,843

Allowance for credit losses for loans and finance leases to

year-end total

loans held for investment

2.43%

3.28%

1.72%

2.22%

2.62%

Net charge-offs to average loans outstanding

during the year

0.48%

0.91%

1.09%

1.33%

Provision for credit losses - (benefit) expense for loans and

finance leases to net charge-offs

during the year

-1.12x

3.52x

0.49x

0.63x

1.22x

Provision for credit losses - (benefit) expense for loans and

finance leases to net charge-offs

during the year, excluding the effect of

the hurricane-related reserve releases/charges

in 2019, 2018 and 2017 (7)

-1.12x

3.52x

0.57x

0.80x

0.62x

(1)

Net of a $0.4 million net loan loss reserve release for the year ended December 31,

2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For

the year ended December

31, 2017, includes a charge to the provision of $14.6 million associated with the effects

of Hurricanes Irma and Maria.

(2)

Net of a $1.9 million net loan loss reserve release for the year ended December 31,

2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For

the year ended December

31, 2017, includes a charge to the provision of $12.1 million associated with the effects

of Hurricanes Irma and Maria.

(3)

Net of loan loss reserve releases

of $3.4 million and $5.5

million for the years ended December

31, 2019 and 2018, respectively,

associated with revised estimates of the effects

of Hurricanes Irma

and Maria. For the year ended December 31, 2017, includes a charge to the provision of $15.9 million

associated with the effects of Hurricanes Irma and Maria.

(4)

Net of a $0.7 million net loan loss reserve release for the year ended December 31,

2018 associated with revised estimates of the effects of Hurricanes Irma and Maria. For

the year ended December

31, 2017, includes a charge to the provision of $3.7 million associated with the effects

of Hurricanes Irma and Maria.

(5)

Net of loan reserve releases of

$3.0 million and $8.4 million

for the years ended December 31,

2019 and 2018, respectively,

associated with revised estimates of

the effects of Hurricanes

Irma and

Maria. For the year ended December 31, 2017, includes a charge to the provision of $25.0

million associated with the effects of Hurricanes Irma and Maria.

(6)

Net of loan reserve releases of $6.4 million and $16.9

million for the years ended December 31, 2019 and 2018,

respectively, associated with revised estimates

of the effects of Hurricanes Irma and

Maria. For the year ended December 31, 2017, includes a provision of $71.3 million associated with the effects

of Hurricanes Irma and Maria.

(7)

Non-GAAP financial measure, see "Basis of Presentation" below for a reconciliation of this measure.

110

The following table sets forth information concerning the allocation of the Corporation’s

ACL for loans and finance leases by loan

category and the percentage of loan balances in each category to the total of

such loans as of the dates indicated:

As of December 31,

2021

2020

2019

2018

2017

Amount

Loan

portfolio

to total

loans

Amount

Loan

portfolio

to total

loans

Amount

Loan

portfolio

to total

loans

Amount

Loan

portfolio

to total

loans

Amount

Loan

portfolio

to total

loans

(Dollars in thousands)

Residential mortgage loans

74,837

27%

120,311

30%

44,806

33%

50,794

36%

58,975

37%

Commercial mortgage loans

52,771

20%

109,342

19%

39,194

16%

55,581

17%

48,493

18%

Construction loans

4,048

5,380

2,370

3,592

4,522

Commercial and Industrial loans

34,284

26%

37,944

27%

15,198

25%

32,546

24%

48,871

24%

Consumer loans and finance leases

103,090

26%

112,910

22%

53,571

25%

53,849

22%

70,982

20%

269,030

100%

385,887

100%

155,139

100%

196,362

100%

231,843

100%

The following table sets forth information concerning the composition of the

Corporation's loan portfolio and related ACL as of

December 31, 2021 and 2020 by loan category:

As of December 31, 2021

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

2,978,895

2,167,469

2,887,251

138,999

2,888,044

11,060,658

Allowance for credit losses

74,837

52,771

34,284

4,048

103,090

269,030

Allowance for credit losses to amortized cost

2.51

2.43

1.19

2.91

3.57

2.43

As of December 31, 2020

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

3,521,954

2,230,602

3,202,590

212,500

2,609,643

11,777,289

Allowance for credit losses

120,311

109,342

37,944

5,380

112,910

385,887

Allowance for credit losses to amortized cost

3.42

4.90

1.18

2.53

4.33

3.28

111

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

of a contractual obligation to 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 is

adjusted as a

provision

for credit loss

expense. As

of December 31,

2021, the ACL for

off-balance

sheet credit

exposures was

$1.5

million, down

$3.6

million from

$5.1

million as

December 31,

2020.

The

decrease was

mainly

related to

improvements in

forecasted

macroeconomic

variables.

Allowance for Credit Losses for Held-to-Maturity

Debt Securities

As of December

31, 2021, the

held-to-maturity

securities

portfolio

consisted

of Puerto Rico

municipal

bonds. As of

December 31,

2021,

the ACL for

held-to-maturity

debt securities

was $8.6

million,

down $0.2

million from

$8.8 million

as of December

31, 2020.

The decrease

was mainly

related to

improvements in forecasted macroeconomic variables and the

repayment of certain

bonds during 2021,

partially

offset by

increases

to changes

in some

issuers’

financial

metrics

based on

their most

recent financial

statements.

Allowance

for Credit

Losses for

Available-for-Sale

Debt Securities

As of December 31, 2021, the

ACL for available-for-sale debt securities

was $1.1 million, down $0.2 million from $1.3 million as of

December

31, 2020.

Nonaccrual Loans and Non-performing Assets

Total

non-performing assets

consist of

nonaccrual loans

(generally loans

held

for

investment or

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

of 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 in accordance

with the contractual

terms of 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

doubt,

the

interest

portion

applied

the

outstanding principal.

The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors.

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

— 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). As allowed by CECL,

the Corporation elected to maintain

pools of loans accounted for under

ASC Subtopic 310-30 as “units

accounts,”

conceptually

treating

each

pool

single

asset.

Regarding

interest

income

recognition,

the

prospective

transition

approach

for

PCD

loans

was

applied

pool

level

which

froze

the

effective

interest

rate

the

pools

January

2020.

According

regulatory

guidance,

the

determination

nonaccrual

accrual

status

for

PCD

loans

with

respect

which

the

Corporation

has

made

policy

election

maintain

previously

existing

pools

upon

adoption

CECL

should

made

the

pool

level,

not

the

individual

asset

level.

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.

112

Other Real Estate Owned

OREO acquired

in settlement of

loans is carried

at fair value

less estimated costs

to sell off

the real estate.

Appraisals are obtained

periodically, generally

on an annual basis.

Other Repossessed Property

The

other

repossessed

property

category

consisted

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.

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

principal

or are

insured

or guaranteed

under

applicable FHA,

other

government-guaranteed

programs for residential mortgage loans. Furthermore,

as required by instructions in regulatory reports, loans past due

90 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

fails to

make any

payment for

three consecutive

months).

For accounting

purposes, these

GNMA loans

subject to

the repurchase

option are

required to

be reflected

on the

financial

statements with an offsetting liability.

TDRs are

classified

as either

accrual

or nonaccrual

loans. A

loan

on nonaccrual

status and

restructured

as a

TDR will

remain

nonaccrual

status until

the borrower

has proven

the ability

to perform

under the

modified structure,

generally

for a

minimum

of six

months,

and there

is evidence

that

such payments

can and

are

likely

to continue

as agreed.

The Corporation

considers performance

prior to the restructuring, or significant events that coincide with the

restructuring, in assessing whether the borrower can meet the new

terms,

which

may

result

the

loan

being

returned

accrual

status

the

time

the

restructuring

after

shorter

performance

period. If

the borrower’s

ability to

meet the

revised payment

schedule is

uncertain, the

loan remains

classified as

a nonaccrual

loan.

For a discussion of permissible

loan modifications under the

amended CARES Act of 2020

for loans otherwise eligible for

TDR, refer

Note

–

Nature

Business

and

Summary

Significant

Accounting

Policies,

the

audited

consolidated

financial

statements

included in Item 8 of this Form 10-K.

113

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

December 31,

2021

2020

2019

2018

2017

(Dollars in thousands)

Nonaccrual loans held for investment:

Residential mortgage

55,127

125,367

121,408

147,287

178,291

Commercial mortgage

(1)

25,337

29,611

40,076

109,536

156,493

Commercial and Industrial

(1)

17,135

20,881

18,773

30,382

85,839

Construction

(1)

2,664

12,971

9,782

8,362

52,113

Consumer and finance leases

10,454

16,259

20,629

20,406

16,818

Total nonaccrual loans held for investment

(1)

110,717

205,089

210,668

315,973

489,554

OREO

40,848

83,060

101,626

131,402

147,940

Other repossessed property

3,687

5,357

5,115

3,576

4,802

Other assets

(2)

2,850

Total non-performing assets,

excluding nonaccrual

loans held for sale

158,102

293,506

317,409

450,951

642,296

Nonaccrual loans held for sale

(1)

16,111

8,290

Total non-performing assets,

including nonaccrual loans held for sale

(3)(4)

158,102

293,506

317,409

467,062

650,586

Past due loans 90 days and still accruing

(5)(6)

115,448

146,889

135,490

158,527

160,725

Non-performing assets to total assets

0.76

1.56

2.52

3.81

5.31

Nonaccrual loans held for investment to

total loans held for investment

1.00

1.74

2.34

3.57

5.53

Allowance for credit losses for loans and finance leases

269,030

385,887

155,139

196,362

231,843

Allowance for credit losses for loans and finance leases

to total nonaccrual loans held for investment

242.99

188.16

73.64

62.15

47.36

Allowance for credit losses for loans and finance leases to

total nonaccrual loans held for investment,

excluding residential real estate loans

483.95

484.04

173.81

116.41

74.48

(1)

During the first and

third quarters of 2018,

the Corporation transferred $74.4

million (net of

fair value write-downs

of $22.2 million recorded

at the time of

transfers) in nonaccrual

loans to held for

sale. Loans transferred

to held for sale

consisted of nonaccrual

commercial mortgage loans

totaling $39.6 million

(net of fair

value write-downs of

$13.8 million),

nonaccrual construction loans

totaling $33.0 million (net

of fair value write-downs

of $6.7 million) and

nonaccrual commercial and

industrial loans totaling $1.8

million (net of fair

value write-downs of $1.7 million). These loans were eventually

sold or paid in full during 2019 and 2018.

(2)

Residential pass-through

MBS issued

by the

PRHFA

held as

part of

the available-for

-sale investment

securities portfolio

with an

amortized cost

of $3.6

million recorded

on the

Corporation's books at its fair value of $2.9 million.

(3)

Excludes PCD loans

previously accounted for

under ASC Subtopic

310-30 for which

the Corporation made

the accounting policy

election of maintaining

pools of loans

accounted

for under ASC

Subtopic 310-30

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

accrete interest

income based

on the

effective interest

rate of

the loan

pools determined

at the

time of

adoption of

CECL and

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 amortized cost of

such loans as of

December 31, 2021, 2020, 2019, 2018 and 2017 amounted to $117.5

million, $130.9 million, $136.7 million, $146.6

million and $158.2 million, respectively.

(4)

Nonaccrual loans exclude

$363.4 million, $393.3

million, $398.3 million,

$478.9 million and

$374.7 million of

TDR loans that

were in compliance

with the modified

terms and in

accrual status as of December 31, 2021, 2020, 2019, 2018

and 2017, respectively.

(5)

It is

the Corporation's

policy to

report delinquent

residential mortgage

loans insured

by the

FHA, guaranteed

by the

VA,

and other

government-insured loans

as loans

past-due 90

days and still accruing as opposed

to nonaccrual loans since the principal repayment

is insured. 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 $46.6 million of residential

mortgage loans insured by the FHA

that were over 15 months delinquent as of December 31, 2021.

(6)

These include rebooked

loans, which were previously

pooled into GNMA securities,

amounting to $7.2

million, $10.7 million, $35.3

million, $43.6 million, and

$62.1 million as of

December 31,

2021, 2020,

2019, 2018,

and 2017,

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.

114

The following table shows non-performing assets by geographic segment

as of the indicated dates:

December 31,

2021

2020

2019

2018

2017

(Dollars in thousands)

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

39,256

101,763

97,214

120,707

147,852

Commercial mortgage

(1)

15,503

18,733

23,963

44,925

128,232

Commercial and Industrial

(2)

14,708

18,876

16,155

26,005

79,809

Construction

(3)

1,198

5,323

2,024

6,220

14,506

Consumer and finance leases

10,177

15,081

19,483

19,366

16,122

Total nonaccrual loans held for investment

80,842

159,776

158,839

217,223

386,521

OREO

36,750

78,618

96,585

124,124

140,063

Other repossessed property

3,456

5,120

4,810

3,357

4,723

Other assets

(4)

2,850

Total non-performing assets, excluding nonaccrual loans

123,898

243,514

260,234

344,704

531,307

Nonaccrual loans held for sale

(1) (2) (3)

16,111

8,290

Total non-performing assets, including nonaccrual

held for sale

(5)

123,898

243,514

260,234

360,815

539,597

Past-due loans 90 days and still accruing

(6)

114,001

144,619

129,463

153,269

151,724

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

8,719

9,182

10,903

12,106

22,110

Commercial mortgage

9,834

10,878

16,113

19,368

25,309

Commercial and Industrial

1,476

1,444

2,303

4,377

6,030

Construction

(7)

1,466

7,648

7,758

2,142

37,607

Consumer

144

354

467

710

281

Total nonaccrual loans held for investment

21,639

29,506

37,544

38,703

91,337

OREO

3,450

4,411

4,909

6,704

6,306

Other repossessed property

187

109

146

Total non-performing assets

25,276

34,026

42,599

45,483

97,669

Past-due loans 90 days and still accruing

1,265

2,020

5,898

5,258

9,001

United States:

Nonaccrual loans held for investment:

Residential mortgage

7,152

14,422

13,291

14,474

8,329

Commercial mortgage

45,243

2,952

Commercial and Industrial

951

561

315

Consumer

133

824

679

330

415

Total nonaccrual loans held for investment

8,236

15,807

14,285

60,047

11,696

OREO

648

132

574

1,571

Other repossessed property

128

159

143

Total non-performing assets

8,928

15,966

14,576

60,764

13,320

Past-due loans 90 days and still accruing

182

250

129

(1)

During 2018, the Corporation transferred to

held for sale nonaccrual commercial mortgage

loans in the Puerto Rico region totaling $39.6

million (net of fair value write-downs

of $13.8 million

recorded at the time of transfers). These loans were eventually

sold or paid in full during 2019 and 2018.

(2)

During 2018,

the Corporation

transferred to

held for

sale nonaccrual

commercial and

industrial loans

in the

Puerto Rico

region totaling

$1.8 million

(net of

fair value

write-downs of

$1.7

million). The commercial and industrial loans transferred to held for

sale were eventually sold during the first quarter of 2019.

(3)

During 2018, the Corporation transferred to held for sale

a $3.0 million nonaccrual construction loan in the Puerto

Rico region (net of $1.6 million fair value write-down).

This loan was paid in

full in 2019.

(4)

Residential pass-through MBS

issued by the

PRHFA held

as part of

the available-for-sale

investment securities portfolio

with an amortized

cost of $3.6

million recorded on

the Corporation's

books at its fair value of $2.9 million.

(5)

Excludes PCD loans

previously accounted

for under ASC

Subtopic 310-30

for which the

Corporation made the

accounting policy

election of maintaining

pools of loans

accounted for

under

ASC Subtopic 310-30 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 accrete

interest income

based on the effective interest

rate of the loan pools determined at

the time of adoption of CECL and 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 amortized

cost of such

loans as of

December 31, 2021,

2020, 2019,

2018 and 2017

amounted to $117.5 million, $130.9 million,

$136.7 million, $146.6 million and $158.2 million, respectively.

(6)

These include rebooked

loans, which were previously

pooled into GNMA securities,

amounting to $7.2 million,

$10.7 million, $35.3

million, $43.6 million, and

$62.1 million as of

December

31,

2021,

2020,

2019,

2018,

and

2017,

respectively.

Under

the

GNMA program,

the

Corporation

has

the

option but

not

the

obligation

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.

(7)

During

2018,

the

Corporation

transferred

held

for

sale

$30.0

million

nonaccrual

construction

loan

the

Virgin

Islands

region

(net

$5.1

million

fair

value

write-down).

The

construction loans transferred to held for sale was eventually

sold during the fourth quarter of 2018.

115

Total

nonaccrual

loans

were

$110.7

million

December

31,

2021.

This

represents

decrease

$94.4

million

from

$205.1

million as

of December

31, 2020.

The decrease

was primarily

related to

a $70.2

million reduction

in nonaccrual

residential mortgage

loans,

driven

by the

bulk

sale of

$52.5

million

nonaccrual residential

mortgage

loans

during

the

third

quarter

2021 as

further

described

below.

addition,

there

was

$18.3

million

decrease

nonaccrual

commercial

and

construction

nonaccrual

loans,

including through the repayment of

a $6.0 million construction loan relationship

in the Virgin

Islands region, the sale of a

$3.1 million

construction

loans

the

Puerto

Rico

region,

and

other

large

repayments

explained

below,

and

$5.8

million

decrease

nonaccrual consumer loans.

Nonaccrual commercial

mortgage loans decreased

by $4.3 million

to $25.3 million

as of December

31, 2021 from

$29.6 million as

December

31,

2020.

The

decrease

was

primarily

collections

approximately

$4.3

million

during

2021,

including

the

payoff of

two commercial mortgage

loan in the

Puerto Rico region

amounting to $2.4

million, charge-offs

and the transfer

of loans to

OREO,

partially

offset

inflows.

Total

inflows

nonaccrual

commercial

mortgage

loans

were

$5.1

million

for

the

year

ended

December 31, 2021, compared to $1.9 million for 2020.

Nonaccrual

commercial

and

industrial

loans

decreased

$3.8

million

$17.1

million

December

31,

2021

from

$20.9

million as of December 31, 2020. The decrease was mainly

related to collections of approximately $6.5 million during

2021, including

a paydown that reduced

by $1.4 million the carrying

value of a nonaccrual

commercial and industrial loan

in the Puerto Rico region, a

$1.2 million nonaccrual commercial and industrial

loan paid off in the Puerto Rico region,

and the transfer of loans to OREO, partially

offset

inflows.

Total

inflows of

nonaccrual

commercial

and

industrial

loans

were

$4.4

million

for

the

year

ended December

31,

2021, compared to $11.4 million for 2020.

Nonaccrual construction

loans decreased

by $10.3

million to

$2.7 million

as of

December 31,

2021, compared

to $13.0

million as

December

31,

2020.

The

decrease

was

primarily

the

aforementioned

$6.0

million

repayment

construction

loan

relationship in the Virgin

Islands region and the sale of a $3.1 million loan in the Puerto Rico region.

116

The following tables present the activity of commercial and construction

nonaccrual loans held for investment for the

indicated periods:

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Year ended

December 31, 2021

Beginning balance

29,611

20,881

12,971

63,463

Plus:

Additions to nonaccrual

5,090

4,367

9,480

Less:

Loans returned to accrual status

(2,376)

(752)

(319)

(3,447)

Nonaccrual loans transferred to OREO

(1,011)

(1,441)

(252)

(2,704)

Nonaccrual loans charge-offs

(1,433)

(629)

(86)

(2,148)

Loan collections and others

(4,326)

(6,471)

(6,585)

(17,382)

Reclassification

(218)

1,180

962

Nonaccrual loans sold, net of charge offs

(3,088)

Ending balance

25,337

17,135

2,664

45,136

Commercial

Mortgage

Commercial &

Industrial

Construction

Total

(In thousands)

Year ended

December 31, 2020

Beginning balance

40,076

18,773

9,782

68,631

Plus:

Additions to nonaccrual

1,875

11,367

3,691

16,933

Less:

Loans returned to accrual status

(1,838)

(1,291)

(3,129)

Nonaccrual loans transferred to OREO

(126)

(263)

(389)

Nonaccrual loans charge-offs

(3,327)

(3,600)

(75)

(7,002)

Loan collections and others

(6,373)

(4,781)

(427)

(11,581)

Reclassification

(676)

676

Ending balance

29,611

20,881

12,971

63,463

117

Nonaccrual residential

mortgage loans

decreased by

$70.3 million

to $55.1

million as

of December

31, 2021,

compared to

$125.4

million

December

31,

2020.

The

decrease

was

driven

the

aforementioned

bulk

sale

$52.5

million

nonaccrual

loans,

loans brought current and

restored to accrual status, as

well as collections, including

the repayment of two large

nonaccrual residential

mortgage

loans totaling

$3.9 million,

partially

offset

inflows. The

inflows

of nonaccrual

residential

mortgage

loans during

2021

were $33.5 million, a decrease of $0.2 million, compared to inflows of $33.7 million

for 2020.

During

the

third

quarter

2021,

the

Corporation

sold

$52.5

million

non-performing

residential

mortgage

loans

and

servicing

advances

$2.0

million.

The

Corporation

received

$31.5

million,

58%

book

value

before

reserves,

for

the

$54.5

million

of non

-performing

loans and

servicing

advances.

Approximately

$20.9

million

of reserves

had

been allocated

the

loans

sold.

The

transaction

resulted

total

net

charge-offs

$23.1

million

and

additional

loss

approximately

$2.1

million

recorded

charge

the

provision

for

credit

losses

the

third

quarter. The

Corporation's

primary

goal

with

respect

this

transaction was to accelerate the disposition of non-performing

assets.

The following table presents the activity of residential nonaccrual loans

held for investment for the indicated periods:

Year

ended

Year

ended

December 31, 2021

December 31, 2020

(In thousands)

Beginning balance

125,367

121,408

Plus:

Additions to nonaccrual

33,543

33,735

Less:

Loans returned to accrual status

(15,918)

(12,719)

Nonaccrual loans transferred to OREO

(8,058)

(4,248)

Nonaccrual loans charge-offs

(26,735)

(7,206)

Loan collections and others

(20,595)

(5,603)

Reclassification

(962)

Nonaccrual loans sold, net of charge-offs

(31,515)

Ending balance

55,127

125,367

The amount

of nonaccrual

consumer loans,

including finance

leases, decreased

by $5.8

million to

$10.5

million as

December 31,

2021, compared to

$16.2 million as

of December 31,

2020. The decrease

was primarily in

auto loans, small

loans, and finance

leases,

driven by

collections and

charge-offs recorded

in 2021,

partially offset

by inflows.

The inflows

of nonaccrual

consumer loans

during

the year ended December 31, 2021

amounted to $37.6 million compared to inflows of $42.1 million in 2020.

As of

December

31,

2021,

approximately

$23.8

million

of the

loans

placed

in nonaccrual

status,

mainly

commercial

loans, were

current,

had

delinquencies

less

than

days

their

interest

payments,

including

$13.5

million

TDRs

maintained

nonaccrual

status

until

the

restructured

loans

meet

the

criteria

sustained

payment

performance

under

the

revised

terms

for

reinstatement to

accrual status

and there

is no

doubt about

full collectability.

Collections on

these loans

are being

recorded on

a cash

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

During

the

year

ended

December

31,

2021,

interest

income

approximately

$2.3

million

nonaccrual

loans

with

carrying value

of $37.3

million as

of December

31, 2021, mainly

nonaccrual construction

and commercial

loans, was applied

against

the related principal balances under the cost-recovery method.

118

Total

loans

early

delinquency

(

i.e.

, 30-89

days

past

due

loans,

as defined

regulatory

report

instructions)

amounted

$90.3

million as of December 31,

2021, a decrease of $58.5

million compared to $148.8 million

as of December 31, 2020.

The variances by

major portfolio categories follow:

●

Residential mortgage

loans in

early delinquency

decreased by

$32.3 million

to $34.2

million as

of December

31, 2021,

and

consumer

loans

early

delinquency

decreased

$6.3

million

$49.4

million

December

31,

2021.

The

decreases

reflect

the

combination

loans

brought

current

during

the

year

ended

December

31,

2021

and

loans

that

migrated

nonaccrual status.

●

Commercial and construction loans in early delinquency decreased

by $19.2

million to $6.7 million as of December 31, 2021,

the decrease was primarily related to the refinancing of two matured

commercial loans.

In addition,

the Corporation provides

homeownership preservation

assistance to its

customers through

a loss mitigation

program in

Puerto Rico. Depending

upon the nature

of borrower’s

financial condition,

restructurings or loan

modifications through

this program,

well

other

restructurings

individual

commercial,

commercial

mortgage,

construction,

and

residential

mortgage

loans

fit

the

definition of

a TDR.

A restructuring

of a

debt constitutes

a TDR

if the

creditor,

for economic

or legal

reasons related

to the

debtor’s

financial difficulties,

grants a

concession to

the debtor

that it

would not

otherwise consider.

Modifications involve

changes in

one or

more of

the loan

terms that

bring a

defaulted loan

current and

provide sustainable

affordability.

Changes may

include, among

others,

the extension

of the

maturity of

the loan

and modifications

of the

loan rate.

See Note

8 –

Loans Held

for Investment,

to the

audited

consolidated

financial

statements

included

Item

this

Annual

Report

Form

10-K,

for

additional

information

and

statistics

about the Corporation’s TDR loans.

TDR

loans

are

classified

either

accrual

nonaccrual

loans.

Loans

accrual

status

may

remain

accrual

status

when

their

contractual terms

have been

modified in

a TDR

if the

loans had

demonstrated performance

prior to

the restructuring

and payment

full

under

the

restructured

terms

expected.

Otherwise,

loan

nonaccrual

status

and

restructured

TDR

will

remain

nonaccrual

status until

the borrower

has proven

the ability

to perform

under the

modified structure,

generally

for a

minimum

of six

months, and

there is evidence

that such payments

can, and are

likely to, continue

as agreed. Performance

prior to the

restructuring, or

significant events that coincide with the restructuring,

are included in assessing whether the borrower can meet

the new terms and may

result

the

loan

being

returned

accrual

status

the

time

the

restructuring

after

shorter

performance

period.

the

borrower’s

ability

meet

the

revised

payment

schedule

uncertain,

the

loan

remains

classified

nonaccrual

loan.

Loan

modifications

increase the

Corporation’s

interest income

by returning

a nonaccrual

loan to

performing

status, if

applicable,

increase

cash flows by providing for payments to be made by the borrower,

and limit increases in foreclosure and OREO costs.

119

The following table provides a breakdown between accrual and nonaccrual TDRs as of the indicated date:

As of December 31, 2021

(In thousands)

Accrual

Nonaccrual

(1)

Total TDRs

Conventional residential mortgage loans

237,627

20,946

258,573

Construction loans

1,845

458

2,303

Commercial mortgage loans

52,873

15,960

68,833

Commercial and Industrial loans

59,792

10,628

70,420

Consumer loans:

Auto loans

4,208

3,076

7,284

Finance leases

975

Personal loans

973

974

Credit cards

2,583

Consumer loans - Other

2,518

275

2,793

Total Troubled

Debt Restructurings

363,394

51,344

414,738

(1)

Included in nonaccrual loans are $13.5 million in loans that

are performing under the terms of the restructuring agreement but

are reported in nonaccrual status

until the restructured loans meet the criteria of sustained

payment performance under the revised terms for reinstatement

to accrual status and are deemed fully

collectible.

Under the provisions

of the CARES

Act of 2020,

as amended by

the Consolidated Appropriations

Act, 2021 enacted

on December

27, 2020,

financial institutions

may permit

loan modifications

for borrowers

affected by

the COVID-19

pandemic through

January 1,

2022

without categorizing

the modifications

as TDRs, as

long as the

loans meet certain

conditions, including

the requirement that

the

loan

was

not

than

days

past

due

December

31,

2019.

December

31,

2021,

commercial

loans

totaling

$342.4

million,

or 3.10%

of the

balance of

the total

loan portfolio

held

for

investment, were

permanently

modified under

the provisions

Section 4013

of the

CARES Act

of 2020,

as amended

by Division

N, Title

Section 541

of the

Consolidated

Appropriations

Act.

These

permanent

modifications

primarily

relate

commercial

borrowers

industries

with

longer

expected

recovery times,

mostly

hospitality,

retail

and

entertainment

industries.

With

respect

temporary

deferred

repayment

arrangements

established

2020

assist borrowers

affected by

the COVID-19

pandemic, as

of December

31, 2021,

all loans

previously modified

under such

programs

have completed their deferral period.

120

The OREO portfolio, which is

part of non-performing assets, decreased

by $42.2 million to $40.8 million

as of December 31, 2021,

compared

$83.0

million

December

31,

2020.

The

following

tables

show

the

composition

the

OREO

portfolio

December 31,

2021 and

2020, as

well as

the activity

of the

OREO portfolio

by geographic

area during

the year

ended December

31,

2021:

OREO Composition by Region

As of December 31,

2021

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

28,396

489

648

29,533

Commercial

4,521

2,810

7,331

Construction

3,833

151

3,984

36,750

3,450

648

40,848

As of December 31, 2020

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

31,517

870

32,418

Commercial

41,176

3,180

44,356

Construction

5,925

361

6,286

78,618

4,411

83,060

OREO Activity by Region

For the year ended December 31, 2021

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

78,618

4,411

83,060

Additions

17,798

669

882

19,349

Sales

(52,649)

(1,540)

(265)

(54,454)

Write-down adjustments

(7,017)

(90)

(7,107)

Ending Balance

36,750

3,450

648

40,848

121

Net Charge-offs and Total

Credit Losses

Net

charge-offs

totaled

$55.1

million,

0.48%

average

loans,

for

the

year

ended

December

31,

2021,

compared

$47.9

million, or

0.48% of

average loans,

for the

year ended

December 31,

2020.

The bulk

sale of

nonaccrual

residential mortgage

loans

added $23.1

million

in net

charge-off

for the

year ended

December 31,

2021.

Excluding the

effect of

net charge

-offs related

to the

bulk sale, total net charge-offs in 2021 were $32.0

million, or 0.28% of average loans.

Residential

mortgage

loans

net

charge-offs

for

the

year

ended

December

31,

2021

were

$28.5

million,

0.87%

average

residential mortgage

loans, compared

to $9.5

million, or

0.30% of

average residential

mortgage loans,

for the

year ended

December

31, 2020. Excluding

the effect of net

charge-offs related

to the bulk sale, residential

mortgage loans net charge

-offs for the year

ended

December

31,

2021

were

$5.4

million,

0.17%

average

residential

mortgage

loans.

Approximately

$5.7

million

charge-offs

during

2021 resulted

from valuations

of collateral

dependent

residential

mortgage loans

given high

delinquency

levels, compared

$7.9 million in

2020. Also, the overall

level of charge-offs

for the portfolio decreased

during 2021 as

compared to 2020, as

a result of

improvements

the

credit

quality

indicators

for

the

residential

mortgage

loan

portfolio.

addition,

the

residential

mortgage

net

charge-offs

related to

foreclosures amounted

to $2.8

million during

the year

ended December

31, 2021,

compared to

$1.6 million

for

the same period of 2020, partially offsetting the aforementioned

decreases.

Commercial mortgage

loan net charge

-offs were

$1.2 million, or

0.06% of average

commercial mortgage

loans, for the

year ended

December

31,

2021

compared

$1.4

million,

0.08%

average

commercial

mortgage

loans,

for

the

year

ended

December

31,

2020.

Commercial

and

industrial

loans

net

recoveries

for

the

year

ended

December

31,

2021

were

$4.9

million,

0.16%

average

commercial

and industrial

loans, compared

to net

charge-offs

of $0.4

million, or

0.02% of

average commercial

and industrial

loans,

for

2020.

Commercial

and

industrial

loan

loss

net

recoveries

for

2021

included

$5.2

million

recovery

connection

with

the

paydown of a nonaccrual commercial and industrial loan participation in

the Puerto Rico region.

Construction loans net recoveries for

the year ended December 31, 2021

were $0.1 million, or 0.04%

of average construction loans,

compared to net recoveries of $0.1 million, or 0.06% of average construction

loans, for 2020.

Net

charge-offs

consumer

loans

and

finance

leases

for

the

year

ended

December

31,

2021

were

$30.4

million,

1.11%

average

consumer loans

and finance

leases, compared

to $36.7

million, or

1.53% of

average consumer

loans and

finance leases,

for

2020. The decrease in 2021 was primarily reflected in the auto loans,

finance leases and small personal loans portfolios.

The following table shows the ratios of net charge-offs

(or recoveries) to average loans by loan category for the last five

years:

For the year ended December 31,

2021

2020

2019

2018

2017

Residential mortgage

(1)

0.87

0.30

0.66

0.67

0.79

Commercial mortgage

0.06

0.08

0.97

1.03

2.42

Commercial and Industrial

(0.16)

0.02

0.16

0.38

0.66

Construction

(0.04)

(0.06)

(0.28)

6.75

2.05

Consumer loans and finance leases

1.11

1.53

2.05

2.31

2.12

Total loans

(1)

0.48

0.91

1.09

1.33

(1)

For the year ended December 31,

2021, includes net charge-offs totaling

$23.1 million associated with the bulk

sale of residential nonaccrual loans and

related servicing advance

receivables. Excluding net

charge-offs associated

with the bulk

sale, residential

mortgage and total

net charge

offs to related

average loans

for the year

ended 2021 was

0.17%

and 0.28%, respectively.

122

The following table presents net charge-offs

(or recoveries) to average loans held in various portfolios by geographic segment for the

last five years:

December 31,

2021

2020

2019

2018

2017

PUERTO RICO:

Residential mortgage

(1)

1.09

0.39

0.89

0.86

1.05

Commercial mortgage

0.08

0.26

0.36

1.23

3.36

Commercial and Industrial

(0.30)

0.39

0.56

0.96

Construction

(0.05)

(0.11)

0.54

6.18

6.38

Consumer and finance leases

1.10

1.51

2.05

2.31

2.14

Total loans

(1)

0.59

0.62

1.05

1.28

1.74

VIRGIN ISLANDS:

Residential mortgage

0.06

0.17

0.30

0.48

0.11

Commercial mortgage

(0.23)

(0.18)

(0.25)

(0.14)

(0.13)

Commercial and Industrial

(1.60)

0.16

(0.01)

Construction

(0.04)

(0.13)

14.00

(0.99)

Consumer and finance leases

1.16

0.65

1.35

2.70

1.77

Total loans

0.13

(0.11)

1.49

0.10

FLORIDA:

Residential mortgage

(0.01)

(0.03)

0.02

0.04

Commercial mortgage

(0.01)

(0.48)

2.67

0.72

(0.01)

Commercial and Industrial

0.10

0.04

0.01

Construction

(0.04)

(0.05)

(0.79)

(0.84)

(0.74)

Consumer and finance leases

2.15

4.35

2.98

1.75

1.69

Total loans

0.07

0.65

0.22

0.06

(1)

For

the

year

ended

December

31,

2021,

includes

net

charge-offs

totaling

$23.1

million

associated

with

the

bulk

sale

residential

nonaccrual

loans

and

servicing

advance

receivables. Excluding net

charge-offs associated

with the bulk sale,

residential mortgage and

total net charge

offs to related

average loans for the

year ended 2021 was

0.21% and 0.34%,

respectively.

123

The above

ratios are

not necessarily

indicative of

the results

expected in

subsequent periods.

Total

net charge

-offs plus

losses on

OREO

operations

for

the

year

ended

December

31,

2021

amounted

$53.0

million,

0.46%

average

loans

and

repossessed

assets, compared to losses of $51.5 million, or a loss rate of 0.51%, for the year

ended December 31, 2020.

The following table presents information about the OREO inventory

and credit losses for the periods indicated:

Year Ended

December 31,

2021

2020

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

29,533

32,418

Commercial

7,331

44,356

Construction

3,984

6,286

Total

40,848

83,060

OREO activity (number of properties):

Beginning property inventory

513

697

Properties acquired

167

120

Properties disposed

(262)

(304)

Ending property inventory

418

513

Average holding period (in days)

Residential

700

626

Commercial

2,018

2,170

Construction

2,115

2,151

Total average holding period (in days)

1,075

1,566

OREO operations gain (loss):

Market adjustments and gains (losses) on sale:

Residential

4,166

(29)

Commercial

(1,182)

(886)

Construction

820

(484)

Total gains (losses) on sales

3,804

(1,399)

Other OREO operations expenses

(1,644)

(2,199)

Net Gain (Loss) on OREO operations

2,160

(3,598)

(CHARGE-OFFS) RECOVERIES

Residential charge-offs, net

(28,517)

(9,498)

Commercial recoveries (charge-offs), net

3,676

(1,836)

Construction recoveries, net

108

Consumer and finance leases charge-offs, net

(30,372)

(36,652)

Total charge-offs, net

(55,137)

(47,878)

TOTAL CREDIT LOSSES

(1)

(52,977)

(51,476)

LOSS RATIO PER CATEGORY

(2)

Residential

0.74%

0.30%

Commercial

-0.05%

0.06%

Construction

-0.48%

0.21%

Consumer

1.11%

1.53%

TOTAL CREDIT LOSS RATIO

(3)

0.46%

0.51%

(1)

Equal to net loss on OREO operations plus charge-offs, net.

(2)

Calculated as net charge-offs plus market adjustments, impairments (net of insurance

recoveries), and gains (losses) on sale of

OREO divided by average loans and repossessed assets.

(3)

Calculated as net charge-offs plus net loss on OREO operations divided by

average loans and repossessed assets.

124

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 $11.1

billion as of

December 31, 2021,

the Corporation had

credit risk of

approximately 79%

the Puerto Rico region, 18% in the United States region, and 3% in the Virgin

Islands region.

Update on the Puerto Rico Fiscal Situation

A significant

portion

of the

Corporation’s

business activities

and credit

exposure

is concentrated

in the

Commonwealth of

Puerto

Rico, which has experienced an economic and fiscal crisis for more

than a decade.

Economic Indicators

According to

the latest

revised estimates

published by

the Puerto

Rico Planning

Board (“PRPB”)

in July

2021, Puerto

Rico’s

real

gross national product

(“GNP”) grew by 1.8%

during fiscal year

2019 (previously at

1.5%). Also, the

PRPB published its

preliminary

real

GNP

estimate

for

fiscal

year

2020,

suggesting

that

the

Puerto

Rico

economy

contracted

3.2%.

According

to the

PRPB,

the

economic

growth

seen

during fiscal

year

2019

primarily

reflects the

economic

stimulus generated

the

influx of

federal

recovery

funds in response to

the natural disasters that affected

Puerto Rico in September

2017, while the contraction

experienced in fiscal year

2020 was primarily driven by the adverse impact of the COVID-19

pandemic and the related mandatory restrictions.

Fiscal Plan

January

27,

2022,

the

PROMESA

oversight

board

certified

the

2022

Fiscal

Plan

for

Puerto

Rico.

Similar

fiscal

plans,

the

2022

Fiscal

Plan

incorporates

updated

information

the

macroeconomic

environment,

well

government

revenues,

expenditures,

structural

reform

efforts,

and

recent

increases

federal

funding.

importantly,

the

2022

Fiscal

Plan

reflects the Commonwealth

Plan of Adjustment

recently confirmed by

the U.S. District Court

for the District

of Puerto Rico.

Relative

to the

fiscal plan,

the 2022

Fiscal Plan

incorporates a

new set

of expenditure

projections that

factor in

the now-established

debt

service

requirements

pursuant

the

Plan of

Adjustment,

as well

as additional

investments

enabled

by the

increased resources

available

the

government.

The

2022

Fiscal

Plan

prioritizes

resource

allocations

across

three

major

themes:

(i)

investing

the

operational capacity of

the government to deliver

services with Civil Service

Reform, (ii) prioritizing

obligations to current

and future

retirees, and (iii) creating a fiscally responsible post-bankruptcy government.

The

2022

Fiscal

Plan

contains

updated

macroeconomic

forecast

that

reflects

the

adverse

impact

the

pandemic-induced

recession at

the end of

fiscal year

2020, followed

by a

forecasted rebound

and recovery

in fiscal years

2021 through

2023. Similar

125

the

fiscal

plan,

the

2022

Fiscal

Plan

incorporates

real

growth

series

that

was

adjusted

for

the

short-term

income

effects

resulting

from

the

extraordinary

unemployment

insurance

and

other

pandemic-related

direct

transfer

programs.

Specifically,

the

revised fiscal plan

estimates that Puerto

Rico’s GNP

will grow by

5.2% in the

current fiscal year

2022, followed by

a 0.6% growth

fiscal year

2023.

Excluding

the effect

on household

income from

the unprecedented

pandemic-related

federal government

stimulus,

the 2022 Fiscal Plan estimates that real GNP growth would be 2.6% and 0.9% in

fiscal years 2022 and 2023, respectively.

Over the

past few

years, Puerto

Rico has

received an

infusion of

historical levels

of federal

support, creating

new opportunities

address

high

priority

needs.

The

2022

Fiscal

Plan

projects

that

approximately

$84

billion

disaster

relief

funding

total,

from

federal and

private sources,

will be disbursed

in the reconstruction

process over a

period of 18

years (2018 to

2035). Moreover,

since

the previous

fiscal plan

was certified

in 2021,

the Commonwealth’s

available resources

have significantly

increased principally

as a

result

two

major

developments:

(i)

incremental

federal

funding

for

health

care

result

the

recent

guidance

issued

the

Centers for

Medicare and

Medicaid Services

(“CMS”), which

increases the

federal funding

cap by

over $2

billion per

year,

and (ii)

improved local

revenue collections

as a

result of

a better-than-expected

recovery,

increased local

consumption and

economic activity

enabled by

enhanced income

support programs

(e.g. incremental

funding of

approximately $460

million for

the Nutrition

Assistance

Program). The 2022

Fiscal Plan provides

a roadmap to take

maximum advantage of

this unique opportunity,

create an environment

fiscal stability,

and develop the

conditions for long-term

growth and

economic development.

Nonetheless, the fiscal

plan continues to

underline the need to implement structural reforms to maximize the positive

impact of federal recovery funds.

Debt Restructuring

After more

than four years

since the

Commonwealth entered

Title III,

on January

18, 2022,

the U.S.

District Court

for the

District

Puerto

Rico

(the

“Court”)

issued

order

confirm

the PoA

restructure

approximately

$35

billion

debt

and

other

claims

against the

Commonwealth of

Puerto Rico,

the PBA,

and the

ERS; and

more than

$50 billion

of pension

liabilities. According

to the

PROMESA

oversight

board,

the

Plan

Adjustment

provides

one-time

cash

payment

creditors,

well

the

issuance

approximately $7.4

billion in new

debt and

contingent value

instruments (“CVIs”),

among other

items. In

addition, the PoA

provides

certain

Commonwealth

employees

with

various

benefits.

Confirmation

the

PoA

marks

major

milestone

the

overall

debt

restructuring process and creates a foundation for Puerto Rico’s

recovery and economic growth.

Key pending debt restructurings include

the PREPA,

for which the PROMESA oversight board

said in a status report filed with

the

Court

January

19,

2021,

that

intends

move

forward

with

the

settlement

set

forth

the

Restructuring

Support

Agreement

(“RSA”)

and

will

continue

efforts

propose

plan

adjustment

for

PREPA

the

end

March

2022;

however,

such

date

dependent

certain

factors

outside

the

government

parties’

control

that

might

push

the

filing

plan

into

the

second

quarter

2022.

Exposure to the Puerto Rico Government

As of December

31, 2021, the Corporation

had $360.1 million of

direct exposure to

the Puerto Rico government,

its municipalities,

and

public

corporations,

compared

$394.8

million

December

31,

2020.

December

31,

2021,

approximately

$187.8

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 $122.8

million consisted

of municipal

revenue and

special obligation

bonds.

Approximately 61%

the Corporation’s

exposure to

Puerto Rico’s

government consisted

primarily of

senior priority

obligations concentrated

in four

of the

largest

municipalities

Puerto

Rico.

The

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required for the payment

of all of their respective

general obligation bonds

and notes. Furthermore, municipalities

are also likely to be

affected

the

negative

economic

and

other

effects

resulting

from

the

COVID-19

pandemic,

well

expense,

revenue,

cash

management measures

taken to

address the

Puerto Rico

government’s

fiscal problems

and measures

included in

fiscal plans

of other

government

entities.

addition

municipalities,

the

total

direct

exposure

also

included

$12.5

million

loans

affiliate

PREPA,

$33.4 million

in loans

to an

agency of

the Puerto

Rico central

government,

and obligations

of the

Puerto Rico

government,

specifically a residential

pass-through MBS issued

by the PRHFA,

at an amortized

cost of $3.6 million

as part of its available-for

-sale

investment securities portfolio (fair value of $2.9 million as of December

31, 2021).

126

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of December 31,

2021

Investment

Portfolio

Total

(Amortized cost)

Loans

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,574

Total

Puerto Rico Housing Finance Authority

3,574

Puerto Rico public corporation:

After 5 to 10 years

3,454

After 10 years

29,988

Total Puerto Rico public

corporation

33,442

Affiliate of the Puerto Rico Electric Power Authority:

After 1 to 5 years

12,511

Total Puerto Rico government

affiliate

12,511

Total

Puerto Rico public corporation and government affiliate

45,953

Municipalities:

Due within one year

2,995

8,052

11,047

After 1 to 5 years

14,785

76,336

91,121

After 5 to 10 years

90,584

48,075

138,659

After 10 years

69,769

Total

Municipalities

178,133

132,463

310,596

Total

Direct Government Exposure

181,707

178,416

360,123

addition,

December

31,

2021,

the

Corporation

had

$92.8

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,

2020

$106.5 million).

Residential

mortgage

loans guaranteed

the

PRHFA

are

secured by

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,

2019,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$557

million.

The

regulations

adopted

the

PRHFA

require

the

establishment

adequate

reserves

guarantee

the

solvency

the

mortgage

loan

insurance

fund.

June

30,

2019,

the

most

recent

date

which

information is available,

the PRHFA

was not in

compliance with the regulations

and had an unrestricted

deficit of approximately

$5.2

million in the mortgage loans insurance program.

As of December

31, 2021, the

Corporation had

$2.7 billion of

public sector deposits

in Puerto Rico,

compared to $1.8

billion as of

December

31,

2020.

Approximately

19%

the

public

sector

deposits

December

31,

2021

was

from

municipalities

and

municipal

agencies

Puerto

Rico

and

81%

was

from

public

corporations,

the

central

government

and

agencies,

and

U.S.

federal

government agencies in Puerto Rico.

127

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

number

fiscal

and

economic

challenges

that

have

deteriorated

the

overall

financial and

economic conditions

in the area.

Between 2008 and

2017, the

USVI real GDP

contracted at

a compound annual

growth

rate of -4.2%. On May 26, 2021, the United States Bureau

of Economic Analysis (the “BEA”) released estimates

of GDP estimates for

the

USVI

for

2019.

According

the

BEA,

the

USVI’s

real

GDP

increased

2.2%

2019.

Also,

the

BEA

revised

the

previously

published real

GDP growth

estimate for

2018 from

1.5% to 1.6%.

Growth in

2019 was

primarily driven

by increases

in private

fixed

investment,

exports

and

consumer

spending.

These

increases

were

partially

offset

decreases

inventory

investment

and

government spending.

Private fixed investment

doubled from the

previous year,

reflecting growth in

business purchases of

equipment

and

construction,

including

homes.

addition,

disaster-related

insurance

payouts

and

federal

assistance

supported

the

reconstruction

and

major

repairs

businesses

and

homes

that

were

destroyed

heavily

damaged

the

two

major

hurricanes

September 2017.

Although economic

activity in the

USVI showed signs

of improvements during

2018 and 2019,

the economic threat

resulting

from

the

COVID-19

pandemic

anticipated

diminish

growth

throughout

2020

and

2021.

Notwithstanding,

similar

Puerto Rico,

the USVI

has benefited

from the

various rounds

of economic

stimulus programs

deployed by

the Federal

Government.

Overall total pandemic-related relief funding allocated to

the USVI exceeds $1.5 billion.

October

28,

2021,

the U.S.

Census

Bureau

released

the 2020

Census

population

and housing

unit

count

for

the USVI.

As of

April

2020,

the

USVI’s

population

was 87,146,

representing

18.1%

decline

from

the 2010

Census

population

of 106,405.

The

housing unit count was 57,257 in 2020, representing an increase of 2.4%

from the 2010 Census housing unit count of 55,901.

PROMESA

does

not

apply

the

USVI

and,

such,

there

currently

federal

legislation

permitting

the

restructuring

the

debts of

the USVI

and

its public

corporations

and instrumentalities.

the extent

that the

fiscal condition

of the

USVI government

continues to

deteriorate, the

U.S. Congress

or the government

of the

USVI may enact

legislation allowing

for the restructuring

of the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

February

2022,

the

Virgin

Islands

Public

Finance

Authority

(“VIPFA”)

issued

voluntary

notice

inform

that

the

Government of the

Virgin

Islands (the “GVI”)

is evaluating a refinancing

of all the outstanding

matching revenue fund revenue

bonds

issued by

the VIPFA

as part of

a broader

plan to increase

liquidity to

the GVI

in order

to provide

additional dedicated

funding to

the

Employees’

Retirement

System

the

Virgin

Islands.

According

the

VIPFA,

the

proposed

refinancing

would

accomplished

through

securitization

the

matching

fund

revenues,

with

the

proceeds

one

new

series

bonds

(the

“Securitization

Bonds”)

expected

issued

the

Matching

Fund

Special

Purpose

Securitization

Corporation

(the

“Issuer”),

special

purpose

vehicle

created

pursuant

recently

enacted

legislation.

Such

securitization,

pursued,

expected

include

the

repayment,

refunding or defeasance

of all of the

outstanding matching

fund revenue bonds

through the issuance

of such Securitization

Bonds and

possibly

cash

tender

for

the

outstanding

matching

fund

revenue

bonds

and/or

exchange

such

outstanding

matching

fund

revenue bonds for Securitization Bonds.

December

31,

2021,

the

Corporation

had

$39.2

million

loans

USVI

government

instrumentalities

and

public

corporations, compared

to $61.8

million as

of December

31, 2020.

All the

amount outstanding

as of

December 31,

2021, is

owed by

the public

corporations of

the USVI.

As of

December 31,

2021, all

loans were

currently performing

and up

to date

on principal

and

interest payments.

128

BASIS OF PRESENTATION

The Corporation

has included

in this

Form 10-K

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

the

changes

the

fair

value

derivative

instruments

and

tax-equivalent

basis

are

reported

order

provide

investors

additional

information

about

the

Corporation’s

net

interest

income

that

management

uses

and

believes

should

facilitate comparability

and

analysis

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

interest-earning

assets,

respectively.

The

tax-equivalent

adjustment

net

interest

income

recognizes

the income

tax savings

when comparing

taxable and

tax-exempt

assets and

assumes a

marginal

income tax

rate.

Income

from tax-exempt

earning assets

is increased

by an

amount equivalent

to the

taxes that

would have

been paid

if this

income

had

been

taxable

statutory

rates.

Management

believes

that

standard

practice

the

banking

industry

present net

interest income,

interest rate spread,

and net interest

margin on

a fully tax-equivalent

basis. This

adjustment puts

all earning assets, most notab

ly tax-exempt securities and tax-exempt

loans, on a common basis that

facilitates comparison of

results to

the results

of peers.

See “Results

of Operations

- Net

Interest

Income”

above for

the table

that reconciles

the net

interest

income

calculated

and

presented

accordance

with

GAAP

with

the

non-GAAP

financial

measure

“net

interest

income excluding

fair value

changes and

on a tax-equivalent

basis.” The table

also reconciles

net interest

spread and

margin

calculated and

presented in

accordance with

GAAP with

the non-GAAP

financial measures

“net interest

spread and

margin

excluding fair value changes and on a tax-equivalent basis.”

The

tangible

common

equity

ratio

and

tangible

book

value

per

common

are

non-GAAP

financial

measures

that

management believes

are generally

used by

the financial

community to

evaluate capital

adequacy.

Tangible

common equity

total

equity

less

preferred

equity,

goodwill,

core

deposit

intangibles,

and

other

intangibles,

such

the

purchased

credit

card relationship

intangible and the

insurance customer

relationship intangible.

Tangible

assets are total

assets less goodwill,

core

deposit

intangibles,

and

other

intangibles,

such

the

purchased

credit

card

relationship

intangible

and

the

insurance

customer

relationship

intangible.

Management

and

many

stock

analysts

use

the

tangible

common

equity

ratio

and

tangible

book

value

per

common

conjunction

with

traditional

bank

capital

ratios

compare

the

capital

adequacy

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

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” above for a reconciliation of the Corporation’s

tangible common equity and tangible assets.

ACL

for

loans

and

finance

leases

adjusted

total

loans

held

for

investment

ratio

non-GAAP

financial

measure

that

excludes SBA PPP

loans amounting

to $145.0 million

and $406.0 million

as of December 31, 2021

and December 31,

2020,

respectively.

The SBA PPP loans

are fully-guaranteed

by the SBA, and

the principal amount

of the loans

may be forgiven

full

part,

thus

presenting

less credit

risk

than

non-SBA

PPP

loan.

Management

believes

the

use

this non

-GAAP

measure

provides

additional

understanding

when

assessing

the

Corporation’s

reserve

coverage

and

facilitates

comparison

with other periods. See below for

the reconciliation of the GAAP ratio

of ACL for loans and finance

leases to total loans held

for investment to the Non-GAAP ratio of the ACL for loans and finance leases to adjusted

total loans held for investment.

Adjusted

provision

for

credit losses

for

loans

and

finance

leases to

net

charge-offs

ratio is

non-GAAP

financial

measure

that

excludes

the

effect

the

net

loan

loss reserve

release

$6.4

million

and

$16.9

million

recorded

the years

ended December 31, 2019

and 2018, respectively,

and the $71.3 million charge

to the provision for the

year ended December

31, 2017, resulting from

revised estimates of the qualitative

reserve associated with the

effects of Hurricanes Irma

and Maria.

Management believes

that this

information helps

investors understand

the adjusted

measure without

regard to

items that

are

not expected

to reoccur

with any

regularity or

may reoccur

at uncertain

times and

in uncertain

amounts on

reported

results

and facilitates comparisons with

other periods.

See below for the reconciliation

of the GAAP ratio of

the provision for credit

losses for

loans and

finance leases

to net

charge-offs

to the

Non-GAAP

ratio of

the adjusted

provision

for credit

losses for

loans and finance leases to net charge-offs.

supplement

the

Corporation’s

financial

statements

presented

accordance

with

GAAP,

the

Corporation

uses,

and

believes that investors would benefit

from disclosure of, non-GAAP financial measures

that reflect adjustments to net income

and non

-interest expenses

to exclude

items that

management

identifies as

Special Items

because management

believes they

are not

reflective of

core operating

performance, are

not expected

to reoccur with

any regularity or

may reoccur

at uncertain

times

and

uncertain

amounts.

This

Form

10-K

includes

the

following

non-GAAP

financial

measures

for

the

year

ended

December 31, 2021 and 2020 that reflect the described items that were excluded

for one of those reasons.

129

Adjusted net income reflects the effect of the following

exclusions:

●

Merger and restructuring costs of $26.4 million and $26.5

million recorded in 2021 and 2020, respectively,

to transaction costs and restructuring initiatives in connection with the

acquisition of BSPR.

●

COVID-19 pandemic-related expenses of $3.0 million and $5.4 million

in 2021 and 2020, respectively.

●

Gains of $13.2 million on the sales of U.S. agencies MBS and U.S. Treasury

notes recorded in 2020.

●

The $8.0 million benefit related to the partial reversal of the deferred tax

asset valuation allowance recorded during

2020.

●

Total benefit of $6.2

million recorded in 2020 resulting from hurricane-related insurance recoveries.

●

Gain of $0.1 million on the repurchase of $0.4 million in TRuPs in 2020 reflected

in the statement of income as

Gain on early extinguishment of debt.

●

The tax-related effects of all the pre-tax items mentioned in the

above bullets as follows:

−

Tax

benefit

$9.9

million

for

both

years

2021

and

2020,

merge

and

restructuring

costs

connection with the acquisition of BSPR (calculated based on the statutory

tax rate of 37.5%).

−

Tax

benefit

$1.1

million

and

$2.0

million

2021

and

2020,

respectively,

connection

with

the

COVID-19 pandemic-related expenses (calculated based on the statutory

tax rate of 37.5%)

−

No tax expense was recorded for the gain on sales of U.S. agencies MBS and U.S. Treasury

Notes in 2020.

−

Tax

expense

$2.3

million

2020

the

benefit

hurricane-related

insurance

recoveries

(calculated based on the statutory tax rate of 37.5%).

−

The

gains

realized

the

repurchase

TRuPs

2020

recorded

the

holding

company

level,

had

effect on the income tax expense in 2020.

See “Overview of Results

of Operations”

above for the reconciliation

of the non-GAAP financial

measure “adjusted

net income” to the

GAAP financial

measure.

130

Adjusted non-interest expenses -

The

following tables reconcile for

the years

ended December 31,

2021 and

2020 the

GAAP non-

interest expenses

adjusted non-interest expenses,

which is

non-GAAP financial measure

that

excludes the

relevant Special

Items

discussed

above:

2021

Non-Interest

Expenses

(GAAP)

Merger and

Restructuring

Costs

COVID 19

Pandemic-Related

Expenses

Adjusted (Non-

GAAP)

(In thousands)

Non-interest expenses

488,974

26,435

2,958

459,581

Employees' compensation and benefits

200,457

200,390

Occupancy and equipment

93,253

2,601

90,652

Business promotion

15,359

15,337

Professional service fees

59,956

Taxes, other than income taxes

22,151

261

21,890

FDIC deposit insurance

6,544

Net gain on OREO and OREO expenses

(2,160)

Credit and debit card processing expenses

22,169

Communications

9,387

Merger and restructuring costs

26,435

Other non-interest expenses

35,423

35,416

2020

Non-Interest

Expenses

(GAAP)

Merger and

Restructuring

Costs

COVID 19

Pandemic-Related

Expenses

Hurricane-

Related Insurance

Recoveries

Adjusted

(Non-GAAP)

(In thousands)

Non-interest expenses

424,240

26,509

5,411

(1,153)

393,473

Employees' compensation and benefits

177,073

1,772

175,301

Occupancy and equipment

74,633

2,713

(789)

72,709

Business promotion

12,145

581

(184)

11,748

Professional service fees

52,633

(180)

52,805

Taxes, other than income taxes

17,762

274

17,488

FDIC deposit insurance

6,488

Net loss on OREO and OREO expenses

3,598

Credit and debit card processing expenses

19,144

Communications

8,437

8,421

Merger and restructuring costs

26,509

Other non-interest expenses

25,818

25,771

131

Allowance for

credit losses

on loans and finance

leases to adjusted

total loans

held for investment

ratio – The following

tables reconcile

the “ACL for loans and finance leases to total loans held for investment ratio,” the GAAP financial

measure, to the non-GAAP financial

measure “ACL for loans and finance

leases to adjusted total

loans held for investment

ratio,” as of December 31, 2021 and 2020, and the

“provision for

credit losses

for loans and finance

leases to net charge-offs

ratio,” the GAAP financial

measure, to the non-GAAP

financial

measure “adjusted

provision

for credit losses

for loans and

finance leases

to net charge-offs

ratio,” for

the years ended

December

31, 2021,

2020 and

2019:

Allowance for Credit Losses for Loans and Finance Leases

to Loans Held for Investment

(GAAP to Non-GAAP reconciliation)

As of December 31, 2021

Allowance for Credit Losses for

Loans Held for

Investment

Loans and Finance Leases

(In thousands)

Allowance for credit losses for loans and finance leases and

loans held for investment (GAAP)

269,030

11,060,658

Less:

SBA PPP loans

145,019

Allowance for credit losses for loans and finance leases and adjusted

loans held for investment,

excluding SBA PPP loans (Non-GAAP)

269,030

10,915,639

Allowance for credit losses for loans and finance leases to loans

held for investment (GAAP)

2.43

Allowance for credit losses for loans and finance leases to adjusted

loans held for investment,

excluding SBA PPP loans (Non-GAAP)

2.46

Allowance for Credit Losses for Loans and Finance Leases

to Loans Held for Investment

(GAAP to Non-GAAP reconciliation)

As of December 31, 2020

Allowance for Credit Losses for

Loans Held for

Investment

Loans and Finance Leases

(In thousands)

Allowance for credit losses for loans and finance leases and

loans held for investment (GAAP)

385,887

11,777,289

Less:

SBA PPP loans

405,953

Allowance for credit losses for loans and finance leases and adjusted

loans held for investment,

excluding SBA PPP loans (Non-GAAP)

385,887

11,371,336

Allowance for credit losses for loans and finance leases to loans

held for investment (GAAP)

3.28

Allowance for credit losses for loans and finance leases to adjusted

loans held for investment,

excluding SBA PPP loans (Non-GAAP)

3.39

132

Provision for credit losses - (benefit) expense

Finance Leases to Net Charge-Offs

(GAAP to Non GAAP reconciliation)

Year Ended

December 31, 2021

December 31, 2020

December 31, 2019

Provision for Credit

Losses - (benefit)

expense

Net Charge-

Offs

Provision for Credit

Losses - (benefit)

expense

Net Charge-Offs

Provision for Credit

Losses - (benefit)

expense

Net Charge-Offs

(In thousands)

Provision for credit losses - (benefit) expense and net charge-offs (GAAP)

(61,720)

55,137

40,225

81,448

59,253

94,734

Less Special Item:

Hurricane-related qualitative reserve release (provision)

6,425

16,943

Provision for credit losses - (benefit) expense and net charge-offs,

excluding special item (Non-GAAP)

(61,720)

55,137

46,650

81,448

76,196

94,734

Provision for credit losses - (benefit) expense to net charge-offs (GAAP)

-111.94

49.39

62.55

Provision for credit losses - (benefit) expense to net charge-offs,

excluding special items (Non-GAAP)

-111.94

57.28

80.43

Management

believes that

the presentation

of adjusted

net income,

adjusted non-interest

expenses

and

adjustments to

the various

components of

non-interest expenses,

the ratio

of allowance

for credit

losses to

adjusted total

loans held

for investment,

and the

ratio

of adjusted

provision for

credit losses

for loans

and finance

leases to

net charge

-offs enhance

the ability

of analysts

and investors

analyze

trends

the

Corporation’s

business

and

understand

the

performance

the

Corporation.

addition,

the

Corporation

may

utilize

these

non-GAAP

financial

measures

as a

guide

its

budgeting

and

long-term

planning

process.

Any

analysis

these

non-

GAAP financial measures should be used only in conjunction with results

presented in accordance with GAAP.

CEO and CFO Certifications

First BanCorp.’s Chief Executive

Officer and Chief Financial Officer have

filed with the SEC certifications required by Section 302

and Section 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1, 31.2,

32.1 and 32.2 to this Annual Report on Form 10-K.

In addition, in 2021, First BanCorp’s

Chief Executive Officer provided to the NYSE his annual certification,

as required for all

NYSE listed companies, that he was not aware of any violation by the Corporation

of the NYSE corporate governance listing

standards.

Item 7A. Quantitative and Qualitative Disclosures about Market

Risk

The information required

herein is incorporated by

reference to the

information included under the

sub-caption “Interest Rate Risk

Management” in Item

7 “Management’s

Discussion and Analysis of

Financial Condition and

Results of Operations,”

of this Form 10-

133

Item 8. Financial Statements and Supplementary Data

FIRST BANCORP.

INDEX TO CONSOLIDATED

FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

(PCAOB No.

173

)

……………………………..

134

Management’s Report on Internal Control over Financial Reporting

…………………………………………

137

Consolidated Statements of Financial Condition

……………………………………………………………...

138

Consolidated Statements of Income

……...…………………………………………………………………...

139

Consolidated Statements of Comprehensive Income

……...………………………………………………….

140

Consolidated Statements of Cash Flows

………………………………………………………………………

141

Consolidated Statements of Changes in Stockholders’ Equity

………………………………………………..

142

Notes to Consolidated Financial Statements

…………………………………………………………………..

143

134

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

Stockholders and the Board of Directors

of First BanCorp.

Santurce, Puerto Rico

Opinions on the Financial Statements and Internal Control

over Financial Reporting

have audited

the accompanying

consolidated statement of

financial condition

of First BanCorp.

(the "Company")

as of December

31, 2021

and 2020,

the related

consolidated

statements of

income, comprehensive

income, cash

flows, and

changes in

stockholders’

equity

for each

of the

years in

the three-year

period ended

December

31, 2021,

and the

notes (collectively

referred

to as

the

"financial statements"). We

also have audited the

Company’s internal

control over financial reporting

as of December 31,

2021, based

criteria established

in Internal

Control –

Integrated Framework:

(2013) issued

by the

Committee of

Sponsoring Organizations

of the

Treadway Commission (COSO).

In our opinion,

the financial statements

referred to above

present fairly,

in all material

respects, the financial

position of the

Company

as of

December 31,

2021 and

2020, and

the results

of its

operations and

its cash

flows for

each of

the years

in the

three-year period

ended December

31, 2021 in

conformity with

accounting principles

generally accepted

in the United

States of America.

Also, in our

opinion, the Company maintained,

in all material respects, effective

internal control over financial

reporting as of December

31, 2021,

based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Change in Accounting Principle

discussed

Notes

and

the

financial

statements,

the

Company

has

changed

its

method

accounting

for

credit

losses

effective

January 1,

2020 due

to the

adoption of

Financial Accounting

Standards Board

(FASB)

Accounting Standards

Codifications

No. 326,

Financial Instruments

– Credit

Losses (Topic

326). The

Company adopted

the new

credit loss

standard using

the modified

retrospective

method

such

that

prior

period

amounts

are

not

adjusted

and

continue

reported

accordance

with

previously

applicable generally accepted accounting principles.

Basis for Opinions

The

Company’s

management

responsible

for

these

financial

statements,

for

maintaining

effective

internal

control

over

financial

reporting,

and

for

its

assessment

the

effectiveness

internal

control

over

financial

reporting,

included

the

accompanying

Management’s

Report

Internal

Control

over

Financial

Reporting. Our

responsibility is

express

opinion

the

Company’s

financial statements and

an opinion

on the

Company’s internal

control over

financial reporting based

on our

audits.

are a

public

accounting firm

registered with

the Public

Company Accounting

Oversight Board

(United States)

("PCAOB") and

are required

independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of

the Securities

and Exchange

Commission and

the PCAOB.

We conducted

our audits in accordance with the

standards of the PCAOB. Those standards require

that we plan and perform the audits

to obtain reasonable

assurance about whether

the financial statements are

free of material misstatement,

whether due to error

or fraud,

and whether effective internal control over financial reporting

was maintained in all material respects.

135

Our

audits

the

financial

statements

included

performing

procedures

assess

the

risks

material

misstatement

the

financial

statements, whether due to error or fraud,

and performing procedures that respond to

those risks. Such procedures included examining,

test basis,

evidence

regarding

the

amounts

and

disclosures

the

financial

statements.

Our

audits

also

included

evaluating

the

accounting

principles

used

and

significant

estimates

made

management,

well

evaluating

the

overall

presentation

the

financial statements. Our audit

of internal control over

financial reporting included obtaining

an understanding of internal control

over

financial reporting, assessing the risk that a material weakness

exists, and testing and evaluating the design

and operating effectiveness

of internal

control based

on the assessed

risk. Our

audits also

included performing

such other

procedures as

we considered

necessary

in the circumstances.

We believe that our audits

provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s

internal control over financial reporting is a

process designed to provide reasonable assurance

regarding the reliability of

financial reporting and

the preparation of

financial statements for

external purposes in

accordance with

generally accepted accounting

principles.

company’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that

(1)

pertain

the

maintenance

records

that,

reasonable

detail,

accurately

and

fairly

reflect

the

transactions

and

dispositions

the

assets

the

company; (2) provide

reasonable assurance that

transactions are recorded

as necessary to permit

preparation of financial

statements in

accordance with

generally accepted

accounting principles,

and that

receipts and

expenditures of

the company

are being

made only

accordance

with

authorizations

management

and

directors

the

company;

and

(3)

provide

reasonable

assurance

regarding

prevention or timely detection of unauthorized acquisition, use, or

disposition of the company’s

assets that could have a material effect

on the financial statements.

Because of its inherent limitations, internal control over

financial reporting may not prevent or detect misstatements.

Also, projections

of any evaluation

of effectiveness to

future periods are

subject to the

risk that controls

may become inadequate

because of

changes in

conditions, or that the degree of compliance with the policies or procedures

may deteriorate.

Critical Audit Matters

The

critical

audit

matter

communicated

below

is a

matter

arising

from

the

current

period

audit

the

financial

statements

that

was

communicated or required

to be communicated

to the audit

committee and that:

(1) relates to accounts

or disclosures that

are material

to the financial

statements and (2)

involved our especially

challenging, subjective,

or complex judgments.

The communication of

the

critical

audit

matter

does

not

alter

any

way

our

opinion

the

financial

statements,

taken

whole,

and

are

not,

communicating

the

critical

audit

matter

below,

providing

separate

opinion

the

critical

audit

matter

the

accounts

disclosures to which it relates.

Allowance for Credit Losses – Model and Forecast of Macroeconomic Variables

As described

in Notes

1 and

9 to

the financial

statements, the

allowance for

credit losses

(“ACL”) for

loans and

finance leases

is an

accounting

estimate

expected

credit

losses

over

the

contractual

life

financial

assets

carried

amortized

cost

and

off-balance-

sheet credit exposures.

The calculation

of the

ACL for

loans and

finance leases,

is primarily

measured based

on a

probability of

default /

loss given

default

modeled approach. A significant

amount of judgment was required

when assessing the reasonableness and

quality of the model design

and

construction,

including

whether

the

models

were

relevant

the

Company’s

loan

portfolio

and

were

suitable

for

use.

Additionally,

the estimate

of the

probability of

default and

loss given

default assumptions

uses relevant

current and

forward-looking

macroeconomic variables,

such as:

unemployment rate;

housing and

real estate

price indices;

interest rates;

market risk

factors; and

gross domestic

product, and

considers conditions

throughout Puerto

Rico, the

Virgin

Islands,

and the

State of

Florida. A

significant

amount of

judgment is required

to assess the

reasonableness of

the macroeconomic variables.

Changes in the

model design as

well as

changes to these assumptions could have a material effect on the

Company’s financial results.

136

The

model

and

the

current

and

forward-looking

macroeconomic

variables

used

contribute

significantly

the

determination

the

ACL for

loans and

finance leases.

identified the

assessment of

the model

design and

construction and

the assessment

of relevant

macroeconomic

variables

as a

critical audit

matter as

the impact

of these

judgments

represents a

significant

portion

of the

ACL for

loans

and

finance

leases

and

because

management’s

estimate

required

especially

subjective

auditor

judgment

and

significant

audit

effort, including the need for specialized skill.

The primary procedures we performed to address these critical audit matters included:

●

Testing

the

effectiveness

controls

over

the

evaluation

the

conceptual

design

and

construction

the

models

and

the

evaluation of the current and forward-looking macroeconomic variables,

including controls addressing:

o

Management’s review and

approval of the models and methodologies used to establish the ACL.

o

Management’s review and

approval of the macroeconomic variables.

o

Management’s review of the reasonableness

of the results of the macroeconomic variables used in the calculation.

o

Management’s review of

the results of the third-party model validations.

●

Substantively

testing

management’s

process,

including

evaluating

their

judgments

and

assumptions,

for

assessing

the

conceptual design and construction of the models and for developing the

macroeconomic variables, which included:

o

Evaluation,

with

the

assistance

professionals

with

specialized

skill

and

knowledge,

the

reasonableness

management’s judgments related

to the conceptual design and construction of the models.

o

Evaluation

the

completeness

and

accuracy

data

inputs

used

basis

for

the

adjustments

relating

macroeconomic variables.

o

Evaluation,

with

the

assistance

professionals with

specialized

skill

and

knowledge,

the

reasonableness of

management’s

judgments

to the macroeconomic

variables

used in the

determination

of the ACL

for loans.

Among

other procedures, our

evaluation considered, evidence from internal and

external sources, loan

portfolio performance

trends

and whether

such assumptions

were applied

consistently

period

to period.

o

Analytical evaluation of the variables period to period for directional consistency

and testing for reasonableness.

/s/

Crowe LLP

We have served

as the Company’s auditor since 2018.

Fort Lauderdale, Florida

March 1, 2022

Stamp No. E413192 of the Puerto Rico

Society of Certified Public Accountants

was affixed to the record copy of this report.

137

Management’s Report on Internal Control

over Financial Reporting

To the Stockholders

and Board of Directors of First BanCorp.:

First BanCorp.’s

(the “Corporation”)

internal control

over financial

reporting is

a process

designed

and effected

by those

charged

with

governance,

management,

and

other

personnel,

provide

reasonable

assurance

regarding

the

reliability

financial

reporting

and the preparation of reliable

financial statements in accordance

with accounting principles generally

accepted in the United States of

America

(“GAAP”).

The

Corporation’s

internal

control

over

financial

reporting

includes

those

policies

and

procedures

that:

(1) pertain to the

maintenance of records

that, in reasonable detail,

accurately and fairly reflect

the transactions and dispositions

of the

assets

the

Corporation;

(2) provide

reasonable

assurance

that

transactions

are

recorded

necessary

permit

the

preparation

financial

statements

accordance

with

GAAP,

and

that

receipts

and

expenditures

the

Corporation

are

being

made

only

accordance

with

authorizations

management

and

directors

the

Corporation;

and

(3) provide

reasonable

assurance

regarding

prevention,

or timely

detection and

correction

of unauthorized

acquisition,

use, or

disposition of

the Corporation’s

assets that

could

have a material effect on the financial statements.

Because of

its inherent

limitations, internal

control over

financial reporting

may not

prevent, or

detect and

correct misstatements.

Also,

projections

any

evaluation

effectiveness

future

periods

are

subject

the

risk

that

controls

may

become

inadequate

because of changes in conditions, or that the degree of compliance with the

policies and procedures may deteriorate.

Management

responsible

for

establishing

and

maintaining

effective

internal

control

over

financial

reporting.

Management

assessed

the

effectiveness

the

Corporation’s

internal

control

over

financial

reporting

December 31,

2021,

based

the

framework

set

forth

the

Committee

Sponsoring

Organizations

the

Treadway

Commission

(COSO)

Internal

Control-

Integrated

Framework

(2013).

Based

that

assessment,

management

concluded

that,

December

31,

2021,

the

Corporation’s

internal control over financial reporting is effective based

on the criteria established in Internal Control-Integrated Framework (2013).

Management’s

assessment

the

effectiveness

internal

control

over

financial

reporting

December 31,

2021,

has

been

audited by CROWE LLP,

an independent public accounting firm, as stated in their

accompanying report dated March 1, 2022.

First BanCorp.

/s/

Aurelio Alemán

President and Chief Executive Officer

Date: March 1, 2022

/s/

Orlando Berges

Executive Vice President

and Chief Financial Officer

Date: March 1, 2022

138

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

December 31,

2021

December 31, 2020

(In thousands, except for share information)

ASSETS

Cash and due from banks

2,540,376

1,433,261

Money market investments:

Time deposits with other financial institutions

300

Other short-term investments

2,382

60,272

Total money market investments

2,682

60,572

Investment securities available for sale, at fair value:

Securities pledged with creditors’ rights to repledge

321,180

341,789

Other investment securities available for sale

6,132,581

4,305,230

Total investment securities available for sale, at fair value (amortized cost 2021 - $

6,534,503

;

2020 - $

4,584,851

; allowance for credit losses of $

1,105

as of December 31, 2021 and $

1,310

as of

December 31, 2020)

6,453,761

4,647,019

Investment securities held to maturity, at amortized cost, net of allowance for credit losses

of $

8,571

as of December 31, 2021 and $

8,845

as of December 31, 2020 (fair value 2021 - $

167,147

;

2020 - $

173,806

)

169,562

180,643

Equity securities

32,169

37,588

Loans, net of allowance for credit losses of $

269,030

(2020 - $

385,887

)

10,791,628

11,391,402

Loans held for sale, at lower of cost or market

35,155

50,289

Total loans, net

10,826,783

11,441,691

Premises and equipment, net

146,417

158,209

Other real estate owned (“OREO”)

40,848

83,060

Accrued interest receivable on loans and investments

61,507

69,505

Deferred tax asset, net

208,482

329,261

Goodwill

38,611

38,632

Intangible assets

29,934

40,893

Other assets

234,143

272,737

Total assets

20,785,275

18,793,071

LIABILITIES

Non-interest-bearing deposits

7,027,513

4,546,123

Interest-bearing deposits

10,757,381

10,771,260

Total deposits

17,784,894

15,317,383

Securities sold under agreements to repurchase

300,000

Federal Home Loan Bank advances

200,000

440,000

Other borrowings

183,762

Accounts payable and other liabilities

214,852

276,747

Total liabilities

18,683,508

16,517,892

STOCKHOLDERS’ EQUITY

Preferred stock, authorized,

50,000,000

Non-cumulative Perpetual Monthly Income Preferred Stock:

22,004,000

;

1,444,146

shares outstanding as of December 31, 2020, aggregate liquidation value of $

36,104

as of December 31, 2020 (See Note 23)

36,104

Common stock, $

0.10

par value, authorized, 2,000,000,000 shares;

223,663,116

shares issued (2020 -

223,034,348

shares issued)

22,366

22,303

Less: Treasury stock (at par value)

(2,183)

(480)

Common stock outstanding,

201,826,505

shares outstanding

(2020 -

218,235,064

shares outstanding)

20,183

21,823

Additional paid-in capital

738,288

946,476

Retained earnings, includes legal surplus reserve of $

137,591

(2020 - $

109,338

)

1,427,295

1,215,321

Accumulated other comprehensive (loss) income, net of tax of $

9,786

as of December 31, 2021 (2020 -

7,590

)

(83,999)

55,455

Total stockholders’ equity

2,101,767

2,275,179

Total liabilities and stockholders’ equity

20,785,275

18,793,071

The accompanying notes are an integral part of these statements.

139

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

Year Ended December 31,

2021

2020

2019

(In thousands, except per share information)

Interest and dividend income:

Loans

719,153

631,047

602,998

Investment securities

72,893

58,547

59,546

Money market investments and interest-bearing cash accounts

2,662

3,388

13,353

Total interest and dividend income

794,708

692,982

675,897

Interest expense:

Deposits

41,482

68,388

77,782

Loans payable

Securities sold under agreements to repurchase

9,963

6,645

6,647

Advances from FHLB

8,199

11,251

14,963

Other borrowings

5,135

6,355

9,424

Total interest expense

64,779

92,660

108,816

Net interest income

729,929

600,322

567,081

Provision for credit losses - (benefit) expense:

Loans and finance leases

(61,720)

168,717

40,225

Unfunded loan commitments

(3,568)

1,183

(412)

Debt securities

(410)

1,085

Provision for credit losses - (benefit) expense

(65,698)

170,985

39,813

Net interest income after provision for credit losses

795,627

429,337

527,268

Non-interest income:

Service charges and fees on deposit accounts

35,284

24,612

23,916

Mortgage banking activities

24,998

22,124

17,058

Net gain (loss) on investment securities

13,198

(497)

Gain on early extinguishment of debt

Insurance commission income

11,945

9,364

10,186

Other non-interest income

48,937

41,834

39,909

Total non-interest income

121,164

111,226

90,572

Non-interest expenses:

Employees' compensation and benefits

200,457

177,073

162,374

Occupancy and equipment

93,253

74,633

63,169

Business promotion

15,359

12,145

15,710

Professional fees

59,956

52,633

45,889

Taxes, other than income taxes

22,151

17,762

15,325

Federal Deposit Insurance Corporation ("FDIC") deposit insurance

6,544

6,488

6,319

Net (gain) loss on OREO and OREO expenses

(2,160)

3,598

14,644

Credit and debit card processing expenses

22,169

19,144

16,472

Communications

9,387

8,437

6,891

Merger and restructuring costs

26,435

26,509

11,442

Other non-interest expenses

35,423

25,818

20,233

Total non-interest expenses

488,974

424,240

378,468

Income before income taxes

427,817

116,323

239,372

Income tax expense

146,792

14,050

71,995

Net income

281,025

102,273

167,377

Net income attributable to common stockholders

277,338

99,597

164,701

Net income per common share:

Basic

1.32

0.46

0.76

Diluted

1.31

0.46

0.76

The accompanying notes are an integral part of these statements.

140

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended

December 31,

2021

2020

2019

(In thousands)

Net income

281,025

102,273

167,377

Other comprehensive (loss) income, net of tax:

Debt securities:

Unrealized gain on debt securities for which credit losses have been recognized

1,417

772

Reclassification adjustment for credit losses - (benefit) expense on debt securities included in net

income

(136)

1,641

497

Reclassification adjustment for net gains included in net income on sales of

available-for-sale debt securities with no credit losses previously recognized

(13,198)

All other unrealized holding (losses) gains on available-for-sale debt securities

(144,396)

59,746

46,634

Defined benefit plans adjustments:

Net actuarial gain (loss)

3,661

(270)

Other comprehensive (loss) income for the year, net of tax

(139,454)

48,691

47,179

Total comprehensive income

141,571

150,964

214,556

Year Ended

December 31,

2021

2020

2019

(In thousands)

Income tax effect of items included in other comprehensive (loss) income:

Debt securities:

Unrealized gain on debt securities for which credit losses have been recognized

Reclassification adjustment for credit losses - (benefit) expense on debt securities included in net

Reclassification adjustments for net gain included in net income on sales of

available-for-sale debt securities with no credit losses previously recognized

All other unrealized holding

(losses) gains on available-for-sale debt securities

Defined benefit plans adjustments:

Net actuarial gain (loss)

2,199

(162)

Total income tax effect of items included in other comprehensive (loss) income

2,199

(162)

The accompanying notes are an integral part of these statements.

141

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2021

2020

2019

(In thousands)

Cash flows from operating activities:

Net income

281,025

102,273

167,377

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

24,965

20,068

17,592

Amortization of intangible assets

11,407

5,912

3,086

Provision for credit losses - (benefit) expense

(65,698)

170,985

39,813

Deferred income tax expense (benefit)

118,323

(4,371)

55,009

Stock-based compensation

5,460

5,117

3,949

Gain on early extinguishment of debt

(94)

(Gain) loss on sales of investment securities

(13,198)

497

Unrealized gain on derivative instruments

(4,227)

(5,635)

(2,934)

Net (gain) loss on disposals or sales of premises

and equipment and other assets

(32)

(215)

242

Net gain on sales of loans

(14,791)

(13,273)

(10,446)

Net amortization/accretion of discounts, premiums,

and deferred loan fees and costs

(25,294)

(8,602)

(8,117)

Originations and purchases of loans held for sale

(503,200)

(648,052)

(362,612)

Sales and repayments of loans held for sale

528,253

659,349

360,572

Amortization of broker placement fees

218

537

732

Net amortization/accretion of premiums and discounts on

investment securities

26,549

19,410

2,483

Decrease (increase) in accrued interest receivable

7,701

6,419

(1,971)

(Decrease) increase in accrued interest payable

(2,776)

(2,990)

1,081

Decrease (increase) in other assets

24,344

(5,018)

32,521

(Decrease) increase in other liabilities

(12,506)

9,116

(4,590)

Net cash provided by operating activities

399,721

297,738

294,284

Cash flows from investing activities:

Net repayments (disbursements) on loans held for investment

599,097

(335,152)

(341,870)

Proceeds from sales of loans held for investment

81,458

6,788

83,428

Proceeds from sales of repossessed assets

55,867

35,270

60,124

Proceeds from sales of available-for-sale securities

1,195,250

Purchases of available-for-sale securities

(3,447,921)

(3,820,148)

(765,432)

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

securities

1,445,873

1,277,762

628,675

Proceeds from principal repayments and maturities of

held-to-maturity securities

12,677

6,431

6,138

Additions to premises and equipment

(13,349)

(16,070)

(22,478)

Proceeds from sales of premises and equipment and

other assets

832

497

1,568

Net redemptions of other investments securities

5,322

3,881

6,292

Proceeds from the settlement of insurance claims -

investing activities

550

587

Net (payments) cash acquired in acquisition

(3,381)

406,626

Net cash used in investing activities

(1,262,975)

(1,238,865)

(342,968)

Cash flows from financing activities:

Net increase in deposits

2,472,579

1,767,441

361,657

Net decrease in short-term borrowings

(35,000)

(15,086)

Repayments of long-term borrowings

(240,000)

(95,282)

(205,000)

Proceeds from long-term reverse repurchase agreements

200,000

Repurchase of outstanding common stock

(216,522)

(206)

(1,959)

Dividends paid on common stock

(65,021)

(43,416)

(30,356)

Dividends paid on preferred stock

(2,453)

(2,676)

Redemption of preferred stock-

Series A through E

(36,104)

Net cash provided by (used in) financing activities

1,912,479

1,790,861

106,580

Net increase (decrease) in cash and cash equivalents

1,049,225

849,734

57,896

Cash and cash equivalents at beginning of year

1,493,833

644,099

586,203

Cash and cash equivalents at end of year

2,543,058

1,493,833

644,099

Cash and cash equivalents include:

Cash and due from banks

2,540,376

1,433,261

546,391

Money market instruments

2,682

60,572

97,708

2,543,058

1,493,833

644,099

The accompanying notes are an integral part of these statements.

142

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'

EQUITY

Year Ended December 31,

2021

2020

2019

(In thousands, except per share information)

Preferred Stock:

Balance at beginning of year

36,104

Redemption of Series A through E Preferred Stock

(36,104)

Balance at end of year

36,104

Common stock outstanding:

Balance at beginning of year

21,823

21,736

21,724

Common stock repurchases (See Note 23)

(1,695)

(5)

(18)

Restricted stock grants

Unrestricted stock grants

Vesting of performance shares unit

Restricted stock forfeited

(8)

(1)

Balance at end of year

20,183

21,823

21,736

Additional paid-in capital:

Balance at beginning of year

946,476

941,652

939,674

Common stock repurchases (See Note 23)

(214,827)

(201)

(1,941)

Stock-based compensation expense

5,460

5,117

3,949

Restricted stock grants

(33)

(90)

(31)

Unrestricted stock grants

(2)

Vesting of performance shares unit

(30)

Restricted stock forfeited

Issuance costs of Series A through E Preferred Stock redeemed

1,234

Balance at end of year

738,288

946,476

941,652

Retained earnings:

Balance at beginning of year

1,215,321

1,221,817

1,087,617

Impact of adoption of Accounting Standards Codification

("ASC" or "Codification")

Topic 326, "Financial Instruments - Credit Losses" ("ASC 326" or "CECL")

(62,322)

Balance at beginning of period (as adjusted for impact of adoption

of ASC 326)

1,159,495

Net income

281,025

102,273

167,377

Dividends on common stock (2021 - $

0.31

per share; 2020 - $

0.20

per share; 2019 - $

0.14

per share)

(65,364)

(43,771)

(30,501)

Dividends on preferred stock

(2,453)

(2,676)

Excess of redemption value over carrying value of Series

A through E Preferred

Stock redeemed

(1,234)

Balance at end of year

1,427,295

1,215,321

1,221,817

Accumulated other comprehensive (loss) income, net of tax:

Balance at beginning of year

55,455

6,764

(40,415)

Other comprehensive (loss) income, net of tax

(139,454)

48,691

47,179

Balance at end of year

(83,999)

55,455

6,764

Total stockholders’ equity

2,101,767

2,275,179

2,228,073

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

143

NOTE 1

–

NATURE OF BUSINESS

AND SUMMARY

OF SIGNIFICANT

ACCOUNTING

POLICIES

Nature of business

First

BanCorp.

(the

“Corporation”)

publicly

owned,

Puerto

Rico-chartered

financial

holding

company

that

subject

regulation,

supervision,

and

examination

by the

Board

of Governors

of the

Federal

Reserve

System

(the “Federal

Reserve

Board”).

The Corporation is a full service

provider of financial services and products

with operations in Puerto Rico, the

United States, the U.S.

Virgin Islands

(the “USVI”), and the British Virgin

Islands (the “BVI”).

The Corporation

provides a

wide range

of financial

services for

retail, commercial,

and institutional

clients.

The Corporation

has

two

wholly-owned

subsidiaries:

FirstBank

Puerto

Rico

(“FirstBank”

the

“Bank”),

and

FirstBank

Insurance

Agency,

Inc.

(“FirstBank Insurance Agency”).

FirstBank is a Puerto

Rico-chartered commercial bank,

and FirstBank Insurance

Agency is a Puerto

Rico-chartered

insurance

agency.

FirstBank

subject

the

supervision,

examination,

and

regulation

both

the

Office

the

Commissioner

Financial

Institutions

the

Commonwealth

Puerto

Rico

(the

“OCIF”)

and

the

Federal

Deposit

Insurance

Corporation

(“FDIC”).

Deposits

are

insured

through

the

FDIC

Deposit

Insurance

Fund.

FirstBank

also

operates

the

State

Florida,

subject to

regulation

and

examination

by the

Florida

Office

of Financial

Regulation

and

the FDIC,

in the

USVI, subject

regulation

and examination

by the

United

States Virgin

Islands Banking

Board, and

in the

BVI, subject

to regulation

by the

British

Virgin

Islands

Financial

Services

Commission.

The

Consumer

Financial

Protection

Bureau

(the

“CFPB”)

regulates

FirstBank’s

consumer financial products and services.

FirstBank Insurance Agency

is subject to the supervision,

examination, and regulation of

the Office of the

Insurance Commissioner

of the Commonwealth of Puerto Rico and the Division of Banking and Insurance

Financial Regulation in the USVI.

Effective

September 1,

2020, FirstBank

completed the

acquisition of Santander

Bancorp, a

wholly-owned subsidiary

of Santander

Holdings

USA, Inc.

and

the holding

company of

Banco Santander

Puerto Rico

(“BSPR”),

pursuant

to a

Stock Purchase

Agreement

dated

October

21,

2019,

and

among

FirstBank

and

Santander

Holdings,

USA,

Inc.

(the

“Stock

Purchase

Agreement”).

Immediately following the closing

of the transaction, Santander

Bancorp was merged with

and into FirstBank (the

“HoldCo Merger”),

with FirstBank surviving the HoldCo Merger.

Immediately following the effectiveness of the

HoldCo Merger, BSPR was

merged with

and into FirstBank,

with FirstBank as

the surviving entity

in the merger.

Refer to Note

2 – Business

Combination, to the

consolidated

financial statements for more information about this acquisition.

FirstBank conducts its

business through its

main office located

in San Juan, Puerto

Rico,

banking branches in

Puerto Rico,

eight

banking

branches

the

USVI

and

the

BVI,

and

banking

branches

the

state

Florida

(USA).

FirstBank

has

seven

wholly-

owned

subsidiaries

with

operations

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

finance

company specializing in the origination

of small loans with

offices in Puerto Rico; First Management

of Puerto Rico, a Puerto Rico

corporation,

which

holds

tax-exempt

assets;

FirstBank

Overseas

Corporation,

international

banking

entity

(an

“IBE”)

organized

under

the International

Banking

Entity

Act of

Puerto

Rico;

and

one dormant

company formerly

engaged

in the

operation

of certain

OREO property.

General

The

accompanying

consolidated

audited

financial

statements

have

been

prepared

conformity

with

GAAP.

The

following

description of the Corporation’s most

significant accounting policies.

Principles of consolidation

The

consolidated

financial

statements

include

the

accounts

the

Corporation

and

its

subsidiaries.

All

significant

intercompany

balances

and

transactions

have

been

eliminated

consolidation.

The

results

operations

companies

assets

acquired

are

included

from

the

date

acquisition.

Statutory

business

trusts

that

are

wholly-owned

the

Corporation

and

are

issuers

trust-

preferred

securities

(“TRuPs”)

and

entities

which

the

Corporation

has

non-controlling

interest,

are

not

consolidated

the

Corporation’s

consolidated

financial

statements

accordance

with

authoritative

guidance

issued

the

FASB

for

consolidation

variable

interest

entities

(“VIE”).

See

“Variable

Interest

Entities”

below

for

further

details

regarding

the

Corporation’s

accounting

policy for these entities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

144

Use of estimates in the preparation of financial statements

The

preparation

financial

statements

conformity

with GAAP

requires

management

make

estimates

and

assumptions

that

affect

the reported

amounts of

assets, liabilities,

and contingent

liabilities as

of the

date of

the financial

statements, and

the reported

amounts of revenues and expenses during the reporting period. Actual results

could differ from those estimates.

Cash and cash equivalents

For purposes of

reporting cash

flows, cash and

cash equivalents include

cash on hand,

cash items in

transit, and

amounts due

from

the Federal Reserve Bank of New York

(the “Federal Reserve” or the “FED”) and other

depository institutions. The term also includes

money market funds and short-term investments with original maturities of

three months or less.

Investment securities

The Corporation classifies its investments in debt and equity securities into one

of four categories:

Held-to-maturity

— Debt

securities that

the entity

has the

intent and

ability to

hold to

maturity.

These securities

are carried

amortized

cost.

The

Corporation

may

not

sell

transfer

held-to-maturity

securities

without

calling

into

question

its

intent

hold other debt securities to

maturity, unless

a nonrecurring or unusual event

that could not have been reasonably

anticipated has

occurred.

Trading

—

Securities that are

bought and

held principally for

the purpose

selling them

the near

term. These

securities are

carried at fair value,

with unrealized

gains and losses reported

in earnings. As of December

31, 2021, and 2020, the Corporation

did

not hold

investment

securities

for trading

purposes.

Available-for-sale

— Securities

not classified

as held-to-maturity

or trading.

These securities

are carried

at fair

value, with

unrealized

holding

gains

and

losses, net

deferred taxes,

reported

other

comprehensive income

(“OCI”)

separate

component of

stockholders’

equity. The unrealized

holding gains

and losses do

not affect earnings

until they are

realized,

or an allowance

for credit

losses (“ACL”)

is recorded.

Equity

securities

—

Equity

securities

that

not

have

readily

available

fair

values

are

classified

equity

securities

the

consolidated statements

of financial condition. These securities are stated at

the lower of

cost or

realizable value. This category is

principally

composed of FHLB

stock that the Corporation

owns to comply with

FHLB regulatory

requirements.

The realizable

value

the

stock

equals

its

cost.

Also

included in

this

category are

marketable equity

securities held

fair

value

with

changes

unrealized

gains or

losses recorded

through

earnings.

Premiums

and

discounts

debt

securities

are

amortized

as an

adjustment

interest

income

investments

over

the life

the

related securities

under the

interest method

without anticipating

prepayments, except

for mortgage-backed

securities (“MBS”)

where

prepayments are anticipated. Premiums on

callable debt securities, if any,

are amortized to the earliest call date.

Purchases and sales of

securities are recognized on a trade-date basis. Gains and losses on sales are determined

using the specific identification method.

A debt

security

is placed

on nonaccrual

status at

the time

any

principal

or interest

payment

becomes 90 days

delinquent.

Interest

accrued

but not

received

for a

security

placed

on non-accrual

is reversed

against interest

income. As

of December

31,

2021,

a $

2.9

million

residential

pass-through

MBS

issued

the

Puerto

Rico

Housing

Finance

Authority

(“PRHFA”)

that

collateralized

certain second mortgages

origination under a

program launched by

the Puerto Rico

government in 2010,

is in nonaccrual

status based

the

delinquency

status

the

underlying

second

mortgage

loans

collateral.

debt

security

was

nonaccrual

status

December 31, 2020.

Allowance

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

The

Corporation

measures

expected

credit

losses

held-to-

maturity securities by major

security type. As of December 31,

2021, the held-to-maturity securities portfolio

consisted of Puerto Rico

municipal

bonds

totaling

178.1

million.

Approximately

the

held-to-maturity

municipal

bonds

were

issued

four

the

largest

municipalities

Puerto

Rico.

The

vast

majority

revenue

for

these

four

municipalities

independent

the

Puerto

Rico

central government.

These obligations typically are not issued

in bearer form, nor are they registered

with the Securities and Exchange

Commission

(“SEC”),

and

are

not

rated

external

credit

agencies.

most

cases,

these

bonds

have

priority

over

the

payment

operating

costs

and

expenses

the

municipality,

which

are

required

law

levy

special

property

taxes

such

amounts

are

required for the payment of all of their respective general obligation bonds

and loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

145

The

ACL

for

the

held-to-maturity

Puerto

Rico

municipal

bonds

8.6

million

December

31,

2021

(2020

8.8

million)

considers

historical

credit

loss

information

that

adjusted

for

current

conditions

and

reasonable

and

supportable

forecasts.

These

financing arrangements

with Puerto

Rico municipalities

were issued

in bond

form and accounted

for as securities

but underwritten

loans with features that are

typically found in commercial

loans. Accordingly,

similar to commercial loans, an

internal risk rating (

i.e

pass, special mention,

substandard, doubtful, or loss)

is assigned to each bond

at the time of issuance

or acquisition, and monitored

a continuous

basis with a

formal assessment completed,

at a minimum,

on a quarterly

basis. The Corporation

determines the ACL

for

held-to-maturity

Puerto

Rico

municipal

bonds

based

the

product

cumulative

probability

default

(“PD”)

and

loss

given

default (“LGD”),

and the amortized

cost basis of

each bond over

its remaining expected

life. PD estimates

represent the point

-in-time

which

the

developed,

and

are

updated

quarterly

based

on,

among

other

things,

the

payment

performance

experience,

financial

performance

and

market

value

indicators,

and

current

and

forecasted

relevant

forward-looking

macroeconomic

variables

over the

expected life

of the

bonds,

to determine

a lifetime

term structure

PD curve.

LGD estimates are

determined based

on, among

other

things,

historical

charge-off

events

and

recovery

payments

(if

any),

government

sector

historical

loss

experience,

well

relevant current

and forecasted

macroeconomic expectations

of variables,

such as unemployment

rates, interest

rates, and

market risk

factors based on industry

performance, to determine a

lifetime term structure LGD

curve. Under this approach,

all future period losses

for each

instrument are

calculated using

the PD

and LGD

loss rates

derived

from the

term structure

curves applied

to the

amortized

cost

basis

each

bond.

For

the

relevant

macroeconomic

expectations

variables,

the

methodology

considers

initial

forecast

period

“reasonable

and

supportable

period”)

two

years

and

reversion

period

three

years,

utilizing

straight-line

approach and

reverting back

to the

historical macroeconomic

mean. After

the reversion

period, the

Corporation uses

a historical

loss

forecast period covering the remaining contractual

life based on the changes in key historical

economic variables during representative

historical expansionary and recessionary periods. Furthermore, the

Corporation

periodically

considers

the need

for qualitative

adjustments

to the ACL. Qualitative adjustments

may be related to and include, but not be limited

to, factors such as: (i) management’s

assessment of

economic forecasts

used

the

model

and

how

those

forecasts align

with

management’s overall

evaluation of

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

changes

underwriting

and loan

resolution

strategies,

among others.

Prior to

the implementation

of ASU

2016-13, “Financial

Instruments

– Credit

Losses (Topic

326): Measurement

of Credit

Losses

Financial

Instruments,”

(“ASC 326”

“CECL”)

January

2020,

the

Corporation

evaluated

its

held-to-maturity

investment

securities

portfolio

quarterly

basis

for

indicators

other-than-temporary

impairment

(“OTTI”).

The

Corporation

assessed

whether

OTTI

had

occurred,

the

credit

portion

the

OTTI

was

recognized

noninterest

income

while

the

noncredit

portion

was

recognized in OCI.

In determining the

credit portion, the

Corporation used a

discounted cash flow

analysis which included

evaluating

the timing and amount of the expected cash flow.

The

Corporation

has

elected

not

measure

allowance

for

credit

losses

accrued

interest

held-to-maturity

debt

securities, as uncollectible accrued

interest receivables are written off

on a timely manner.

Refer to Note

5 - Investment

Securities

to the

consolidated financial

statements for additional

information

about reserve balances

for held-to-maturity

debt securities,

activity during the

period, and information about changes in

circumstances that caused changes in

the ACL

for held-to-maturity debt securities during the

years

ended December

31, 2021

and 2020.

Allowance for Credit

Losses – Available

-for-Sale Debt

Securities:

For available-for-sale

debt securities

in an unrealized

loss position,

the Corporation first

assesses whether it

intends to

sell, or

it is

more likely

than not

that it

will be

required to

sell, the

security before

recovery of

its amortized

cost basis.

If either of

the criteria

regarding

intent or

requirement

to sell is

met, the security’s

amortized

cost basis

written

off

fair

value

through

earnings.

For

available-for-sale debt

securities that

not

meet

the

aforementioned criteria, the

Corporation evaluates

whether the

decline

fair

value

has

resulted from

credit

losses

other

factors. In

making

this

assessment,

management considers the cash position of the issuer and

its cash and

capital generation capacity, which could increase or diminish the

issuer’s ability

to repay its bond obligations,

the extent to which the fair

value is less than the amortized

cost basis, any adverse

change to

the credit

conditions

and liquidity

of the issuer,

taking into

consideration

the latest

information

available

about the

financial

condition

of the

issuer, credit ratings, the failure

of the issuer to make scheduled principal or interest

payments, recent legislation

and government actions

affecting

the

issuer’s

industry,

and

actions

taken

the

issuer

deal

with

the

economic

climate. The

Corporation also

takes

into

consideration changes in the near-term prospects of

the underlying collateral of a

security, if

any,

such as

changes in default rates, loss

severity given

default, and

significant changes in

prepayment assumptions and

the

level of

cash flows

generated from

the

underlying

collateral, if

any, supporting the principal

and interest payments

on the debt securities.

If this assessment

indicates that a credit

loss exists,

the present value of cash

flows expected to be collected from the

security is compared to the amortized cost basis of

the security. If

the

present value

of cash flows

expected to

be collected

is less than

the amortized

cost basis,

a credit loss

exists and

the Corporation

records an

ACL for the credit loss, limited

to the amount by which the fair

value is less than the amortized

cost basis. The Corporation

recognizes

OCI any impairment

that has

not been

recorded

through

an ACL.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

146

The Corporation records

changes in

the ACL

as a

provision for (or

reversal of)

credit loss

expense. Losses are

charged against the

allowance when

management believes the

uncollectibility of an

available-for-sale security is

confirmed or

when

either of

the

criteria

regarding intent or requirement to sell is met.

The Corporation

has elected

not

to measure

an allowance

for

credit losses

accrued

interest related to available-for-sale securities, as uncollectible accrued interest

receivables are written off on a timely manner.

Approximately 99%

the

Corporation’s available-for-sale investment securities

are

issued by

U.S.

government-sponsored entities

(“GSEs”).

These securities

are either

explicitly

or implicitly

guaranteed

by the U.S. government

and have a long

history of

no credit losses.

For

further information, including

the

methodology and

assumptions used

for

the

discounted cash

flow

analyses performed

other

available-for-sale

investment

securities

such as private

label MBS

and bonds

issued by

the PRHFA, refer

to Note 5

– Investment

Securities,

and Note

30 – Fair

Value, to the consolidated

financial

statements

Prior to the implementation

of CECL on January

1, 2020, the

Corporation

evaluated

its available-for-sale

investment

securities

portfolio

in accordance with the methodology specified above paragraph except that the credit portion of the OTTI was recognized in noninterest

income and

reduced the

amortized

cost basis

of the security.

Any subsequent

increase

in the expected

cash flows

would be

recognized

as an

adjustment

to interest

income.

Loans held for investment

Loans that the

Corporation has

the ability and

intent to hold

for the foreseeable

future are classified

as held

for investment

and are

reported

at amortized

cost, net

of its

ACL. The

substantial majority

of the

Corporation’s

loans are

classified as

held for

investment.

Amortized cost is the principal outstanding balance,

net of unearned interest, cumulative charge

-offs, unamortized deferred origination

fees

and

costs,

and

unamortized

premiums

and

discounts.

The

Corporation

reports

credit

card

loans

their

outstanding

unpaid

principal balance plus uncollected

billed interest and fees

net of such amounts

deemed uncollectible. Interest

income is accrued on

the

unpaid

principal

balance.

Fees

collected

and

costs

incurred

the

origination

new

loans

are

deferred

and

amortized

using

the

interest

method

that

approximates

the

interest

method

over

the

term

the

loan

adjustment

interest

yield.

Unearned

interest

certain

personal

loans,

auto

loans,

and

finance

leases

and

discounts

and

premiums

are

recognized

income

under a

method that

approximates the

interest method.

When a

loan is paid-off

or sold,

any remaining

unamortized net

deferred fees,

or costs, discounts and premiums are included in loan interest income in

the period of payoff.

Nonaccrual

and

Past-Due

Loans

which

the

recognition

interest

income

has

been

discontinued

are

designated

nonaccrual.

Loans

are

classified

nonaccrual

when

they

are

days

past

due

for

interest

and

principal,

except

for

residential

mortgage loans insured or guaranteed

by the Federal Housing Administration

(the “FHA”), the Veterans

Administration (the “VA”)

the

PRHFA,

and

credit

card

loans.

the

Corporation’s

policy

report

delinquent

mortgage

loans

insured

the

FHA,

guaranteed by

the VA

or the

PRHFA,

as loans

past due

days and

still accruing

as opposed

to nonaccrual

loans since

the principal

repayment is insured or guaranteed. However,

the Corporation discontinues the recognition of income

relating to FHA/VA

loans when

such

loans

are

over

months

delinquent,

taking

into

consideration

the

FHA

interest

curtailment

process,

and

relating

PRHFA

loans when

such loans are

over

days delinquent.

Credit card loans

continue to

accrue finance charges

and fees until

charged off

180

days. Loans

generally may

be placed

on nonaccrual

status prior

to when

required by

the policies

described above

when the

full

and

timely

collection

interest

principal

becomes

uncertain

(generally

based

assessment

the

borrower’s

financial

condition

and

the

adequacy

collateral,

any).

When

loan

placed

nonaccrual

status,

any

accrued

but

uncollected

interest

income is reversed and charged

against interest income and amortization of

any net deferred fees is suspended.

The amount of accrued

interest

reversed

against

interest

income

totaled

2.0

million

for

the

year

ended

December

31,

2021(2020

1.9

million).

Interest

income on nonaccrual loans is recognized only to the extent it is received in cash.

However, when there is doubt regarding the ultimate

collectability of loan

principal, all cash

thereafter received is

applied to reduce

the carrying value of

such loans (

i.e.

, the cost recovery

method). Under

the cost-recovery

method, interest

income is

not recognized

until the

loan balance

is reduced

to zero.

Generally,

the

Corporation

returns

loan

accrual

status

when

all delinquent

interest

and

principal

becomes

current

under

the

terms

the

loan

agreement,

after

sustained

period

repayment

performance

(

six months

)

and

the

loan

well

secured

and

the

process

collection, and full

repayment of the

remaining contractual principal

and interest is expected.

Loans that are

past due 30

days or more

principal

interest

are

considered

delinquent,

with

the

exception

residential

mortgage,

commercial

mortgage,

and

construction

loans,

which

are

considered

past

due

when

the

borrower

arrears

two

monthly

payments.

The

Corporation

has

elected

not

measure

allowance

for

credit

losses

accrued

interest

loans

held

for

investment,

uncollectible accrued interest receivables are written off

on a timely manner.

Loans Acquired

–

Loans acquired through a purchase

or a business combination

are recorded at their fair

value as of the acquisition

date.

The

Corporation

performs

assessment

acquired

loans

first

determine

such

loans

have

experienced

than

insignificant deterioration

in credit

quality since

their origination

and thus

should be

classified and

accounted for

as purchased

credit

deteriorated

(“PCD”)

loans.

For

loans

that

have

not

experienced

than

insignificant

deterioration

credit

quality

since

origination,

referred

to as

non-PCD loans,

the

Corporation

records

such loans

at fair

value,

with any

resulting

discount or

premium

accreted

amortized

into

interest

income

over

the

remaining

life

the

loan

using

the

interest

method.

Additionally,

upon

the

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

147

purchase or acquisition of non-PCD loans,

the Corporation measures and records

an ACL based on the Corporation’s

methodology for

determining

the

ACL.

The

ACL for

non-PCD

loans

recorded

through

charge

the

provision

for

credit

losses

the

period

which the loans are purchased or acquired.

Acquired

loans

that

are

classified

PCD

are

recognized

fair

value,

which

includes

any

resulting

premiums

discounts.

Premiums and non-credit loss related

discounts are amortized or accreted

into interest income over the remaining

life of the loan using

the interest

method. Unlike

non-PCD loans,

the initial

ACL for

PCD loans

is established

through an

adjustment to

the acquired

loan

balance and

not through

a charge

to the

provision for

credit losses in

the period

in which

the loans

were acquired.

At acquisition,

the

ACL for PCD loans, which

represents the fair value

credit discount, is determined

using a discounted cash

flow method that considers

the PDs and

LGDs used in

the Corporation’s

ACL methodology.

Characteristics of PCD

loans include:

delinquency,

payment history

since

origination,

credit

scores

migration

and/or

other

factors

the

Corporation

may

become

aware

through

its

initial

analysis

acquired

loans

that

may

indicate

there

has

been

than insignificant

deterioration

credit

quality

since

loan’s

origination.

connection

with

the

BSPR

acquisition

September

2020,

the

Corporation

acquired

PCD

loans

with

aggregate

fair

value

acquisition

approximately

752.8

million,

and

recorded

initial

ACL

approximately

28.7

million,

which

was

added

the

amortized cost of the loans.

Subsequent

acquisition,

the

ACL

for

both

non-PCD

and

PCD

loans

determined

pursuant

the

Corporation’s

ACL

methodology in the same manner as all other loans.

For PCD loans

that prior to

the adoption of

ASC 326 were

classified as purchased

credit impaired (“PCI”)

loans and accounted

for

under

the

Financial

Accounting

Standards

Board

(“FASB”)

Accounting

Standards

Codification

(the

“Codification”

“ASC”)

Subtopic

310-30,

“Accounting

for

Purchased

Loans

Acquired

with

Deteriorated

Credit

Quality”

(ASC

Subtopic

310-30),

the

Corporation adopted ASC 326 using

the prospective transition approach.

As allowed by ASC 326,

the Corporation elected to maintain

pools of

loans accounted

for under ASC

Subtopic 310-30

as “units of

accounts,” conceptually

treating each

pool as a

single asset. As

December

31,

2021,

such

PCD

loans

consisted

115.1

million

residential

mortgage

loans

and

2.4

million

commercial

mortgage loans

acquired by

the Corporation

as part of

previously completed

asset acquisitions.

These previous

transactions include

transaction completed

on February

27, 2015,

in which

FirstBank acquired

ten Puerto

Rico branches

of Doral

Bank, acquired

certain

assets, including

PCD loans, and

assumed deposits, through

an alliance with

Banco Popular of

Puerto Rico, which

was the successful

lead bidder

with the

FDIC on

the failed

Doral

Bank, as

well as

other co-bidders,

and the acquisition

from Doral

Financial in

the first

quarter

2014

all

its

rights,

title

and

interest

first

and

second

residential

mortgage

loans

full

satisfaction

secured

borrowings owed

by such

entity to

FirstBank. As

the Corporation

elected to

maintain pools

of units

of account

for loans

previously

accounted for under

ASC Subtopic 310-30,

the Corporation is

not able to

remove loans from

the pools until

they are paid

off, written

off or

sold (consistent with

the Corporation’s

practice prior to

adoption of

ASC 326), but

is required

to follow ASC

326 for purposes

of the

ACL. Regarding

interest income

recognition

for PCD

loans that

existed at

the time

of adoption

of ASC

326,

the prospective

transition approach for PCD loans

required by ASC 326 was

applied at a pool level,

which froze the effective

interest rate of the pools

January

2020.

According

regulatory

guidance,

the

determination

nonaccrual

accrual

status

for

PCD

loans

that

the

Corporation

has

elected

maintain

previously

existing

pools

pursuant

the

policy

election

right

upon

adoption

ASC

326

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

ownership

the

underlying

collateral,

such

use

the

collateral

operations

improving

the

collateral

for

resale.

Thus,

the

Corporation

continues

exclude

these

pools

PCD

loans

from

nonaccrual

loan

statistics.

accordance with

ASC 326,

the Corporation

did not

reassess whether

modifications to

individual acquired

loans accounted

for within

pools were TDR as of the date of adoption.

Charge-off

of Uncollectible

Loans -

Net charge

-offs consist

of the

unpaid principal

balances of

loans held

for investment

that the

Corporation

determines are

uncollectible,

net of

recovered amounts.

The Corporation

records charge

-offs as

a reduction

to the

ACL

and subsequent recoveries of previously charged-off

amounts are credited to the ACL.

Effective

April 1,

2021, the

Corporation

updated

its policies

regarding

the timing

of recognition

of auto

loans and

small personal

loans charge

-offs. The

update requires

the Corporation

to charge-off

auto loans,

finance leases,

and small

personal loans,

or portions

such

loans,

classified

“loss”

when

the

loan

becomes

120

days

past

due.

Under

the

policy,

the

Corporation

reserved the portion

of auto loans

and finance leases

deemed “loss” once

they were

120

days delinquent and

charged-off an

auto loan

to their

net realizable

value when

the collateral

deficiency was deemed

uncollectible (i.e.,

when foreclosure/repossession

is probable)

or when

the loan

was

365

days past

due. For

small personal

loans, the

Corporation previously

reserved loans

that were

classified as

“loss”

when

they

were

120

days delinquent

and

charged-off

loan

when

the

loan

became

180

days

past

due.

The

policy

update

supported by the fact that the majority of consumer

loans that become

120

days or more delinquent will ultimately go to foreclosure

the

borrower

has

demonstrated

inability

lack

willingness

meet

their

obligation

making

timely

payments

cure

the

delinquency. At the

time the Corporation implemented

the update to the charge-off policy in the second

quarter of 2021, the amount of

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

148

loans determined

to be

classified as

“loss” amounted

to $

4.1

million, which

was charged-off

during the

quarter.

Approximately $

1.1

million of

such charge

-off exceeded

existing reserves

at the

time the

Corporation implemented

the policy

update. This

update to

the

policy

did

not

have

impact

the

approach

the

Corporation

uses

estimate

the

ACL

for

auto

loans,

finance

leases,

small

personal loans.

Collateral dependent loans in

the construction, commercial

mortgage, and commercial and

industrial loan portfolios are

charged off

to their net

realizable value (fair

value of collateral,

less estimated costs to

sell) when loans

are considered to

be uncollectible. Within

the

consumer

loan

portfolio,

closed-end

consumer

loans

are

charged

off

when

payments

are

120

days

arrears,

except

for

auto,

finance lease

and small

personal loans

as discussed

above.

Open-end

(revolving credit)

consumer loans,

including credit

card loans,

are

charged

off

when

payments

are

180

days

arrears.

Residential

mortgage

loans

that

are

180

days

delinquent

are

reviewed

and

charged-off, as needed,

to the fair value of the underlying

collateral less cost to sell. Generally,

all loans may be charged

off or written

down to the

fair value of

the collateral prior

to the application

of the policies described

above if a loss-confirming

event has occurred.

Loss-confirming events include, but

are not limited to, bankruptcy (unsecured),

continued delinquency,

or receipt of an asset valuation

indicating a collateral deficiency when the asset is the sole source of repayment.

Troubled

Debt

Restructurings

restructuring

loan

constitutes

troubled

debt

restructuring

(“TDR”)

the

creditor,

for

economic

or legal

reasons related

to the

debtor’s

financial difficulties,

grants

a concession

to the

debtor that

it would

not

otherwise

consider.

TDR loans

are classified

as either

accrual

or nonaccrual

loans. Loans

in accrual

status may

remain

in accrual

status when

their contractual terms have been

modified in a TDR if the loans

had demonstrated performance prior to the

restructuring and payment

full

under

the

restructured

terms

expected.

Otherwise,

loans

nonaccrual

status

and

restructured

TDRs

will

remain

nonaccrual

status until

the borrower

has proven

the ability

to perform

under the

modified structure,

generally

for a

minimum

six

months, and there is evidence that such payments can, and are likely to, continue

as agreed.

The Corporation

removes loans

from TDR

classification, consistent

with applicable

authoritative accounting

guidance, only

when

the following two circumstances are met:

●

The loan is in compliance with the terms of the restructuring agreement; and

●

The

loan

yields

market

interest

rate

the

time

the

restructuring.

other

words,

the

loan

was

restructured

with

interest rate

equal to

or greater

than what

the Corporation

would have

been willing

to accept

at the

time of

the restructuring

for a new loan with comparable risk.

both

conditions

are

met,

the

loan

can

removed

from

the

TDR

classification

calendar

years

after

the

year

which

the

restructuring

took

place.

loan

that

had

previously

been

modified

TDR

and

subsequently

refinanced

under

then-current

underwriting

standards

a market

rate

with

concessionary

terms

accounted

for

new

loan

and

longer

reported

TDR.

The

ACL on

a TDR

loan

is generally

measured

using

discounted

cash flow

method,

as further

explained

below,

where

the

expected

future

cash

flows

are

discounted

the

rate

the

loan

prior

the

restructuring.

For

credit

cards,

personal

loans,

and

nonaccrual auto loans

and finance leases modified

in a TDR, the

ACL is measured using

the same methodologies

as those used for

all

other loans in those portfolios.

Loans individually

evaluated for

credit

loss determination

– The

Corporation

may evaluate

loans individually

for purposes

of the

ACL

determination

when,

based

upon

current

information

and

events,

including

consideration

internal

credit

risk

ratings,

the

Corporation assesses

that it is

probable that

it will be

unable to

collect all amounts

due (including

principal and

interest) according

the contractual terms of the

loan agreement, primarily collateral dependent

commercial and construction loans, or

loans that have been

modified or are

reasonably expected to

be modified in

a TDR (except for

credit cards, personal

loans and nonaccrual

auto loans). The

Corporation

individually

evaluates

loans

having

balances

0.5

million

and

with

the

aforementioned

conditions

the

construction,

commercial

mortgage,

and

commercial

and

industrial

loan

portfolios.

The

Corporation

also

evaluates

individually

for

ACL

purposes

certain

residential

mortgage

loans

and

home

equity

lines

credit

with

high

delinquency

levels.

Interest

income

loans

individually

evaluated

for

ACL

determination

recognized

based

the

Corporation’s

policy

for

recognizing

interest

accrual and nonaccrual loans.

Collateral

dependent

loans

The

Corporation

elected the

practical

expedient

allowed by

ASC 326

for loans

for which

it expects

repayment

provided

substantially

through

the

operation

sale

the

collateral

when

the

borrower

experiencing

financial

difficulties

based

the

Corporation’s

assessment

the

reporting

date.

Accordingly,

when

the

Corporation

determines

that

foreclosure is probable, expected credit losses on collateral dependent

loans are based on the fair value of the collateral at the reporting

date, adjusted for undiscounted selling costs as appropriate.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

149

Allowance for credit losses for loans and finance leases

The ACL

for

loans and

finance leases

held

for

investment

is a

valuation

account

that is

deducted

from the

loans’

amortized

cost

basis

present

the

net

amount

expected

collected

loans.

Loans

are

charged-off

against

the

allowance

when

management

confirms the uncollectibility of a loan balance.

The Corporation

estimates the

allowance 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 of expected

credit losses, as

well as adjustments

to historical loss

information made for

differences in

current loan-specific

risk

characteristics,

such

any

difference

underwriting

standards,

portfolio

mix,

delinquency

level,

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such

changes

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.

Expected

credit

losses are

estimated

over the contractual term

of the loans, adjusted by

prepayments when appropriate.

The contractual term excludes

expected extensions,

renewals, and

modifications unless

either of

the following

applies: the

Corporation has

a reasonable

expectation at

the reporting

date

that a

TDR will

be executed

with an

individual borrower

or the

extension or

renewal options

are included

in the original

or modified

contract at the reporting date and are not unconditionally cancellable by

the Corporation.

The Corporation estimates the ACL

primarily based on a PD/LGD modeled

approach, or individually for collateral dependent

loans

and certain TDR

loans. The Corporation

evaluates the need

for changes

to the ACL

by portfolio segments

and classes of

loans within

certain of those portfolio

segments. Factors such as the

credit risk inherent in

a portfolio and how the Corporation

monitors the related

quality, as well as the estimation

approach to estimate credit losses, are considered in the determination

of such portfolio segments and

classes. The Corporation has identified the following portfolio segments and

measures the ACL using the following methods:

Residential mortgage

– Residential mortgage

loans are loans secured by residential

real property together

with the right to receive the

payment of principal

and interest on the loan.

The majority of the Corporation’s

residential

loans are first lien closed-end

loans secured

by 1-4 single-family

residential

properties.

As of December

31, 2021, the Corporation’s

outstanding

balance of residential

mortgages in

the

Puerto

Rico

and

Virgin

Islands

regions

were

mainly

fixed-rate loans,

while

the

Florida

region

approximately

the

residential

mortgage

loan

portfolio

consisted

hybrid

adjustable

rate

mortgages.

For

purposes

the

ACL

determination,

the

Corporation stratifies

the portfolio by two main regions (

i.e.,

the Puerto Rico/Virgin Islands

region and the Florida region) and by the

following

two

classes:

(i)

government-guaranteed residential mortgage

loans,

and

(ii)

conventional mortgage

loans.

Government-

guaranteed

loans are

those originated

to qualified

borrowers

under the

FHA and the

VA standards. Originated

loans that

meet the FHA’s

standards qualify

for the FHA’s

insurance program

whereas loans that meet

the standards of the VA are guaranteed by such entity. No

credit losses are

determined for loans insured or

guaranteed by the

FHA or

the VA

due to

the explicit guarantee of

the U.S.

federal

government. Residential

mortgage loans that do not qualify under the FHA or VA

programs are referred to as conventional

residential

mortgage

loans.

For conventional

residential

mortgage

loans, the

Corporation

calculates

the ACL using

a PD/LGD

modeled approach,

or individually

for

collateral

dependent loans

with high delinquency

levels or loans

that have been

modified or are

reasonably

expected to

be modified in a

TDR. The ACL

for residential

mortgage

loans measured

using a PD/LGD

model is

calculated

based on

the product

of PD, LGD,

and the

amortized cost basis

determined for each

loan over

the remaining

expected life of

the loan,

considering prepayments. PD estimates

represent

the point-in-time

as of which

the PD is developed

for each residential

mortgage loan,

updated quarterly

based on,

among other

things,

historical

payment

performance

and

relevant

current

and

forward-looking

macroeconomic

variables,

such

regional

unemployment rates, over the expected life of the loans to

determine a lifetime term structure PD curve. The Corporation determines

LGD estimates based

on, among other things,

historical

charge-off events and

recovery payments,

loan-to-value

attributes,

and relevant

current and forecasted macroeconomic

variables, such as the regional housing

price index, to determine a lifetime term structure

LGD

curve. Under

this approach, the

Corporation calculates losses for

each loan

for

all future

periods using

the PD

and LGD

loss rates

derived from the term structure curves applied to

the amortized cost basis of

the loans, considering prepayments. For loans that have

been modified or

are reasonably expected to

be modified in

TDR and

loans previously written-down to their

respective realizable

values,

the

Corporation determines

the

ACL

based

risk-adjusted discounted

cash

flow

methodology using

PDs

and

LGDs

developed as explained

above. Under this approach,

all future cash flows (interest

and principal) for each loan

are adjusted by the PDs

and LGDs derived from the term structure

curves and prepayments

and then discounted at the effective

interest rate as of the reporting

date (or original rate

for TDRs) to arrive at the net present

value of future cash flows.

For these loans, the estimated

credit loss amount

recorded in a period represents the excess of the carrying

amount of the loan, net of any charge-off, over the net present value of cash

flows resulting

from the model.

Residential

mortgage loans

that are

180

days or more

past due are considered

collateral

dependent

loans

and are individually

reviewed

and charged-off,

as needed,

to the

fair value

of the collateral

less cost

to sell.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

150

Commercial mortgage

– Commercial mortgage loans are

loans secured primarily by

commercial real estate properties for

which the

primary source

of repayment

comes from rent

and lease payments

that are generated

by an income-producing

property. For purposes

the ACL determination,

the Corporation stratifies

the portfolio by two main regions

(i.e., the Puerto

Rico/Virgin Islands region

and the

Florida region).

An internal risk

rating (i.e.,

pass, special mention,

substandard,

doubtful, or loss)

is assigned to each loan

at the time of

origination

and monitored

on a continuous

basis with

a formal

assessment

completed

quarterly, at

a minimum.

For commercial

mortgage

loans, the

Corporation

calculates

the ACL using

a PD/LGD modeled

approach,

or individually

for those

loans that

meet the

definition

collateral dependent

loans

that

have

been

modified or

are

reasonably expected

modified in

TDR.

The

ACL

for

commercial

mortgage loans

measured using

a PD/LGD model is

calculated

based on the product

of a cumulative

PD and LGD, and the

amortized cost basis

determined for each

loan over

the remaining

expected life of

the loan,

considering prepayments. PD estimates

represent the point-in-time as of

which the PD

is developed for each

commercial mortgage loan, updated quarterly based on, among

other things, the payment performance experience, industry historical loss experience, property

type, occupancy, and relevant

current

and forward-looking

macroeconomic

variables over the expected

life of the loans to determine a lifetime term structure

PD curve. The

Corporation

determines

LGD estimates

based on historical

charge-off events

and recovery

payments,

industry

historical

loss experience,

specific attributes

of the loans,

such as loan-to-value,

debt service coverage

ratios, and net operating

income, as well as relevant

current

and

forecasted macroeconomic

variables

expectations, such

commercial

real

estate

price

indexes,

the

gross

domestic

product

(“GDP”), interest

rates, and

unemployment

rates, among

others, to determine

a lifetime term

structure LGD

curve. Under

this approach,

the Corporation calculates

losses for each loan for all future periods using the PD and

LGD loss rates derived from the term structure

curves applied to

the amortized cost basis

of the

loans, considering prepayments. The ACL for

collateral dependent loans, including

loans modified or reasonably

expected to be modified in a TDR, is determined

based on the fair value of the collateral at the reporting

date, adjusted

for undiscounted

selling costs

as appropriate.

Commercial and Industrial

– Commercial

and Industrial

(“C&I”) loans

include both

unsecured and

secured loans

for which the

primary

source of

repayment

comes from

the ongoing

operations

and activities

conducted

by the borrower

and not from

rental income

or the sale

or refinancing of any underlying real estate collateral; thus, credit risk is largely dependent on the commercial borrower’s

current and

expected

financial

condition.

As of December

31, 2021,

the C&I

loan portfolio

consisted

of loans

granted

to large

corporate

customers

well as

middle-market customers across several industries, and

the government sector.

For purposes

the ACL

determination, the

Corporation

stratifies

the C&I loan

portfolio

by two main

regions (

i.e.,

the Puerto

Rico/Virgin Islands

region and

the Florida

region).

internal risk rating

(

i.e.,

pass, special mention, substandard, doubtful, or

loss) is

assigned to each

loan at

the time

of origination and

monitored

on a continuous

basis with

a formal

assessment

completed

quarterly, at

a minimum.

For C&I loans,

the Corporation

calculates

the ACL using a PD/LGD

modeled approach,

or, in some cases, based

on a risk-adjusted

discounted

cash flow method

or the fair value

of the collateral. The ACL for

C&I loans measured using

a PD/LGD model is calculated

based on the product of a cumulative

PD and

LGD, and the amortized

cost basis determined

for each loan over the remaining

expected life

of the loan, considering

prepayments.

estimates represent

the point-in-time as

of which the PD is developed

for each C&I loan, updated

quarterly based

on industry historical

loss experience,

financial

performance

and market

value indicators,

and current

and forecasted

relevant

forward-looking

macroeconomic

variables

over the expected

life of the

loans to

determine

a lifetime

term structure

PD curve.

The Corporation

determines

LGD estimates

based on historical

charge-off events

and recovery payments,

industry historical

loss experience,

specific attributes

of the loans, such as

loan to value,

as well as

relevant

current and

forecasted

expectations

for macroeconomic

variables,

such as,

unemployment

rates, interest

rates, and market risk factors based on industry

performance and the equity market,

to determine a lifetime term structure

LGD curve.

Under this approach,

the Corporation

calculates

losses for

each loan for

all future

periods using

the PD and LGD

loss rates

derived from

the term

structure

curves applied

to the amortized

cost basis

of the loans,

considering

prepayments.

The Corporation

determines

the ACL

for those C&I loans that it

has determined, based upon current information

and events, that it is probable that the Corporation will be

unable to collect all

amounts due according

to the

contractual terms, and for any

non-collateral dependent C&I loans that have been

modified or are reasonably expected to be modified in a TDR, based on a

risk-adjusted

discounted cash flow methodology

using PDs

and LGDs developed as explained

above. Under this approach,

the Corporation

adjusts all future cash

flows (interest

and principal) for

each loan

by the PDs

and LGDs

derived from

the term

structure

curves and

prepayments

and then

discount

the adjusted

cash flows

at the

effective interest

rate as of the

reporting

date (original

rate for TDRs)

to arrive at

the net present

value of future

cash flows

and the ACL

is calculated as the

excess of the amortized

cost basis over

the net present

value of future cash

flows. The ACL for collateral

dependent

C&I

loans

determined based

the

fair

value

the

collateral at

the

reporting date,

adjusted for

undiscounted selling

costs

appropriate.

Construction

–

As of December 31, 2021, construction

loans consisted

generally of loans

secured by real estate

made to finance the

construction of

industrial, commercial, or

residential buildings

and

included

loans

finance

land

development in

preparation for

erecting new

structures. These

loans involve

inherently higher

level of

risk

and

sensitivity to

market conditions.

Demand from

prospective tenants or

purchasers may

erode after

construction begins because

general economic

slowdown or

otherwise. For

purposes of

the

ACL

determination, the

Corporation stratifies the

construction loan

portfolio by

two

main

regions (

i.e.,

the

Puerto

Rico/Virgin Island region and the Florida region). An internal risk rating (

i.e.,

pass, special mention, substandard,

doubtful, or loss) is

assigned to

each loan

at the time

of origination

and monitored

on a continuous

basis with

a formal assessment

completed,

at a minimum,

on a quarterly

basis. For construction

loans, the Corporation

calculates

the ACL using

a PD/LGD modeled

approach,

or individually

for

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

151

those loans that

meet the

definition of collateral dependent loans or

loans that have

been modified or

are reasonably expected to

modified

TDR.

The

ACL

for

construction loans

measured using

PD/LGD

model

calculated based

the

product

cumulative

PD and LGD,

and the amortized

cost basis

determined

for each

loan over

the remaining

expected

life of the

loan, considering

prepayments.

PD estimates represent the point-in-time as of which

the PD

is developed for each

construction loan, updated quarterly

based

on,

among

other

things,

historical payment

performance experience,

industry historical

loss

experience, underlying

type

collateral,

and relevant

current and

forward-looking

macroeconomic

variables

over the remaining

expected life

of the loans

to determine

lifetime term

structure PD

curve. The

Corporation determines LGD

estimates based

historical charge-off events

and

recovery

payments, industry historical loss experience, specific attributes of the loans, such

as loan-to-value, debt service coverage ratios, and

relevant current

and forecasted

macroeconomic

variables,

such as unemployment

rates, GDP, interest

rates, and

real estate

price indexes,

to determine a

lifetime term structure LGD curve. Under

this approach, the Corporation calculates losses for each

loan for all

future

periods using

the

and

LGD

loss rates

derived from

the

term

structure curves

applied to

the

amortized cost

basis of

the

loans,

considering

prepayments.

The ACL for collateral

dependent loans,

including loans

modified or reasonably

expected to be modified

in a

TDR, is

determined

based on

the fair

value of

the collateral

at the reporting

date, adjusted

for undiscounted

selling

costs as

appropriate.

Consumer

–

As of December 31, 2021, consumer loans generally consisted of unsecured and secured loans extended to individuals

for household, family, and other personal expenditures,

including several classes

of products. For purposes of the ACL determination,

the Corporation

stratifies

the portfolio

by two main

regions (

i.e.,

the Puerto

Rico/Virgin Islands

region and

the Florida

region)

and by the

following five classes: (i) auto

loans; (ii) finance leases; (iii)

credit cards; (iv) personal loans; and

(v) other

consumer loans, such as

open-end home

equity revolving

lines of

credit and

other types

consumer credit

lines, among

others.

determining the

ACL,

management

considers consumer

loans

risk

characteristics including

but

not

limited

credit

quality

indicators such

payment

performance

period,

delinquency

and original

FICO scores.

For auto

loans and finance leases, the

Corporation calculates the ACL using a

PD/LGD modeled approach, or individually for loans

modified or reasonably expected to

be modified in

a TDR

and performing in accordance with

restructured terms. The ACL for

auto

loans and

finance leases

measured

using a PD/LGD

model is

calculated

based on

the product

of a PD,

LGD, and

the amortized

cost basis

determined

for each

loan over

the remaining

expected

life of the

loan, considering

prepayments.

PD estimates

represent

the point-in-time

as of which the PD is

developed

for each loan,

updated quarterly

based on, among

other things,

the historical

payment performance

and

relevant current

and forward-looking

macroeconomic

variables,

such as regional

unemployment

rates, over

the expected

life of the

loans

to determine a

lifetime term structure PD curve. The

Corporation determines

LGD estimates primarily based on historical charge-off

events and recovery

payments to determine

a lifetime term structure

LGD curve. Under

this approach,

the Corporation

calculates

losses

for each loan

for all future

periods using

the PD and LGD

loss rates

derived from

the term structure

curves applied

to the amortized

cost

basis of

the loans, considering prepayments. For loans modified or

reasonably expected to be

modified in a

TDR and

performing in

accordance with restructured terms, the Corporation

determines the ACL based on

a risk-adjusted discounted cash flow methodology

using PDs and LGDs

developed as

explained

above. Under

this approach,

all future cash

flows (interest

and principal)

for each loan are

adjusted by the

PDs and LGDs

derived from

the term structure

curves and prepayments

and then discounted

at the effective

interest rate

of the loan prior

to the restructuring

to arrive at the

net present

value of future

cash flows and

the ACL is calculated

as the excess

of the

amortized

cost basis

over the

net present

value of

future cash

flows for

each loan.

For the credit card

and personal

loan portfolios,

the Corporation

determines

the ACL on a pool basis,

based on products

PDs and LGDs

developed

considering

historical

losses for

each origination

vintage by

length of

loan terms,

by geography, payment

performance

and by

credit score. The

PD and LGD for each cohort

consider key macroeconomic

variables,

such as regional

GDP, unemployment rates,

and

retail sales, among

others. Under this

approach, all future period

losses for

each instrument are

calculated using the

PDs and

LGDs

applied to

the amortized

cost basis

of the loans,

considering

prepayments.

addition, home equity

lines of

credit that

are

180

days or

more past

due are

considered collateral dependent and are

individually

reviewed

and charged-off,

as needed,

to the

fair value

of the collateral.

For

the

ACL

determination

all

portfolios,

the

expectations

for

relevant

macroeconomic

variables

the

Puerto

Rico/Virgin

Islands

region

consider

initial

reasonable

and

supportable

period

two

years

and

reversion

period

three

years, utilizing

a straight-line

approach and

reverting back

to the

historical macroeconomic

mean. For the

Florida region,

the

methodology considers

a reasonable

and supportable

forecast period

and an

implicit reversion

towards the

historical trend

that varies

for

each

macroeconomic

variable,

achieving

the

steady

state

year

After

the

reversion

period,

historical

loss

forecast

period

covering the

remaining contractual

life, adjusted

for prepayments,

is used

based on

the changes

in key

historical economic

variables

during representative historical expansionary and recessionary periods.

Furthermore, the Corporation periodically

considers the need for qualitative adjustments to the ACL.

Qualitative adjustments

may be

related to

and include,

but not be limited

to factors

such as: (i)

management’s assessment

of economic

forecasts

used in the

model and how

those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific risks

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

152

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.

Prior to the implementation

of CECL on January 1,

2020, the ACL for loans

and finance lease was subject

to the guidance included

in ASC

310 and

ASC 450.

Under the

guidance, the

Corporation was

required to

use an

incurred loss

methodology to

estimate credit

losses that were estimated to be incurred in the loan portfolio and

that could ultimately materialize into confirmed losses in

the form of

charge-offs.

The

incurred

loss

methodology

was

backward-looking

approach

loss

recognition

and

based

the

concept

triggering

event

having

taken

place,

causing

loss

inherent

within

the

portfolio.

This

methodology

under

ASC

450

was

predicated

loss

emergence

period

that

was

applied

portfolio

level.

Consideration

forward

looking

macro-economic

expectations

was

not

permitted

under

this

allowance

methodology.

Additionally,

loans

that

were

identified

impaired

under

the

definition

ASC

310,

were

required

assessed

individual

basis.

The

ACL

and

resulting

provision

expense

levels

for

comparative periods prior to 2020 presented in this document were estimated in accordance

with these requirements.

Refer to

Note 9

– Allowance for

Credit Losses for Loans and

Finance Leases, to the

consolidated financial statements

for additional

information about reserve

balances for

each portfolio, activity

during the

period, and

information about changes in

circumstances that

caused changes

in the ACL

for loans

and finance

leases during

the year

ended December

31, 2021

and 2020.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures and

Other Assets

The Corporation estimates expected

credit losses over the contractual period

in which the Corporation is exposed

to credit risk via a

contractual

obligation

extend

credit

unless

the

obligation

unconditionally

cancellable

the

Corporation.

The

ACL

off-

balance sheet

credit exposures is

adjusted as a

provision for credit

loss expense. The

estimate includes consideration

of the likelihood

that funding

will occur and

an estimate of

expected credit

losses on commitments

expected to be

funded over its

estimated life.

As of

December 31,

2021, the

off-balance sheet

credit exposures

primarily consisted

of unfunded

loan commitments

and standby

letters of

credit

for

commercial

and

construction

loans.

The

Corporation

utilized

the

PDs

and

LGDs

derived

from

the

above-explained

methodologies

for

the

commercial

and

construction

loan

portfolios.

Under

this

approach,

all

future

period

losses

for

each

loan

are

calculated using

the PD

and LGD

loss rates

derived from

the term

structure curves

applied to

the usage

given default

exposure.

The

ACL on off-balance sheet

credit exposures is included as

part of accounts payable and

other liabilities in the consolidated

statement of

financial condition with adjustments included as part of the provision for credit loss expense

in the consolidated statements of income.

Refer to

Note 9

– Allowance for

Credit Losses for Loans and

Finance Leases, to the

consolidated financial

statements for additional

information

about

reserve

balances

for

unfunded

loan

commitments, activity

during

the

period,

and

information

about

changes

circumstances

that caused

changes

in the

ACL for

off-balance

sheet credit

exposures

during the

years

ended December

31, 2021

and 2020.

The

Corporation

also

estimates

expected

credit

losses

for

certain

accounts

receivable,

primarily

claims

from

government-

guaranteed

loans,

loan

servicing-related

receivables,

and

other

receivables.

The

ACL

on other

assets

measured

amortized

cost

included

as part

of other

assets in

the

consolidated

statement of

financial

condition

with adjustments

included

as part

of other

non-

interest expenses in the consolidated statements of income.

Loans held for sale

Loans

that the

Corporation

intends to

sell or

that

the Corporation

does not

have

the ability

and

intent to

hold

for the

foreseeable

future are classified as held-for-sale

loans. Loans held for

sale are recorded at the

lower of aggregate cost or

fair value.

Generally,

the

loans held-for-sale

portfolio consists of

conforming residential

mortgage loans

that the Corporation

intends to

sell to the

Government

National

Mortgage

Association

(“GNMA”)

and

GSEs,

such as

the

Federal

National

Mortgage

Association

(“FNMA”)

and

the U.S.

Federal

Home

Loan

Mortgage

Corporation

(“FHLMC”).

Generally,

residential

mortgage

loans

held

for

sale

are

valued

aggregate

portfolio

basis

and

the

value

primarily

derived

from

quotations

based

the

MBS

market.

The

amount by

which

cost

exceeds market

value in

the aggregate

portfolio of

loans held

for sale,

if any,

is accounted

for as

a valuation

allowance with

changes

therein included in

the determination of

net income and

reported as part

of mortgage banking

activities in the

consolidated statements

income.

Loan

costs

and

fees

are

deferred

origination

and

are

recognized

income

the

time

sale.

The

fair

value

commercial and construction

loans held for sale, if

any, is

primarily derived from

external appraisals, or broker

price opinions that

the

Corporation

considers,

with

changes

the

valuation

allowance

reported

part

other

non-interest

income

the

consolidated

statements of income.

In certain circumstances,

the Corporation transfers

loans from/to held

for sale or held

for investment based

on a change

in strategy.

If such a

change in holding

strategy is made, significant

adjustments to the loans’

carrying values may

be necessary.

Reclassifications

of loans held

for investment to held

for sale are made

at the amortized

cost on the date

of transfer and

establish a new cost

basis upon

transfer.

Write-downs of

loans transferred from

held for investment

to held for

sale are recorded

as charge-offs at

the time of

transfer.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

153

Subsequent

changes

value

below

amortized

cost

are

reflected

non-interest

income

the

consolidated

statements

income.

Reclassifications of loans held for sale to held for investment are made at the

amortized cost on the transfer date.

Transfers and servicing of financial assets and extinguishment

of liabilities

After a transfer of

financial assets in a

transaction that qualifies

for accounting as

a sale, the Corporation

derecognizes the financial

assets when it has surrendered control and derecognizes liabilities when they

are extinguished.

A transfer of financial

assets in which the

Corporation surrenders control

over the assets is

accounted for as

a sale to the extent

that

consideration other

than beneficial

interests is

received in

exchange.

The criteria

that must

be met

to determine

that the

control over

transferred assets

has been surrendered

include: (i) the

assets must be

isolated from

creditors of the

transferor; (ii) the

transferee must

obtain the

right (free

of conditions

that constrain

it from

taking advantage

of that

right) to

pledge or

exchange the

transferred assets;

and

(iii) the transferor

cannot maintain

effective

control over

the transferred

assets through

an agreement

to repurchase

them before

their maturity.

When the

Corporation transfers

financial assets

and the

transfer fails

any one

of the

above criteria,

the Corporation

prevented from derecognizing the transferred financial assets and

the transaction is accounted for as a secured borrowing.

Servicing assets

The Corporation recognizes

as separate assets the

rights to service

loans for others,

whether those servicing

assets are originated

purchased.

In the

ordinary course

of business,

the Corporation

sells residential

mortgage loans

(originated or

purchased)

to GNMA,

which generally

securitizes the

transferred loans

into MBS for

sale into

the secondary

market. Also,

certain conventional

conforming

loans are

sold to

FNMA or

FHLMC,

with servicing

retained.

When the

Corporation sells

mortgage loans,

it recognizes

any retained

servicing right, based on its fair value.

Mortgage

servicing

rights

(“servicing

assets”

“MSRs”)

retained

sale

securitization

arise

from

contractual

agreements

between the Corporation

and investors in mortgage

securities and mortgage

loans. The value of

MSRs is derived from

the net positive

cash

flows

associated

with

the

servicing

contracts.

Under

these

contracts,

the

Corporation

performs

loan-servicing

functions

exchange

for

fees

and

other

remuneration.

The

servicing

functions

typically

include:

collecting

and

remitting

loan

payments,

responding

borrower

inquiries,

accounting

for

principal

and

interest,

holding

custodial

funds

for

payment

property

taxes

and

insurance premiums,

supervising

foreclosures

and property

dispositions, and

generally

administering

the loans.

The MSRs,

included

part

other

assets

the

statements

financial

condition,

entitle

the

Corporation

servicing

fees

based

the

outstanding

principal

balance

the

mortgage

loans

and

the

contractual

servicing

rate.

The

servicing

fees

are

credited

income

monthly

basis when

collected

and

recorded

as part

of mortgage

banking

activities

the

consolidated

statements

income.

In addition,

the

Corporation

generally

receives

other

remuneration

consisting

mortgagor-contracted

fees

such

late

charges

and

prepayment

penalties, which are credited to income when collected.

Considerable

judgment

required

determine

the

fair

value

the

Corporation’s

MSRs.

Unlike

highly

liquid

investments,

the

market

value

MSRs

cannot

readily

determined

because

these

assets

are

not

actively

traded

securities

markets.

The

initial

carrying

value

MSR

generally

determined

based

its

fair

value.

The

Corporation

determines

the

fair

value

the

MSRs

based

combination

market

information

trading

activity

(MSR

trades

and

broker

valuations),

benchmarking

servicing

assets (valuation

surveys), and

cash flow

modeling. The

valuation of

the Corporation’s

MSRs incorporates

two sets

of assumptions:

(i) market-derived assumptions for discount

rates, servicing costs, escrow

earnings rates, floating

earnings rates, and the cost

of funds;

and

(ii) market

assumptions

calibrated

the

Corporation’s

loan

characteristics

and

portfolio

behavior

for

escrow

balances,

delinquencies and foreclosures, late fees, prepayments, and prepayment

penalties.

Once recorded,

the Corporation periodically

evaluates

MSRs for impairment.

Impairment occurs

when the current

fair value of

the

MSR is

less than

its carrying

value. If

an MSR

is impaired,

the impairment

is recognized

in current-period

earnings and

the carrying

value of

the MSR is

adjusted through

a valuation

allowance. If the

value of

the MSR subsequently

increases, the recovery

in value is

recognized in

current period

earnings and

the carrying

value of

the MSR

is adjusted

through a

reduction in

the valuation

allowance.

For

purposes

performing

the

MSR

impairment

evaluation,

the

servicing

portfolio

stratified

the

basis

certain

risk

characteristics,

such as region, terms, and coupons.

The Corporation conducts an OTTI

analysis to evaluate whether a loss in

the value

of the MSR in a particular

stratum, if any,

is other than temporary or not.

When the recovery of the value

is unlikely in the foreseeable

future,

write-down

the

MSR

the

stratum

its

estimated

recoverable

value

charged

the

valuation

allowance.

December 31, 2021, the aggregate carrying value of the MSRs amounted

to $

31.0

million (2020 - $

33.1

million).

The

MSRs

are

amortized

over

the

estimated

life

the

underlying

loans

based

income

forecast

method

reduction

servicing income.

The income forecast

method of amortization

is based on

projected cash flows.

A particular periodic

amortization is

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

154

calculated

applying

the

carrying

amount

the

MSRs

the

ratio

the

cash

flows

projected

for

the

current

period

total

remaining net MSR forecasted cash flow.

Premises and equipment

Premises

and

equipment

are

carried

cost,

net

accumulated

depreciation

and

amortization.

Depreciation

provided

the

straight-line method

over the

estimated useful

life of

each type

of asset.

Amortization of

leasehold improvements

is computed

over

the terms

of the

leases (

i.e.

, the

contractual term

plus lease

renewals that

are reasonably

assured) or

the estimated

useful lives

of the

improvements, whichever

is shorter.

Costs of

maintenance and

repairs that

do not

improve or

extend the

life of

the respective

assets

are expensed

as incurred.

Costs of

renewals and

betterments are

capitalized. When

the Corporation

sells or

disposes of

assets, their

cost and related

accumulated depreciation

are removed from

the accounts and

any gain or

loss is reflected

in earnings as

part of other

non-interest

income

the

consolidated

statements

income.

When

the

asset

longer

used

operations,

and

the Corporation

intends to

sell it,

the asset

is reclassified

to other

assets held

for sale

and is

reported at

the lower

of the

carrying amount

or fair

value

less cost to sell.

Leases

The Corporation

determines if

an arrangement

is a lease

or contains

a lease

at inception.

Operating and

finance lease

liabilities are

recognized

based

the

present

value

the

remaining

lease

payments,

discounted

using

the

discount

rate

for

the

lease

the

commencement

date,

acquisition

date

case

business

combination.

the

rates

implicit

the

Corporation’s

operating

leases are

not readily

determinable,

the Corporation

generally uses

an incremental

borrowing

rate based

on information

available

the commencement

date to

determine the

present value

of future

lease payments.

Operating right-of-use

(“ROU”) assets

and finance

lease assets

are generally

recognized

based on

the amount

of the

initial measurement

of the

lease liability.

The Corporation’s

leases

are primarily related

to operating leases for

the Bank’s

branches and automated

teller machines (“ATMs”).

Most of the Corporation’s

leases with

operating

ROU assets

have terms

two years

30 years

, some

of which

include options

to extend

the leases

for up

seven years

The Corporation does not recognize ROU assets and lease liabilities that arise from

short-term leases, primarily related to

certain

month-to-month

ATM

operating

leases.

December

31,

2021,

the

Corporation

did

t have

lease

that

qualifies

as a

finance lease.

Lease expense is

recognized on

a straight-line basis over

the lease term.

The Corporation

includes the lease ROU

asset

and

lease

liability

part

other

assets

and

accounts

payable

and

other

liabilities,

respectively,

the

consolidated

statements

financial condition.

Other real estate owned

OREO, which

consists of

real estate

acquired in

settlement of

loans, is

recorded at

fair value

minus estimated

costs to

sell the

real

estate acquired.

Generally,

loans have

been

written down

to their

net realizable

value

prior

foreclosure.

Any further

reduction

their

net

realizable

value

recorded

with

charge

the

ACL

the

time

foreclosure

shortly

thereafter.

Thereafter,

gains

losses resulting from the

sale of these properties and

losses recognized on the

periodic reevaluations of these

properties are credited or

charged to

earnings and are

included as part

of net loss

on OREO and

OREO expenses in

the consolidated statements

of income. The

cost of

maintaining and

operating these

properties is

expensed as

incurred. The

Corporation estimates

fair values

primarily based

appraisals, when available, and periodically reviews and updates the

net realizable value.

Business Combinations

The

Corporation

accounts

for

acquisitions

accordance

with

the

ASC

Topic

No.

805,

“Business

Combination”

(“ASC

805”).

Under ASC 805,

a business combination

is defined as a

transaction or other event

in which an acquirer

obtains control of

one or more

businesses.

addition,

under

ASC

805,

business

considered

integrated

set

activities

and

assets

capable

being

conducted and managed for the purpose of providing a return

in the form of dividends, lower costs, or other economic benefits

directly

to investors

or other

owners, members,

or participants.

If the net

assets acquired

meet the

definition of

a business

and the

transaction

meets the

definition of

a business

combination in

ASC 805,

the transaction

is accounted

for using

the acquisition

method pursuant

ASC 805.

Under the acquisition method, the identifiable assets acquired, the

liabilities assumed, and any non-controlling interest in the acquiree

are recorded

at their

estimated fair

values as

of the

date of

acquisition.

The acquisition

date is

the date

the acquirer

obtains control.

Goodwill is recognized

as the excess

of the sum

of the consideration

transferred, plus

the fair value

of any non

-controlling interest

the

acquiree,

over

the fair

value

of the

net assets

acquired

and

liabilities

assumed

as of

the acquisition

date.

The Corporation

has

measurement

period,

which

may

retrospectively

adjust

the

initially

recorded

fair

values

reflect

new

information

obtained

during the

measurement period

that, if

known, would

have affected

the acquisition

date fair

value measurements.

This measurement

period cannot be more

than one year after the

acquisition date and ends

as soon as the acquirer

(i) receives the information

it had been

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

155

seeking about facts and

circumstances that existed as of

the acquisition date or

(ii) learns that it cannot

obtain further information. The

Corporation

determined

that

the

aforementioned

acquisition

BSPR,

completed

September

2020,

constituted

business

combination

as defined

ASC 805.

Refer

Note

Business

Combination,

the

consolidated

financial

statements

for

further

discussion of the BSPR acquisition and its impact on the Corporation’s

financial statements.

Goodwill and other intangible assets

Goodwill

represents

the

cost

excess

the

fair

value

net

assets

acquired

(including

identifiable

intangibles)

transactions accounted

for as

business combinations.

The Corporation

allocates goodwill

to the

reporting unit(s)

that are

expected to

benefit from

the synergies

of the

business combination.

Once goodwill

has been

assigned to

a reporting

unit, it

no longer

retains its

association with

a particular

acquisition, and

all of

the activities within

a reporting

unit, whether

acquired or

internally generated,

are

available to

support the

value of

the goodwill.

The Corporation

tests goodwill

for impairment

at least

annually as

of October

1st of

each year

and more

frequently if

circumstances exist

that indicate

a possible

reduction in

the fair

value of

a reporting

unit below

its

carrying

value. If,

after assessing

all relevant

events or

circumstances,

the Corporation

concludes

that it

is more-likely-than-not

that

the fair

value

of a

reporting

unit is

below

its carrying

value, then

an impairment

test is

required.

Every other

year or

when

deemed

necessary by

any particular

economic or Corporation

specific circumstances,

the Corporation

bypasses the qualitative

assessment and

proceeds directly

to a

quantitative analysis.

In addition

to the

goodwill recorded

at the

Commercial and

Corporate, Consumer

Retail,

and

Mortgage

Banking

reporting

units

connection

with

the

acquisition

BSPR

2020,

the

Corporation’s

goodwill

mostly

related to the United States (Florida) reporting unit.

Management performed

a qualitative

analysis over

the carrying

amount of

each relevant

reporting units’

goodwill as

of December

31,

2021

and

concluded

that

more-likely-than-not

that

the

fair

value

the

reporting

units

exceeded

its

carrying

value.

With

respect to the

goodwill of the

Florida reporting unit

this assessment involved

identifying the inputs

and assumptions that

most affects

fair value,

evaluating the

significance of

all identified

relevant events

and circumstances

that affect

fair value

of the

reporting

entity

and

weighing

such

factors

determine

likely

than

not

that

the

fair

value

the

reporting

unit

was

greater

than

it’s

carrying amount.

In the qualitative assessment of the Florida reporting

unit,

the Corporation evaluated events and circumstances that could

impact the

fair value including the following:

●

Macroeconomic conditions, such as improvement or deterioration

in general economic conditions;

●

Industry and market considerations;

●

Interest rate fluctuations;

●

Overall financial performance of the entity;

●

Performance of industry peers over the last year; and

●

Recent market transactions.

Similarly,

evaluation

for

goodwill

associated

with

the

acquisition

BSPR

focused

qualitative

assessment

the

overall

performance

the

banking

reporting

unit

and

outlook

the

macroeconomic

conditions

for

the

reporting

unit.

Management

considered positive

and negative

evidence obtained

during the

evaluation of

significant events

and circumstances

and evaluated

such

information

conclude

that

it is

likely

than

not

that the

reporting

unit’s

fair value

is greater

than

it’s

carrying

amount;

thus,

quantitative tests were

not required.

Ultimately,

the Corporation determined

that goodwill was

t impaired

as of December

31, 2021

or 2020.

The

Corporation’s

other

intangible

assets

primarily

relate

core

deposits.

The

Corporation

amortizes

core

deposit

intangibles

based on

the projected

useful lives

of the

related deposits,

generally on

a straight-line

basis, and

reviews these

assets periodically

for

impairment

when event

or changes

in circumstances

indicate that

the carrying

amount may

not exceed

their fair

value. The

carrying

value of core deposit intangible assets amounted to $

28.6

million as of December 31, 2021 ($

35.8

million as of December 31, 2020).

Securities purchased and sold under agreements to repurchase

The

Corporation

accounts

for

securities

purchased

under

resale

agreements

and

securities

sold

under

repurchase

agreements

collateralized financing

transactions. Generally,

the Corporation

records these

agreements at

the amount

at which

the securities

were

purchased or

sold. The

Corporation monitors

the fair

value of

securities purchased

and sold,

and obtains

collateral from,

or returns

to,

the counterparties

when

appropriate.

These financing

transactions

do not

create material

credit risk

given

the collateral

involved

and the related monitoring process.

The Corporation sells and acquires

securities under agreements to repurchase or

resell the same or

similar

securities.

Generally,

similar

securities

are

securities

from

the

same

issuer,

with

identical

form

and

type,

similar

maturity,

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

156

identical

contractual

interest rates,

similar assets

as collateral,

and the

same aggregate

unpaid

principal amount.

The counterparty

certain agreements may have the right to repledge the collateral by

contract or custom. The Corporation presents such assets separately

the

consolidated

statements

financial

condition

securities

pledged

with

creditors’

rights

repledge.

Repurchase

and

resale

activities may be

transacted under

legally enforceable

master repurchase

agreements that give

the Corporation, in

the event of

default

the

counterparty,

the

right

liquidate

securities

held

and

offset

receivables

and

payables

with

the

same

counterparty.

The

Corporation offsets repurchase

and resale transactions with the same

counterparty in the consolidated statements

of financial condition

where it has such a legally enforceable right under a master netting agreement

and the transactions have the same maturity date.

From

time

time,

the

Corporation

modifies

repurchase

agreements

take

advantage

prevailing

interest

rates.

Following

applicable

GAAP guidance,

the

Corporation determines

that

the debt

under

the modified

terms

is substantially

different

from

the

original terms,

the modification

must be accounted

for as an

extinguishment of

debt. The

Corporation considers

modified terms

to be

substantially different

if the present

value of

the cash flows

under the

terms of the

new debt instrument

is at least

% different

from

the

present

value

the

remaining

cash

flows

under

the

terms

the

original

instrument.

The

new

debt

instrument

will be

initially

recorded

at fair

value, and

that amount

will be

used to

determine

the debt

extinguishment

gain or

loss to

be recognized

through

the

consolidated statements

of income

and the

effective rate

of the

new instrument.

If the

Corporation determines

that the

debt under

the

modified

terms is

not

substantially

different,

then

the

new effective

interest

rate

is determined

based on

the

carrying amount

the

original

debt

instrument.

The

Corporation

has

determined

that

none

the

repurchase

agreements

modified

the

past

were

substantially different from the original terms, and,

therefore, these modifications were not accounted for as extinguishments of debt.

Rewards liability

The

Corporation

offers

products,

primarily

credit

cards,

that

offer

various

rewards

reward

program

members,

such

airline

tickets, cash, or

merchandise, based

on account

activity.

The Corporation

generally recognizes the

cost of rewards

as part of

business

promotion

expenses when

the rewards

are earned

by the

customer and,

at that

time, records

the corresponding

reward liability.

The

Corporation

determines

the

reward

liability

based

points

earned

date

that

the

Corporation

expects

redeemed

and

the

average

cost

per

point

redemption.

The

reward

liability

reduced

points

are

redeemed.

estimating

the

reward

liability,

the

Corporation considers historical

reward redemption behavior,

the terms of the

current reward program,

and the card

purchase activity.

The reward liability

is sensitive to

changes in the

reward redemption

type and redemption

rate, which is

based on the

expectation that

the

vast

majority

all points

earned

will eventually

redeemed.

The reward

liability,

which

is included

in other

liabilities in

the

consolidated statements of financial condition, totaled $

8.8

million and $

7.5

million as of December 31, 2021 and 2020, respectively.

Income taxes

The Corporation

uses the

asset and

liability method

for the recognition

of deferred

tax assets and

liabilities for

the expected

future

tax consequences

of events

that have

been recognized

in the

Corporation’s

financial statements

or tax

returns.

Deferred income

tax

assets

and

liabilities

are

determined

for

differences

between

the

financial

statement

and

tax

bases

assets

and

liabilities

that

will

result in taxable

or deductible amounts

in the future.

The computation is

based on enacted

tax laws and

rates applicable to

periods in

which

the

temporary

differences

are

expected

recovered

settled.

Valuation

allowances

are

established,

when

necessary,

reduce deferred

tax assets

to the

amount that

is more

likely than

not to

be realized.

In making

such assessment,

significant weight

given

evidence

that

can

objectively

verified,

including

both

positive

and

negative

evidence.

The

authoritative

guidance

for

accounting

for

income

taxes

requires

the

consideration

all

sources

taxable

income

available

realize

the

deferred

tax

asset,

including

the

future

reversal

existing

temporary

differences,

tax

planning

strategies

and

future

taxable

income,

exclusive

the

impact of

the reversal

of temporary

differences

and carryforwards.

In estimating

taxes, management

assesses the

relative

merits and

risks

the

appropriate

tax

treatment

transactions

considering

statutory,

judicial,

and

regulatory

guidance.

Refer

Note

–

Income Taxes, to

the consolidated financial statements,

for additional information.

Under

the authoritative

accounting guidance,

income tax

benefits are

recognized and

measured based

on a

two-step analysis:

i) a

tax

position

must

likely than

not

to be

sustained

based solely

its technical

merits

order

be recognized;

and

ii)

the

benefit

measured

the

largest

dollar

amount

that

position

that

likely

than

not

sustained

upon

settlement.

The

difference between

a benefit not

recognized in

accordance with

this analysis

and the

tax benefit

claimed on

a tax return

is referred

as an Unrecognized

Tax Benefit

(“UTB”).

The Corporation classifies interest

and penalties, if

any, related

to UTBs as components

income

tax

expense.

As of

December

31,

2021,

the

Corporation

had

UTBs in

aggregate

amount

of $

1.3

million

that

it acquired

from BSPR, which, if recognized, would decrease the effective income

tax rate in future periods.

The Corporation

release income tax

effects from

OCI as investments

securities available for

sale are sold

or mature and

as pension

and post-retirement liabilities are extinguished.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

157

Treasury stock

The

Corporation

accounts

for

treasury

stock

par

value.

Under

this

method,

the

treasury

stock

account

increased

the

par

value of each share of

common stock reacquired.

Any excess amount paid per

share over the par value is

debited to additional paid-in

capital. Any remaining excess is charged to retained earnings.

Stock-based compensation

Compensation cost is

recognized in the financial

statements for all share-based

payment grants.

On May 24, 2016,

the Corporation’s

stockholders

approved the amendment

and restatement

of the First BanCorp. Omnibus

Incentive Plan,

as amended (the “Omnibus

Plan”),

to, among other things,

increase the number

of shares of common stock

reserved for issuance

under the Omnibus Plan,

extend the term of

the Omnibus

Plan to May

24, 2026 and

re-approve

the material

terms of the

performance

goals under

the Omnibus

Plan for

purposes

of the

then-effective

Section 162(m) of the U.S. Internal Revenue

Code of 1986, as amended. The Omnibus Plan provides

for equity-based and

non-equity-based compensation incentives

(the “awards”) through the

grant of

stock options, stock appreciation rights, restricted stock,

restricted

stock

units,

performance

shares,

other

stock-based

awards

and

cash-based

awards.

The

compensation cost

for

award,

determined

based on the estimate

of the fair value

at the grant

date (considering

forfeitures

and any post-vesting

restrictions),

is recognized

over the

period during

which an

employee

or director

is required

to provide

services

in exchange

for an award,

which is

the vesting

period.

Stock-based compensation accounting guidance

requires the

Corporation to

reverse compensation expense

for

any

awards that

are

forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a

significant effect on share-

based compensation, as

the effect

adjusting the rate

for all

expense amortization is recognized in

the period

in which

the forfeiture

estimate changes.

If the actual forfeiture rate is higher than the estimated

forfeiture rate, an adjustment

is made to increase the estimated

forfeiture

rate, which

will result

in a decrease

in the expense

recognized

in the financial

statements.

If the actual

forfeiture

rate is lower

than

the estimated

forfeiture

rate, an adjustment

is made to decrease

the estimated

forfeiture

rate, which

will result in

an increase in

the expense

recognized in

the

financial statements. For

additional information regarding the

Corporation’s equity-based compensation and

awards

granted,

refer to

Note 22

– Stock-Based

Compensation,

to the

consolidated

financial

statements.

Comprehensive income

Comprehensive

income

for

First BanCorp.

includes

net

income,

as well

change

unrealized

gain

(loss)

available-for-sale

securities and change in unrecognized pension and post retirement costs, net

of estimated tax effects.

Pension and Postretirement Benefit Obligations

The Corporation

maintains two

frozen qualified

noncontributory defined

benefit pension

plans (the

“Pension Plans”)

(including a

complementary

post-retirements

benefits

plan

covering

medical

benefits

and

life

insurance

after

retirement)

that

assumed

the

BSPR acquisition.

Pension costs are computed

on the basis of

accepted actuarial methods

and are charged

to current operations.

Net pension costs are

based on

various actuarial

assumptions regarding

future experience

under the

plan, which

include costs

for services

rendered during

the

period,

interest

costs

and

return

plan

assets,

well

deferral

and

amortization

certain

items

such

actuarial

gains

losses.

The funding

policy is to

contribute to

the plan,

as necessary,

to provide

for services

to date and

for those expected

to be earned

the future. To

the extent that these

requirements are fully

covered by assets in

the plan, a contribution

may not be made

in a particular

year.

The

cost

postretirement

benefits,

which

is determined

based on

actuarial

assumptions

and

estimates

the

costs of

providing

these benefits in the future, is accrued during the years that the employee

renders the required service.

The

guidance

for

compensation

retirement

benefits

ASC

Topic

715,

“Retirement

Benefits,”

requires

the

recognition

the

funded status

of each

defined pension

benefit plan,

retiree health

care plan

and other

postretirement benefit

plans on

the statement

financial condition

Segment information

The Corporation reports financial and

descriptive information about its reportable

segments. Operating segments are

components of

enterprise

about

which

separate

financial

information

is available

that

is evaluated

regularly

by management

deciding

how

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

158

allocate resources

and in assessing

performance.

The Corporation’s

management determined

that the segregation

that best fulfills

the

segment definition described above

is by lines of business for its operations

in Puerto Rico, the Corporation’s

principal market, and by

geographic areas for

its operations outside

of Puerto Rico.

As of December

31, 2021, the

Corporation had

the following

six

operating

segments

that

are

all

reportable

segments:

Commercial

and

Corporate

Banking;

Mortgage

Banking;

Consumer

(Retail)

Banking;

Treasury

and Investments;

United States

Operations; and

Virgin

Islands Operations.

Refer to

Note 36

– Segment

Information, to

the

consolidated financial statements, for additional information.

Valuation

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

operations.

The Corporation

holds debt

and equity

securities, derivatives,

and other

financial instruments

at fair

value. The

Corporation holds

its

investments and liabilities

mainly to manage liquidity

needs and interest

rate risks. A meaningful

part of the Corporation’s

total assets

is reflected at fair value on the Corporation’s

financial statements.

The FASB’s

authoritative guidance

for fair

value measurement

defines fair

value as

the exchange

price that

would be

received for

an asset or paid to

transfer a liability (an

exit price) in the principal

or most advantageous market

for the asset or liability

in an orderly

transaction between market

participants on the measurement

date.

This guidance also establishes

a fair value hierarchy

for classifying

financial

instruments.

The

hierarchy

based

whether

the

inputs

the

valuation

techniques

used

measure

fair

value

are

observable or unobservable. Three levels of inputs may be used to measure

fair value:

Level 1

Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

that the reporting entity has the

ability to access at the measurement date.

Level 2

Inputs other than quoted prices included within Level 1 that are observable

for the asset or liability, either

directly or

indirectly, such

as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; 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

Valuations

are based on unobservable inputs that are supported by little or no market activity and

that are significant to the

fair value of the assets or liabilities.

Under the

fair value accounting

guidance, an

entity has the

irrevocable option

to elect, on

a contract-by-contract

basis, to measure

certain financial assets and

liabilities at fair value

at the inception of

the contract and, thereafter,

to reflect any changes

in fair value in

current earnings.

The Corporation

did not

make any

fair value

option election

as of

December 31,

2021 or

2020. See

Note 30

– Fair

Value,

to the consolidated financial statements, for additional information.

Revenue from contract with customers

Refer

Note

–

Revenue

from

contracts

with

customers,

for

detailed

description

the

Corporation’s

policies

the

recognition

and

presentation

revenues

from

contracts

with

customers,

including

the

income

recognition

for

the insurance

agency

commissions’ revenue.

Earnings per common share

Earnings per share-basic is calculated

by dividing net income attributable to common

stockholders by the weighted-average number

common

issued

and outstanding.

Net

income

attributable

common

stockholders

represents

net

income

adjusted

for

any

preferred

stock

dividends,

including

any

preferred

stock

dividends

declared

but

not

yet

paid,

and

any

cumulative

preferred

stock

dividends

the

current

dividend

period

that

have

not

been

declared

the

end

the

period.

Basic

weighted-average

common

outstanding

excludes

unvested

restricted

stock

that

not

contain

non-forfeitable

dividend

rights.

The

computation of diluted earnings per share is similar to the computation

of basic earnings per share except that the number of weighted-

average

common

increased

include

the

number

additional

common

that

would

have

been

outstanding

the

dilutive common shares had been issued, referred to as potential common shares.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain non-forfeitable

dividend rights,

warrants

outstanding

during

the

period,

and

common

stock

issued

under

the

assumed

exercise

stock

options,

any,

using

the

treasury stock

method.

This method

assumes that

the potential

dilutive common

shares are

issued and

outstanding and

the proceeds

from the exercise, in addition to the amount

of compensation cost attributable to future services, are used

to purchase common stock at

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

159

the

exercise

date.

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,

stock

options,

and

warrants

outstanding

during

the

period

that

result

lower

potential

dilutive

issued

than

purchased

under

the

treasury

stock

method

are

not

included

the

computation

dilutive

earnings

per

since

their

inclusion

would have

an antidilutive

effect on

earnings per

share. Potential

dilutive common

shares also

include performance

units that

do not

contain non-forfeitable dividend rights if the performance condition

is met as of the end of the reporting period.

Accounting Standards Adopted in 2021

Income Tax Simplification

In December 2019, the

FASB issued

new guidance to simplify the

accounting for income taxes by removing certain exceptions to the

general principles and

the

accounting related to

areas such

franchise taxes,

step-up in

tax

basis, goodwill,

separate entity

financial

statements, and interim

recognition of enactment of

tax laws

or rate

changes. For

public business entities, the

standard took effect

for

annual reporting

periods beginning

after December

15, 2020, including

interim reporting

periods within

those fiscal

years. The adoption

this guidance

during the

first quarter

of 2021

did not

have an

effect

on the Corporation’s

consolidated

financial

statements.

Accounting

for Equity

Securities

and Certain

Derivatives

In January 2020,

the FASB

issued new guidance to

clarify the accounting for equity

securities under ASC Topic

321, “Investments –

Equity Securities” (“ASC 321”); investments accounted for

under the

equity method of

accounting in ASC

Topic

323, “Investments –

Equity Method and

Joint Ventures”;

and the

accounting for certain forward

contracts and purchased options accounted for

under ASC

Topic

815, “Derivatives and Hedging”

(“ASC 815”). The

guidance clarifies that an

entity should consider observable transactions that

result in

either applying

or discontinuing

the equity

method of

accounting

for the

purpose of

applying

the measurement

alternative

provided

by ASC 321, which

allows certain equity

securities without

a readily determinable

fair value to be measured at cost,

less any impairment.

When an entity accounts

for an investment

in equity securities

under the measurement

alternative

and is required

to transition

to the equity

method of accounting because

of an observable transaction,

it should remeasure the investment

at fair value immediately

before applying

the equity

method of

accounting. Likewise, when an

entity accounts for

an investment in

equity securities under the

equity method of

accounting and is required

to transition to ASC 321 because

of an observable transaction,

it should remeasure

the investment at fair

value

immediately after discontinuing

the equity method of accounting. These amendments

align the accounting for equity securities

under the

measurement

alternative

with that of other

equity securities

accounted

for under ASC 321,

reducing diversity

in accounting

outcomes. The

guidance also clarifies

that, when determining

the accounting for nonderivative

forward contracts

and purchased options,

an entity should

not consider whether the

underlying securities would be accounted for under

the equity method or

fair value option upon

settlement or

exercise. These instruments

will not fail to meet the scope of ASC

815-10 solely because the securities

would be accounted for under

the

equity method upon settlement of the

contract or exercise of the

option. For public business entities, the standard took effect for annual

reporting periods beginning after December 15,

2020, including interim reporting periods within those fiscal years. The adoption of this

guidance

during the

first quarter

of 2021

did not

have an

effect on

the Corporation’s

consolidated

financial

statements.

Reference Rate

Reform

In March 2020,

the FASB issued new

accounting

guidance related

to the effects

of the reference

rate reform

on financial

reporting

(“ASC

Topic 848”). The

guidance

provides

optional

expedients

and exceptions

to applying

GAAP to contract

modifications

that replace

an interest

rate

impacted by

reference rate

reform (e.g., LIBOR) with

new

alternative reference rate.

The

guidance is

applicable to

investment

securities, receivables, loans,

debt,

leases, derivatives

and

hedge

accounting elections

and

other

contractual arrangements.

January

2021, the FASB

issued an

update which refines the

scope of

ASC Topic

848 and

clarifies some of

its guidance as

part of

the FASB’s

monitoring of global reference

rate reform activities.

The update permits entities

to elect certain optional

expedients and exceptions

when

accounting for derivative contracts and certain hedging

relationships affected by changes in

the interest rates

used for

discounting cash

flows, for computing variation margin settlements, and for

calculating price alignment interest in connection with reference rate reform

activities

under way

in global

financial

markets.

The guidance,

may be adopted

on any date

on or after

March 12,

2020. However,

the relief

is temporary

and generally

cannot be applied

to contract

modifications

that occur

after December

31, 2022 or

hedging relationships

entered

into or

evaluated after that

date. As

the date

hereof, the

Corporation has made

limited contract modification in connection with

the

reference

rate reform.

Other Accounting

Standard

Codification

Improvements

October 15,

2020, ASU

2020-08, “Codification Improvements to Subtopic 310-20,

Receivables –

Nonrefundable Fees and

Other

Costs,” to clarify that

for each reporting

period an entity should

reevaluate whether

a callable debt security’s

amortized cost

basis exceeds

the amount repayable

by the issuer at the next call date.

For public business

entities, the

guidance took effect

for fiscal years, and interim

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

160

periods

within

those

fiscal

years,

beginning after

December 15,

2020.

The

adoption of

this

guidance did

not

have

effect

the

Corporation’s

consolidated

financial

statements.

On October

29, 2020,

the FASB issued

ASU 2020-10,

“Codification

Improvements.”

The amendments

in this ASU

affect a wide

range of

codification

topics and are

separated

into two sections:

B and C. The Section

B amendments

improve codification

consistency

by ensuring

that all guidance

that requires

or provides

an option

for an entity

to provide

information

in the notes

to financial

statements

or on the

face of

the financial statements

appears in the applicable

disclosure section

as well as the other presentation

matters sections,

reducing the chance

that the

requirement would be

missed. These

amendments are not

expected to

change current practice.

The amendments in

Section C

clarify guidance

for

consistent application. Section

addresses retirement

benefits (Topic

715),

interim reporting

(Topic

270),

receivables

(Topic 310), guarantees

(Topic 460), income

taxes (Topic 470),

and imputation

of interest

(Topic 835), among

other topics.

For

public business

entities

the amendments

are effective

for annual

periods

beginning

after December

15, 2020.

The adoption

of this guidance

during the

fourth quarter

of 2021

did not

have an

effect on

the Corporation’s

consolidated

financial

statements.

Recently

Issued Accounting

Standards

Not Yet Effective

or Not Yet Adopted

May

2021,

the

FASB

issued

ASU

2021-04,

“Earnings Per

(Topic

260),

Debt

–

Modifications and

Extinguishments

(Subtopic 470-50), Compensation

– Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s

Own Equity

(Subtopic 815-40):

Issuer’s Accounting

for Certain Modifications

or Exchanges of Freestanding

Equity-Classified

Written Call Options

Consensus of the

Emerging Issues Task

Force).” The ASU

was issued to

clarify and reduce diversity in

practices for modification and

exchanges

of freestanding

equity-classified

written

call options

(for example,

warrants)

that remain

equity classified

after the

exchange.

The

amendments do not

apply to modifications

or exchanges of financial

instruments

within another

topic (for example,

Topic 718). The ASU

provides guidance on how to measure the effect

of the modification or exchange and how that effect

should be recognized. The ASU is

effective for all entities for fiscal years beginning

after December 15, 2021, including

interim periods within those

fiscal years. An entity

should apply the amendments prospectively

to modifications or exchanges

occurring on or after the effective date. The Corporation does

not expect

that the

amendments

of this

update will

have a material

effect on

its consolidated

financial

statements.

July

2021,

the

FASB

updated the

Codification and

amended ASC

Topic

842,

“Leases,” to

require lessors

classify leases

operating leases if they have variable lease payments that do

not depend on

an index or

rate and would have

selling losses if they were

classified as sales-type

or direct financing

leases. When a lease is classified

as operating, the

lessor does not recognize

a net investment in

the lease,

does not derecognize

the underlying

asset, and,

therefore,

does not recognize

a selling

profit or

loss. The

leased asset

continues

be subject

to the measurement

and impairment

requirements

under other

applicable

GAAP before

and after

the lease

transaction.

For public

business entities, the

amendment will

effective for

annual reporting periods

beginning after

December 15,

2021, including

interim

periods within

those fiscal

years. Early

adoption

is permitted.

The Corporation

does not

expect that

the amendments

of this

update will

have

a material

effect on

its consolidated

financial

statements.

October 28,

2021,

the

FASB

issued ASU

2021-08, “Business

Combinations (Topic

805): Accounting

for

Contract Assets

and

Contract Liabilities

From Contracts With Customers,” to address diversity

in practice and inconsistency

related to how revenue contracts

with customers acquired

in a business combination

are accounted for. The amendments

require that the acquirer

recognizes and measures

contract assets

and contract

liabilities

acquired

in a business

combination

in accordance

with Topic 606.

At the acquisition

date, an acquirer

should account

for the related revenue

contracts in

accordance

with Topic 606 as if it had originated

the contracts.

The ASU also provides

certain practical expedients for acquirers when recognizing and measuring acquired contract assets and

contract liabilities from revenue

contracts in a business combination and applies to contract assets and contract liabilities from other contracts to which the provisions of

Topic 606 apply. For public business entities,

the amendments

are effective for fiscal

years beginning

after December 15, 2022,

including

interim periods

within those

fiscal years.

The Corporation

does not expect

that the

amendments

of this update

will have

a material

effect on

its consolidated

financial

statements.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

161

NOTE 2 – BUSINESS

COMBINATION

Effective

September 1, 2020

the

Corporation

completed

the

acquisition

BSPR

The

acquisition

BSPR

expands

the

Corporation’s

presence

in Puerto

Rico, increases

its operational

scale and

strengthens

its competitiveness

in consumer,

commercial,

business

banking,

and

residential

lending.

The acquisition

also

allowed

the

Corporation to

increase

its deposit

base

at a

lower

cost,

which enhances FirstBank’s funding

and risk profile.

The

Corporation

accounted

for

the

acquisition

business

combination

accordance

with

ASC

805.

Accordingly,

the

Corporation recorded the

assets and liabilities assumed,

as of the date of

the acquisition, at their

respective fair values and

allocated to

goodwill the

excess of

the purchase price

consideration over

the fair

value of

the net

assets acquired.

The determination

of fair

value

required

management

make

estimates

about

discount

rates,

future

expected

cash

flows,

market

conditions

the

time

the

acquisition,

and

other

future

events

that

are

highly

subjective

nature

and

subject

change.

Fair

value

estimates

the

acquired

assets

and

liabilities

were

subject

adjustment

for

one

year

after

the

closing

date

the

acquisition

additional

information

relative

to the

closing date

fair values

becomes available

and such

information

is considered

final, whichever

is earlier.

Since

the

acquisition,

the

Corporation

adjusted

the

original

fair

value

estimates

and

goodwill

approximately

4.2

million.

Substantially

all

the

4.2

million

were

recorded

the

fourth

quarter

2020.

The

adjustments

were

primarily

post-

closing

purchase price

adjustments to

account for

differences

between

BSPR’s

actual excess

capital at

closing date

compared to

the

BSPR’s excess capital

amount used for the preliminary

closing statement at the acquisition date.

During August 2021, the Corporation

finalized its fair value analysis of the acquired assets and assumed liabilities associated

with this acquisition.

The

following

table

summarizes

the

purchase

price

consideration

and

estimated

fair

values

assets

acquired

and

liabilities

assumed from BSPR as of September 1, 2020 under the acquisition method

of accounting:

Fair Value

as Originally

Measurement Period

Fair Value

(In thousands)

Recorded

Adjustments

Remeasured

Total purchase price

consideration

1,277,626

3,382

1,281,008

Fair value of assets acquired:

Cash and cash equivalents

1,684,252

Investment securities

1,167,225

Residential mortgage loans

807,637

540

808,177

Commercial mortgage loans

740,919

122

741,041

Commercial and Industrial ("C&I") loans

752,154

(390)

751,764

Consumer loans

214,206

(488)

213,718

Loans, net

2,514,916

(216)

2,514,700

Premises and equipment, net

12,499

Intangible assets

39,232

448

39,680

Other assets

144,008

(195)

143,813

Total assets and identifiable

intangible assets acquired

5,562,132

5,562,169

Fair value of liabilities assumed:

Deposits

4,194,940

Other liabilities

95,869

865

96,734

Total liabilities assumed

4,290,809

865

4,291,674

Fair value of net assets and identifiable

intangible assets acquired

1,271,323

(828)

1,270,495

Goodwill

6,303

4,210

10,513

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

162

The

application

the

acquisition

method

accounting

resulted

goodwill

10.5

million,

core

deposit

intangible

35.9

million,

and

purchased

credit

card

relationships

3.8

million,

which

are

included

the

Corporation’s

consolidated

statement of financial

condition.

Goodwill recognized in

this transaction is

not deductible for

income tax purposes.

Refer to Note

14 – Goodwill, to the consolidated financial statements

for additional information about goodwill and other

intangibles recognized

as part of the transaction.

Fair Value

of Identifiable Assets Acquired and Liabilities Assumed

The methods used to determine the fair values of the significant identifiable

assets and liabilities assumed are described below:

Cash and cash

equivalents

- Cash and cash

equivalents include cash

and due from

banks, and interest-earning

deposits with banks

and the Federal Reserve

System. The Corporation

determined that the fair

values

of financial instruments that

are short-term or re-

price frequently and that have little, or no risk approximate the carrying

values.

Investment

securities

available

for

sale

and

held

maturity

The

fair

values

securities

available

for

sale

were

based

observable inputs

obtained from

market transactions

in similar

securities.

The fair

value of

held to

maturity securities

acquired in

the BSPR acquisition,

consisting of Puerto

Rico municipal bonds,

was determined based

on the discounted

cash flow method

used

for the

valuation of

loans described

below.

These held

to maturity

securities were

identified as

PCD debt

securities at

acquisition

and

had

fair

value

55.5

million

and

contractual

balance

67.1

million

the

acquisition

date.

The

Corporation

established an

initial ACL

for PCD

debt securities

of $

1.3

million, which

represents the

discount embedded

in the

purchase price

that is attributable to credit losses, through an adjustment to the acquired debt

securities amortized cost and the ACL.

Loans –

The Corporation calculated the fair value of loans acquired in the BSPR acquisition

using an income approach.

Under this

approach, fair value is measured

by the present value of

the net economic benefits to

be received over the life

of the loan.

The fair

value

was

estimated

based

discounted

cash

flow

method

under

which

the

present

value

the

contractual

cash

flows

was

calculated

based

certain

valuation

assumptions

such

as default

rates,

loss

severity,

and

prepayment

rates,

consistent

with

the

Corporation’s

CECL methodology,

and discounted

using

a market

rate of

return

that accounts

for both

the time

value of

money

and

investment

risk

factors.

The

discount

rate

utilized

analyze

fair

value

considered

the

cost

funds

rate,

capital

charge,

servicing

costs,

and

liquidity

premium,

mostly

based

industry

standards.

The

Corporation

segmented

the

loan

portfolio

into

two groups:

non-PCD loans

and PCD

loans.

Then loans

within each

group were

pooled based

on similar

characteristics, such

loan

type

(

i.e.

residential

mortgage,

commercial

and

industrial,

and

consumer

loans),

credit

scores,

loan-to-value,

fixed

adjustable

interest rates,

and

credit risk

ratings.

The Corporation

valued

commercial

mortgage loans

at the

loan

level. Non-PCD

loans and

PCD loans

had a

fair value

of $

1.8

billion and

752.8

million, respectively,

as of

the acquisition

date and

a contractual

balance

1.8

billion

and

786.0

million,

respectively,

the

same

date.

accordance

with

U.S.

GAAP,

there

was

carryover of

the ACL

that had

been previously

recorded by

BSPR. The

Corporation recorded

an initial

ACL of

38.9

million for

non-PCD

loans

(including

unfunded

commitments)

through

increase

the

provision

for

credit

losses.

The

Corporation

established an initial ACL for PCD loans of $

28.7

million through an adjustment to the acquired loan balance and the ACL.

Core

deposit

intangible

(“CDI”)

The Corporation

determined

the

CDI on

non-maturing

deposits

evaluating

the underlying

characteristics of

the deposit

relationships, including

customer attrition,

deposit interest

rates and

maintenance costs,

and costs

alternative

funding

using

the

discounted

cash

flow

approach.

Under

this

method,

the

value

the

core

deposit

intangible

was

measured by

the present

value of

the difference,

or spread,

between the

ongoing cost

of the

acquired deposit

base and

the cost

the next best

alternative source of

funding, to be

amortized using a

straight-line method

over a weighted

average useful life

5.7

years.

Purchased

credit card

receivable

intangible (“PCCR”)

– PCCR

is the

value of

credit card

client relationships

that were

acquired

in the

business combination.

The Corporation

computed the

fair value

using a

multi-period cash

flow model,

which it

discounted

using an

appropriate risk-adjusted

discount rate.

This measure

of fair

value requires

considerable judgments

about future

events,

including customer retention and

attrition estimates. The fair value

is amortized using an accelerated

method over a useful life of

years.

Deposits

The

fair

values

used

for

non-maturity

deposits

such

demand

and

savings

deposits

are,

definition,

equal

the

amount

payable

demand

the

reporting

date.

determining

the

fair

value

certificates

deposit,

the

cash

flows

the

contractual

interest

payments

during

the

specific

period

the

certificates

deposit

and

scheduled

principal

payout

were

discounted

to present

value

at market-based

interest rates.

The fair

value is

amortized over

a weighted

average useful

life of

1.2

years based on the maturity buckets for the time deposits established in the

valuation determination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

163

Merger and Restructuring Costs

Upon

completion

the

acquisition,

the

Corporation

began

integrate

BSPR’s

operations

into

FirstBank’s

operations.

December 31,

2021, the

Corporation has

completed all

systems integration

efforts and

finalized personnel

and functions

integrations.

Acquisition and

restructuring costs

are expensed

as incurred.

the extent

there are

additional costs

associated with

the integration,

the

costs

will

recognized

based

the

nature

and

timing

these

integration

actions.

The

Corporation

recognized

cumulative

acquisition

expenses

64.3

million

through

December

31,

2021,

which

26.4

million,

26.5

million,

and

11.4

million

were

incurred during the years

ended December 31, 2021,

2020 and 2019, respectively.

Acquisition, integration, and

restructuring expenses

were

included

merger

and

restructuring

costs

the

consolidated

statements

income,

and

consisted

primarily

legal

fees,

severance

and

personnel-related

costs,

service

contracts

cancellation

penalties,

valuation

services,

systems

conversion,

and

other

integration efforts, as well

as accelerated depreciation

charges related to planned

closures and consolidation of

branches in accordance

with the Corporation’s integration

and restructuring plan.

NOTE 3 – RESTRICTIONS

ON CASH AND

DUE FROM

BANKS

The Corporation’s

bank subsidiary,

FirstBank, is

required by

law to

maintain minimum

average weekly

reserve balances

to cover

demand deposits.

The amount

of those

minimum average

weekly reserve

balances for

the period

that ended

December 31, 2021

was

1.2

billion (2020 - $

883.8

million). As of December 31, 2021 and 2020, the Bank complied with the

requirement.

Cash and due from

banks as well as other highly liquid securities are used to cover the required average reserve

balances.

As of December

31, 2021, and

as required

by the Puerto

Rico International

Banking Law,

the Corporation

maintained $

300,000

time deposits,

which were

considered restricted

assets related

to FirstBank

Overseas Corporation,

an international

banking entity

that

is a subsidiary of FirstBank.

NOTE 4 – MONEY

MARKET INVESTMENTS

Money market investments are composed of time deposits,

overnight deposits with other financial institutions,

and other short-term

investments with original maturities of three months or less.

Money market investments as of December 31, 2021 and 2020 were as follows:

2021

2020

(Dollars in thousands)

Time deposits with other financial institutions

(1) (2)

300

Overnight deposits with other financial institutions

(3)

1,200

59,091

Other short-term investments

(4)

1,182

1,181

2,682

60,572

(1)

Consists of restricted time deposits required by the Puerto Rico International

Banking Law.

(2)

Weighted-average interest rate

0.05

% and

0.45

% as of December 31, 2021 and 2020, respectively.

(3)

Weighted-average interest rate

0.07

% and

0.15

% as of December 31, 2021 and 2020, respectively.

(4)

Weighted-average interest rate

0.15

% and

0.11

% as of December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, the Corporation had

money market investments pledged as collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

164

NOTE 5 – INVESTMENT

SECURITIES

Investment Securities Available

for Sale

The amortized

cost, gross

unrealized gains

and losses

recorded in

OCI, ACL,

estimated fair

value, and

weighted-average yield

investment securities available for sale by contractual maturities as of December

31, 2021 were as follows:

December 31,

2021

Amortized cost

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average

yield%

(Dollars in thousands)

U.S. Treasury securities:

After 1 to 5 years

149,660

1,233

148,486

0.68

U.S. government-sponsored

agencies' obligations:

After 1 to 5 years

1,877,181

240

29,555

1,847,866

0.60

After 5 to 10 years

403,785

175

10,856

393,104

0.90

After 10 years

15,788

224

16,012

0.63

Puerto Rico government obligations:

After 10 years

(1)

3,574

416

308

2,850

United States and Puerto Rico

government obligations

2,449,988

698

42,060

308

2,408,318

0.67

MBS:

FHLMC certificates:

After 1 to 5 years

2,811

119

2,930

2.65

After 5 to 10 years

193,234

2,419

1,122

194,531

1.29

After 10 years

1,240,964

3,748

23,503

1,221,209

1.18

1,437,009

6,286

24,625

1,418,670

1.20

GNMA certificates:

Due within one year

1.32

After 1 to 5 years

16,714

572

17,286

2.90

After 5 to 10 years

27,271

139

27,212

0.51

After 10 years

338,927

7,091

2,174

343,844

1.45

382,914

7,743

2,313

388,344

1.45

FNMA certificates:

Due within one year

4,975

4,996

2.03

After 1 to 5 years

21,337

424

21,761

2.87

After 5 to 10 years

298,771

4,387

1,917

301,241

1.41

After 10 years

1,389,381

8,953

21,747

1,376,587

1.21

1,714,464

13,785

23,664

1,704,585

1.27

Collateralized mortgage obligations

issued or guaranteed by the FHLMC

FNMA and GNMA:

After 1 to 5 years

24,007

778

23,230

1.31

After 5 to 10 years

14,316

14,413

0.76

After 10 years

500,811

290

13,134

487,967

1.23

539,134

388

13,912

525,610

1.22

Private label:

After 10 years

9,994

1,963

797

7,234

2.21

Total MBS

4,083,515

28,202

66,477

797

4,044,443

1.26

Other

Due within one year

500

0.72

After 1 to 5 years

500

0.84

1,000

0.78

Total investment securities

available for sale

6,534,503

28,900

108,537

1,105

6,453,761

1.03

(1)

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

2010.

During the

second

quarter of

2021,

the

Corporation

placed

this

instrument

nonaccrual

status

based

this

delinquency

status

of the

underlying

second

mortgage

loans

collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

165

The amortized

cost, gross

unrealized gains

and losses

recorded in

OCI, ACL,

estimated fair

value, and

weighted-average yield

investment securities available for sale by contractual maturities as of December

31, 2020 were as follows:

December 31, 2020

Amortized cost

Gross

ACL

Fair value

Unrealized

Weighted-

Gains

Losses

average

yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

7,498

7,507

1.65

U.S. government-sponsored

agencies' obligations:

Due within one year

24,413

273

24,686

1.95

After 1 to 5 years

691,668

911

290

692,289

0.57

After 5 to 10 years

441,454

821

347

441,928

0.83

After 10 years

21,413

149

21,264

0.65

Puerto Rico government obligations:

After 10 years

(1)

3,987

780

308

2,899

6.97

United States and Puerto Rico

government obligations

1,190,433

2,014

1,566

308

1,190,573

0.72

MBS:

FHLMC certificates:

After 1 to 5 years

4.86

After 5 to 10 years

60,773

2,850

63,623

2.15

After 10 years

1,070,984

15,340

159

1,086,165

1.38

1,131,832

18,198

159

1,149,871

1.42

GNMA certificates:

Due within one year

1.93

After 1 to 5 years

26,918

1,080

27,998

2.91

After 5 to 10 years

40,727

128

40,786

0.42

After 10 years

614,584

16,271

148

630,707

1.27

682,230

17,479

217

699,492

1.29

FNMA certificates:

After 1 to 5 years

24,812

891

25,703

2.81

After 5 to 10 years

110,832

5,783

116,615

2.13

After 10 years

1,154,707

23,459

203

1,177,963

1.53

1,290,351

30,133

203

1,320,281

1.61

Collateralized mortgage obligations

issued or guaranteed by the FHLMC,

FNMA and GNMA:

After 1 to 5 years

538

537

0.81

After 5 to 10 years

18,438

152

18,590

0.80

After 10 years

258,069

1,019

491

258,597

1.56

277,045

1,171

492

277,724

1.51

Private label:

After 10 years

12,310

2,880

1,002

8,428

2.25

Total MBS

3,393,768

66,981

3,951

1,002

3,455,796

1.47

Other

After 1 to 5 years

650

2.94

Total investment securities

available for sale

4,584,851

68,995

5,517

1,310

4,647,019

1.28

(1)

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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

166

Maturities

MBS

are

based

the

period

final

contractual

maturity.

Expected

maturities

investments

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

investment

securities available

for sale is

based on amortized

cost and, therefore,

does not give

effect to changes

in fair value.

The net unrealized

gain or loss on securities available for sale is presented as part of OCI.

The aggregate

amortized cost

and approximate

market value

of investment

securities available

for sale

as of

December 31,

2021

by contractual maturity are shown below:

Amortized Cost

Fair Value

(Dollars in thousands)

United States and Puerto Rico government obligations, and

other debt securities:

Within 1 year

500

After 1 to 5 years

2,027,341

1,996,852

After 5 to 10 years

403,785

393,104

After 10 years

19,362

18,862

2,450,988

2,409,318

MBS and collateralized mortgage obligations

(1)

4,083,515

4,044,443

Total investment securities available for sale

6,534,503

6,453,761

(1) The expected maturities of MBS and collateralized mortgage

obligations may differ from their contractual maturities

because they may be subject to prepayments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

167

The following

tables show

the fair

value and

gross unrealized

losses of

the Corporation’s

available-for-sale

investment securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of December 31, 2021 and December 31, 2020. The tables also include debt

securities for which an ACL was recorded.

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico-government obligations

2,850

416

2,850

416

U.S. Treasury and U.S. government

agencies’ obligations

1,717,340

25,401

606,179

16,243

2,323,519

41,644

MBS:

FNMA

1,237,701

19,843

112,559

3,821

1,350,260

23,664

FHLMC

986,345

16,144

221,896

8,481

1,208,241

24,625

GNMA

194,271

1,329

41,233

984

235,504

2,313

Collateralized mortgage obligations

issued or guaranteed by the FHLMC,

FNMA and GNMA

466,004

13,552

16,656

360

482,660

13,912

Private label MBS

7,234

1,963

7,234

1,963

4,601,661

76,269

1,008,607

32,268

5,610,268

108,537

As of December 31, 2020

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico-government obligations

2,899

780

2,899

780

U.S. Treasury and U.S. government

agencies’ obligations

425,155

621

23,377

165

448,532

786

MBS:

FNMA

93,509

203

93,509

203

FHLMC

89,292

159

89,292

159

GNMA

70,504

217

70,504

217

Collateralized mortgage obligations

issued or guaranteed by the FHLMC,

FNMA and GNMA

104,500

410

9,761

114,261

492

Private label MBS

8,428

2,880

8,428

2,880

782,960

1,610

44,465

3,907

827,425

5,517

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

168

There were no sales

of securities available

for sale during the

year ended December

31, 2021. During the

year ended December 31,

2020, proceeds from

sales of available-for-sale

investment securities amounted

to $

1.2

billion, including gross

realized gains of

13.3

million and

gross realized

losses of

0.1

million. The

13.2

million net

gain was

realized on

tax-exempt securities

or was

realized at

the tax-exempt

international banking entity

subsidiary,

which had no

effect in

the income tax

expense recorded

during the year

ended

December 31, 2020.

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

approximately

% of the

total available-for-sale

portfolio as of

December 31,

2021 and 2020,

and the Corporation

expects no

credit

losses on

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 the Corporation does

not have the intent to

sell

these

U.S.

government

and

agencies

debt

securities

and

likely

that

will

not

required

sell

the

securities

before

their

anticipated recovery,

the Corporation

does not

consider impairments

on these

securities to

be credit

related as

of December

31, 2021

and 2020.

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.

The

Corporation’s

available-for-sale

MBS

portfolio

included

private

label

MBS

with

fair

value

7.2

million,

which

had

unrealized

losses of

approximately

2.8

million

as of

December 31,

2021

of which

0.8

million

is due

to credit

deterioration and

part of the ACL.

The interest rate on these private-label MBS is variable, tied to 3-month LIBOR, and limited to the weighted-average

coupon on the underlying collateral.

The underlying collateral are fixed-rate, single-family residential mortgage loans in the United

States with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels.

of December

31, 2021, the

Corporation did not

have the intent

to sell these

securities and determined

that it was

likely that it

will not

be required

to sell

the securities

before anticipated

recovery.

The Corporation

determined the

ACL for

private label

MBS based

on a

risk-adjusted

discounted

cash flow

methodology

that

considers

the

structure

and

terms of

the

instruments.

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 and the housing price

index. Under this approach,

all

future cash

flows (interest

and principal)

from the underlying

collateral loans,

adjusted by prepayments

and the PDs

and LGDs,

were

discounted at the effective

interest rate as of the reporting date.

Significant assumptions in the valuation

of the private label MBS were

as follows:

As of

December 31,

2021

December 31,

2020

Weighted

Range

Weighted

Range

Average

Minimum

Maximum

Average

Minimum

Maximum

Discount rate

12.9%

12.2%

Prepayment rate

15.2%

7.6%

24.9%

12.1%

1.2%

18.8%

Projected Cumulative Loss Rate

7.6%

0.2%

15.7%

10.2%

2.6%

22.3%

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

169

The Corporation

evaluates if

a credit

loss exists,

primarily

by monitoring

adverse variances

in the

present value

of expected

cash

flows. As of December

31, 2021, the ACL for

these private label MBS

was $

0.8

million, relatively flat compared

to $

1.0

million as of

December 31, 2020.

December

31,

2021,

the

Corporation’s

available-for-sale

investment

securities

portfolio

also

included

residential

pass-

through

MBS

issued

the

PRHFA,

collateralized

certain

second

mortgages,

with

fair

value

2.9

million,

which

had

unrealized loss of

approximately $

0.7

million. Approximately $

0.3

million of the unrealized

losses was due to

credit deterioration and

is part of

the ACL. The

underlying second

mortgage loans were

originated under

a program launched

by the Puerto

Rico government

2010.

This

residential

pass-through

MBS

was

structured

zero-coupon

bond

for

the

first

ten

years

(up

July

2019).

The

underlying

source

repayment

this

residential

pass-through

MBS

second

mortgage

loans

Puerto

Rico.

PRHFA,

not

the

Puerto

Rico

government,

provides

guarantee

the

event

default

and

subsequent

foreclosure

the

properties

underlying

the

second mortgage

loans. During

the second

quarter of

2021, the

Corporation placed

this instrument

in nonaccrual

status based

on the

delinquency status of

the underlying second

mortgage loans collateral.

The Corporation determined

the ACL on

this instrument based

risk-adjusted

discounted

cash

flow

methodology

that

considered

the

structure

and

terms

the

underlying

collateral.

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

regional

unemployment

rates,

the

housing

price

index,

and

expected recovery

from the PRHFA

guarantee. Under

this approach, all

future cash flows

(interest and principal)

from the underlying

collateral loans, adjusted by

prepayments and the PDs and

LGDs, were discounted at

the internal rate of return

as of the reporting date

and compared to

the amortized cost.

In the event

that the second

mortgage loans default

and the collateral

is insufficient to

satisfy the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’

ability

honor

its

insurance

will

depend

on,

among

other

factors,

the financial

condition of

PRHFA

at the

time

such obligation

becomes due

and payable.

Further deterioration

of the

Puerto

Rico

economy

fiscal

health

the

PRHFA

could

impact

the

value

these

securities,

resulting

additional

losses

the

Corporation. As

of December

31, 2021,

the Corporation

did not

have the

intent to

sell this

security and

determined that

it was

likely

that it will not be required to sell the security before its anticipated recovery

Accrued interest

receivable on

available-for-sale

debt securities

totaled $

10.1

million as

of December

31, 2021

8.5

million as

December 31, 2020) and is excluded from the estimate of credit losses.

The following table

presents a rollforward

by major security

type for the

years ended December

31, 2021 and

2020 of the ACL

debt securities available-for-sale:

Year

Ended December 31, 2021

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

1,002

308

1,310

Provision for credit losses - (benefit)

(136)

Net charge-offs

(69)

ACL on debt securities available-for-sale

797

308

1,105

Year

Ended December 31, 2020

Private label MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

Provision for credit losses

1,333

308

1,641

Net charge-offs

(331)

ACL on debt securities available-for-sale

1,002

308

1,310

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

170

During the year ended December 31, 2019, the Corporation recorded OTTI losses on

available-for-sale debt securities as follows:

2019

(In thousands)

Total OTTI losses

(557)

Portion of OTTI recognized in OCI

Net impairment losses recognized in earnings

(1)

(497)

(1)

Prior to the adoption of CECL on January 1, 2020, credit-related impairment recognized in earnings was reported as

part of

net gain

(loss) on

investment securities in

the consolidated statements

of income

rather than

as a

provision

for credit losses.

Investments Held to Maturity

The

amortized

cost,

gross

unrecognized

gains

and

losses,

estimated

fair

value,

ACL,

weighted-average

yield

and

contractual

maturities of investment securities held to maturity as of December 31,

2021 and December 31, 2020 were as follows

December 31, 2021

Amortized cost

Fair value

Gross Unrecognized

Weighted-

(Dollars in thousands)

Gains

Losses

ACL

average yield%

Puerto Rico municipal bonds:

Due within one year

2,995

3,000

5.39

After 1 to 5 years

14,785

526

156

15,155

347

2.35

After 5 to 10 years

90,584

1,555

3,139

89,000

3,258

4.25

After 10 years

69,769

9,777

59,992

4,896

4.06

Total investment

securities

held to maturity

178,133

2,086

13,072

167,147

8,571

4.04

December 31, 2020

Amortized cost

Fair value

Gross Unrecognized

Weighted-

(Dollars in thousands)

Gains

Losses

ACL

average yield%

Puerto Rico municipal bonds:

Due within one year

556

563

5.41

After 1 to 5 years

17,297

561

305

17,553

576

3.00

After 5 to 10 years

88,394

1,388

3,146

86,636

4,401

4.66

After 10 years

83,241

14,187

69,054

3,868

3.57

Total investment

securities

held to maturity

189,488

1,956

17,638

173,806

8,845

4.03

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

171

The following tables

show the Corporation’s

held-to-maturity investments’

fair value and gross

unrecognized losses, aggregated

investment category and

length of time that

individual securities had been

in a continuous unrecognized

loss position, as of

December

31, 2021 and December 31, 2020, including debt securities for which

an ACL was recorded:

As of December 31, 2021

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

140,732

13,072

140,732

13,072

As of December 31, 2020

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Debt securities:

Puerto Rico municipal bonds

28,252

1,611

116,216

16,027

144,468

17,638

The Corporation

determines the

ACL of

Puerto Rico

municipal bonds

based on

the product

of a

cumulative PD

and LGD, and

the

amortized

cost

basis of

the

bonds

over

their

remaining

expected

life

as described

Note

–

Nature

Business

and

Summary

Significant Accounting Policies, above.

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

scheduled

contractual

payments

December

31,

2021.

The

Puerto

Rico

municipal

bonds

had

ACL

8.6

million

December 31, 2021, down $

0.2

million from $

8.8

million as of December 31, 2020. The

decrease was mainly related to improvements

in forecasted

macroeconomic variables

and the repayment

of certain bonds

during the year

ended December 31,

2021, partially offset

by changes

in some issuers’

financial metrics

based on

their most recent

financial statements.

The ACL

recorded as

of December

31,

2020

included

the

initial

ACL

for

held-to-maturity

securities

8.1

million

upon

adoption

CECL

January

2020,

1.3

million initial ACL established

for PCD debt securities with

a fair value of $

55.5

million acquired in the

BSPR acquisition, and a $

0.6

million

net

release

the

initial

reserves

recorded

during

2020.

accordance

with

the

Corporation’s

policy,

accrued

interest

receivable

held-to-maturity

debt

securities

that

totaled

3.4

million

December

31,

2021

3.6

million

December

31,

2020) and was excluded from the estimate of credit losses.

The following table

presents the activity

in the ACL

for debt securities

held to maturity

by major security

type for the

years ended

December 31, 2021 and 2020:

Puerto Rico Municipal Bonds

Year

Ended

December 31, 2021

December 31, 2020

(In thousands)

Beginning Balance

8,845

Impact of adopting ASC 326

8,134

Initial allowance on PCD debt securities

1,269

Provision for credit losses - (benefit)

(274)

(558)

8,571

8,845

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

172

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,

measures

included

fiscal

plans

other

government

entities,

and,

recently,

the

effect

the

COVID-19

pandemic on the Puerto Rico and global

economy. Given

the inherent uncertainties about the fiscal

situation of the Puerto Rico central

government,

the

COVID-19

pandemic,

and

the

measures

taken,

other

government

entities

response

the

COVID-19 pandemic

on municipalities,

the Corporation

cannot be

certain whether

future charges

to the

ACL on these

securities will

be required.

From

time

time,

the

Corporation

has

securities

held

maturity

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

December 31,

2021, and

2020, the

Corporation had

no outstanding

securities held

to maturity

that were classified

cash and cash equivalents.

Credit Quality Indicators:

The held-to-maturity

investment securities

portfolio consisted

of financing

arrangements with

Puerto Rico

municipalities issued

bond form,

which 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 Puerto

Rico municipal

bonds

held-to-maturity

through the

use of

internal

credit-risk

ratings,

which

are

generally

updated

quarterly

basis.

The

Corporation

considers

debt

security

held-to-

maturity as a criticized asset

if its risk rating

is Special Mention, Substandard,

Doubtful,

or Loss. Puerto Rico municipal

bonds that do

not meet

the criteria

for classification

as criticized

assets are

considered

to be

pass-rated

securities. The

asset categories

are defined

below:

Pass –

Assets classified

as pass

have

a well-defined

primary source

of repayment,

with no

apparent risk,

strong financial

position,

minimal operating

risk, profitability,

liquidity and

strong capitalization

and include

assets categorized

as watch.

Assets classified

watch have

acceptable business

credit,

but borrowers

operations,

cash flow

or financial

condition evidence

more than

average

risk

and requires additional level of supervision and attention from Loan Officers.

Special Mention

– Special

Mention assets

have potential

weaknesses that

deserve management’s

close attention.

If left uncorrected,

these potential weaknesses

may result in deterioration

of the repayment prospects

for the asset or

in the Corporation’s

credit position

some

future

date.

Special

Mention

assets

are

not

adversely

classified

and

not

expose

the

Corporation

sufficient

risk

warrant adverse classification.

Substandard – Substandard

assets are inadequately

protected by the

current sound worth

and paying capacity

of the obligor

or of the

collateral pledged, if any.

Assets so classified must have a well-defined weakness or weaknesses that jeopardize

the liquidation of the

debt. They are characterized by the distinct possibility that the institution will sustain some

loss if the deficiencies are not corrected.

Doubtful

–

Doubtful

classifications

have

all

the

weaknesses

inherent

those

classified

Substandard

with

the

added

characteristic

that

the

weaknesses

make

collection

liquidation

full

highly

questionable

and

improbable,

based

currently

known

facts,

conditions and values.

A Doubtful classification

may be appropriate

in cases where significant

risk exposures are

perceived, but loss

cannot be determined because of specific reasonable pending factors,

which may strengthen the credit in the near term.

Loss

–

Assets

classified

Loss

are

considered

uncollectible

and

such

little value

that

their

continuance

as bankable

assets

not

warranted.

This

classification

does

not

mean

that

the

asset

has

absolutely

recovery

salvage

value,

but

rather

that

not

practical or desirable to defer writing

off this asset even though partial

recovery may occur in the future. There

is little or no prospect

for near term improvement and no realistic strengthening action of

significance pending.

The Corporation

periodically reviews its

assets to evaluate

if they are

properly classified, and

to determine impairment,

if any.

The

frequency

these

reviews

will

depend

the

amount

the

aggregate

outstanding

debt,

and

the

risk

rating

classification

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

securities. The objective

of these loan

reviews is assess

accuracy

of the Bank’s

determination and maintenance

of loan risk

rating and

its adherence

to lending

policies, practices

and procedures.

The monitoring

performed by

this group

contributes to

the assessment

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

173

compliance with

credit policies

and underwriting

standards, the

determination of

the current

level of

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.

The

following

table

summarizes

the

amortized

cost

the

Puerto

Rico

Municipal

Bonds,

which

are

the

Corporation’s

only

debt

securities held-to-maturity,

as of December 31, 2021

and 2020, aggregated by credit quality indicator:

Held to Maturity

Puerto Rico Municipal Bonds

December 31,

December 31

(In thousands)

2021

2020

Risk Ratings:

Pass

178,133

189,488

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total

178,133

189,488

held-to-maturity debt

securities were

on nonaccrual

status, 90

days past

due and

still accruing,

or past

due as

of December

31,

2021 and 2020. A security is considered to be past due once it is

days contractually past due under the terms of the agreement.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

174

NOTE 6 – EQUITY SECURITIES

Institutions that

are members

of the FHLB

system are required

to maintain

a minimum

investment in FHLB

stock. Such

minimum

investment

calculated

percentage

aggregate

outstanding

mortgage

assets,

and

the

FHLB

requires

additional

investment that

is calculated

as a

percentage of

total FHLB

advances and

letters of

credit, if

any.

The FHLB

stock represents

capital

stock issued at $

100

par value, and both stock and cash dividends may be received.

As of

December 31,

2021 and

2020, the

Corporation had

investments in

FHLB stock

carried at

a cost

of $

21.5

million and

31.2

million, respectively.

Dividend income

from FHLB

stock for

the years

ended December

31, 2021,

2020, and

2019 amounted

to $

1.4

million, $

2.0

million, and $

2.7

million, respectively.

The FHLB of New York

issued the shares of FHLB stock

owned by the Corporation. The FHLB

of New York

is part of the Federal

Home

Loan

Bank

System,

national

wholesale

banking

network

eleven

regional,

stockholder-owned

congressionally

chartered

banks. The

FHLBs are

all privately

capitalized and

operated by

their member

stockholders. The

system is

supervised by

the Federal

Housing

Finance

Agency,

which

requires

that

the

FHLBs

operate

financially

safe

and

sound

manner,

remain

adequately

capitalized and able to raise funds in the capital markets, and carry out their housing

finance mission.

December

31,

2021

and

2020,

the

Corporation

owned

other

equity

securities

with

readily

determinable

fair

value

approximately

5.4

million and

1.5

million, respectively.

During

the year

ended December

31, 2021,

the Corporation

recognized a

marked-to-market loss of

0.1

million associated with

these securities, which

was recorded as

part of other

non-interest income in

the

consolidated statements of income,

compared to a $

thousand marked-to-market gain for

the year ended December 2020,

and a $

0.4

thousand

marked-to-market

gain for

the year

ended December

2019. In

addition,

the Corporation

has other

equity securities

that do

not have

a readily-determinable

fair value.

The carrying

value of such

securities as of

December 31,

2021 and

2020 was $

5.3

million

and $

4.9

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

175

NOTE 7 – INTEREST AND DIVIDEND INCOME ON INVESTMENT

SECURITIES, MONEY MARKET INVESTMENTS

AND INTEREST-BEARING CASH ACCOUNTS

The following

provides information

about interest

on investments,

interest-bearing

cash accounts,

and FHLB dividend

income:

Year Ended

December 31,

2021

2020

2019

(In thousands)

MBS:

Taxable

31,398

9,404

7,812

Exempt

(1)

18,667

30,877

29,232

50,065

40,281

37,044

Puerto Rico government obligations, U.S. Treasury securities, and U.S.

government agencies:

Taxable

5,513

1,032

165

Exempt

(1)

15,859

15,235

19,623

21,372

16,267

19,788

Other investment securities (including FHLB dividends)

Taxable

1,456

1,999

2,714

Total interest income on

investment securities

72,893

58,547

59,546

Interest on money market investments and interest-bearing cash accounts:

Taxable

2,661

3,386

13,205

Exempt

148

Total interest income on money market

investments and interest-bearing cash accounts

2,662

3,388

13,353

Total interest and

dividend income on investment securities, money market

investments, and interest-bearing cash accounts

75,555

61,935

72,899

(1)

Primarily MBS and government obligations held by International Banking

Entities (as defined in the International Baking Entity Act

of Puerto Rico), whose interest income and sales are

exempt from Puerto Rico income taxation under that act,

as well as tax-exempt Puerto Rico municipal bonds held as part

of the held-to-maturity investment securities portfolio.

The following table summarizes the components of interest and dividend

income on investments:

Year Ended

December 31,

2021

2020

2019

(In thousands)

Interest income on investment securities, money

market investments, and interest-bearing cash accounts

74,114

59,952

70,201

Dividends on FHLB stock

1,394

1,959

2,682

Dividends on other equity securities

Total interest income

and dividends on investments

75,555

61,935

72,899

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

176

NOTE 8 – LOANS HELD FOR INVESTMENT

The following

provides information

about the loan

portfolio held

for investment

as of the indicated

dates:

As of December 31,

2021

2020

(In thousands)

Residential mortgage loans, mainly secured by first mortgages

2,978,895

3,521,954

Construction loans

138,999

212,500

Commercial mortgage loans

2,167,469

2,230,602

C&I loans

(1) (2)

2,887,251

3,202,590

Consumer loans

2,888,044

2,609,643

Loans held for investment

(3)

11,060,658

11,777,289

ACL on loans and finance leases

(269,030)

(385,887)

Loans held for investment, net

10,791,628

11,391,402

(1)

As of December 31, 2021 and 2020, includes $

145.0

million and $

406.0

million, respectively, of SBA PPP loans.

(2)

As of each December 31, 2021 and 2020, includes

1.0

billion of commercial loans that were secured by real

estate but were not dependent upon the real

estate for repayment.

(3)

Includes accretable fair value net purchase discounts of $

35.3

million and $

48.0

million as of December 31, 2021 and 2020, respectively.

December 31,

2021,

and

2020,

the

Corporation

had

net

deferred

origination

costs

its

loan

portfolio

amounting

4.3

million

and

4.6

million,

respectively.

The

total

loan

portfolio

net

unearned

income

79.0

million

and

65.8

million

December 31, 2021 and 2020, respectively.

As of

December 31,

2021,

the Corporation

was

servicing

residential

mortgage

loans owned

by others

in an

aggregate

amount

4.0

billion (2020 —

4.2

billion), and

commercial loan

participations owned

by others

in an

aggregate amount

of $

383.5

million as

of December 31, 2021 (2020 — $

422.0

million).

Various

loans, mainly secured by first mortgages,

were assigned as collateral for CDs, individual

retirement accounts, and advances

from

the

FHLB.

Total

loans

pledged

collateral

amounted

2.1

billion

and

2.5

billion

December 31,

2021

and

2020,

respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

177

The following

tables present

by portfolio

classes the

amortized cost

basis of

loans on

nonaccrual status

and loans

past

due

days

and

still

accruing

December

31,

2021

and

the

interest

income

recognized

nonaccrual loans for the years ended December 31, 2021 and 2020:

As of December 31, 2021

Year Ended

December 31,

2021

Year Ended

December 31,

2020

Puerto Rico and Virgin Islands region

Nonaccrual

Loans with No

ACL

Nonaccrual

Loans with

ACL

Total

Nonaccrual

Loans

(2)

Loans Past Due

90 days or

more and Still

Accruing

(2)(3)

Interest Income

Recognized on

Nonaccrual

Loans

Interest Income

Recognized on

Nonaccrual

Loans

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

65,394

Conventional residential mortgage loans

3,689

44,286

47,975

28,433

1,406

1,050

Construction loans

1,000

1,664

2,664

Commercial mortgage loans

8,289

17,048

25,337

9,919

201

194

C&I loans

10,925

5,259

16,184

7,766

113

Consumer Loans:

Auto loans

3,146

3,538

6,684

164

Finance leases

196

670

866

Personal loans

1,208

Credit cards

2,985

Other consumer loans

1,543

1,563

Total loans held for investment

(1)

27,265

75,216

102,481

114,497

1,979

1,653

(1)

Nonaccrual loans exclude $

357.7

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2021.

(2)

Nonaccrual loans exclude PCD loans previously accounted

for under ASC Subtopic 310-30 for which the Corporation

made the accounting policy election of

maintaining pools of loans

accounted for under ASC

Subtopic 310-30 as “units

of account” both at the time

of adoption of CECL on

January 1, 2020 and

an ongoing basis for credit loss

measurement. These loans accrete interest

income based on the effective

interest rate of the loan pools determined

at the time

of adoption

of CECL

and 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 amortized cost

of such loans as of

December 31, 2021 was $

117.5

million. The portion

of such loans

contractually past due

90 days or

more, amounting to

20.6

million as of

December 31, 2021

19.1

million conventional residential

mortgage

loans and $

1.5

million commercial mortgage loans), is presented in the

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

table above.

(3)

These include rebooked

loans, which were

previously pooled into

GNMA securities amounting

to $

7.2

million as of December

31, 2021. Under

the GNMA

program,

the

Corporation

has

the

option

but

not

the

obligation

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. During

the year ended

December 31, 2021, the Corporation repurchased, pursuant

to the aforementioned repurchase option, $

1.1

million of loans previously sold to GNMA.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

178

As of December 31, 2021

Year Ended

December 31,

2021

Year Ended

December 31,

2020

Florida region

Nonaccrual

Loans with No

ACL

Nonaccrual

Loans with

ACL

Total

Nonaccrual

Loans

Loans Past Due

90 days or

more and Still

Accruing

Interest Income

Recognized on

Nonaccrual

Loans

Interest Income

Recognized on

Nonaccrual

Loans

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

121

Conventional residential mortgage loans

7,152

211

285

Construction loans

Commercial mortgage loans

C&I loans

468

483

951

Consumer Loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

133

Total loans held for investment

(1)

468

7,768

8,236

182

291

376

(1)

Nonaccrual loans exclude $

5.7

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2021.

As of December 31, 2021

Year Ended

December 31,

2021

Year Ended

December 31,

2020

Total

Nonaccrual

Loans with No

ACL

Nonaccrual

Loans with

ACL

Total

Nonaccrual

Loans

(2)

Loans Past Due

90 days or

more and Still

Accruing

(2)(3)

Interest Income

Recognized on

Nonaccrual

Loans

Interest Income

Recognized on

Nonaccrual

Loans

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

65,515

Conventional residential mortgage loans

3,689

51,438

55,127

28,433

1,617

1,335

Construction loans

1,000

1,664

2,664

Commercial mortgage loans

8,289

17,048

25,337

9,919

201

194

C&I loans

11,393

5,742

17,135

7,827

183

157

Consumer Loans:

Auto loans

3,146

3,538

6,684

176

Finance leases

196

670

866

Personal loans

1,208

Credit cards

2,985

Other consumer loans

1,676

1,696

Total loans held for investment

(1)

27,733

82,984

110,717

114,679

2,270

2,029

(1)

Nonaccrual loans exclude $

363.4

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2021.

(2)

Nonaccrual loans excludes PCD loans previously accounted

for under ASC Subtopic 310-30 for which

the Corporation made the accounting policy election

of maintaining pools of loans accounted for under

ASC Subtopic 310-30 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 accrete interest income based

on the effective interest rate

of the loan pools determined

at the

time of adoption

of CECL and

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 amortized

cost of such

loans as of

December 31, 2021

was $

117.5

million. The

portion of such loans contractually

past due 90 days or more,

amounting to $"

20.6

million as of December 31,

2021 ($

19.1

" million conventional residential

mortgage loans

and $

1.5

million commercial

mortgage loans),

is presented

in the

loans past

due 90

days or

more and

still accruing

category in

the table

above.

(3)

These

include

rebooked

loans,

which

were

previously

pooled

into

GNMA

securities,

amounting

7.2

million

December

31,

2021.

Under

the

GNMA

program,

the

Corporation

has

the

option

but

not

the

obligation

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. During

the year ended December 31, 2021, the Corporation

repurchased, pursuant to the aforementioned repurchase

option, $

1.1

million of loans previously sold to

GNMA.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

179

The following

tables present

by portfolio

classes the

amortized

cost basis

of loans

on nonaccrual

status and

loans past

due 90

days or more and still accruing as of December 31, 2020:

As of December 31, 2020

Puerto Rico and Virgin Islands region

Nonaccrual Loans with No

ACL

Nonaccrual Loans with ACL

Total Nonaccrual Loans

(2)

Loans Past Due 90 days or

more and Still Accruing

(2)(3)

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

98,993

Conventional residential mortgage loans

12,418

98,527

110,945

38,834

Construction loans

4,546

8,425

12,971

Commercial mortgage loans

11,777

17,834

29,611

3,252

C&I loans

14,824

5,496

20,320

2,246

Consumer Loans:

Auto loans

8,638

8,664

Finance leases

1,466

Personal loans

1,623

Credit cards

1,520

Other consumer loans

3,682

Total loans held for investment

(1)

43,591

145,691

189,282

144,845

(1)

Nonaccrual loans exclude $

386.7

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2020.

(2)

Excludes PCD loans previously accounted

for under ASC Subtopic 310-30 for

which the Corporation made the accounting

policy election of maintaining pools

of loans accounted

for under ASC Subtopic

310-30 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

accrete interest

income based

on the effective

interest rate

of the

loan pools

determined at

the time of

adoption of

CECL and

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 amortized cost

of such loans as of

December 31,

2020 was

130.9

million. The

portion of

such loans

contractually past

due 90

days or

more, amounting

to $

26.3

million as

of December

31, 2020

24.7

million

conventional residential

mortgage loans

and $

1.6

million commercial

mortgage loans),

is presented in

the loans past

due 90 days

or more and

still accruing

category in

the table

above.

(3)

These

include

loans

rebooked,

which

were

previously

pooled

into

GNMA

securities

amounting

10.7

million

December

31,

2020.

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

the

repurchase option

are required

to be

reflected on

the financial

statements with

an offsetting

liability.

During the

year ended

December 31,

2020, the

Corporation repurchased,

pursuant to the aforementioned repurchase option, $

55.0

million of loans previously sold to GNMA.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

180

As of December 31, 2020

Florida region

Nonaccrual Loans with No

ACL

Nonaccrual Loans with ACL

Total Nonaccrual Loans

Loans Past Due 90 days or

more and Still Accruing

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

250

Conventional residential mortgage loans

2,584

11,838

14,422

Construction loans

Commercial mortgage loans

C&I loans

561

Consumer Loans:

Auto loans

223

Finance leases

Personal loans

Credit cards

Other consumer loans

601

Total loans held for investment

(1)

3,145

12,662

15,807

250

(1)

Nonaccrual loans exclude $

6.6

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2020.

As of December 31, 2020

Total

Nonaccrual Loans with No

ACL

Nonaccrual Loans with ACL

Total Nonaccrual Loans

(2)

Loans Past Due 90 days or

more and Still Accruing

(2)(3)

(In thousands)

Residential mortgage loans, mainly secured

by first mortgages:

FHA/VA government

-guaranteed

99,243

Conventional residential mortgage loans

15,002

110,365

125,367

38,834

Construction loans

4,546

8,425

12,971

Commercial mortgage loans

11,777

17,834

29,611

3,252

C&I loans

15,385

5,496

20,881

2,246

Consumer Loans:

Auto loans

8,861

8,887

Finance leases

1,466

Personal loans

1,623

Credit cards

1,520

Other consumer loans

4,283

Total loans held for investment

(1)

46,736

158,353

205,089

145,095

(1)

Nonaccrual loans exclude $

393.3

million of TDR loans that were in compliance with modified terms

and in accrual status as of December 31, 2020.

(2)

Excludes PCD loans previously accounted

for under ASC Subtopic 310-30 for

which the Corporation made the accounting

policy election of maintaining pools

of loans accounted

for under ASC Subtopic

310-30 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

accrete interest

income based

on the effective

interest rate

of the

loan pools

determined at

the time of

adoption of

CECL and

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 amortized cost

of such loans as of

December 31,

2020 was

130.9

million. The

portion of

such loans

contractually past

due 90

days or

more, amounting

to $

26.3

million as

of December

31, 2020

24.7

million

conventional residential

mortgage loans

and $

1.6

million commercial

mortgage loans),

is presented in

the loans past

due 90 days

or more and

still accruing

category in

the table

above.

(3)

These

include

rebooked

loans

which

were

previously

pooled

into

GNMA

securities

amounting

10.7

million

of December

31,

2020.

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

the

repurchase option

are required

to be

reflected on

the financial

statements with

an offsetting

liability.

During the

year ended

December 31,

2020, the

Corporation repurchased,

pursuant to the aforementioned repurchase option, $

55.0

million of loans previously sold to GNMA.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

181

When a

loan

is placed

on 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 $

2.0

million and $

1.9

million for the year ended December 31, 2021 and 2020, respectively.

As of

December 31,

2021, the

recorded investment

on residential

mortgage loans

collateralized by

residential real

estate property

that were in

the process of

foreclosure amounted

to $

85.4

million, including $

43.4

million of loans

insured by the

FHA or guaranteed

the

VA,

and

13.9

million

PCD

loans

acquired

prior

the

adoption,

January

2020,

CECL

and

for

which

the

Corporation made

the accounting

policy election

of maintaining

pools of

loans previously

accounted for

under ASC 310

-30 as

“units

of account.”

The Corporation

commences the

foreclosure process

on residential

real estate

loans when

a borrower

becomes

120

days

delinquent,

in accordance

with the

requirements

of the

CFPB. Foreclosure

procedures

and timelines

vary depending

on whether

the

property is located in a judicial or

non-judicial state. Judicial states

(i.e.,

Puerto Rico, Florida, and the USVI) require

the foreclosure to

be processed

through the

state’s

court while

foreclosure in

non-judicial

states (

i.e.,

the BVI)

is processed

without court

intervention.

Foreclosure timelines

vary according to

local jurisdiction

law and investor

guidelines. Occasionally,

foreclosures may

be delayed due

to, among other reasons, mandatory mediations, bankruptcy,

court delays, and title issues.

The Corporation’s aging of the loan portfolio

held for investment by portfolio classes as of December 31, 2021 is as follows:

As of December 31, 2021

Puerto Rico and Virgin Islands region

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1)(2)(3)

Total Past

Due

Current

Total loans

held for

investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2) (3) (4)

2,355

65,394

67,749

56,903

124,652

Conventional residential mortgage loans

(4)

29,724

76,408

106,132

2,318,789

2,424,921

Commercial loans:

Construction loans

2,664

2,682

40,451

43,133

Commercial mortgage loans

(4)

2,402

436

35,256

38,094

1,664,137

1,702,231

C&I loans

2,007

1,782

23,950

27,739

1,918,858

1,946,597

Consumer loans:

Auto loans

26,020

4,828

6,684

37,532

1,525,249

1,562,781

Finance leases

4,820

713

866

6,399

568,606

575,005

Personal loans

3,299

1,285

1,208

5,792

310,283

316,075

Credit cards

3,158

1,904

2,985

8,047

282,179

290,226

Other consumer loans

1,985

811

1,563

4,359

123,938

128,297

Total loans held for investment

43,709

43,838

216,978

304,525

8,809,393

9,113,918

(1)

Includes nonaccrual loans

and accruing loans

that were contractually

delinquent 90 days

or more (i.e.,

FHA/VA

guaranteed loans

and credit cards).

Credit card loans

continue to

accrue finance charges and fees until charged-off

at 180 days.

(2)

It is the Corporation's

policy to report delinquent

residential mortgage loans

insured by the FHA,

guaranteed by the VA,

and other government-insured

loans as past-due

loans 90

days and still

accruing as opposed

to nonaccrual loans

since the principal repayment

is insured. 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 $

46.6

million of residential mortgage loans insured

by the

FHA that were over 15 months delinquent.

(3)

As of December

31, 2021, includes $

7.2

million of defaulted loans

collateralizing GNMA securities

for which the Corporation

has an unconditional option

(but not an obligation)

to repurchase the defaulted loans.

(4)

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, 2021 amounted

to $

6.1

million, $

63.1

million, and $

0.7

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

182

As of December 31, 2021

Florida region

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1) (2)

Total Past

Due

Current

Total loans

held for

investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2)

121

619

740

Conventional residential mortgage loans

(3)

2,108

7,152

9,260

419,322

428,582

Commercial loans:

Construction loans

95,866

Commercial mortgage loans

465,238

C&I loans

1,012

1,115

939,539

940,654

Consumer loans:

Auto loans

442

121

563

8,196

8,759

Finance leases

Personal loans

107

Credit cards

Other consumer loans

133

144

6,650

6,794

Total loans held for investment

493

2,292

8,418

11,203

1,935,537

1,946,740

(1)

Includes nonaccrual loans and accruing loans that were contractually

delinquent 90 days or more (i.e., FHA/VA

guaranteed loans).

(2)

It is

the Corporation's

policy to

report delinquent

residential mortgage

loans insured

by the

FHA, guaranteed

by the

VA,

and other

government-insured loans

as past-due

loans 90 days

and still accruing

as opposed

to nonaccrual

loans since

the principal repayment

is insured.

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.

residential mortgage loans insured by the

FHA in the

Florida region were over 15 months delinquent as of December

31, 2021.

(3)

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

the

Federal

Reserve

Board,

residential

mortgage,

commercial

mortgage,

and

construction

loans

are

considered

past

due

when

the

borrower

arrears

two

monthly

payments.

Conventional

residential

mortgage

loans

past

due

30-59

days,

but

less

than

two

payments

arrears,

December 31, 2021 amounted to $

2.9

million.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

183

As of December 31, 2021

Total

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1)(2)(3)

Total Past

Due

Current

Total loans held

for investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2) (3) (4)

2,355

65,515

67,870

57,522

125,392

Conventional residential mortgage loans

(4)

31,832

83,560

115,392

2,738,111

2,853,503

Commercial loans:

Construction loans

2,664

2,682

136,317

138,999

Commercial mortgage loans

(4)

2,402

436

35,256

38,094

2,129,375

2,167,469

C&I loans

2,047

1,845

24,962

28,854

2,858,397

2,887,251

Consumer loans:

Auto loans

26,462

4,949

6,684

38,095

1,533,445

1,571,540

Finance leases

4,820

713

866

6,399

568,606

575,005

Personal loans

3,299

1,285

1,208

5,792

310,390

316,182

Credit cards

3,158

1,904

2,985

8,047

282,179

290,226

Other consumer loans

1,996

811

1,696

4,503

130,588

135,091

Total loans held for investment

44,202

46,130

225,396

315,728

10,744,930

11,060,658

(1)

Includes nonaccrual loans

and accruing loans

that were contractually

delinquent 90 days

or more (i.e.,

FHA/VA

guaranteed loans

and credit cards).

Credit card loans

continue to

accrue finance charges and fees until charged-off

at 180 days.

(2)

It is the Corporation's

policy to report

delinquent residential mortgage

loans insured by the

FHA, guaranteed by

the VA,

and other government-insured

loans as past-due

loans 90

days and still

accruing as opposed

to nonaccrual loans

since the principal

repayment is insured.

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

46.6

million of residential mortgage loans

insured by the

FHA that were over 15 months delinquent.

(3)

As of December

31, 2021, includes $

7.2

million of defaulted loans

collateralizing GNMA securities

for which the Corporation

has an unconditional

option (but not an

obligation)

to repurchase the defaulted loans.

(4)

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, 2021 amounted

to $

6.1

million, $

66.0

million, and $

0.7

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

184

The Corporation’s aging of the loan portfolio

held for investment by portfolio classes as of December 31, 2020 is as

follows:

As of December 31, 2020

Puerto Rico and Virgin Islands region

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1)(2)(3)

Total Past

Due

Current

Total loans

held for

investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2) (3) (4)

2,223

98,993

101,216

48,348

149,564

Conventional residential mortgage loans

(4)

61,040

149,779

210,819

2,641,820

2,852,639

Commercial loans:

Construction loans

(4)

12,971

12,990

72,026

85,016

Commercial mortgage loans

(4)

5,071

6,588

32,863

44,522

1,808,702

1,853,224

C&I loans

3,283

10,692

22,566

36,541

2,228,190

2,264,731

Consumer loans:

Auto loans

24,025

5,992

8,664

38,681

1,239,445

1,278,126

Finance leases

5,059

1,086

1,466

7,611

465,378

472,989

Personal loans

4,034

1,981

1,623

7,638

364,373

372,011

Credit cards

3,528

5,842

1,518

10,888

308,936

319,824

Other consumer loans

2,143

993

3,684

6,820

133,162

139,982

Total loans held for investment

47,143

96,456

334,127

477,726

9,310,380

9,788,106

(1)

Includes

nonaccrual

loans

and

accruing loans

that

were contractually

delinquent

days

or more

(i.e., FHA/VA

guaranteed

loans

and credit

cards).

Credit

card loans

continue to accrue finance charges and fees until charged

-off at 180 days.

(2)

It is

the Corporation's

policy to

report delinquent

residential mortgage

loans insured

by the

FHA, guaranteed

by the

VA,

and other

government-insured loans

as past-due

loans 90 days

and still accruing

as opposed

to nonaccrual

loans since

the principal repayment

is insured.

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 $

57.9

million of

residential

mortgage loans insured by the FHA that were over 15 months delinquent.

(3)

As of

December 31,

2020, includes

10.7

million of

defaulted loans

collateralizing GNMA

securities for

which the

Corporation has

an unconditional

option (but

not an

obligation) to repurchase the defaulted loans.

(4)

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

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 December

31, 2020 amounted

to $

5.9

million, $

105.2

million, $

5.0

million, and

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

185

As of December 31, 2020

Florida region

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1) (2)

Total Past

Due

Current

Total loans

held for

investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2) (3)

250

920

1,170

Conventional residential mortgage loans

(3)

3,237

14,422

17,659

500,922

518,581

Commercial loans:

Construction loans

127,484

Commercial mortgage loans

377,378

C&I loans

218

561

779

937,080

937,859

Consumer loans:

Auto loans

710

297

223

1,230

17,068

18,298

Finance leases

Personal loans

157

Credit cards

Other consumer loans

601

659

7,597

8,256

Total loans held for investment

986

3,534

16,057

20,577

1,968,606

1,989,183

(1)

Includes nonaccrual loans and accruing loans that were contractually

delinquent 90 days or more (

i.e

., FHA/VA

guaranteed loans).

(2)

It is

the Corporation's

policy to

report delinquent

residential mortgage

loans insured

by the

FHA, guaranteed

by the

VA,

and other

government-insured loans

as past-due

loans 90 days

and still accruing

as opposed

to nonaccrual

loans since

the principal repayment

is insured.

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.

No residential mortgage loans insured by

the FHA in the

Florida region were over 15 months delinquent as of December

31, 2020.

(3)

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

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 and conventional

residential mortgage loans past

due 30-59 days, but less

than two payments in arrears, as of December 31, 2020 amounted

to $

0.2

million and $

6.6

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

186

As of December 31, 2020

Total

30-59 Days

Past Due

60-89 Days

Past Due

90 days or

more Past

Due

(1)(2)(3)

Total Past

Due

Current

Total loans held

for investment

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed loans

(2) (3) (4)

2,223

99,243

101,466

49,268

150,734

Conventional residential mortgage loans

(4)

64,277

164,201

228,478

3,142,742

3,371,220

Commercial loans:

Construction loans

(4)

12,971

12,990

199,510

212,500

Commercial mortgage loans

(4)

5,071

6,588

32,863

44,522

2,186,080

2,230,602

C&I loans

3,501

10,692

23,127

37,320

3,165,270

3,202,590

Consumer loans:

Auto loans

24,735

6,289

8,887

39,911

1,256,513

1,296,424

Finance leases

5,059

1,086

1,466

7,611

465,378

472,989

Personal loans

4,034

1,981

1,623

7,638

364,530

372,168

Credit cards

3,528

5,842

1,518

10,888

308,936

319,824

Other consumer loans

2,201

993

4,285

7,479

140,759

148,238

Total loans held for investment

48,129

99,990

350,184

498,303

11,278,986

11,777,289

(1)

Includes nonaccrual loans

and accruing loans

that were contractually delinquent

90 days or more

(i.e., FHA/VA

guaranteed loans and

credit cards). Credit card

loans continue

to accrue finance charges and fees until charged

-off at 180 days.

(2)

It is the Corporation's

policy to report delinquent

residential mortgage loans

insured by the FHA,

guaranteed by the VA,

and other government-insured

loans as past-due loans

90 days and

still accruing as

opposed to nonaccrual

loans since the

principal repayment is

insured. 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 $

57.9

million of

residential mortgage

loans

insured by the FHA that were over 15 months delinquent.

(3)

of December

31,

2020,

includes

10.7

million

of defaulted

loans

collateralizing

GNMA securities

for which

the

Corporation

has

unconditional

option

(but not

obligation) to repurchase the defaulted loans.

(4)

According

the

Corporation's

delinquency

policy

and

consistent

with

the

instructions

for

the

preparation

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

arrears,

December

31,

2020

amounted

6.1

million,

111.8

million,

5.0

million,

and

0.1

million,

respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

187

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,

commercial

and industrial,

and construction

loans individually

to classify the

loans’

credit risk. As

mentioned above,

the Corporation periodically

reviews its commercial

and construction loan classifications

to evaluate if they

are properly classified. The frequency

of these reviews

will depend

on the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal

and

annual

review

process

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 securities,

as discussed in Note 5 – Investment Securities, above.

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

the

internal

credit-risk

category

December

31,

2021

and

the

amortized

cost

commercial

and

construction loans by portfolio classes based on the internal credit-risk

category as of December 31, 2020 was as follows:

As of December 31,

2021

Puerto Rico and Virgin Islands region

Term Loans

As of December 31, 2020

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

CONSTRUCTION

Risk Ratings:

Pass

1,401

12,596

19,001

193

4,875

38,066

68,836

Criticized:

Special Mention

765

776

Substandard

841

3,461

4,302

15,404

Doubtful

Loss

Total construction loans

1,401

12,596

19,766

841

193

8,336

43,133

85,016

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

159,093

364,911

216,942

223,817

73,668

356,908

230

1,395,569

1,511,827

Criticized:

Special Mention

10,621

89,409

19,167

118,122

21,944

259,263

292,736

Substandard

2,224

782

2,227

42,166

47,399

48,661

Doubtful

Loss

Total commercial mortgage loans

161,317

375,532

306,351

243,766

194,017

421,018

230

1,702,231

1,853,224

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

307,431

206,560

346,746

180,601

160,389

201,785

449,040

1,852,552

2,155,226

Criticized:

Special Mention

9,549

1,372

836

11,641

9,252

32,650

59,421

Substandard

633

1,470

14,534

2,109

17,170

20,010

5,469

61,395

50,084

Doubtful

Loss

Total commercial and industrial loans

317,613

209,402

362,116

182,710

177,559

233,436

463,761

1,946,597

2,264,731

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

188

As of December 31,

2021

Term Loans

As of December 31, 2020

Florida region

Amortized Cost Basis by Origination Year

(1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

CONSTRUCTION

Risk Ratings:

Pass

31,802

26,209

37,772

95,866

127,484

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

31,802

26,209

37,772

95,866

127,484

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

97,215

77,086

87,332

61,379

30,054

33,078

18,160

404,304

291,627

Criticized:

Special Mention

7,126

13,601

6,782

5,353

27,756

60,618

85,427

Substandard

316

324

Doubtful

Loss

Total commercial mortgage loans

97,215

84,212

100,933

68,161

35,407

61,150

18,160

465,238

377,378

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

239,017

121,815

207,483

74,440

59,182

21,138

103,748

826,823

823,124

Criticized:

Special Mention

27,207

4,770

17,969

49,946

73,974

Substandard

24,444

34,476

4,630

335

63,885

40,761

Doubtful

Loss

Total commercial and industrial loans

239,017

146,259

269,166

74,440

59,182

30,538

122,052

940,654

937,859

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

189

As of December 31,

2021

Total

Term Loans

As of December 31, 2020

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

CONSTRUCTION

Risk Ratings:

Pass

33,203

38,805

19,084

37,772

193

4,875

133,932

196,320

Criticized:

Special Mention

765

776

Substandard

841

3,461

4,302

15,404

Doubtful

Loss

Total construction loans

33,203

38,805

19,849

38,613

193

8,336

138,999

212,500

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

256,308

441,997

304,274

285,196

103,722

389,986

18,390

1,799,873

1,803,454

Criticized:

Special Mention

17,747

103,010

25,949

123,475

49,700

319,881

378,163

Substandard

2,224

782

2,227

42,482

47,715

48,985

Doubtful

Loss

Total commercial mortgage loans

258,532

459,744

407,284

311,927

229,424

482,168

18,390

2,167,469

2,230,602

COMMERCIAL AND INDUSTRIAL

Risk Ratings:

Pass

546,448

328,375

554,229

255,041

219,571

222,923

552,788

2,679,375

2,978,350

Criticized:

Special Mention

9,549

1,372

28,043

16,411

27,221

82,596

133,395

Substandard

633

25,914

49,010

2,109

17,170

24,640

5,804

125,280

90,845

Doubtful

Loss

Total commercial and industrial loans

556,630

355,661

631,282

257,150

236,741

263,974

585,813

2,887,251

3,202,590

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

190

The

following

table

presents

the

amortized

cost

residential

mortgage

loans

origination

year

based

accrual

status

December 31, 2021, and the amortized cost of residential mortgage loans by accrual

status of December 31, 2020:

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Puerto Rico and Virgin Islands Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

362

914

2,051

3,769

117,556

124,652

149,564

Non-Performing

Total FHA/VA

government-guaranteed loans

362

914

2,051

3,769

117,556

124,652

149,564

Conventional residential mortgage loans:

Accrual Status:

Performing

79,765

34,742

58,650

85,739

61,393

2,056,657

2,376,946

2,741,694

Non-Performing

114

279

142

47,440

47,975

110,945

Total conventional residential mortgage loans

79,765

34,742

58,764

86,018

61,535

2,104,097

2,424,921

2,852,639

Total:

Accrual Status:

Performing

79,765

35,104

59,564

87,790

65,162

2,174,213

2,501,598

2,891,258

Non-Performing

114

279

142

47,440

47,975

110,945

Total residential mortgage loans in Puerto Rico and

Virgin Islands Region

79,765

35,104

59,678

88,069

65,304

2,221,653

2,549,573

3,002,203

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

191

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

740

1,170

Non-Performing

Total FHA/VA

government-guaranteed loans

740

1,170

Conventional residential mortgage loans:

Accrual Status:

Performing

53,394

37,600

40,557

51,870

58,066

179,943

421,430

504,159

Non-Performing

293

214

6,645

7,152

14,422

Total conventional residential mortgage loans

53,394

37,600

40,850

51,870

58,280

186,588

428,582

518,581

Total:

Accrual Status:

Performing

53,394

37,600

40,557

51,870

58,066

180,683

422,170

505,329

Non-Performing

293

214

6,645

7,152

14,422

Total residential mortgage loans in Florida region

53,394

37,600

40,850

51,870

58,280

187,328

429,322

519,751

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

192

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

362

914

2,051

3,769

118,296

125,392

150,734

Non-Performing

Total FHA/VA

government-guaranteed loans

362

914

2,051

3,769

118,296

125,392

150,734

Conventional residential mortgage loans:

Accrual Status:

Performing

133,159

72,342

99,207

137,609

119,459

2,236,600

2,798,376

3,245,853

Non-Performing

407

279

356

54,085

55,127

125,367

Total conventional residential mortgage loans

133,159

72,342

99,614

137,888

119,815

2,290,685

2,853,503

3,371,220

Total:

Accrual Status:

Performing

133,159

72,704

100,121

139,660

123,228

2,354,896

2,923,768

3,396,587

Non-Performing

407

279

356

54,085

55,127

125,367

Total residential mortgage loans

133,159

72,704

100,528

139,939

123,584

2,408,981

2,978,895

3,521,954

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

193

The following table

presents the amortized

cost of consumer

loans by origination

year based on

accrual status as of

December 31,

2021, and the amortized cost of consumer loans by accrual status of December 31,

2020:

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Puerto Rico and Virgin Islands Regions:

Auto loans:

Accrual Status:

Performing

648,111

350,581

302,460

159,021

65,836

30,088

1,556,097

1,269,462

Non-Performing

873

830

1,663

1,175

851

1,292

6,684

8,664

Total auto loans

648,984

351,411

304,123

160,196

66,687

31,380

1,562,781

1,278,126

Finance leases:

Accrual Status:

Performing

229,456

114,945

116,089

76,144

25,516

11,989

574,139

471,523

Non-Performing

243

269

207

866

1,466

Total finance leases

229,456

115,029

116,332

76,413

25,579

12,196

575,005

472,989

Personal loans:

Accrual Status:

Performing

85,614

53,074

96,890

44,969

20,767

13,553

314,867

370,388

Non-Performing

153

483

226

128

187

1,208

1,623

Total personal loans

85,645

53,227

97,373

45,195

20,895

13,740

316,075

372,011

Credit cards:

Accrual Status:

Performing

290,226

319,824

Non-Performing

Total credit cards

290,226

319,824

Other consumer loans:

Accrual Status:

Performing

56,338

18,128

25,602

8,594

3,325

6,066

8,681

126,734

136,300

Non-Performing

192

111

220

761

201

1,563

3,682

Total other consumer loans

56,530

18,239

25,822

8,643

3,354

6,827

8,882

128,297

139,982

Total:

Performing

1,019,519

536,728

541,041

288,728

115,444

61,696

298,907

2,862,063

2,567,497

Non-Performing

1,096

1,178

2,609

1,719

1,071

2,447

201

10,321

15,435

Total consumer loans in Puerto Rico and Virgin

Islands region

1,020,615

537,906

543,650

290,447

116,515

64,143

299,108

2,872,384

2,582,932

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

194

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Florida Region:

Auto loans:

Accrual Status:

Performing

642

4,748

2,455

914

8,759

18,075

Non-Performing

223

Total auto loans

642

4,748

2,455

914

8,759

18,298

Finance leases:

Accrual Status:

Performing

Non-Performing

Total finance leases

Personal loans:

Accrual Status:

Performing

107

157

Non-Performing

Total personal loans

107

157

Credit cards:

Accrual Status:

Performing

Non-Performing

Total credit cards

Other consumer loans:

Accrual Status:

Performing

239

482

3,096

2,733

6,661

7,655

Non-Performing

110

133

601

Total other consumer loans

239

482

3,119

2,843

6,794

8,256

Total:

Performing

309

506

655

4,788

2,526

4,010

2,733

15,527

25,887

Non-Performing

110

133

824

Total consumer loans in Florida region

309

506

655

4,788

2,526

4,033

2,843

15,660

26,711

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

195

As of December 31,

2021

As of

December 31,

2020

Term Loans

Amortized Cost Basis by Origination Year (1)

(In thousands)

2021

2020

2019

2018

2017

Prior

Revolving

Loans

Amortized

Cost Basis

Total

Total:

Auto loans:

Accrual Status:

Performing

648,111

350,581

303,102

163,769

68,291

31,002

1,564,856

1,287,537

Non-Performing

873

830

1,663

1,175

851

1,292

6,684

8,887

Total auto loans

648,984

351,411

304,765

164,944

69,142

32,294

1,571,540

1,296,424

Finance leases:

Accrual Status:

Performing

229,456

114,945

116,089

76,144

25,516

11,989

574,139

471,523

Non-Performing

243

269

207

866

1,466

Total finance leases

229,456

115,029

116,332

76,413

25,579

12,196

575,005

472,989

Personal loans:

Accrual Status:

Performing

85,684

53,098

96,903

44,969

20,767

13,553

314,974

370,545

Non-Performing

153

483

226

128

187

1,208

1,623

Total personal loans

85,715

53,251

97,386

45,195

20,895

13,740

316,182

372,168

Credit cards:

Accrual Status:

Performing

290,226

319,824

Non-Performing

Total credit cards

290,226

319,824

Other consumer loans:

Accrual Status:

Performing

56,577

18,610

25,602

8,634

3,396

9,162

11,414

133,395

143,955

Non-Performing

192

111

220

784

311

1,696

4,283

Total other consumer loans

56,769

18,721

25,822

8,683

3,425

9,946

11,725

135,091

148,238

Total:

Performing

1,019,828

537,234

541,696

293,516

117,970

65,706

301,640

2,877,590

2,593,384

Non-Performing

1,096

1,178

2,609

1,719

1,071

2,470

311

10,454

16,259

Total consumer loans

1,020,924

538,412

544,305

295,235

119,041

68,176

301,951

2,888,044

2,609,643

(1)

Excludes accrued interest receivable.

Accrued interest

receivable on

loans totaled

48.1

million as of

December 31,

2021 ($

57.2

million as of

December 31,

2020), and

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)

196

The following tables present information about collateral dependent loans

that were individually evaluated for purposes of

determining the ACL as of QtrEndCYYear

and 2020:

As of December 31, 2021

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Puerto Rico and Virgin Islands region

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

48,398

3,731

781

49,179

3,731

Commercial loans:

Construction loans

1,797

Commercial mortgage loans

9,908

1,152

54,096

64,004

1,152

C&I loans

5,781

670

33,575

39,356

670

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

782

64,947

5,652

90,249

155,196

5,652

As of December 31, 2021

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Florida region

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

3,373

235

3,373

235

Commercial loans:

Construction loans

Commercial mortgage loans

2,265

C&I loans

468

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

3,373

235

2,733

6,106

235

As of December 31, 2021

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Total

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

51,771

3,966

781

52,552

3,966

Commercial loans:

Construction loans

1,797

Commercial mortgage loans

9,908

1,152

56,361

66,269

1,152

C&I loans

5,781

670

34,043

39,824

670

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

782

68,320

5,887

92,982

161,302

5,887

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

197

As of December 31, 2020

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Puerto Rico and Virgin Islands region

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

100,950

9,582

7,145

108,095

9,582

Commercial loans:

Construction loans

6,036

500

6,125

12,161

500

Commercial mortgage loans

17,882

1,923

49,241

67,123

1,923

C&I loans

21,933

880

24,728

46,661

880

Consumer loans:

Auto loans

Finance leases

Personal loans

146

Credit cards

Other consumer loans

857

113

857

113

147,804

13,000

87,239

235,043

13,000

As of December 31, 2020

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Florida region

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

6,224

988

2,400

8,624

988

Commercial loans:

Construction loans

Commercial mortgage loans

2,327

C&I loans

561

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

248

6,472

1,071

5,288

11,760

1,071

As of December 31, 2020

Collateral Dependent Loans - With

Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Total

Amortized Cost

Related Allowance

Amortized Cost

Related Allowance

(In thousands)

Residential mortgage loans:

FHA/VA government

-guaranteed loans

Conventional residential mortgage loans

107,174

10,570

9,545

116,719

10,570

Commercial loans:

Construction loans

6,036

500

6,125

12,161

500

Commercial mortgage loans

17,882

1,923

51,568

69,450

1,923

C&I loans

21,933

880

25,289

47,222

880

Consumer loans:

Auto loans

Finance leases

Personal loans

146

Credit cards

Other consumer loans

1,105

196

1,105

196

154,276

14,071

92,527

246,803

14,071

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

198

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans consisted

single-family

residential

properties,

and for

commercial and

construction loans

consisted primarily

of office

buildings, multifamily

residential properties,

and

retail establishments.

The weighted-average

loan-to-value coverage

for collateral

dependent loans

as of December

31, 2021 was

compared

December

31,

2020.

There

were

significant

changes

the

extent

which

collateral

secures

the

Corporation’s collateral dependent

financial assets during the year ended December 31, 2021.

PCD and PCI Loans

Prior to

the adoption

of ASC

326, the

Corporation accounted

for PCI

loans and

income recognition

thereunder in

accordance with

ASC

Subtopic

310-30.

PCI

loans

are

loans

that

the

date

their

acquisition

have

experienced

deterioration

credit

quality

between origination and

acquisition and for which

it was probable at acquisition

that not all contractually

required payments would be

collected. Following the adoption of ASC 326 on January 1, 2020, the

Corporation analyzes acquired loans for more-than-insignificant

deterioration in credit

quality since their

origination in accordance

with ASC 326.

Such loans are

classified as PCD

loans. Please also

see

Note

–

Nature

Business

and

Summary

Significant

Accounting

Policies,

above,

for

information

concerning

the

Corporation’s accounting

for PCD loans.

Prior to

the adoption

of ASC 326,

the Corporation

identified the

amount by

which the undiscounted

expected future

cash flows

PCI loans exceeded the

estimated fair value of

the loan on the date

of acquisition as the “accretable

yield,” representing the

amount of

estimated

future

interest

income

the

loan.

The

amount

accretable

yield

was

re-measured

each

financial

reporting

date,

representing

the difference

between the

remaining undiscounted

expected cash

flows and

the

then-current

carrying value

of the

PCI

loan.

Following

the

adoption

ASC

326,

the

Corporation

accounts

for

interest

income

PCD

loans

using

the

interest

method,

whereby any purchase

non-credit discounts or

premiums are accreted

or amortized into

interest income as

an adjustment of

the loan’s

yield.

Upon the

adoption of

ASC 326,

acquired loans

classified as

PCD are

recorded at

an initial

amortized cost,

which is

comprised of

the purchase price of the loans (or initial fair value)

and the initial ACL determined for the loans, which

represents the fair value credit

discount, and any resulting premium or discount related to factors other

than credit.

Purchases and Sales of Loans

During the years

ended December 31,

2021, 2020, and

2019, the Corporation

purchased C&I loan

participations of $

174.7

million,

40.0

million,

and

20.0

million,

respectively.

addition,

during

the

year

ended

December

31,

2020,

the

Corporation

purchased

0.8

million of residential mortgage

loans as part of

a internal program to

purchase residential mortgage

loans from mortgage

bankers

Puerto

Rico,

compared

purchases

18.8

million

2019.

general,

the

loans

purchased

from

mortgage

bankers

were

conforming residential

mortgage loans.

Purchases of

conforming residential

mortgage loans

provide the

Corporation the

flexibility to

retain or

sell the loans,

including through

securitization transactions,

depending upon

the Corporation’s

interest rate risk

management

strategies. When the Corporation sells such loans, it generally keeps the right

to service the loans.

In the ordinary

course of business,

the Corporation

sells residential mortgage

loans (originated or

purchased) to GNMA

and GSEs,

such

as FNMA

and

FHLMC,

which

generally

securitize

the transferred

loans into

MBS for

sale into

the secondary

market.

During

2021, the Corporation sold

191.4

million of FHA/VA

mortgage loans to

GNMA, which packaged them

into MBS, compared to

sales

of $

221.5

million and

235.3

million in

2020 and

2019, respectively.

Also, during

2021, the

Corporation sold

approximately $

328.2

million of

performing residential

mortgage loans

to FNMA

and FHLMC,

compared to

sales of

254.7

million and

138.7

million in

the

years

ended

December

31,

2020

and

2019,

respectively.

The

Corporation’s

continuing

involvement

with

the

loans

that

sells

consists

primarily

servicing

the

loans.

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

sold to

GNMA, the

Corporation holds

an option

to repurchase

individual delinquent

loans issued

on or

after January

2003 when

the borrower

fails to

make any

payment for

three consecutive

months. This

option gives

the Corporation

the ability,

but

not the obligation, to repurchase the delinquent loans at par without prior

authorization from GNMA.

Under ASC Topic

860, “Transfer

and Servicing,”

once the Corporation

has the unilateral

ability to repurchase

the delinquent

loan,

it is considered

to have

regained effective

control over

the loan

and is

required to

recognize the

loan and

a corresponding

repurchase

liability

the

balance

sheet

regardless

the

Corporation’s

intent

repurchase

the

loan.

December

31,

2021

and

2020,

rebooked

GNMA delinquent

loans that

were included

in the

residential mortgage

loan portfolio

amounted to

7.2

million and

10.7

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

199

During

the

years

ended

December

31,

2021,

2020,

and

2019,

the

Corporation

repurchased,

pursuant

the

aforementioned

repurchase

option,

1.1

million,

55.0

million,

and

33.5

million,

respectively,

loans

previously

sold

GNMA.

The

principal

balance

of these

loans is

fully

guaranteed

and

the risk

loss related

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

FHA,

which

are

computed

pre-determined

debenture

rate.

Repurchases

GNMA

loans

allow

the

Corporation,

among other things, to

maintain acceptable delinquency

rates on outstanding GNMA

pools and remain as a

seller and servicer in

good

standing with GNMA.

On May 14, 2020,

in response to the

national emergency

declared by the

U.S. President related

to the COVID-

19 pandemic,

GNMA announced

a temporary

relief that

excludes any

new borrower

delinquencies, occurring

on or

after April

2020,

from

the

calculation

delinquency

and

default

ratios

established

the

GNMA

MBS

guide.

This

exclusion

was

extended

automatically

issuers

that

were

compliant

with

GNMA

delinquency

rate

thresholds

reflected

their

April

2020

investor

accounting report,

reflecting March

2020 servicing

data. The

exemptions and

delinquent loan

exclusions will

automatically expire

July

31,

2022,

unless

earlier

rescinded

extended

GNMA,

the

end

the

national

emergency,

whichever

comes

earlier.

Historically,

losses

for

violations

representations

and

warranties,

and

optional

repurchases

GNMA

delinquent

loans,

have

been immaterial and no provision has been made at the time of sale.

Loan

sales

FNMA

and

FHLMC

are

without

recourse

relation

the

future

performance

the

loans.

The

Corporation

repurchased at par

loans previously sold

to FNMA and

FHLMC in the

amount of $

0.3

million, $

thousand, and $

0.3

million during

the years

ended December

31, 2021,

2020, and

2019, respectively.

The Corporation’s

risk of

loss with

respect to

these loans

is also

minimal as these repurchased loans are generally performing loans with documentation

deficiencies.

The

Corporation

participates

the

Main

Street

Lending

program

established

the

FED

under

the

CARES

Act

2020,

amended,

support

lending

small

and

medium-sized

businesses

that

were

sound

financial

condition

before

the

onset

the

COVID-19 pandemic.

Under this

program, the

Corporation originates

loans to

borrowers meeting

the terms

and requirements

of the

program, including requirements as

to eligibility,

use of proceeds and

priority, and

sells a 95% participation interest

in these loans to a

special purpose

vehicle

(the “Main

Street SPV”)

organized

by the

FED to

purchase the

participation

interests from

eligible lenders,

including the

Corporation. During

the fourth

quarter of

2020, the

Corporation originated

loans under

this program

totaling $

184.4

million in principal amount and sold participation interests totaling $

175.1

million to the Main Street SPV.

During

the

year

ended

December

31,

2021,

four

criticized

commercial

loan

participations

the

Florida

region

totaling

43.1

million were sold. In addition, the Corporation sold a $

3.1

million construction loan in the Puerto Rico region.

In addition,

during the

third quarter

of 2021,

the Corporation

sold $

52.5

million of

non-performing residential

mortgage loans

and

servicing

advances

2.0

million.

The

Corporation

received

31.5

million,

book

value

before

reserves,

for

the

54.5

million of non-performing

loans and related

servicing advances.

Approximately $

20.9

million of reserves

had been allocated

the loans

sold. The

transaction resulted

in total

net charge-offs

of $

23.1

million and

an additional

loss of

approximately $

2.1

million

recorded as charge to the provision for credit losses in the third

quarter of 2021.

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

11.1

billion as

of December 31,

2021, credit

risk concentration

was approximately

% in

Puerto Rico,

% in

the U.S.,

and

% in

the USVI and BVI.

As of

December

31,

2021,

the Corporation

had

178.4

million

outstanding

loans

extended

the Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

201.3

million

December

31,

2020.

December

31,

2021,

approximately

100.3

million consisted

of loans

extended

to municipalities

in Puerto

Rico that

are general

obligations supported

assigned

property

tax

revenues,

and

32.2

million

municipal

special

obligation

bonds.

The

vast

majority

revenues

the

municipalities included in the

Corporation’s loan

portfolio are independent of

budgetary subsidies provided by

the Puerto Rico central

government.

These

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required

satisfy

the

payment

all of

their respective

general

obligation

bonds and

notes. Late

in 2015,

the

Government

Development

Bank for

Puerto

Rico (“GDB”)

and the

Municipal Revenue

Collection Center

(“CRIM”) signed

and perfected

a deed

of trust.

Through this

deed, the

Puerto Rico Fiscal

Agency and

Financial Advisory

Authority,

as fiduciary,

is bound to

keep the CRIM

funds separate

from any other

deposits and

must distribute

the funds

pursuant

to applicable

law.

The CRIM

funds

are deposited

at another

commercial depository

financial

institution

Puerto

Rico.

addition

loans

extended

municipalities,

the

Corporation’s

exposure

the

Puerto

Rico

government as of December 31, 2021 included $

12.5

million in loans granted to an affiliate of PREPA

and $

33.4

million in loans to an

agency of the Puerto Rico central government.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

200

addition,

December

31,

2021,

the

Corporation

had

92.8

million

exposure

residential

mortgage

loans

that

are

guaranteed

by the

PRHFA,

a government

instrumentality that

has been

designated as

a covered

entity under

PROMESA (December

31,

2020

106.5

million).

Residential

mortgage

loans guaranteed

by the

PRHFA

are

secured by

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,

2019,

the

PRHFA’s

mortgage

loans

insurance

program

covered

loans

aggregate

amount

approximately

$557

million.

The

regulations

adopted

the

PRHFA,

requires

the

establishment

adequate

reserves to

guarantee

the solvency

of the

mortgage loans

insurance program

As of

June 30,

2019, the

most recent

date as

of which

information is available, the

PRHFA had

an unrestricted deficit of

approximately $5.2 million with

respect to required reserves for

the

mortgage loan insurance program.

The

Corporation

cannot

predict

this

time

the

ultimate

effect

the

Puerto

Rico

economy,

the

Corporation’s

clients,

and

the

Corporation’s

financial

condition

and

results

operations

the

financial

situation

the

Commonwealth

Puerto

Rico,

the

uncertainty

about

the

ultimate

effect

the

Puerto

Rico’s

government

debt

adjustment

plan

recently

approved

the

U.S.

District

Court

for

the District

Puerto

Rico,

and

the various

legislative

and

other

measures

adopted

and

be adopted

by the

Puerto

Rico

government and the PROMESA oversight board in response to such fiscal situation.

The

Corporation

also

has

credit

exposure

USVI

government

entities.

December

31,

2021,

the

Corporation

had

39.2

million in

loans to

USVI government

public corporations,

compared to

61.8

million as

of December

31, 2020.

As of

December 31,

2021,

all

loans

were

currently

performing

and

date

principal

and

interest

payments.

The

USVI

has

been

experiencing

number of fiscal

and economic challenges

that could adversely

affect the

ability of its

public corporations

to service their

outstanding

debt obligations.

Troubled Debt

Restructurings

The

Corporation

provides

homeownership

preservation

assistance

its

customers

through

loss

mitigation

program

Puerto

Rico.

Depending

upon

the nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this program,

well as other restructurings

of individual C&I, commercial mortgage,

construction, and residential mortgage

loans, fit the definition of

TDR.

restructuring

debt

constitutes

TDR

the

creditor,

for

economic

legal

reasons

the

debtor’s

financial

difficulties,

grants a

concession to

the debtor

that it

would not

otherwise consider.

Modifications involve

changes in

one or

more of

the

loan

terms

that

bring

defaulted

loan

current

and

provide

sustainable

affordability.

Changes

may

include,

among

others,

the

extension of the

maturity of the

loan and modifications

of the loan

rate. As of

December 31, 2021,

the Corporation’s

total TDR loans

held

for

investment

414.7

million

consisted

of $

258.6

million

residential

mortgage

loans,

70.4

million

of C&I

loans,

68.8

million of

commercial mortgage

loans, $

2.3

million of

construction loans,

and $

14.6

million of

consumer loans.

As of December

31,

2021 and 2020, the Corporation has committed to lend up to an additional

thousand and $

5.0

million, respectively,

on these loans.

The Corporation’s

loss mitigation

programs for

residential mortgage

and consumer

loans can

provide for

one or

a combination

the following:

movement of

interest past

due

to the

end of

the loan;

extension of

the loan

term; deferral

of principal

payments;

and

reduction

interest

rates

either

permanently

for

period

six

years

(increasing

back

step-up

rates).

Additionally,

certain cases, the restructuring

may provide for the

forgiveness of contractually

-due principal or interest.

Uncollected interest is added

to the

principal at

the end

of the

loan term

at the

time of

the restructuring

and not

recognized as

income until

collected or

when the

loan

is paid

off.

These programs

are available

only

to those

borrowers

who have

defaulted,

or are

likely to

default, permanently

their loans

and would

lose their

homes in

a foreclosure

action absent

some lender

concession. Nevertheless,

if the

Corporation is

not

reasonably assured that the borrower will comply with its contractual commitment,

the property is foreclosed.

Prior

permanently

modifying

loan,

the

Corporation

may

enter

into

trial

modifications

with

certain

borrowers.

Trial

modifications

generally

represent

six-month

period

during

which

the

borrower

makes

monthly

payments

under

the

anticipated

modified payment

terms prior

to a

formal modification.

Upon successful

completion of

a trial

modification,

the Corporation

and the

borrower

enter

into

permanent

modification.

TDR

loans

that

are

participating

that

have

been

offered

binding

trial

modification

are

classified

TDRs

when

the

trial

offer

made

and

continue

classified

TDRs

regardless

whether

the

borrower

enters

into

permanent

modification.

December

31,

2021,

the

Corporation

included

TDRs

0.7

million

residential mortgage loans that were participating in or had been offered

a trial modification.

For

the

commercial

real

estate,

commercial

and

industrial,

and

construction

loan

portfolios,

the

time

restructuring,

the

Corporation

determines,

loan-by-loan

basis,

whether

concession

was

granted

for

economic

legal

reasons

the

borrower’s financial difficulty.

Concessions granted for loans in

these portfolios could include:

reductions in interest rates

to rates that

are considered

below market;

extension of

repayment schedules

and maturity

dates beyond

the original

contractual terms;

waivers of

borrower

covenants;

forgiveness

principal

interest;

other

contractual

changes

that

are

considered

concessions.

The

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

201

Corporation

mitigates loan

defaults for

these loan

portfolios through

its collection

function. The

function’s

objective

is to

minimize

both

early

stage

delinquencies

and

losses

upon

default

loans

these

portfolios.

the

case

the

commercial

and

industrial,

commercial mortgage,

and construction

loan portfolios,

the Corporation’s

Special Asset

Group (“SAG”)

focuses on

strategies for

the

accelerated reduction of non-performing assets through note sales, short

sales, loss mitigation programs, and sales of OREO.

addition,

the

Corporation

extends,

renews,

and

restructures

loans

with

satisfactory

credit

profiles.

Many

commercial

loan

facilities are structured

as lines of credit,

which generally have

one-year terms and,

therefore, require annual

renewals. Other facilities

may be

restructured or

extended from

time to

time based

upon changes

in the

borrower’s business

needs, use

of funds, and

timing of

completion

projects,

and

other

factors.

the

borrower

not

deemed

have

financial

difficulties,

extensions,

renewals,

and

restructurings are done in the normal course of business

and not considered to be concessions, and the loans

continue to be recorded as

performing.

Under the provisions

of the CARES

Act of 2020,

as amended by

the Consolidated Appropriations

Act, 2021 enacted

on December

27, 2020,

financial institutions

may permit

loan modifications

for borrowers

affected by

the COVID-19

pandemic through

January 1,

2022 without

categorizing the modifications

as TDRs, as

long as the

loan meets certain

conditions, including

the requirement that

the

loan

was

not

than

days

past

due

December

31,

2019.

December

31,

2021,

commercial

loans

totaling

342.4

million, or

3.10

% of

the balance

of the

total loan

portfolio held

for investment,

were modified

under the

aforementioned provisions.

These

modifications

commercial

loans

were

primarily

borrowers

industries

with

longer

expected

recovery

times,

mostly

hospitality,

retail

and

entertainment

industries,

and

consisted

providing

deferrals

principal

payments

and

interest

rate

adjustments

for

extended

period

time,

typically

months.

With

respect

temporary

deferred

repayment

arrangements

established in 2020

to assist borrowers

affected by

the COVID-19

pandemic, as of

December 31, 2021,

all loans previously

modified

under such programs have completed their deferral period.

Selected information on the Corporation’s

TDR loans held for investment based on the amortized cost by loan class and modification

type is summarized in the following tables as of the indicated dates:

As of December 31,

2021

Puerto Rico and Virgin Islands region

Interest rate

below market

Maturity or

term

extension

Combination

of reduction

in interest

rate and

extension of

maturity

Forgiveness

of principal

and/or

interest

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

15,800

10,265

176,615

220

51,616

254,516

Construction loans

869

1,374

2,303

Commercial mortgage loans

1,421

718

41,480

16,041

6,908

66,568

C&I loans

218

2,401

17,319

16,765

33,302

70,005

Consumer loans:

Auto loans

186

2,561

4,503

7,250

Finance leases

258

715

975

Personal loans

329

596

974

Credit cards

2,574

2,583

Other consumer loans

892

816

282

122

274

2,386

Total TDRs in Puerto Rico and Virgin Islands region

18,390

15,263

242,792

131

33,026

97,958

407,560

(1)

Other concessions granted by the Corporation include deferral

of principal and/or interest payments for a period longer than

what would be considered insignificant, payment plans

under judicial

stipulation, or a combination of two or more of the concessions

listed in 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

202

As of December 31,

2021

Florida region

Interest rate

below market

Maturity or

term

extension

Combination

of reduction

in interest

rate and

extension of

maturity

Forgiveness

of principal

and/or

interest

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

603

897

2,557

4,057

Construction loans

Commercial mortgage loans

812

1,453

2,265

C&I loans

282

133

415

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

332

407

Total TDRs in Florida region

603

2,022

4,088

465

7,178

(1)

Other concessions granted by the Corporation include deferral

of principal and/or interest payments for a period longer than what

would be considered insignificant, payment plans under judicial

stipulation, or a combination of two or more of the concessions

listed in 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.

As of December 31,

2021

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

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

16,403

11,162

179,172

220

51,616

258,573

Construction loans

869

1,374

2,303

Commercial mortgage loans

1,421

1,530

42,933

16,041

6,908

68,833

C&I loans

218

2,683

17,319

16,765

33,435

70,420

Consumer loans:

Auto loans

217

2,564

4,503

7,284

Finance leases

258

715

975

Personal loans

329

596

974

Credit cards

2,574

2,583

Other consumer loans

892

816

357

122

606

2,793

Total TDRs

18,993

17,285

246,880

131

33,026

98,423

414,738

(1)

Other concessions granted by the

Corporation include deferral of principal and/or

interest payments for a period

longer than what would be considered

insignificant, payment plans under

judicial

stipulation, or a combination of two or more

of the concessions listed in 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

203

As of December 31,

2020

Puerto Rico and Virgin Islands region

Interest rate

below market

Maturity or

term

extension

Combination

of reduction

in interest

rate and

extension of

maturity

Forgiveness

of principal

and/or

interest

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

17,740

11,125

211,155

223

66,694

306,937

Construction loans

1,700

1,516

186

3,423

Commercial mortgage loans

1,491

1,380

35,714

16,473

6,765

61,823

C&I loans

238

12,267

14,119

17,890

35,744

80,258

Consumer loans:

Auto loans

474

4,863

6,112

11,449

Finance leases

588

541

1,144

Personal loans

571

286

924

Credit cards

2,342

2,358

Other consumer loans

1,602

991

572

193

343

3,701

Total TDRs in Puerto Rico and Virgin Islands region

21,150

27,961

271,440

209

34,586

116,671

472,017

(1)

Other concessions granted by the

Corporation include deferral of principal and/or

interest payments for a period

longer than what would be considered

insignificant, payment plans under

judicial

stipulation, or a combination of two or more

of the concessions listed in 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.

As of December 31,

2020

Florida region

Interest rate

below market

Maturity or

term

extension

Combination

of reduction

in interest

rate and

extension of

maturity

Forgiveness

of principal

and/or

interest

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

989

401

2,257

3,669

Construction loans

Commercial mortgage loans

834

1,781

2,615

C&I loans

224

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

172

392

601

Total TDRs in Florida region

1,026

1,290

4,225

638

7,179

(1)

Other concessions granted by the Corporation include deferral

of principal and/or interest payments for a period longer than what

would be considered insignificant, payment plans under judicial

stipulation, or a combination of two or more of the concessions

listed in 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

204

As of December 31,

2020

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

Forbearance

Agreement

Other

(1)

Total

(In thousands)

TDRs:

Conventional residential mortgage loans

18,729

11,526

213,412

223

66,716

310,606

Construction loans

1,700

1,516

186

3,423

Commercial mortgage loans

1,491

2,214

37,495

16,473

6,765

64,438

C&I loans

238

12,267

14,119

17,890

35,968

80,482

Consumer loans:

Auto loans

529

4,878

6,112

11,519

Finance leases

588

541

1,144

Personal loans

571

286

924

Credit cards

2,342

2,358

Other consumer loans

1,639

991

744

193

735

4,302

Total TDRs

22,176

29,251

275,665

209

34,586

117,309

479,196

(1)

Other concessions granted by the Corporation include deferral

of principal and/or interest payments for a period longer than what

would be considered insignificant, payment plans under judicial

stipulation, or a combination of two or more of the concessions

listed in 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.

The following table presents the Corporation’s

TDR loans held for investment activity for the indicated periods:

Year

Ended

Year

Ended

Year

Ended

December 31,

2021

December 31,

2020

December 31, 2019

(In thousands)

Beginning balance of TDRs

479,196

487,997

582,647

New TDRs

34,216

36,319

63,433

Increases to existing TDRs

6,009

1,840

Charge-offs post-modification

(1)

(17,434)

(11,122)

(10,342)

Sales, net of charge-offs

(17,492)

Foreclosures

(3,117)

(2,015)

(12,872)

Removed from the TDR classification

(8,001)

Paid-off, partial payments and other

(2)

(52,724)

(37,992)

(136,709)

Ending balance of TDRs

414,738

479,196

487,997

(1)

For the year ended December

31, 2021, includes charge-offs

totaling $

12.5

million related to $

29.9

million of residential mortgage

TDR loans that were part

of the $

52.5

million bulk sale

of nonaccrual residential mortgage loans.

(2)

For the year ended December 31, 2019, includes the payoff

of a $

92.4

million commercial mortgage loan.

TDR

loans

are

classified

either

accrual

nonaccrual

loans.

Loans

accrual

status

may

remain

accrual

status

when

their

contractual terms

have been

modified in

a TDR

if the

loans had

demonstrated performance

prior to

the restructuring

and payment

full

under

the

restructured

terms

expected.

Otherwise,

loan

nonaccrual

status

and

restructured

TDR

will

remain

nonaccrual

status until

the borrower

has proven

the ability

to perform

under

the modified

structure, generally

for a

minimum

six

months

, and there

is evidence that

such payments can,

and are likely

to, continue as

agreed. Performance

prior to the

restructuring, or

significant events that coincide with the restructuring,

are included in assessing whether the borrower can

meet the new terms and may

result

the

loan

being

returned

accrual

status

the

time

the

restructuring

after

shorter

performance

period.

the

borrower’s

ability

meet

the

revised

payment

schedule

uncertain,

the

loan

remains

classified

nonaccrual

loan.

Loan

modifications

increase the

Corporation’s

interest income

by returning

a nonaccrual

loan to

performing

status, if

applicable,

increase

cash flows

by providing

for payments

to be

made by

the borrower,

and limit

increases in

foreclosure and

OREO costs.

A TDR

loan

that specifies an interest

rate that at the time

of the restructuring is

greater than or equal

to the rate the Corporation

is willing to accept

for a new loan with

comparable risk may not be

reported as a TDR loan in

the calendar years subsequent

to the restructuring, if

it is in

compliance with

its modified

terms. During

the year

ended December

31, 2021,

the Corporation

removed $

8.0

million in

loans from

the TDR classification as the borrower was no longer experiencing

financial difficulties, the outstanding loans are at market

terms, and

did not

contain any

concession to

the borrowers.

The Corporation

did not remove

any loans from

the TDR classification

during 2020

and 2019.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

205

The following tables provide a breakdown of the TDR loans held for investment portfolio

by those in accrual and nonaccrual status as

of the indicated dates:

December 31, 2021

Puerto Rico and

Virgin Islands region

Florida region

Total

Accrual

Nonaccrual

Total TDRs

Accrual

Nonaccrual

Total TDRs

Accrual

Nonaccrual

(1)

Total TDRs

(In thousands)

Conventional residential mortgage loans

234,597

19,919

254,516

3,030

1,027

4,057

237,627

20,946

258,573

Construction loans

1,845

458

2,303

1,845

458

2,303

Commercial mortgage loans

50,608

15,960

66,568

2,265

52,873

15,960

68,833

C&I loans

59,792

10,213

70,005

415

59,792

10,628

70,420

Consumer loans:

Auto loans

4,174

3,076

7,250

4,208

3,076

7,284

Finance leases

975

Personal loans

973

974

973

974

Credit Cards

2,583

Other consumer loans

2,111

275

2,386

407

2,518

275

2,793

Total TDRs

357,658

49,902

407,560

5,736

1,442

7,178

363,394

51,344

414,738

(1)

Included in nonaccrual loans

are $

13.5

million in loans that

are performing under the

terms of the restructuring

agreement but are reported

in nonaccrual status until

the restructured loans meet

the criteria of sustained payment performance under the revised

terms for reinstatement to accrual status and are deemed

fully collectible.

December 31, 2020

Puerto Rico and

Virgin Islands region

Florida region

Total

Accrual

Nonaccrual

Total TDRs

Accrual

Nonaccrual

Total TDRs

Accrual

Nonaccrual

(1)

Total TDRs

(In thousands)

Conventional residential mortgage loans

253,421

53,516

306,937

3,358

311

3,669

256,779

53,827

310,606

Construction loans

2,480

943

3,423

2,480

943

3,423

Commercial mortgage loans

43,012

18,811

61,823

2,615

45,627

18,811

64,438

C&I loans

73,649

6,609

80,258

224

73,649

6,833

80,482

Consumer loans:

Auto loans

6,481

4,968

11,449

6,551

4,968

11,519

Finance leases

1,125

1,144

1,125

1,144

Personal loans

920

924

920

924

Credit Cards

2,358

Other consumer loans

3,274

427

3,701

564

601

3,838

464

4,302

Total TDRs

386,720

85,297

472,017

6,607

572

7,179

393,327

85,869

479,196

(1)

Included in nonaccrual

loans are $

5.9

million in loans

that are performing

under the terms

of the restructuring

agreement but are

reported in nonaccrual

status until the

restructured loans meet

the criteria of sustained payment performance under the revised

terms for reinstatement to accrual status and are deemed

fully collectible.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

206

TDR

loans

exclude

restructured

residential

mortgage

loans

that

are

government-guaranteed

(

e.g.

FHA/VA

loans)

totaling

57.6

million

December

31,

2021

(compared

with

58.7

million

December

31,

2020).

The

Corporation

excludes

FHA/VA

guaranteed loans

from TDR loan

statistics given that,

in the event

that the borrower

defaults on the

loan, the principal

and interest

(at

the specified debenture rate) are guaranteed by the U.S. government.

Therefore, the risk of loss on these types of loans is very low.

Loan modifications that are considered TDR loans completed during 2021, 2020

and 2019 were as follows:

Year Ended December 31, 2021

Puerto Rico and Virgin Islands region

Florida region

Total

Number of

contracts

Pre-

modification

Amortized

Cost

Post-

modification

Amortized

Cost

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

6,221

6,128

1,466

7,687

7,594

Construction loans

Commercial mortgage loans

11,285

11,223

11,285

11,223

C&I loans

9,732

9,609

299

10,031

9,908

Consumer loans:

Auto loans

134

2,601

2,598

134

2,601

2,598

Finance leases

692

697

692

697

Personal loans

497

504

497

504

Credit Cards

246

1,426

246

1,426

Other consumer loans

266

Total TDRs

606

32,720

32,451

1,765

612

34,485

34,216

Year Ended December 31, 2020

Puerto Rico and Virgin Islands region

Florida region

Total

Number of

contracts

Pre-

modification

Amortized

Cost

Post-

modification

Amortized

Cost

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

103

9,027

8,307

103

9,027

8,307

Construction loans

Commercial mortgage loans

824

C&I loans

22,544

22,524

22,544

22,524

Consumer loans:

Auto loans

163

2,635

2,623

163

2,635

2,623

Finance leases

408

Personal loans

306

305

306

305

Credit Cards

159

783

159

783

Other consumer loans

144

590

522

145

613

545

Total TDRs

647

37,117

36,296

648

37,140

36,319

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

207

Year Ended December 31, 2019

Puerto Rico and Virgin Islands region

Florida region

Total

Number of

contracts

Pre-

modification

Amortized

Cost

Post-

modification

Amortized

Cost

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

118

14,606

14,084

118

14,606

14,084

Construction loans

118

117

118

117

Commercial mortgage loans

40,988

38,750

40,988

38,750

C&I loans

1,754

1,750

1,754

1,750

Consumer loans:

Auto loans

253

4,168

4,121

256

4,201

4,154

Finance leases

804

801

804

801

Personal loans

502

499

502

499

Credit Cards

153

800

153

800

Other consumer loans

656

2,411

2,478

656

2,411

2,478

Total TDRs

1,306

66,151

63,400

1,309

66,184

63,433

Recidivism,

the

borrower

defaulting

its

obligation

pursuant

modified

loan,

results

the

loan

once

again

becoming

nonaccrual loan. Recidivism

on a modified loan

occurs at a notably

higher rate than do

defaults on new origination

loans, so modified

loans present

a higher

risk of

loss than

do new

origination loans.

The Corporation

considers a

loan to

have defaulted

if the

borrower

has failed to make payments of either principal, interest, or both for a period of

days or more.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

208

Loan

modifications

considered

TDR

loans

that

defaulted

during

the

years

ended

December

31,

2021,

2020,

and

2019,

and

had

become TDR loans during the 12-months preceding the default date, were

as follows:

Year Ended December 31,

2021

2020

2019

Puerto Rico and Virgin Islands region

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

475

2,380

2,019

Construction loans

Commercial mortgage loans

C&I loans

124

Consumer loans:

Auto loans

1,625

947

130

2,221

Finance leases

Personal loans

Credit cards

260

228

Other consumer loans

209

238

Total Puerto Rico and Virgin Islands region

153

2,406

175

3,900

220

4,501

Year Ended December 31,

2021

2020

2019

Florida region

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

Finance leases

Personal loans

Credit cards

Other consumer loans

Total in Florida region

Year Ended December 31,

2021

2020

2019

Total

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

Number of

contracts

Amortized Cost

(Dollars in thousands)

Conventional residential mortgage loans

475

2,380

2,019

Construction loans

Commercial mortgage loans

C&I loans

124

Consumer loans:

Auto loans

1,625

947

130

2,221

Finance leases

Personal loans

Credit cards

260

228

Other consumer loans

209

238

Total

153

2,406

175

3,900

220

4,501

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

209

NOTE 9 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following table presents 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

Year Ended December

31,

2021

(In thousands)

ACL:

Beginning balance

120,311

5,380

109,342

37,944

112,910

385,887

Provision for credit losses - (benefit) expense

(16,957)

(1,408)

(55,358)

(8,549)

20,552

(61,720)

Charge-offs

(33,294)

(87)

(1,494)

(1,887)

(43,948)

(80,710)

Recoveries

4,777

163

281

6,776

13,576

25,573

Ending balance

74,837

4,048

52,771

34,284

103,090

269,030

Residential

Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial

Loans

Consumer

Loans

Total

Year Ended December

31,

2020

(In thousands)

ACL:

Beginning balance, prior to adoption of CECL

44,806

2,370

39,194

15,198

53,571

155,139

Impact of adopting CECL

49,837

797

(19,306)

14,731

35,106

81,165

Allowance established for acquired PCD loans

12,739

9,723

1,830

4,452

28,744

Provision for credit losses

(1)

22,427

2,105

81,125

6,627

56,433

168,717

Charge-offs

(11,017)

(76)

(3,330)

(3,634)

(46,483)

(64,540)

Recoveries

1,519

184

1,936

3,192

9,831

16,662

Ending balance

120,311

5,380

109,342

37,944

112,910

385,887

Residential

Mortgage

Loans

Construction

Loans

Commercial

Mortgage

Commercial &

Industrial

Loans

Consumer

Loans

Total

Year Ended December

31, 2019

(In thousands)

ACL:

Beginning balance

50,794

3,592

55,581

32,546

53,849

196,362

Provision for credit losses - expense (benefit)

14,091

(1,496)

(1,697)

(13,696)

43,023

40,225

Charge-offs

(22,742)

(391)

(15,088)

(7,206)

(52,160)

(97,587)

Recoveries

2,663

665

398

3,554

8,859

16,139

Ending balance

44,806

2,370

39,194

15,198

53,571

155,139

(1)

Includes a $

37.5

million charge related to the establishment of the initial reserves for non-PCD

loans acquired in conjunction with the BSPR acquisition consisting of: (i)

a $

13.6

million charge related to

non-PCD residential mortgage loans; (ii) a $

9.2

million charge related to non-PCD commercial mortgage loans, (iii) a $

4.6

million charge related to non-PCD commercial and industrial loans,

and (iv) a $

10.2

million charge related to non-PCD consumer loans.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

210

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

Basis

Presentation

and

Significant

Accounting Policies,

above for each

portfolio segment.

As of each

of the years

ended December

31, 2021, and

2020, the Corporation

used the base-case

economic scenario

from Moody’s

Analytics to estimate

the ACL.

As of

December 31,

2021, the baseline

scenario

continues to

show a

more favorable

economic scenario

and modest

improvements in

projected unemployment

rates, and

commercial

real

estate

price

index

when

compared

forecast

December

31,

2020.

The

U.S.

mainland

average

forecasted

commercial

price

index included in

the 2021 forecast is

an appreciation of

5.68% for the next

two years, compared

to an average contraction

of 11.36%

the

forecast

December

31,

2020,

for

the

years

2021

and

2022.

The

current

average

forecasted

Puerto

Rico,

Florida

and

U.S.

mainland unemployment rate for the year 2022

is now 7.38%, 3.15% and 3.71%, respectively,

compared to 8.12%, 6.14%, and 6.20%,

respectively,

the

forecast

December

31,

2020,

showing

improvement

all

three

regions.

Expectations

for

2023,

for

these

macroeconomic variables also present a favorable outlook over the

forecasted period.

December

31,

2021,

the

ACL

for

loans

and

finance

leases

was

269.0

million,

down

116.9

million

from

December

31,

2020,

driven

positive

changes

the

outlook

macroeconomic

assumptions

which

the

reserve

correlated.

The

ACL

for

commercial

and

construction

loans

decreased

61.6

million

during

the

year

ended

December

31,

2021,

primarily

reflecting

continued

improvements

the

outlook

macroeconomic

variables,

including

improvements

the

commercial

real

estate

price

index

and unemployment

rate forecasts,

the overall

decline in

the size

of these

portfolios,

and

the effect

of a

5.2

million loan

loss

recovery

recorded

2021

connection

with

paydown

nonaccrual

commercial

and

industrial

loan.

addition,

there

was

45.5

million

decrease

the ACL

for

residential

mortgage

loans

and

a $

9.8

million

decrease in

the

ACL for

consumer

loans.

The

decrease

in the

ACL for

consumer

loans consisted

of net

charge-offs

of $

30.4

million,

primarily

taken

on personal

loans and

credit

card loans, partially offset

by charges to the

provision of $

20.6

million that, among other

things, account for the increase

in the size of

the portfolio of auto loans and

finance leases and increases in cumulative

historical charge-off

levels for personal loans and credit

card

loans. The

decrease in

the ACL

for residential

mortgage loans

consisted of

net charge-offs

of $

28.5

million, of

which $

23.1

million

are related

to charge-offs

recognized as

part of

the bulk

sale of

nonaccrual residential

mortgage loans

and related

servicing advances

during the

third quarter

of 2021, and

a benefit, or

provision recapture,

of $

17.0

million that was

primarily related

to improvements

the

outlook

macroeconomic

variables,

such

regional

unemployment

rate

and

Home

Price

Index,

and

the

overall

portfolio

decrease. For

those loans

where the

ACL was

determined based

on a

discounted cash

flow model,

the change

in the

ACL due

to the

passage of time is recorded as part of the provision for credit losses.

Total

net

charge-offs

increased

7.3

million,

2021.

The

variance

consisted

19.0

million

increase

residential

mortgage

net

charge-offs,

driven

the

23.1

million

net

charge-offs

recorded

connection

with

the

bulk

sale

nonaccrual

residential mortgage

loans, partially

offset by

a $

6.3

million decrease

in consumer

loans net charge-offs

and the aforementioned

5.2

million loan loss recovery recorded in connection with the paydown of

a nonaccrual commercial and industrial loans.

As of

December 31,

2020, the

ACL for

loans and

finance leases

was $

385.9

million, up

230.8

million from

December 31,

2019,

driven

the

81.2

million

increase

result

adopting

CECL,

168.7

million

provision

for

credit

losses

loans,

and

the

establishment

of a

28.7

million

ACL for

PCD loans

acquired

in conjunction

with the

BSPR acquisition.

The Corporation

recorded

net charge-offs

of $

47.9

million for

the year

ended December

31, 2020,

compared to

81.4

million for

the year

ended December

31,

2019.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

211

The

tables

below

present

the

ACL

loans

and

finance

leases

and

the

carrying

values

loans

portfolio

segment

December 31, 2021 and December 31, 2020:

As of December 31,

2021

Residential

Mortgage Loans

Construction

Loans

Commercial

Mortgage

Consumer

Loans

Commercial and

Industrial Loans

(1)

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

2,978,895

138,999

2,167,469

2,887,251

2,888,044

11,060,658

Allowance for credit losses

74,837

4,048

52,771

34,284

103,090

269,030

Allowance for credit losses to

amortized cost

2.51

2.91

2.43

1.19

3.57

2.43

As of December 31, 2020

Residential

Mortgage Loans

Construction

Loans

Commercial

Mortgage Loans

Consumer

Loans

Commercial and

Industrial Loans

(1)

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

3,521,954

212,500

2,230,602

3,202,590

2,609,643

11,777,289

Allowance for credit losses

120,311

5,380

109,342

37,944

112,910

385,887

Allowance for credit losses to

amortized cost

3.42

2.53

4.90

1.18

4.33

3.28

____________

(1)

As of December 31,

2021 and December 31, 2020, includes $

145.0

million and $

406.0

million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.

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. The

Corporation estimates

the ACL for

these off-balance sheet

exposures following

the methodology described

in Note 1

- Basis of

Presentation and

Significant

Accounting Policies,

above. As

of December

31, 2021,

the ACL

for off-balance

sheet credit

exposures was

1.5

million, down

3.6

million

from

5.1

million

December

31,

2020.

The

decrease

was

mainly

connection

with

improvements

the

outlook

macroeconomic variables.

The

following

table

presents

the

activity

the

ACL

for

unfunded

loan

commitments

and

standby

letters

credit

for

the

years

ended December 31, 2021, 2020 and 2019:

Year

Ended

December 31,

2021

2020

2019

(In thousands)

Beginning Balance

5,105

412

Impact of adopting CECL

3,922

Provision for credit losses - (benefit)

(3,568)

1,183

(412)

Ending balance

1,537

5,105

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

212

NOTE 10 – LOANS HELD FOR SALE

The Corporation’s loans held-for-sale

portfolio as of the dates indicated was composed of:

December 31,

2021

2020

(In thousands)

Residential mortgage loans

35,155

50,289

NOTE 11

–

OTHER REAL ESTATE

OWNED

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

December 31,

(In thousands)

2021

2020

OREO

OREO balances, carrying value:

Residential

(1)

29,533

32,418

Commercial

7,331

44,356

Construction

3,984

6,286

Total

40,848

83,060

(1)

Excludes $

22.2

million and $

18.6

million as of December 31, 2021 and 2020, respectively,

of foreclosures that meet 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

213

NOTE 12 – RELATED

-PARTY

TRANSACTIONS

The Corporation granted loans to

its directors, executive officers,

and certain related individuals or

entities in the ordinary course

business. The movement and balance of these loans were as follows:

Amount

(In thousands)

Balance at December 31,

2019

1,032

New loans

425

Payments

(953)

Other changes

Balance at December 31,

2020

504

New loans

286

Payments

(108)

Other changes

261

Balance at December 31,

2021

943

These loans

were made

subject to

the provisions

of the

Federal Reserve’s

Regulation O

- “Loans

to Executive

Officers, Directors

and

Principal

Shareholders

Member

Banks,”

which

governs

the

permissible

lending

relationships

between

financial

institution

and its executive officers, directors, principal

shareholders, their families,

and related parties.

Amounts related to changes in the status

of those who are considered

related parties are reported as other

changes in the table above,

which, for 2021, was mainly related

to the

addition of three new executive officers and the departure

of one executive officer.

From

time

time,

the

Corporation,

the

ordinary

course

its

business,

obtains

services

from

parties

makes

contributions to non-profit organizations that have some association

with the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

214

NOTE 13 – PREMISES AND EQUIPMENT

Premises and equipment comprise:

Useful Life Range In Years

As of December 31,

Minimum

Maximum

2021

2020

(Dollars in thousands)

Buildings and improvements

138,524

138,686

Leasehold improvements

79,419

82,034

Furniture and equipment

148,171

224,623

366,114

445,343

Accumulated depreciation and amortization

(251,659)

(318,659)

114,455

126,684

Land

23,873

Projects in progress

8,089

7,652

Total premises and equipment,

net

146,417

158,209

Depreciation

and

amortization

expense

amounted

25.0

million,

20.1

million,

and

17.6

million

for

the

years

ended

December 31, 2021, 2020, and 2019, respectively.

During the year ended December 31, 2021 the

Corporation received insurance proceeds of $

0.6

million related to the settlement and

collection of an insurance claim associated with a damage property.

This amount is included as part of other non-interest income in the

consolidated statements of income.

During

2020,

the

Corporation

received

insurance

proceeds

5.0

million

resulting

from

the

final

settlement

the

business

interruption insurance claim

related to lost profits caused

by Hurricanes Irma and

Maria. This amount is included

as part of other non-

interest

income

the

consolidated

statements

income.

In addition,

during

2020,

the Corporation

received

insurance proceeds

1.2

million related to hurricane-related expenses claims recorded as a contra-account

of non-interest expenses, primarily consisting of

occupancy and equipment costs.

During 2019, the Corporation received

insurance proceeds of $

0.6

million related to casualty losses incurred

at some facilities. The

insurance proceeds were

recorded against impairment

losses. Insurance recoveries

in excess of

losses amounted $

0.1

million for 2019

and were

recorded as a

gain from insurance

proceeds and

reported as part

of other non-interest

income in

the consolidated

statements

of income.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

215

NOTE 14 – GOODWILL AND OTHER INTANGIBLES

Goodwill

each

December

31,

2021

and

December

31,

2020

amounted

38.6

million.

December

31,

2021,

the

Corporation’s

goodwill includes

26.7

million related

to the United

States (Florida)

reporting unit

and $

11.9

million recorded

mainly

connection

with

the

acquisition

BSPR

September

2020.

The

Corporation’s

policy

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 2021,

part

its

annual

evaluation,

the

Corporation

performed

qualitative

assessment

determine

goodwill

impairment

test

was

necessary.

This assessment involved

identifying the inputs

and assumptions that

most affects fair

value, evaluating the

significance of

all identified relevant

events and circumstances that

affect fair value

of the reporting entity

and evaluating such

factors to determine if

positive

assertion

can

made

that

likely

than

not

that

the

fair

value

the

reporting

unit

greater

than

its

carrying

amount. As

of December

31, 2021,

the Corporation

concluded that

it is more

-likely-than-not that

the fair

value of

the reporting

units

exceeded its carrying value. As a result,

impairment charges for goodwill were recorded during

the year ended December 31, 2021.

The

changes

the

carrying

amount

goodwill

attributable

operating

segments

are

reflected

the

following

table.

The

adjustments for

the years

ended December

31, 2020

and 2021

are measurement

period adjustments,

primarily related

to post

closing

purchase price

adjustments to

account for

differences between

BSPR’s

actual excess

capital at

closing date

compared to

the BSPR’s

excess capital amount

used for the

preliminary closing statement

at acquisition date.

During the third quarter

of 2021, the Corporation

finalized its fair values analysis of the acquired assets and assumed liabilities associated with

the BSPR acquisition.

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Banking

United States

Operations

Total

(In thousands)

Goodwill, January 1, 2020

1,406

26,692

28,098

Merger and acquisitions

574

794

4,935

6,303

Adjustments

385

533

3,313

4,231

Goodwill, December 31, 2020

959

2,733

8,248

26,692

38,632

Adjustments

(148)

(21)

Goodwill, December 31, 2021

1,012

2,807

8,100

26,692

38,611

The Corporation

had other

intangible assets

of $

29.9

million as

of December

31, 2021,

consisting of

28.6

million in

core deposit

intangibles,

1.2

million

purchased

credit

card

relationship

intangibles,

and

0.2

million

insurance

customer

relationship

intangibles.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

216

The

following

table

shows

the

gross

amount

and

accumulated

amortization

of the

Corporation’s

other

intangible

assets as

the

indicated dates:

Year Ended December 31, 2021

Core deposit intangible

Purchased credit card

relationship intangible

Insurance customer

relationship intangible

Total

(In thousands)

Gross amount of intangible assets:

Beginning balance

87,096

28,265

1,067

116,428

Measurement period adjustment

(1)

448

Ending balance

87,544

28,265

1,067

116,876

Accumulated amortization:

Beginning balance

(51,254)

(23,532)

(749)

(75,535)

Amortization

(7,719)

(3,535)

(153)

(11,407)

Ending balance

(58,973)

(27,067)

(902)

(86,942)

Net intangible assets

28,571

1,198

165

29,934

Remaining amortization period (in years)

8.0

1.7

1.1

(1)

Measurement adjustment relates to fair value estimate update performed within 1 year of the closing date of the BSPR acquisition, in accordance with ASC 805.

Year Ended December 31, 2020

Core deposit intangible

Purchased credit card

relationship intangible

Insurance customer

relationship intangible

Total

(In thousands)

Gross amount of intangible assets:

Beginning balance

51,664

24,465

1,067

77,196

Additions due to acquisitions

35,432

3,800

39,232

Ending balance

87,096

28,265

1,067

116,428

Accumulated amortization:

Beginning balance

(48,176)

(20,850)

(597)

(69,623)

Amortization

(3,078)

(2,682)

(152)

(5,912)

Ending balance

(51,254)

(23,532)

(749)

(75,535)

Net intangible assets

35,842

4,733

318

40,893

Remaining amortization period (in years)

9.0

2.7

2.1

Year Ended December 31, 2019

Core deposit intangible

Purchased credit card

relationship intangible

Insurance customer

relationship intangible

Total

(In thousands)

Gross amount of intangible assets:

Beginning balance

51,664

24,465

1,067

77,196

Accumulated amortization:

Beginning balance

(47,329)

(18,763)

(445)

(66,537)

Amortization

(847)

(2,087)

(152)

(3,086)

Ending balance

(48,176)

(20,850)

(597)

(69,623)

Net intangible assets

3,488

3,615

470

7,573

Remaining amortization period (in years)

5.1

1.9

3.0

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

217

The Corporation amortizes

core deposit intangibles

and customer relationship

intangibles based on

the projected useful lives

of the

related deposits in the

case of core deposit

intangibles, and over the

projected useful lives of

the related client relationships

in the case

of customer relationship intangibles. As

mentioned above, the Corporation analyzes

core deposit intangibles and customer

relationship

intangibles

annually

for

impairment,

sooner

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 or customer relationship

intangibles as of December 31, 2021.

The estimated aggregate annual amortization expense related to the intangible

assets for future periods was as follows as of December

31, 2021:

Amount

(In thousands)

2022

8,816

2023

7,736

2024

6,416

2025

3,509

2026

872

2027 and after

2,585

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

218

NOTE 15 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIE”) 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

2004,

FBP

Statutory

Trust

financing

trust

that

wholly

owned

the

Corporation,

sold

institutional

investors

100

million of its

variable-rate trust-preferred

securities (“TRuPs”). FBP

Statutory Trust

I used the proceeds

of the issuance, together

with

the proceeds of

the purchase by the

Corporation of $

3.1

million of FBP Statutory

Trust I

variable-rate common securities,

to purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

Also

2004,

FBP

Statutory Trust II, a 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

financial

condition

other

borrowings.

The

variable-rate

TRuPs

are

fully

and

unconditionally

guaranteed

the

Corporation.

The Junior Subordinated Deferrable Debentures issued by the Corporation in April

2004 and September 2004 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 third

quarter of 2020,

the Corporation completed

the repurchase of

0.4

million of TRuPs

of the FBP

Statutory Trust

which resulted in

a commensurate reduction

in the related Floating

Rate Junior Subordinated

Debentures. The Corporation’s

purchase

price equated

% of

the $

0.4

million par

value. The

% discount

resulted in

a gain

of approximately

0.1

million. This

gain is

reflected in

the consolidated

statements of income

as gain on

early extinguishment

of debt. As

of each

December 31,

2021 and 2020,

the Corporation had subordinated debentures outstanding in the aggregate

amount of $

183.8

million.

The

Collins

Amendment

the

Dodd-Frank

Act

eliminated

certain

TRuPs

from

Tier

Capital;

however,

these

instruments

may

remain in Tier 2 capital until the instruments

are redeemed or mature. Under the indentures, the Corporation has

the right, from time to

time,

and

without

causing

event

default,

defer

payments

interest

the

Junior

Subordinated

Deferrable

Debentures

extending

the

interest

payment

period

any

time

and

from

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly

periods.

December

31,

2021,

the

Corporation

was

current

all

interest

payments

due

its

subordinated debt.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

219

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

these private

label MBS

in favor

of 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 by

another third

party,

which receives

a servicing

fee. These

private label

MBS are variable

-rate

securities indexed

90-day LIBOR

plus a

spread. The

principal payments

from the

underlying loans

are remitted

to a

paying agent

(servicer), who then remits

interest to the Bank. Interest

income is shared to a

certain extent with the FDIC,

which has an 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.

This

limited

the

weighted-average

coupon

the

underlying mortgage

loans. The FDIC became

the owner of

the IO upon

its intervention of the

seller, a

failed financial institution.

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.

December

31,

2021,

the

amortized

cost

and

fair

value

these

private

label

MBS

amounted

10.0

million

and

7.2

million,

respectively,

with

weighted

average

yield

2.21

which

included

part

the

Corporation’s

available-for-sale

investment

securities

portfolio.

described

Note

–

Investment

Securities,

above,

the

ACL

these

private

label MBS amounted to $

0.8

million as of December 31, 2021.

Investment in unconsolidated entity

February

16,

2011,

FirstBank

sold

asset

portfolio

consisting

performing

and

nonaccrual

construction,

commercial

mortgage, and commercial

and industrial loans

with an aggregate

book value of

269.3

million to CPG/GS, an

entity organized

under

the

laws

the

Commonwealth

Puerto

Rico

and

majority

owned

PRLP

Ventures

LLC

(“PRLP”),

company

created

Goldman,

Sachs &

Co. and

Caribbean

Property Group.

In connection

with the

sale, the

Corporation

received $

88.5

million in

cash

and a

% interest in

CPG/GS and

made a loan

in the

amount of

136.1

million representing

seller financing

provided by

FirstBank.

The loan was

refinanced and consolidated

with other outstanding

loans of CPG/GS

in the second

quarter of 2018

and was paid

in full

October

2019.

FirstBank’s

equity

interest

in CPG/GS

accounted

for under

the equity

method.

FirstBank

recorded

loss on

its

interest in

CPG/GS in

2014 that

reduced

to zero

the carrying

amount of

the Bank’s

investment in

CPG/GS. No

negative investment

needs

to be

reported

as the

Bank

has no

legal

obligation

or commitment

to provide

further

financial

support

to this

entity; thus,

further losses have been or will be recorded on this investment.

CPG/GS

used

cash

proceeds

the

aforementioned

seller-financed

loan

cover

operating

expenses

and

debt

service

payments,

including those

related to

the loan

that was paid

off in

October 2019.

FirstBank will

not receive

any return

on its equity

interest until

PRLP receives

an aggregate

amount equivalent

to its

initial investment

and a

priority return

of at

least

%, which

has not

occurred,

resulting in FirstBank’s

interest in CPG/GS

being subordinate to

PRLP’s interest.

CPG/GS will then

begin to make

payments pro rata

PRLP

and

FirstBank,

and

respectively,

until

FirstBank

has

achieved

return

its

invested

capital

and

the

aggregate amount of distributions is equal to FirstBank’s

capital contributions to CPG/GS.

The

Bank

has

determined

that

CPG/GS

VIE

which

the

Bank

not

the

primary

beneficiary.

determining

the

primary

beneficiary

of CPG/GS,

the Bank

considered

applicable guidance

that requires

the Bank

to qualitatively

assess the

determination

whether

it is

the primary

beneficiary (or

consolidator) of

CPG/GS based

on whether

it has

both

the power

to direct

the activities

CPG/GS that most

significantly affect the

entity’s economic

performance and the

obligation to absorb

losses of, or the right

to receive

benefits from, CPG/GS

that could potentially

be significant to

the VIE. The

Bank determined that

it does not

have the power to

direct

the activities that most significantly

impact the economic performance

of CPG/GS as it does not

have the right to

manage or influence

the loan portfolio, foreclosure proceedings,

or the construction and sale

of the property; therefore, the

Bank concluded that it is not

the

primary beneficiary of CPG/GS.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

220

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.

December

31,

2021,

the

Corporation

serviced

loans securitized

through

GNMA with

a principal

balance

of $

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:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Balance at beginning of year

33,071

26,762

27,428

Purchases of servicing assets

(1)

7,781

Capitalization of servicing assets

5,194

4,864

4,039

Amortization

(7,215)

(5,777)

(4,592)

Temporary impairment

recoveries (charges), net

124

(206)

(43)

Other

(2)

(188)

(353)

(70)

Balance at end of year

30,986

33,071

26,762

(1)

Represents MSRs acquired in the BSPR acquisition.

(2)

Amount represents adjustments related to the repurchase

of loans serviced for others, including MSRs related to loans

previously serviced for BSPR

and eliminated as part of the acquisition in the third quarter

of 2020.

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.

Changes in the impairment allowance were as follows for the indicated

periods:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Balance at beginning of year

202

Temporary impairment

charges

301

OTTI of servicing assets

(77)

Recoveries

(124)

(95)

(35)

Balance at end of year

202

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

221

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:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Servicing fees

12,176

9,268

8,522

Late charges and prepayment penalties

697

570

610

Adjustment for loans repurchased

(188)

(353)

(70)

Other

(1)

(15)

Servicing income, gross

12,684

9,485

9,047

Amortization and impairment of servicing assets

(7,091)

(5,983)

(4,635)

Servicing income, net

5,593

3,502

4,412

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:

Maximum

Minimum

Year

Ended December 31, 2021

Constant prepayment rate:

Government-guaranteed mortgage loans

6.4

6.3

Conventional conforming mortgage loans

6.8

6.6

Conventional non-conforming mortgage loans

8.6

8.2

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

13.7

13.5

Year

Ended December 31, 2020

Constant prepayment rate:

Government-guaranteed mortgage loans

6.5

6.2

Conventional conforming mortgage loans

7.2

6.9

Conventional non-conforming mortgage loans

9.2

8.6

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

14.3

13.7

Year

Ended December 31, 2019

Constant prepayment rate:

Government-guaranteed mortgage loans

6.4

6.2

Conventional conforming mortgage loans

6.9

6.7

Conventional non-conforming mortgage loans

9.3

8.9

Discount rate:

Government-guaranteed mortgage loans

12.0

Conventional conforming mortgage loans

10.0

Conventional non-conforming mortgage loans

14.3

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

222

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 December

31, 2021 and

2020 were as follows:

December 31,

2021

2020

(In thousands)

Carrying amount of servicing assets

30,986

33,071

Fair value

42,132

40,294

Weighted-average

expected life (in years)

7.96

7.86

Constant prepayment rate (weighted-average annual

rate)

6.55

6.73

Decrease in fair value due to 10% adverse change

1,027

1,006

Decrease in fair value due to 20% adverse change

2,011

1,970

Discount rate (weighted-average annual rate)

11.17

11.20

Decrease in fair value due to 10% adverse change

1,852

1,772

Decrease in fair value due to 20% adverse change

3,561

3,409

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)

223

NOTE 16 – DEPOSITS AND RELATED

INTEREST

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

December 31,

2021

2020

(In thousands)

Type of account and interest rate:

Non-interest-bearing deposit accounts

7,027,513

4,546,123

Interest-bearing savings accounts

4,729,387

4,088,969

Interest-bearing checking accounts

3,492,645

3,651,806

Certificates of deposit

2,434,932

2,814,313

Brokered CDs

100,417

216,172

17,784,894

15,317,383

The

weighted-average

interest

rate

total

interest-bearing

deposits

December 31,

2021

and

2020

was

0.31

and

0.55

respectively.

December 31,

2021,

the

aggregate

amount

unplanned

overdrafts

demand

deposits

that

were

reclassified

loans

amounted to $

1.6

million (2020 -

0.8

million). Pre-arranged

overdrafts lines of

credit amounted to

24.2

million as of

December 31,

2021 (2020 - $

26.0

million).

The following table presents the contractual maturities of CDs, including brokered CDs, as of December 31, 2021:

Total

(In thousands)

Three months or less

635,461

Over three months to six months

444,276

Over six months to one year

669,486

Over one year to two years

427,993

Over two years to three years

201,934

Over three years to four years

63,193

Over four years to five years

78,653

Over five years

14,353

Total

2,535,349

Time

deposits with

balances of

more than

$250,000 amounted

to $

1.0

billion for

each of

the years

ended December

31, 2021

and

2020.

This

amount

does

not

include

CDs

issued

deposit

brokers

the

form

large

certificates

deposits

that

are

generally

participated out

by brokers

in shares

of less

than the

FDIC insurance

limit. As

of December 31,

2021, unamortized

broker placement

fees amounted to

0.2

million (2020 -

0.4

million), which are

amortized over the

contractual maturity of

the brokered CDs under

the

interest method.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

224

Brokered CDs mature as follows:

December 31,

2021

(In thousands)

Three months or less

14,668

Over three months to six months

11,687

Over six months to one year

37,228

Over one year to three years

30,137

Over three years to five years

6,697

Total

100,417

As of

December 31,

2021,

deposit

accounts

issued

government

agencies

amounted

to $

3.3

billion

(2020

2.1

billion).

These

deposits are

generally

insured by

the FDIC

up to

the applicable

limits. The

uninsured

portions

were collateralized

by securities

and

loans with

an amortized

cost of

3.4

billion (2020

- $

2.0

billion) and

an estimated

market value

of $

3.3

billion (2020

- $

2.1

billion).

December

31,

2021,

the

Corporation

had

2.7

billion

government

deposits

Puerto

Rico

(2020

1.8

billion),

568.4

million in the Virgin

Islands (2020 - $

280.2

million) and $

9.6

million in Florida (2020 - $

9.7

million).

A table showing interest expense on deposits for the indicated periods follows:

Year Ended

December 31,

2021

2020

2019

(In thousands)

Interest-bearing checking accounts

5,776

5,933

6,071

Savings

6,586

11,116

16,017

CDs

26,138

43,350

44,658

Brokered CDs

2,982

7,989

11,036

Total

41,482

68,388

77,782

The

total

interest

expense

on deposits

included

the

amortization

broker

placement

fees

brokered

CDs

amounting

0.2

million, $

0.5

million, and

0.7

million for

2021, 2020

and 2019,

respectively.

Total

interest expense

also included

1.3

million

and

1.0

million

for

2021

and

2020,

respectively,

for

the

accretion

premiums

time

deposits

assumed

the

BSPR

acquisition. Refer to Note 2 – Business Combination, for additional

information.

NOTE 17 – LOANS PAYABLE

The

Corporation

participates

the Borrower-in-Custody

Program

(the

“BIC Program

”) of

the FED.

Through

the

BIC Program,

broad

range

loans

(including

commercial,

consumer,

and

residential

mortgages)

may

pledged

collateral

for

borrowings

through the FED Discount Window.

As of December 31, 2021, pledged collateral that is related

to this credit facility amounted to $

2.0

billion,

mainly

commercial,

consumer,

and

residential

mortgage

loans,

which

after

margin

“haircut”

discount

the

value

collateral pledged,

represents approximately

1.2

billion of

credit availability

under this

program. With

the impacts

of COVID-19

individuals,

communities,

and

organizations

continuing

evolve,

the

Federal

Reserve

has

taken

several

actions

support

the

economy and

financial stability

of market

participants including,

among other

things, lowering

the target

range for

the federal

funds

rate and

relaunching

large scale

asset purchases.

The FED

Discount Window

program provided

the opportunity

to access

a low-rate

short-term source of

funding in a high

volatility market environment.

There were

outstanding borrowings under

the Primary Credit

FED Discount Window Program as of

December 31, 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

225

NOTE 18 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (repurchase agreements)

as of the dates indicated consisted of the following:

December 31,

2021

2020

(In thousands)

Long-term repurchase agreement

(1)

300,000

(1)

Weighted-average

interest rate

3.35

% and

1.77

% as of

December 31,

2021 and 2020,

respectively.

During the first

quarter of

2021, the interest

rate related to

securities

sold under agreement to

repurchase totaling $

200

million changed from

a variable rate

(3-month LIBOR plus

130

132

basis points) to a

fixed rate of

3.90

% after the end

of a prespecified lockout period. As of December 31, 2021,

all of the outstanding securities sold under agreements to repurchase

are tied to fixed interest rates.

Accrued interest

payable on repurchase

agreements amounted

to $

1.9

million and $

1.0

million as of

December 31, 2021

and 2020,

respectively.

Repurchase agreements mature as follows as of the indicated date:

December 31,

2021

(In thousands)

One month to three months

100,000

Three to five years

200,000

Total

300,000

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

226

The following securities were sold under agreements to repurchase:

As of December 31,

2021

Amortized

Approximate

Weighted

Cost of

Fair Value

Average

Underlying

Balance of

of Underlying

Interest Rate

Underlying Securities

Securities

Borrowing

Securities

of Security

(Dollars in thousands)

U.S. government-sponsored agencies

MBS

319,225

300,000

321,180

1.33

Total

319,225

300,000

321,180

Accrued interest receivable

599

As of December 31,

2020

Amortized

Approximate

Weighted

Cost

Fair Value

Average

Underlying

Balance of

of Underlying

Interest Rate

Underlying Securities

Securities

Borrowing

Securities

of Security

(Dollars in thousands)

U.S. government-sponsored agencies

12,219

11,013

12,351

1.94

MBS

320,640

288,987

329,438

1.65

Total

332,859

300,000

341,789

Accrued interest receivable

753

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

227

The maximum

aggregate balance

of repurchase

agreements outstanding

at any

month-end during

2021 was

300.0

million (2020

475.8

million).

The

average

balance

during

2021

was

300.5

million

(2020

291.5

million).

The

weighted-average

interest

rate

during

2021

and

2020

was

3.32

and

2.28

respectively,

considering

negative

market

rates

reverse

repurchase

agreements

2020.

December

31,

2021

and

2020,

the

securities

underlying

such

agreements

were

delivered

the

dealers

with

which

the

repurchase agreements were transacted.

Repurchase agreements as of December 31, 2021, grouped by

counterparty, were as follows:

Weighted-Average

Counterparty

Amount

Maturity (In Months)

(Dollars in thousands)

JP Morgan Chase

100,000

Credit Suisse First Boston

200,000

Total

300,000

NOTE 19 – ADVANCES

FROM THE FEDERAL HOME LOAN BANK (FHLB)

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

December 31,

2021

2020

(In thousands)

Long-term

Fixed

-rate advances from FHLB (1)

200,000

440,000

(1)

Weighted-average interest rate

2.16

% and

2.26

% as of December 31, 2021 and 2020, respectively.

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

December 31, 2021

(In thousands)

Over six months to one year

200,000

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

228

The Corporation receives

advances from the

FHLB under an Advances,

Collateral Pledge, and

Security Agreement (the

“Collateral

Agreement”).

The

Collateral

Agreement

requires

the

Corporation

maintain

minimum

amount

qualifying

mortgage

collateral

with a

market

value

of generally

120

% or

higher than

the outstanding

advances.

As of

December 31,

2021

and 2020,

the estimated

value

specific

mortgage

loans

pledged

collateral

amounted

1.4

billion

and

1.6

billion,

respectively,

computed

the

FHLB

for

collateral

purposes.

The

carrying

value

such

loans

December 31,

2021

amounted

1.8

billion

(2020

2.2

billion). As

of December

31, 2021,

the Corporation

had additional

capacity of

approximately $

1.2

billion on

this credit

facility based

on collateral pledged

at the FHLB, including

a haircut reflecting

the perceived risk

associated with the

collateral. Haircut refers

to the

percentage by which

an asset’s

market value is reduced

for the purpose of

collateral levels. Advances

may be repaid prior

to maturity,

in whole or in part, at the option of the borrower

upon payment of any applicable fee specified in the contract

governing such advance.

In calculating the fee,

due consideration is given

to (i) all relevant factors,

including,

but not limited to,

any and all applicable

costs of

repurchasing

and/or

prepaying

any

associated

liabilities

and/or

hedges

entered

into

with

respect

the

applicable

advance;

(ii)

the

financial characteristics,

in their entirety,

of the advance

being prepaid; and

(iii), in the

case of adjustable-rate

advances, the expected

future earnings of the replacement

borrowing as long as the replacement

borrowing is at least equal

to the original advance’s

par value

and the replacement borrowing’s

tenor is at least equal to the remaining maturity of the prepaid advance.

NOTE 20 – OTHER BORROWINGS

Other borrowings, as of the indicated dates, consisted of:

December 31,

(In thousands)

2021

2020

Floating rate junior subordinated debentures (FBP Statutory Trust

I) (1)

65,205

Floating rate junior subordinated debentures (FBP Statutory Trust

II) (2)

118,557

183,762

(1)

Amount represents junior subordinated

interest-bearing debentures due

in 2034 with a floating

interest rate of

2.75

% over 3-month LIBOR

(

2.97

% as of December

31, 2021 and

2.98

% as of December 31, 2020).

(2)

Amount represents junior subordinated

interest-bearing debentures due

in 2034 with a floating

interest rate of

2.50

% over 3-month LIBOR

(

2.71

% as of December

31, 2021 and

2.74

% as of December 31, 2020).

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

229

NOTE 21 –

EARNINGS

PER COMMON

The calculations of earnings per common share for the years ended December 31,

2021, 2020, and 2019 are as follows:

Year

Ended December 31,

2021

2020

2019

(In thousands, except per share information)

Net income

281,025

102,273

167,377

Less: Preferred stock dividends

(2,453)

(2,676)

Less: Excess of redemption value over carrying value of Series A through E

Preferred Stock redeemed

(1,234)

Net income attributable to common stockholders

277,338

99,597

164,701

Weighted-Average

Average common

shares outstanding

210,122

216,904

216,614

Average potential

dilutive common shares

1,178

764

520

Average common

shares outstanding - assuming dilution

211,300

217,668

217,134

Earnings per common share:

Basic

1.32

0.46

0.76

Diluted

1.31

0.46

0.76

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. For 2021, net income attributable

to common stockholders was

also adjusted due

to the one

-time effect

to retained

earnings of the

excess of the

redemption value

paid over the

carrying value of

the

Series A through E Preferred Stock redeemed

as discussed in Note 23 – Stockholders’ Equity

below. 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 that

do not

contain non-forfeitable

dividend 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

antidilutive

effect

earnings

per

share.

Potential

dilutive

common

shares also include

performance units

that do not

contain non-forfeitable

dividend rights if

the performance

condition is met

as of the

end of the reporting period.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

230

NOTE 22 –

STOCK-BASED

COMPENSATION

May

24,

2016,

the

Corporation’s

stockholders

approved

the

amendment

and

restatement

the

First

BanCorp.

Omnibus

Incentive

Plan, as

amended (the

“Omnibus Plan”),

to, among

other things,

increase the

number of

shares of

common stock

reserved

for issuance under

the Omnibus Plan,

extend the term

of the Omnibus

Plan to May

24, 2026, and

re-approve the material

terms of the

performance

goals under

the Omnibus

Plan for

purposes of

the then-effective

Section 162(m)

of the

U.S. Internal

Revenue Code

1986,

amended.

The

Omnibus

Plan

provides

for

equity-based

and

non

equity-based

compensation

incentives

(the

“awards”)

through the

grant of

stock options,

stock appreciation

rights, restricted

stock, restricted

stock units,

performance shares,

other stock-

based awards,

and cash-based

awards. The

Omnibus Plan

authorizes the

issuance of up

14,169,807

shares of common

stock, subject

to adjustments

for stock

splits,

reorganizations

and other

similar

events.

As of December

31, 2021,

there were

4,308,921

authorized shares

of common stock available for issuance

under the Omnibus Plan. The Corporation’s

Board of Directors, based on the recommendation

of the Corporation’s

Compensation and Benefits Committee,

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

to the shares of restricted

stock granted to

them.

The restricted stock granted under the Omnibus Plan is typically subject to a vesting period. During the year ended December 31,

2021, the Corporation awarded

to its independent directors

29,291

shares of restricted stock that are subject to

one-year

vesting from the

dates of

grant. In

addition, during the

year

ended December

31,

2021, the

Corporation awarded

295,069

shares of

restricted stock

employees;

fifty percent

(

%) of those shares

vest on the

two-year

anniversary

of the grant

date and the

remaining

% vest on three-year

anniversary of

the

grant

date.

Included in

those

295,069

shares of

restricted stock

were

19,804

granted to

retirement-eligible

employees.

The total expense

determined

for the restricted

stock awarded

to retirement-eligible

employees

was charged against

earnings

the

grant date.

During the

year

ended December

31,

2020,

the

Corporation awarded to

its

independent directors

59,797

shares of

restricted stock that are

subject to

one-year

vesting from the dates

of grant. In

addition, during 2020, the Corporation awarded

851,673

shares of

restricted stock to

employees; fifty percent (

of those

shares vest on

the two-year anniversary of

the grant

date and

the

remaining

% vest on

three-year anniversary

of the grant date. Included in

those

851,673

shares of restricted stock were

47,194

granted to retirement-eligible

employees.

The fair value

of the shares

of restricted

stock granted

in 2021 and 2020

was based on

the market

price of

the Corporation’s

outstanding

common stock

on the date

of the respective

grant.

The following table summarizes the restricted stock activity in the year ended

December 31, 2021 under the Omnibus Plan:

2021

Number of

Weighted-

shares of

Average

restricted

Grant Date

stock

Fair Value

Unvested shares outstanding at beginning of year

1,320,723

5.74

Granted

324,360

11.47

Forfeited

(82,486)

6.42

Vested

(413,822)

7.69

Unvested shares outstanding at end of year

1,148,775

6.61

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

231

For the

years ended

December 31,

2021, 2020

and 2019,

the Corporation

recognized $

3.5

million, $

3.2

million, and

2.8

million,

respectively,

stock-based

compensation

expense

restricted

stock

awards.

December

31,

2021,

there

was

3.3

million

total

unrecognized

compensation

cost

unvested

restricted

stock.

The

weighted

average

period

over

which the Corporation expects to recognize such cost was

1.4

years as of December 31, 2021.

Stock-based compensation

accounting guidance

requires the

Corporation to

reverse compensation

expense for

any awards

that are

forfeited due

to employee

or director

turnover.

Changes in

the estimated

forfeiture rate

may have

a significant

effect on

stock-based

compensation,

as the

Corporation

recognizes

the

effect

of adjusting

the rate

for

all expense

amortization

in the

period

which

the

forfeiture estimate is changed. If the actual forfeiture

rate is higher than the estimated forfeiture rate, an

adjustment is made to increase

the

estimated

forfeiture

rate,

which

will

decrease

the

expense

recognized

the

financial

statements.

the

actual

forfeiture

rate

lower

than

the

estimated

forfeiture

rate,

adjustment

made

decrease

the

estimated

forfeiture

rate,

which

will

increase

the

expense recognized in the financial statements.

Performance Units

Under the

Omnibus Plan,

the Corporation

may award

performance

units to

Omnibus Plan

participants.

During the

year ended

December

31, 2021,

the Corporation granted

160,485

units to

executives, with each unit

representing the value of

one share

of the

Corporation’s

common stock. The performance

units granted in the year ended

December 31, 2021 are for the performance

period beginning

January 1,

2021 and ending on December

31, 2023.

These awards do not contain non-forfeitable rights to dividend equivalent amounts and can only

be settled in shares of the Corporation’s common stock. The performance units will vest on the third anniversary of the effective date of the

awards, subject to the achievement of a pre-established tangible book value per share target as of December 31, 2023. All the performance

units will vest if performance is at the pre-established performance target level or above. However, the participants may vest with respect

to 50% of the awards to the extent that performance is below the target but not less than 80% of the pre-established performance target level

(the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during the performance cycle. If

performance is between the 80% minimum threshold and the pre-established performance target level, the participants will vest on a

proportional amount. No performance units will vest if performance is below the 80% minimum threshold.

During

the

years

ended

December

31,

2020

and

2019,

the

Corporation

awarded

502,307

and

200,053

performance

units

executives,

respectively.

The performance units will vest

on the third anniversary

of the effective date

of the awards and are

subject to

a pre-established performance target level as described

above.

The following table summarizes the performance units activity during

2021 under the Omnibus Plan:

Year

Ended

(Number of units)

December 31,

2021

Performance units at beginning of year

1,006,768

Additions

160,485

Vested

(304,408)

Forfeited

(47,946)

Performance units as of December 31, 2021

814,899

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

232

The fair values

of the performance

units awarded

were based

on the market

price of the

Corporation’s

outstanding

common stock

on the

respective date of

the grant.

For

the years

ended December 31,

2021, 2020,

and 2019,

the Corporation recognized $

2.0

million, $

1.8

million, and

1.1

million,

respectively,

of stock-based

compensation

expense related

to performance

units. As of

December

31, 2021, there

was $

2.2

million of total unrecognized

compensation

cost related to unvested

performance

units that the Corporation

expects to recognize

over the next three years. The total

amount of compensation

expense recognized

reflects management’s

assessment of the probability

that

the pre-established

performance

goal will

be achieved.

The Corporation

will recognize

a cumulative

adjustment

to compensation

expense

the then-current

period to

reflect

any changes

in the

probability

of achievement

of the performance

goals.

Other awards

Under the Omnibus Plan, the Corporation

may grant shares of unrestricted

stock to plan participants.

During the third quarter of 2020,

the Corporation

granted to its independent

directors

19,157

shares of unrestricted

stock that were fully

vested at the time of the grant

date.

For

the

year

ended

December

31,

2020,

the

Corporation recognized

0.1

million

stock-based compensation

expense

unrestricted

stock awards.

There were

grants

of unrestricted

stock in

2021 and

2019.

Shares withheld

During the

year ended

December 31,

2021, the

Corporation withheld

214,374

shares (2020

–

51,814

shares) of the

restricted stock

that vested

during

such period

to cover

the officers’

payroll and

income tax

withholding liabilities;

these shares

are held

as treasury

shares. The Corporation

paid in cash any fractional

share of salary stock

to which an officer

was entitled. In the

consolidated financial

statements, the Corporation presents shares withheld for tax purposes as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

233

NOTE 23 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Program

On April

26, 2021,

the Corporation

announced that

its Board

of Directors

approved a

stock repurchase

program, under

which the

Corporation may

repurchase up

to $

300

million of

its outstanding

stock, including

common and

preferred stock,

commencing in

the

second

quarter of

2021 through

June 30,

2022. During

the year

ended December

31, 2021,

the Corporation

repurchased

16,740,467

shares of its common stock for $

213.9

million and redeemed all of its outstanding

shares of non-convertible, non-cumulative

perpetual

monthly

income

Series

through

Preferred

Stock

for

its liquidation

value

36.1

million.

The

program

does

not

obligate

the

Corporation

acquire

any

specific

number

shares.

Repurchases

under

the

program

may

executed

through

open

market

purchases, accelerated share

repurchases and/or privately

negotiated transactions or

plans, including plans

complying with Rule

10b5-

under

the

Exchange

Act.

The

Corporation’s

stock

repurchase

program

subject

various

factors,

including

the

Corporation’s

capital

position,

liquidity,

financial

performance

and

alternative

uses

capital,

stock

trading

price,

and

general

market

conditions.

The repurchase program may be modified, extended, suspended, or terminated

at any time at the Corporation’s discretion.

The

common

stock

repurchased

are

held

treasury

stock.

December

31,

2021,

the

Corporation

has

remaining

authorization to repurchase

approximately $

million of common

stock under the

stock repurchase program

which were repurchased

during the first quarter of 2022.

Common Stock

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

for 2021, 2020 and 2019:

2021

2020

2019

Common stock outstanding, beginning balances

218,235,064

217,359,337

217,235,140

Common stock repurchased

(1)

(16,740,467)

Common stock issued, net of shares withheld for employee taxes

414,394

878,813

138,197

Restricted stock forfeited

(82,486)

(3,086)

(14,000)

Common stock outstanding, ending balances

201,826,505

218,235,064

217,359,337

(1)

Includes

11,490,467

shares of common stock repurchased in the open market at

an average price of $

12.82

for a total purchase price of approximately $

147.3

million, and

5,250,000

shares of common stock repurchased through privately negotiated transactions

at an average price of $

12.68

for a total purchase price of approximately $

66.6

million.

For

the

years

ended

December

31,

2021,

2020

and

2019,

total

cash

dividends

declared

common

stock

amounted

65.4

million,

43.8

million,

and

30.5

million,

respectively.

October

22,

2021

the

Corporation

announced

that

its

Board

Directors

had

declared

quarterly

cash

dividend

0.10

per

common

share,

which

represented

increase

0.03

per

common share

compared to

the dividend

paid in

September 2021.

The dividend

was paid

on December

10, 2021

to shareholders

record at the close business

on November 26, 2021. 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 at the relevant times.

Preferred Stock

The

Corporation

has

50,000,000

authorized

preferred

stock

with

par value

of $

1.00

redeemable

the

Corporation’s

option, 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 of Directors when authorizing the issuance of that particular

series.

On November 30,

2021 the Corporation

redeemed all of its

1,444,146

outstanding shares of

Series A through E

Preferred Stock for

its liquidation

value of

per share

or $

36.1

million. The

difference

between the

liquidation value

and net

carrying value

was $

1.2

million, which was recorded

as a reduction to

retained earnings in 2021.

For the years ended

December 31, 2021,

2020 and 2019 total

cash dividends paid

on shares of preferred

stock amounted to $

2.5

million, $

2.7

million, and $

2.7

million, respectively.

The redeemed

preferred

stock shares

were not

listed on

any securities

exchange or

automated

quotation system.

shares of

preferred stock

were

outstanding as of December 31, 2021.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

234

Treasury stock

During

the

years

ended

December

31,

2021,

2020

and

2019,

the

Corporation

withheld

aggregate

214,374

shares,

51,814

and

176,015

shares,

respectively,

of the

restricted

stock

and performance

units

that vested

during

those periods,

cover the

officers’

payroll

and

income

tax

withholding

liabilities;

these

are

held

treasury

stock.

Also

held

treasury

stock

are

the

16,740,467

shares of

common stock

repurchased in

2021 as

part of

the $

300

million stock

repurchase program.

As of December

31,

2021 and 2020, the Corporation had

21,836,611

and

4,799,284

shares held as treasury stock, respectively.

FirstBank Statutory Reserve (Legal Surplus)

The Banking Law

of the Commonwealth of

Puerto Rico requires that

a minimum of

% of FirstBank’s

net income for the

year be

transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

on common

and preferred

stock. Amounts

transferred

the

legal

surplus

reserve

from

retained

earnings

are

not

available

for

distribution

the

Corporation,

including

for

payment

as dividends

to the

stockholders,

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.

During years

ended December

31,

2021

and

2020,

the

Corporation

transferred

28.3

million

and

11.7

million,

respectively,

the

legal

surplus

reserve.

FirstBank’s

legal

surplus

reserve,

included

part

retained

earnings

the

Corporation’s

consolidated

statements

financial

condition,

amounted to $

137.6

million and $

109.3

million as of December 31, 2021 and 2020, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

235

NOTE 24 – OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents changes in accumulated other comprehensive

(loss) income for the years ended December

31, 2021, 2020 and 2019:

Changes in Accumulated Other Comprehensive

(Loss) Income by Component

(1)

Year ended

December 31,

2021

2020

2019

(In thousands)

Unrealized net holding gains (losses) on debt

securities:

Beginning balance

55,725

6,764

(40,415)

Other comprehensive (loss) income

(143,115)

48,961

47,179

Ending balance

(87,390)

55,725

6,764

Adjustment of pension and postretirement

benefit plans:

Beginning balance

(270)

Other comprehensive gain (loss)

3,661

(270)

Ending balance

3,391

(270)

______________________

(1) All amounts presented are net of tax.

The following table presents the

amounts reclassified out of

each component of accumulated

other comprehensive (loss) income

for the

years ended December 31, 2021, 2020 and 2019:

Reclassifications Out of Accumulated Other Comprehensive (Loss)

Income

Affected Line Item in the

Consolidated Statements of

Income

Year ended

December 31,

2021

2020

2019

(In thousands)

Unrealized net holding gains (losses)

on debt securities:

Realized gain on sales

Net gain (loss) on

of debt securities

investments securities

(13,198)

Provision for credit losses -

Provision for credit losses

(benefit) expense

(136)

1,641

OTTI on debt securities

(1)

Net gain (loss) on

investment securities

497

Total before tax

(136)

(11,557)

497

Income tax expense

Total, net of tax

(136)

(11,557)

497

(1)

ASC 326, which became

effective on January 1,

2020, requires credit losses on

available-for-sale debt securities to be

presented as an allowance

rather than as a

write-

down. Thus,

credit losses on

debt securities recorded

prior to

January 1, 2020

are presented as

OTTI on debt

securities while credit

losses on

debt securities recorded

after January 1, 2020 are presented as part of provision for

credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

236

NOTE 25 – EMPLOYEE BENEFIT PLANS

Defined Benefit Retirement Plans

The Corporation

maintains two frozen

qualified noncontributory

defined benefit

pension plans (the

“Pension Plans”),

and a related

complementary post-retirement

benefit plan covering medical

benefits and life

insurance after retirement,

that it obtained in

the BSPR

acquisition on

September 1,

2020. One

plan covers

substantially all

of BSPR’s

former employees

who were

active before

January 1,

2007, while

the other

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

accumulated

other

comprehensive

(loss)

income

pursuant

the

ASC Topic

715,

Compensation-Retirement

Benefits.

Actuarial gains

or losses, prior-service

costs, and transition

assets or obligations

are recognized as

components of net

periodic benefit

costs.

December 31, 2021

December 31, 2020

(In thousands)

Changes in projected benefit obligation:

Projected benefit obligation at the beginning of period, defined benefit

pension (September 1 for the 2020 period)

108,253

107,571

Interest cost

2,473

900

Actuarial (gain) loss

(1)

(6,699)

1,321

Benefits paid

(6,160)

(1,539)

Projected benefit obligation at the end of period, pension plans

97,867

108,253

Projected benefit obligation, other postretirement benefit plan

195

245

Projected benefit obligation at the end of period

98,062

108,498

Changes in plan assets:

Fair value of plan assets at the beginning of period (September 1 for the

2020 period)

105,963

104,522

Actual return on plan assets

3,684

2,980

Benefits paid

(6,160)

(1,539)

Fair value of pension plan assets at the end of period

(2)

103,487

105,963

Net asset (benefit obligation), pension plans

5,620

(2,290)

Net benefit obligation, other-postretirement benefit

plan

(195)

(245)

Net asset (benefit obligation)

5,425

(2,535)

(1) Significant components of the Pension Plans’ actuarial gain (loss)

that changed the benefit obligation were mainly related to updates

in discount and mortality rates.

(2) Other post-retirement plan did not contain any assets

as of December 31, 2021 and 2020.

The following are the pre-tax amounts recognized in accumulated other

comprehensive (loss) income:

December 31, 2021

December 31, 2020

(In thousands)

Net actuarial (gain) loss

(5,862)

432

Amortization of net loss

Net amount recognized

(5,860)

432

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

237

The weighted

-average

assumed discount

rate to

determine

the projected

benefit obligations

for the

pension plans

as of

December

31, 2021 was

2.77

% compared to

2.36

% as of December 31, 2020.

Financial data relative to the Pension Plans and the Post Retirement Benefit Plan

is summarized in the following tables:

Affected Line Item

Period from

in the Consolidated

December 31,

September 1, 2020 to

Statements of Income

2021

December 31, 2020

(In thousands)

Net periodic benefit, pension plans:

Interest cost

Other expenses

2,473

900

Expected return on plan assets

Other expenses

(4,523)

(2,062)

Net periodic benefit, pension plans

(2,050)

(1,162)

Net periodic cost, other-post retirement plan

Other expenses

Net Periodic benefit

(2,045)

(1,160)

Pre-tax amounts record in accumulated OCI,

pension

plans:

Net actuarial (gain) loss

(5,861)

404

Accumulated other comprehensive income/(loss), end

of year,

pension plans

(5,861)

404

Accumulated other comprehensive income/(loss), end of

year, other-postretirement benefit plan

Accumulated other comprehensive income/(loss), end

of year

(5,860)

432

Total net periodic pension

(income) loss recognized

in total comprehensive income, pre-tax

(7,905)

(728)

Weighted average

assumptions used to determine

net periodic pension cost, pension plans:

(1)

Discount rate

2.77%

2.36%

Expected return on plan assets

4.43%

5.99%

(1)

Other post-retirement plan did not contain any assets as of December

31, 2021 and 2020 and discount rate as of December

31, 2021 and 2020, was

2.82

% and

2.44

%, respectively.

The discount rate is estimated as

the single equivalent rate such

that the present value of the plan’s

projected benefit obligation cash

flows using the

single rate equals

the present

value of

those cash flows

using the above

mean actuarial

yield curve.

In developing

the

expected

long-term

rate

return

assumption,

the

Corporation

evaluated

input

from

consultant

and

the

Corporation’s

long-term

inflation assumptions and interest rate scenarios. Projected returns are based

on the same asset categories as the plan using well-known

broad indexes.

Expected returns

are based

by historical

returns with

adjustments to

reflect a

more realistic

future return.

Adjustments

are

done

categories,

taking

into

consideration

current

and

future

market

conditions.

The

Corporation

also

considered

historical

returns on

its plan assets

to review

the expected

rate of return.

The Corporation

anticipated that

the Plan’s

portfolio would

generate a

long

term

rate

return

4.43

December

31,

2021.

The

investment

policy

statement

for

the

Pension

Plans

includes:

(i)

liability

hedging

assets

reduce

funded

status

risk,

(ii)

diversified

return

seeking

assets

reduce

equity

risk,

and

(iii)

establishes

different glidepaths specific for each plan to systematically

reduce risk as the funded status improves.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

238

The following table

presents the changes

in accumulated other

comprehensive (loss) income

of the Pension

Plans and

Postretirement Benefit Plan as of December 31, 2021 and 2020:

December 31, 2021

Period from September

1, 2020 to December 31,

2020

(In thousands)

Accumulated other comprehensive (income)/loss at beginning

of period, pension plans

404

Net (gain) loss

(5,861)

404

Accumulated other comprehensive (income)/loss end of year

pension plans

(5,457)

404

Accumulated other comprehensive (income)/loss, other-post

retirement plan

Accumulated other comprehensive (gain) loss at end of period

(5,428)

432

The

following

table

presents

information

for

the

plans

with

projected

benefit

obligation

and

accumulated

benefit obligation in excess of plan assets for the year ended December 31, 2021 and 2020:

December 31, 2021

December 31, 2020

(In thousands)

Projected benefit obligation

195

70,424

Accumulated benefit obligation

195

70,424

Fair value of plan assets

64,200

The Pension Plans asset allocations as of December 31, 2021 and 2020 by asset category

are as follows:

December 31, 2021

December 31, 2020

Asset category

Equity securities

Debt securities

Investment in funds

98%

Other

100%

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

239

The Corporation does not expect to contribute to the Pension Plans during

2022.

The Corporation’s

investment policy

with respect

to the

Corporation’s

Pension

Plans is

to optimize,

without undue

risk, the

total

return

on investment

of the

Plan assets

after inflation,

within

a framework

of prudent

and reasonable

portfolio

risk. The

investment

portfolio

diversified

multiple

asset

classes

reduce

portfolio

risk,

and

assets

may

shifted

between

asset

classes

reduce

volatility when

warranted by projections

of the economic

and/or financial

market environment,

consistent with

Employee Retirement

Income

Security Act

of 1974,

as amended

(ERISA).

As circumstances

and

market conditions

change,

the Corporation’s

target

asset

allocations

may

amended

to reflect

the

most

appropriate

distribution

given

the new

environment,

consistent with

the

investment

objectives.

Expected future benefit payments for the plans are as follows:

Amount

(Dollars in thousands)

2022

6,659

2023

6,652

2024

6,608

2025

6,179

2026

6,122

2027 through 2031

28,056

60,276

As of

December

31,

2021

and 2020,

substantially

all of

the plan

assets of

103.5

million

and

106.0

million,

respectively,

were

invested in common collective

trusts, which primarily consist of

equity securities, mortgage-backed

securities, corporate bonds and

S. Treasuries.

The portfolios

in both

plans have been

measured at fair

value using the

net asset value

per unit

as a practical

expedient

as permitted by ASC Topic

820, and accordingly,

have not been classified in the fair value hierarchy as of December 31, 2021.

Determination of Fair Value

The valuation process begins

with market quotations for

the individual security.

Since many fixed maturities do

not trade on a daily

basis,

each

asset

class

evaluated

its

own

based

relevant

market

information.

The

market

inputs

utilized

the

pricing

evaluation, listed in the approximate

order of priority,

include: benchmark yields, reported trades,

broker/dealer quotes, issuer spreads,

two-sided markets, benchmark

securities, bids, offers,

reference data, and industry

and economic events.

The extent of the

use of each

market input

depends on the

asset class and

the market conditions.

Additional inputs

may be necessary

for some securities.

Some fair

value estimates are determined

from quotes provided by

market makers or broker-dealers

that are considered to

be market participants

and are considered to be an estimate of fair value that is indicative of market

transactions.

The following is a description of the valuation inputs and techniques

used to measure the fair value of pension plan assets:

Investment in

Funds -

Investment in collectible

funds have

been measured

at fair value

using the net

assets value per

unit practical

expedient and, accordingly,

have not been classified in the fair value hierarchy.

Interest-Bearing

Deposits

Interest-bearing

deposits consist

money

market

accounts with

short-term

maturities and,

therefore,

the carrying value approximates fair value.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

240

Defined Contribution Plan

addition,

FirstBank

provides

contributory

retirement

plans

pursuant

Section 1081.01

the

Puerto

Rico

Internal

Revenue

Code

of 2011

for

Puerto

Rico

employees

and

Section 401(k)

the U.S.

Internal Revenue

Code for

USVI

and

U.S. employees

(the

“Plans”).

All employees

are eligible

to participate

in the

Plans after

three months

of service

for purposes

of making

elective deferral

contributions and

one year

of service

for purposes

of sharing

in the

Bank’s

matching, qualified

matching, and

qualified non-elective

contributions.

Under

the

provisions

the

Plans,

the

Bank

contributes

the

first

the

participant’s

compensation

contributed

the

Plans

pretax

basis,

annual

limit.

The matching contribution of fifty cents for every dollar of the

employee’s contribution is comprised of: (i) twenty-five cents for every dollar of the employee’s contribution up to 6% of the

employee’s eligible compensation to be paid to the Plan as of each bi-weekly payroll; and (ii) an additional twenty-five cents for every

dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be deposited as a lump sum subsequent to

the Plan Year.

Puerto

Rico

employees

were permitted

to contribute

to $

15,000

for

each of

the years

ended

December

31,

2021,

2020 and

2019 (USVI

and U.S.

employees -

19,500

for 2021,

19,500

for 2020

and $

19,000

for 2019).

Additional contributions

the

Plans

may

voluntarily

made

the

Bank

determined

its

Board

Directors.

additional

discretionary

contributions

were made for the years ended December 31, 2021, and 2020.

September

2020,

the

Bank

completed

the

acquisition

Santander

Bancorp,

wholly-owned

subsidiary

Santander

Holdings USA,

Inc. and

the holding

company of

BSPR. Prior

to the

acquisition date,

BSPR was

the sponsor

of the

Banco Santander

de Puerto Rico Employees’

Savings Plan (“the Santander

Plan”). Effective on

September 1, 2020, the

Bank became the sponsor

of the

Santander Plan. Overall responsibility

for administrating the Santander Plan rests

with the Plan’s Administration

Committee. Effective

December 31, 2020,

the Santander Plan

was merged

with the Plan

(“the Plan Merger”).

The contributory savings

plan assumed in

the

BSPR

acquisition

also

provided

for

matching

contribution

the

employee’s

compensation.

The

Bank

had

total

plan

expenses of $

3.5

million, $

3.0

million and $

2.9

million for the years ended December 31, 2021, 2020 and 2019, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

241

NOTE 26 – OTHER NON-INTEREST EXPENSES

A detail of other non-interest expenses is as follows for the indicated periods:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Supplies and printing

1,830

2,391

1,966

Amortization of intangible assets

11,407

5,912

3,086

Servicing and processing fees

5,121

4,696

4,781

Insurance and supervisory fees

9,098

6,324

3,596

Provision for operational losses

5,069

3,390

2,164

Other

2,898

3,105

4,640

Total

35,423

25,818

20,233

NOTE 27 – OTHER NON-INTEREST INCOME

A detail of other non-interest income is as follows for the indicated periods:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Non-deferrable loan fees

2,990

3,750

2,789

Merchant-related income

8,464

5,844

5,635

ATM

and Point-of-Sale fees ("POS")

10,985

7,723

9,147

Credit and debit card interchange and other fees

17,079

12,042

11,759

Mail and cable transmission commissions

3,116

2,540

2,207

Gain on sales of commercial and

construction loans held for sale

2,316

Gain from insurance proceeds

550

5,000

660

Other

5,746

4,935

5,396

Total

48,937

41,834

39,909

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

242

NOTE 28 –

INCOME TAXES

Income

tax

expense

includes

Puerto

Rico

and

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

The

Corporation

subject

Puerto

Rico

income

tax

its

income

from

all

sources.

Puerto

Rico

corporation,

First

BanCorp.

treated

foreign

corporation

for

U.S.

and

USVI

income

tax

purposes

and,

accordingly,

generally

subject

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

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,

as amended (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 to utilize

losses from one

subsidiary to offset

gains in another

subsidiary.

Accordingly,

in order to

obtain a tax

benefit from

net operating

loss (“NOL”),

a particular

subsidiary must

be able

to 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

maximum

statutory

rate

37.5%

mainly

investing

government

obligations

and

MBS

exempt

from

U.S.

and

Puerto

Rico

income

taxes

and

by doing

business

through

International

Banking Entity

(“IBE”) unit

of the Bank,

and through

the Bank’s

subsidiary,

FirstBank Overseas Corporation,

whose interest income

and gains on sales is

exempt from Puerto

Rico income taxation. The

IBE unit and FirstBank Overseas

Corporation were created under

the

International

Banking

Entity

Act

Puerto

Rico,

which provides

for

total

Puerto

Rico

tax

exemption

on net

income derived

IBEs operating in Puerto Rico on the specific activities

identified in the IBE Act. An IBE that operates

as a unit of a bank pays income

taxes at the corporate standard rates to the extent that the IBE’s

net income

exceeds 20% of the bank’s total net taxable

income.

The CARES

Act of

2020 includes

several provisions

to stimulate

the U.S.

economy in

the midst

of the

COVID-19 pandemic.

The

CARES Act

of 2020

includes tax

provisions that

temporarily modified

the taxable

income limitations

for NOL

usage to

offset future

taxable income, NOL carryback provisions

and other related income, and non-income

based tax laws. Due to the fact

that the COVID-

19 pandemic

is still

ongoing,

the Federal

Government

extended some

of the

benefits and

continued

the economic

stimulus from

the

CARES Act of 2020. The Corporation has evaluated such provisions

and determined that the impact of the CARES Act of 2020

on the

income tax provision and deferred tax assets as of December 31,

2021 was not significant.

The components of income tax expense are summarized below for

the indicated periods:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Current income tax expense

28,469

18,421

16,986

Deferred income tax expense (benefit):

Reversal of deferred tax asset valuation allowance

(8,000)

Other deferred income tax expense

118,323

3,629

55,009

Total income

tax expense

146,792

14,050

71,995

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

243

The differences between the income tax expense applicable to income

before the provision for income taxes and the

amount computed by applying the statutory tax rate in Puerto Rico were as follows

for the indicated periods:

Year Ended

December 31,

2021

2020

2019

Amount

% of Pretax

Income

Amount

% of Pretax

Income

Amount

% of Pretax

Income

(Dollars in thousands)

Computed income tax at statutory rate

160,431

37.5

43,621

37.5

89,764

37.5

Federal and state taxes

7,014

1.6

4,944

4.2

4,467

1.6

Benefit of net exempt income

(20,717)

(4.8)

(26,780)

(23.0)

(24,811)

(10.4)

Disallowed NOL carryforward resulting from

net exempt income

8,791

2.0

9,054

7.8

15,887

6.6

Deferred tax valuation allowance

(13,572)

(3.2)

(12,095)

(10.4)

(14,108)

(5.9)

Share-based compensation windfall

(1,044)

(0.2)

157

0.1

(1,165)

(0.5)

Other permanent differences

(1,185)

(0.3)

(387)

(0.3)

(1,712)

(0.7)

Tax return to provision adjustments

(406)

(0.1)

597

0.5

1,846

0.8

Other-net

7,480

1.7

(5,061)

(4.3)

1,827

1.1

Total income tax expense

146,792

34.2

14,050

12.1

71,995

30.1

Deferred income taxes reflect the net tax effects of temporary differences

between the carrying amounts of assets and

liabilities for financial reporting purposes and their tax bases. Significant

components of the Corporation's deferred tax

assets and liabilities as of December 31, 2021 and 2020 were as follows:

December 31,

2021

2020

(In thousands)

Deferred tax asset:

NOL and capital losses carryforward

137,860

220,496

Allowance for credit losses

105,917

151,586

Alternative Minimum Tax

credits available for carryforward

37,361

27,396

Unrealized loss on OREO valuation

7,703

13,426

Settlement payment-closing agreement

7,031

Legal and other reserves

4,576

4,120

Reserve for insurance premium cancellations

881

941

Differences between the assigned values and tax bases of assets

and liabilities recognized in purchase business combinations

8,926

11,956

Unrealized loss on available-for-sale securities, net

14,181

Other

4,420

8,647

Total gross deferred tax assets

328,856

445,599

Deferred tax liabilities:

Servicing assets

10,510

9,571

Pension Plan assets

2,035

Unrealized gain on available-for-sale securities, net

4,730

Other

506

Total gross deferred tax liabilities

13,051

14,354

Valuation

allowance

(107,323)

(101,984)

Net deferred tax asset

208,482

329,261

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

244

Accounting

for

income

taxes

requires

that

companies

assess

whether

valuation

allowance

should

recorded

against

their

deferred

tax

asset

based

assessment

the

amount

the

deferred

tax

asset

that

“more

likely

than

not”

realized.

Valua

tion allowances

are established,

when necessary,

to reduce

deferred tax

assets to

the amount

that is

more likely

than not

to be

realized. Management

assesses the valuation

allowance recorded

against deferred

tax assets at

each reporting

date. The determina

tion

of whether a

valuation allowance for

deferred tax assets

is appropriate

is subject to considerable

judgment and requires

the evaluation

positive

and

negative

evidence

that

can

objectively

verified.

Consideration

must

given

all

sources

taxable

income

available to realize

the deferred tax asset,

including, as applicable,

the future reversal

of existing temporary

differences, future

taxable

income forecasts exclusive of the reversal of temporary

differences and carryforwards, and tax planni

ng strategies. In estimating taxes,

management assesses

the relative

merits and

risks of

the appropriate

tax treatment

of transactions

considering statutory,

judicial, and

regulatory guidance.

Total

deferred

tax

assets

FirstBank,

the

banking

subsidiary,

amounted

208.4

million

December

31,

2021,

net

valuation

allowance

69.7

million,

compared

total deferred

tax asset

329.1

million,

net

valuation

allowance

59.9

million, as

of December

31, 2020.

The decrease

in deferred

tax assets

was mainly

driven by

the aforementioned

credit losses reserve

releases and

the usage

of NOLs.

The increase

in the

valuation

allowance was

primarily

related to

the change

in the

market value

available-for-sale

securities.

The

Corporation

maintains

a full

valuation

allowance

for

its deferred

tax assets

associated

with

capital

losses carry

forward. Therefore,

changes in

the unrealized

losses of available

-for-sale securities

result in

a change

in the

deferred tax

asset and an equal change in the valuation allowance without having

an effect on earnings.

After completion

of the deferred

tax asset

valuation allowance

analysis for

the fourth

quarter of

2021 management

concluded that,

as of December 31, 2021, it is more likely than not that

FirstBank will generate sufficient taxable income

to realize $

66.3

million of its

deferred tax assets related to NOLs within the applicable carry-forward

periods.

The

positive

evidence

considered

management

arriving

its

conclusion

includes

factors

such

as:

FirstBank’s

three-year

cumulative income

position; sustained

periods of

profitability; management’s

proven ability

to forecast

future income

accurately and

execute

tax

strategies;

forecasts

future

profitability,

under several

potential

scenarios

that

support

the

partial utilization

NOLs

prior

their

expiration

from

2022

through

2024;

and

the

utilization

NOLs

over

the

past

three-years.

The

negative

evidence

considered

management

includes:

uncertainties

around

the

state

the

Puerto

Rico

economy,

including

considerations

the

impact

of the

pandemic

recovery funds

together

with the

ultimate sustainability

of the

latest fiscal

plan

certified

by the

PROMESA

oversight board.

Management’s

estimate

future

taxable

income

based

internal

projections

that

consider

historical

performance,

multiple

internal scenarios and

assumptions, as well as

external data that

management believes is

reasonable. If events

are identified that affect

the Corporation’s

ability to utilize

its deferred tax

assets, the analysis

will be updated

to determine if

any adjustments to

the valuation

allowance

are

required.

actual

results

differ

significantly

from

the

current

estimates

future

taxable

income,

even

caused

adverse

macro-economic

conditions,

the

remaining

valuation

allowance

may

need

increased.

Such

increase

could

have

material

adverse

effect

the

Corporation’s

financial

condition

and

results

operations.

Conversely,

higher

than

projected

proportion

taxable

income to

exempt

income

could

lead to

higher

usage

available NOLs

and

lower

amount of

disallowed

NOLs from projected

levels of tax-exempt income,

per the 2011

PR code, which in

turn could result in

further releases to the

deferred

tax valuation

allowance; any

such decreases

could have

a material positive

effect on

the Corporation’s

financial condition

and results

of operations.

As of December

31, 2021, approximately

177.9

million of the

deferred tax

assets of the

Corporation are

attributable to temporary

differences

tax

credit

carryforwards

that

have

expiration

date,

compared

210.7

million

2020.

The

valuation

allowance

attributable to FirstBank’s

deferred tax assets

of $

69.7

million as of

December 31, 2021

is related to

the estimated NOL

disallowance

attributable

projected

levels

tax-exempt

income,

NOLs

attributable

the

Virgin

Islands

jurisdiction,

and

capital

losses.

The

remaining balance of $

37.6

million of the Corporation’s

deferred tax asset valuation

allowance non-attributable to FirstBank

is mainly

NOLs

and

capital

losses

the

holding

company

level.

The

Corporation

will

continue

provide

valuation

allowance

against its deferred

tax assets in

each applicable

tax jurisdiction until

the need for

a valuation allowance

is eliminated. The

need for a

valuation

allowance

eliminated

when

the

Corporation

determines

that

likely

than

not

the

deferred

tax

assets

will

realized.

The

ability

recognize

the

remaining

deferred

tax

assets

that

continue

subject

valuation

allowance

will

evaluated on

a quarterly basis

to determine

if there are

any significant events

that would affect

the ability to

utilize these deferred

tax

assets.

The Corporation

has U.S.

and USVI

sourced NOL

carryforwards. Section

382 of

the U.S.

Internal Revenue

Code (“Section

382”)

limits the ability to

utilize U.S. and USVI

NOLs for income tax

purposes in such jurisdictions

following an event that

is considered to

be an “ownership change”.

Generally, an

“ownership change” occurs when

certain shareholders increase their

aggregate ownership by

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

245

than

percentage

points

over

their

lowest

ownership

percentage

over

three-year

testing

period.

Upon

the

occurrence

Section 382

ownership change,

the use

of NOLs

attributable to

the period

prior to

the ownership

change is

subject to

limitations and

only a portion of the U.S. and USVI NOLs may be used by the Corporation

to offset its annual U.S. and USVI taxable income, if any.

2017,

the

Corporation

completed

formal

ownership

change

analysis

within

the

meaning

Section

382

covering

comprehensive

period

and

concluded

that

ownership

change

had

occurred

during

such

period.

The

Section

382

limitation

has

resulted

in higher

U.S. and

USVI income

tax liabilities

than the

Corporation

would have

incurred

in 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 in

the

U.S.

USVI

creditable

against

Puerto

Rico

tax

liabilities

taken

deduction

against

taxable

income.

However,

the

Corporation’s ability to reduce its Puerto

Rico tax liability through such a credit or deduction depends on our

tax profile at each annual

taxable period,

which is

dependent on

various factors.

For 2021,

2020 and

2019, the

Corporation incurred

an income

tax expense

approximately $

6.8

million, $

4.9

million and

4.5

million, respectively,

related to

its U.S.

operations.

The limitation

did not

impact

the USVI operations in 2021, 2020 and 2019.

The Corporation

accounts for uncertain

tax positions under

the provisions

of ASC Topic

740. The Corporation’s

policy is to

report

interest and penalties

related to unrecognized

tax benefits in income

tax expense. As

of December 31,

2021, the Corporation

had $

0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $

1.1

million that

it acquired

from BSPR,

which,

if recognized,

would decrease

the

effective

income tax

rate in

future

periods. The

amount

unrecognized

tax benefits

may

increase

decrease

the

future

for

various

reasons,

including

adding

amounts

for

current

tax

year

positions,

expiration

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

of limitations

under the 2011

PR code is four years;

the statute of limitations for

U.S. and USVI income tax

purposes is three years after

a tax return

is due or filed, whichever

is later. The

completion of an audit by the

taxing authorities or the expiration

of the statute of limitations for

given

audit

period

could

result

adjustment

the

Corporation’s

liability

for

income

taxes.

Any

such

adjustment

could

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

to 2017

remain open

to examination.

For Puerto

Rico tax

purposes, all tax years subsequent to 2016 remain open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

246

NOTE 29

–

LEASES

The Corporation

accounts for its

leases in accordance

with ASC 842

“Leases” (“ASC

Topic

842”), which

it adopted on

January 1,

2019. ASC

Topic

842 requires

the Corporation

to record

liabilities for

future lease

obligations as

well as

assets representing

the right

use

the underlying

lease

asset. The

Corporation’s

operating

leases are

primarily

the Corporation’s

branches and

leased

commercial

space

for

ATMs.

Our

leases

mainly

have

terms

ranging

from

two years

30 years

some

which

include

options

extend the leases for up to

seven years

. Liabilities to make future lease payments are

recorded in accounts payable and other liabilities,

while right-of-use

(“ROU”) assets are

recorded in

other assets in

the Corporation’s

consolidated statements

of financial condition.

of December 31, 2021 and 2020, the Corporation did

t have a lease that qualifies as a finance lease.

Operating lease cost for the

year ended December 31, 2021

amounted to $

18.2

million (2020 - $

13.8

million; 2019 - $

10.7

million),

recorded in occupancy and equipment in the consolidated statement of

income.

Supplemental balance sheet information related to leases as of the indicated dates was as follows:

As of

December 31,

2021

2020

(Dollars in thousands)

ROU asset

90,319

103,186

Operating lease liability

93,772

106,502

Operating lease weighted-average remaining lease term (in years)

8.0

8.5

Operating lease weighted-average discount rate

2.24%

2.25%

Generally,

the

Corporation

cannot

practically

determine

the interest

rate

implicit

the lease.

Therefore,

the Corporation

uses

its

incremental borrowing rate as the discount rate for the lease.

Supplemental cash flow information related to leases was as follows:

Year

Ended

Year

Ended

December 31,

2021

2020

(In thousands)

Operating cash flow from operating leases

(1)

19,328

13,464

ROU assets obtained in exchange for operating lease liabilities

(2)

4,553

1,328

(1)

Represents cash paid for amounts included in the measurement of operating

lease liabilities.

(2)

Represents non-cash activity and, accordingly,

is not reflected in the consolidated statements

of cash flows. For the year ended December 31,

2020 excludes $

52.1

million ROU

assets and related liabilities assumed

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

247

Maturities under lease liabilities as of December 31, 2021, were as follows:

Amount

(Dollars in thousands)

2022

18,159

2023

16,369

2024

15,299

2025

14,296

2026

13,064

2027 and after

26,971

Total lease payments

104,158

Less: imputed interest

(10,386)

Total present value

of lease liability

93,772

NOTE 30 –

FAIR VALUE

Fair Value

Measurement

The FASB

authoritative

guidance

for fair

value measurement

defines fair

value as

the exchange

price that

would be

received for

asset or

paid to

transfer a

liability (an

exit price)

in the

principal or

most advantageous

market for

the asset

or liability

in an

orderly

transaction between

market participants on

the measurement date.

This guidance also

establishes a fair

value hierarchy for

classifying

financial

instruments.

The

hierarchy

based

whether

the

inputs

the

valuation

techniques

used

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.

Level 1

assets and

liabilities include

equity securities

that trade

in an active exchange

market, as well as

certain U.S. Treasury

and other U.S. government

and agency securities

and

corporate debt securities that are traded by dealers or brokers in active markets.

Level 2

Valuations

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

2 assets and liabilities

include (i) MBS for

which

the fair value is estimated based

on the value of identical or comparable

assets, (ii) debt securities with quoted

prices

that

are

traded

less

frequently

than

exchange-traded

instruments,

and

(iii)

derivative

contracts

whose

value

determined using a pricing

model with inputs that are

observable in the market

or can be derived principally

from or

corroborated by observable market data.

Level 3

Valuations

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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

248

Financial Instruments Recorded at Fair Value

on a Recurring Basis

Investment securities available for sale and marketable equity securities held at fair value

The fair value of investment securities was the market value based on quoted market

prices (as is the case with U.S. Treasury

notes,

non-callable U.S. agencies debt securities, and equity securities with readily determinable

fair values), when available (Level 1), or,

market prices for identical or comparable assets (as is the case with MBS and callable U.S.

agency debt securities) that are based on

observable market parameters, including benchmark yields, reported

trades, quotes from brokers or dealers, issuer spreads, bids, offers

and reference data, including market research operations,

when available (Level 2). Observable prices in the market already consider

the risk of nonperformance. If listed prices or quotes are not available,

fair value is based upon discounted cash flow models that use

unobservable inputs due to the limited market activity of the instrument,

as is the case with certain private label MBS held by the

Corporation (Level 3).

Derivative instruments

The

fair

value

most

the

Corporation’s

derivative

instruments

based

observable

market

parameters

and

takes

into

consideration

the

credit

risk

component

paying

counterparties,

when

appropriate.

On interest

caps,

only

the

seller's

credit

risk

considered.

The Corporation

valued

the caps

using

a discounted

cash flow

approach

based on

the related

LIBOR and

swap rate

for

each cash flow The Corporation

valued the interest rate swaps

using a discounted cash flow

approach based on the

related LIBOR and

swap forward rate for each cash flow.

The

Corporation

considers

credit

spread

for

those

derivative

instruments

that

are

not

secured.

The

cumulative

mark-to-market

effect of credit risk in the valuation of derivative instruments

in 2021, 2020 and 2019 was immaterial.

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

below as of December 31, 2021 and 2020:

As of December 31, 2021

As of December 31, 2020

Fair Value Measurements Using

(In thousands)

Level 1

Level 2

Level 3

Assets/Liabilities

at Fair Value

Level 1

Level 2

Level 3

Assets/Liabilities

at Fair Value

Assets:

Securities available for sale:

U.S. Treasury securities

148,486

7,507

Noncallable U.S. agencies debt securities

285,028

173,371

Callable U.S. agencies debt securities and MBS

6,009,163

4,454,164

Puerto Rico government obligations

2,850

2,899

Private label MBS

7,234

8,428

Other investments

1,000

650

Equity securities

5,378

1,474

Derivatives, included in assets:

Interest rate swap agreements

1,098

1,622

Purchased interest rate cap agreements

Forward contracts

102

Interest rate lock commitments

379

737

Forward loan sales commitments

Liabilities:

Derivatives, included in liabilities:

Interest rate swap agreements

1,092

1,639

Written interest rate cap agreements

Forward contracts

280

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

249

The table below presents a

reconciliation of the beginning and

ending balances of all assets and

liabilities measured at fair

value on

a recurring

basis using

significant unobservable

inputs (Level

3) for

the years

ended December

31, 2021,

2020,

and 2019:

2021

2020

2019

Level 3 Instruments Only

Securities Available

for Sale

(1)

Securities Available

for Sale

(1)

Securities Available

for Sale

(1)

(In thousands)

Beginning balance

11,977

14,590

17,238

Total gain (losses) (realized/unrealized):

Included in other comprehensive income

1,281

2,403

714

Included in earnings

136

(1,641)

(497)

BSPR securities acquired

150

Purchases

1,000

Principal repayments and amortization

(3,310)

(3,525)

(2,865)

Ending balance

11,084

11,977

14,590

___________________

(1)

Amounts mostly related to private label MBS.

The tables below present qualitative information for significant assets measured

at fair value on a recurring basis using

significant unobservable inputs (Level 3) as of December 31, 2021 and 2020:

December 31, 2021

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

(Dollars in thousands)

Minimum

Maximum

Investment securities available-for-sale:

Private label MBS

7,234

Discounted cash flows

Discount rate

12.9%

Prepayment rate

7.6%

24.9%

15.2%

Projected Cumulative Loss Rate

0.2%

15.7%

7.6%

Puerto Rico government obligations

2,850

Discounted cash flows

Discount rate

7.9%

Projected Cumulative Loss Rate

8.6%

December 31, 2020

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

(Dollars in thousands)

Minimum

Maximum

Investment securities available-for-sale:

Private label MBS

8,428

Discounted cash flows

Discount rate

12.2%

Prepayment rate

1.2%

18.8%

12.1%

Projected Cumulative Loss Rate

2.6%

22.3%

10.2%

Puerto Rico government obligations

2,899

Discounted cash flows

Discount rate

7.9%

Projected Cumulative Loss Rate

12.4%

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

250

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) in

the assumed rate

would lead to

a (lower) higher

fair value estimate.

The fair value

of these bonds

was based on

a discounted

cash flow

methodology that

considers the

structure and

terms of

the underlying

collateral. The

Corporation utilizes

PDs

and

LGDs

that

consider,

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

the PRHFA

guarantee. Under this approach,

all future cash flows (interest and

principal) from the underlying

collateral loans, adjusted

by prepayments and the

PDs and LGDs derived from

the above-described methodology,

are discounted at the internal

rate of return as

of the reporting date and compared to the amortized cost.

The table below summarizes changes in unrealized gains and losses recorded in

earnings for the years ended December 31, 2021,

2020 and 2019 for Level 3 assets and liabilities that were still held at the end of each

year:

Changes in Unrealized Losses

Year Ended

December 31,

2021

2020

2019

Level 3 Instruments Only

Securities Available

for Sale

Securities Available

for Sale

Securities Available

for Sale

(In thousands)

Changes in unrealized losses relating to assets

still held at reporting date:

OTTI on available-for-sale investment

securities (credit component)

(1)

(497)

Provision for credit losses - benefit (expense)

(2)

136

(1,641)

Total

136

(1,641)

(497)

(1)

For years 2021 and

2020, credit-related impairment

recognized in earnings

is classified as

provision for credit losses

due to the Corporation’s

adoption of CECL

on January 1,

2020. For

more information, see Note 1 – “Nature of Business and

Summary Significant of Accounting Policies,” above.

(2)

Prior to the Corporation’s

adoption of CECL on

January 1, 2020, the

provision for credit losses

from debt securities was

not applicable and therefore

no amount is presented

for the prior

period. For more information, see Note 1 – “Nature of Business

and Summary of Significant Accounting Policies,” above.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

251

Additionally,

fair value

is used

on a

nonrecurring

basis to

evaluate

certain

assets in

accordance

with

GAAP.

Adjustments

fair

value usually result from

the application of lower-of-cost

or market accounting (

e.g

., loans held for

sale carried at the lower-of-cost

fair value and repossessed assets) or write-downs of individual assets (

e.g

., goodwill and loans).

As of

December 31,

2021,

the Corporation

recorded losses

or valuation

adjustments for

assets recognized

at fair

value on

a non-

recurring basis as shown in the following table:

Carrying value as of December 31, 2021

Losses recorded for the Year

Ended

December 31, 2021

Level 1

Level 2

Level 3

(In thousands)

Loans receivable

(1)

161,302

(2,959)

OREO

(2)

40,848

(403)

(1)

Consists mainly of collateral dependent

commercial and construction loans.

The Corporation generally measured losses

on the fair value of the

collateral. The Corporation derived

the fair

values

from

external

appraisals

that

took

into

consideration

prices

observed

transactions

involving

similar

assets

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.

As of December 31,

2020, the Corporation recorded losses or valuation adjustments for assets recognized

at fair value on a non-

recurring basis as shown in the following table:

Carrying value as of December 31, 2020

Losses recorded for the Year

Ended

December 31, 2020

Level 1

Level 2

Level 3

(In thousands)

Loans receivable

(1)

246,803

(5,675)

OREO

(2)

83,060

(1,970)

(1)

Consists mainly

of collateral

dependent commercial

and construction

loans.

The Corporation

generally measured

losses 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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

252

As of December 31, 2019, the Corporation recorded losses or valuation

adjustments for assets recognized at fair value on a

nonrecurring basis as shown in the following table:

Carrying value as of December 31, 2019

Losses recorded for the Year

Ended

December 31, 2019

Level 1

Level 2

Level 3

(In thousands)

Loans receivable

(1)

217,252

(18,013)

OREO

(2)

101,626

(6,572)

(1)

Consists mainly of collateral dependent

commercial and construction loans.

The Corporation generally measured losses

on the fair value of

the collateral. The Corporation

derived the fair

values

from

external

appraisals

that

took

into

consideration

prices

observed

transactions

involving

similar

assets

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.

Qualitative information regarding the fair value measurements for Level 3 financial

instruments as of December 31, 2021 are as

follows:

December 31, 2021

Method

Inputs

Loans

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

OREO

Income, Market, Comparable

Sales, Discounted Cash Flows

External appraised values; probability weighting of broker price

opinions; management assumptions regarding market trends or other

relevant factors

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

fair value level of the hierarchy of

financial instruments as of December 31, 2021 and 2020:

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2021

Fair Value Estimate

as of December 31,

2021

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money

market investments (amortized cost)

2,543,058

Investment securities available

for sale (fair value)

6,453,761

148,486

6,294,191

11,084

Investment securities held to maturity (amortized

cost)

178,133

Less: allowance for credit losses on

held to maturity securities

(8,571)

Investment securities held to maturity, net of allowance

169,562

167,147

Equity securities (fair value)

32,169

5,378

26,791

Loans held for sale (lower of cost or market)

35,155

36,147

Loans, held for investment (amortized cost)

11,060,658

Less: allowance for credit losses for loans

and finance leases

(269,030)

Loans held for investment, net of allowance

10,791,628

10,900,400

Derivatives, included in assets (fair value)

1,505

Liabilities:

Deposits

(amortized cost)

17,784,894

17,800,706

Securities sold under agreements to

repurchase (amortized cost)

300,000

322,105

Advances from FHLB (amortized cost)

200,000

202,044

Other borrowings (amortized cost)

183,762

177,689

Derivatives, included in liabilities (fair

value)

1,178

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

253

Total Carrying

Amount in

Statement of Financial

Condition

as of December 31,

2020

Fair Value

Estimate as of

December 31, 2020

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money

market investments (amortized cost)

1,493,833

Investment securities available

for sale (fair value)

4,647,019

7,507

4,627,535

11,977

Investment securities held to maturity (amortized

cost)

189,488

Less: allowance for credit losses on

held to maturity securities

(8,845)

Investment securities held to maturity, net of allowance

180,643

173,806

Equity securities (fair value)

37,588

1,474

36,114

Loans held for sale (lower of cost or market)

50,289

52,322

Loans, held for investment (amortized cost)

11,777,289

Less: allowance for credit losses for loans

and finance leases

(385,887)

Loans held for investment, net of allowance

11,391,402

11,564,635

Derivatives, included in assets (fair value)

2,842

2,482

Liabilities:

Deposits (amortized cost)

15,317,383

15,363,236

Securities sold under agreements to

repurchase (amortized cost)

300,000

329,493

Advances from FHLB (amortized cost)

440,000

446,703

Other borrowings (amortized cost)

183,762

151,645

Derivatives, included in liabilities (fair

value)

1,920

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,

mortgage

servicing

rights,

core

deposit,

and

other

customer

relationship

intangibles,

are

not

considered

financial

instruments

and

are

not

included

above.

Accordingly,

this

fair

value

information

not

intended

to,

and

does

not,

represent

the

Corporation’s

underlying

value.

Many

these

assets

and

liabilities

that

are

subject

the

disclosure

requirements

are

not

actively

traded, requiring

management to estimate

fair values.

These estimates necessarily

involve the

use of assumptions

and judgment about

a wide

variety

of factors,

including

but not

limited to,

relevancy

of market

prices of

comparable

instruments,

expected futures

cash

flows, and appropriate discount rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

254

NOTE 31 – 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.

To determine

revenue recognition for arrangements

that an

entity

determines

are

within

the

scope

ASC

Topic

606,

the

Corporation

performs

the

following

five

steps:

(i)

identifies

the

contract(s)

with

customer;

(ii)

identifies

the

performance

obligations

the

contract;

(iii)

determines

the

transaction

price;

(iv)

allocates the transaction

price to the

performance obligations in

the contract; and

(v) recognizes revenue

when (or as)

the Corporation

satisfies a

performance

obligation.

The Corporation

only

applies the

five-step

model

to contracts

when

it is

probable

that the

entity

will

collect

the

consideration

which

entitled

exchange

for

the

goods

services

transfers

the

customer.

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

those

that

contain

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

revenue

the

amount

the

transaction

price

that

allocated

the

respective performance obligation when (or as) the performance

obligation is satisfied.

Disaggregation of Revenue

The following

tables summarizes

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 years ended December 31, 2021, 2020 and 2019:

Year ended December

31, 2021:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Service charges and fees on deposit accounts

20,083

11,807

555

2,839

35,284

Insurance commissions

11,166

114

665

11,945

Merchant-related income

6,279

1,079

1,055

8,464

Credit and debit card fees

26,360

1,602

28,064

Other service charges and fees

771

4,185

2,640

1,825

556

9,977

Not in scope of ASC Topic

606

(1)

23,507

1,701

423

227

1,399

173

27,430

Total non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Total Revenue

128,916

351,477

207,949

59,558

69,930

33,263

851,093

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

255

Year ended December

31, 2020:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

76,025

220,678

135,591

87,879

54,025

26,124

600,322

Service charges and fees on deposit accounts

13,286

8,026

553

2,747

24,612

Insurance commissions

8,754

558

9,364

Merchant-related income

4,516

478

809

5,844

Credit and debit card fees

18,218

1,469

19,765

Other service charges and fees

342

2,900

2,260

184

1,800

1,508

8,994

Not in scope of Topic 606

(1)(2)

21,727

3,288

1,780

13,524

2,168

160

42,647

Total non-interest income

22,069

50,962

12,606

13,708

4,630

7,251

111,226

Total Revenue

98,094

271,640

148,197

101,587

58,655

33,375

711,548

Year ended December

31, 2019:

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial and

Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income

(1)

68,803

244,535

91,266

73,626

62,539

26,312

567,081

Service charges and fees on deposit accounts

14,534

5,811

631

2,940

23,916

Insurance commissions

9,621

498

10,186

Merchant-related income

4,120

466

1,049

5,635

Credit and debit card fees

19,014

104

1,744

20,905

Other service charges and fees

216

3,012

2,690

1,558

1,313

8,789

Not in scope of Topic 606 (1)

16,609

1,428

2,643

(225)

508

178

21,141

Total non-interest income

16,825

51,729

11,714

(225)

2,807

7,722

90,572

Total Revenue

85,628

296,264

102,980

73,401

65,346

34,034

657,653

(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.

(2)

For the

year ended December

31, 2020, includes

a $

5.0

million benefit resulting

from the final

settlement of the

Corporation’s business

interruption insurance

claim

related to

lost

profits caused

by Hurricanes

Irma and

Maria in

2017.

This insurance

recovery is

presented as

part of

other

non-interest income

in the

consolidated statements of income.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

256

For

2021,

2020,

and

2019,

substantially

all

the

Corporation’s

revenue

within

the

scope

ASC

Topic

606

was

performance obligations satisfied at a point in time.

The following is a discussion of the revenues under the scope of ASC Topic

606.

Service Charges and Fees on Deposit Accounts

Service

charges

and fees

on deposit

accounts

relate to

fees generated

from a

variety of

deposit products

and

services rendered

customers. Charges

include, but

are not

limited to,

overdraft fees,

insufficient

fund fees,

dormant fees,

and monthly

service charges.

Such fees are recognized concurrently

with the event on a daily basis

or on a monthly basis depending

upon the customer’s cycle

date.

These

depository

arrangements are

considered

day-to-day

contracts that

do not

extend beyond

the services

performed,

as customers

have the right to terminate these contracts with no penalty or,

if any, nonsubstantive penalties.

Insurance Commissions

For

insurance

commissions,

which

include

regular

and

contingent

commissions

paid

the

Corporation’s

insurance

agency,

the

agreements

contain

performance

obligation

the

sale/issuance

the

policy

and

ancillary

administrative

post-issuance

support.

The performance

obligations

are

satisfied

when

the policies

are

issued, and

revenue

is recognized

that point

time.

addition,

contingent

commission

income

may

considered

constrained,

defined

under

ASC

Topic

606.

Contingent

commission income is included

in the transaction price

only to the extent that

it is probable that a

significant reversal in the

amount of

cumulative revenue

recognized will not

occur or

payments are received

For the years

ended December

31, 2021, 2020

and 2019,

the

Corporation recognized revenue

at the time that

payments were confirmed

and constraints were

released of $

3.3

million, $

3.3

million,

and $

3.0

million, respectively.

Merchant-related

Income

For

merchant-related

income,

the

determination

which

included

the

consideration

2015

sale

merchant

contracts

that

involved

sales

point

sale

(“POS”)

terminals

and

entry

into

marketing

alliance

under

revenue-sharing

agreement,

the

Corporation

concluded

that

control

the

POS

terminals

and

merchant

contracts

was

transferred

the

customer

the

contract’s

inception.

With

respect

the

revenue-sharing

agreement,

the

Corporation

satisfies

the

marketing

alliance

performance

obligation over

the life of

the contract,

and recognizes the

associated transaction price

as the entity

performs and any

constraints over

the variable consideration are resolved.

Credit and Debit Card

Fees

Credit

and

debit

card

fees

primarily

represent

revenues

earned

from

interchange

fees

and

ATM

fees.

Interchange

and

network

revenues are earned on credit and

debit card transactions conducted with

payment networks. ATM

fees are primarily earned as a

result

of surcharges

assessed to

non-FirstBank customers

who use

a FirstBank

ATM.

Such fees

are generally

recognized concurrently

with

the delivery of services on a daily basis.

Other Fees

Other fees primarily

include revenues generated

from wire transfers,

lockboxes, bank

issuances of checks

and trust fees

recognized

from

transfer

paying

agent,

retirement

plan,

and

other

trustee

activities.

Revenues

are

recognized

recurring

basis

when

the

services are rendered.

Contract Balances

contract

liability

entity’s

obligation

transfer

goods

services

customer

exchange

for

consideration

from

the

customer.

During

the

year

ended

December

31,

2019,

the Bank

entered

into

growth

agreement

with

international

card

service

association to

expand the

customer base

and enhance

product offerings.

The primary

performance obligation

of this contract

required

the

Bank

either

launch

new debit

card

product

2021,

maintain

ratio

over

% of

the

portfolio

with

the related

card

service association

by the

year ended

December 31,

2021. In

connection with

this agreement,

the Corporation

recognized a

contract

liability as the revenue is constrained until the fulfillment

of either of the above conditions.

During the year ended December 31, 2021,

the

Bank

successfully

launched

the

new

debit

card

product

required

and

recognized

revenues of

0.4

million

from

this contract.

addition,

discussed

above,

during

2015,

the

Bank

entered

into

long-term

strategic

marketing

alliance

under

revenue-sharing

agreement

with another

entity to

which the

Bank sold

its merchant

contracts portfolio

and related

POS terminals.

Merchant services

are marketed

through the

Bank’s

branches

and offices

in Puerto

Rico and

the Virgin

Islands.

Under the

revenue-sharing

agreement,

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

257

FirstBank

with

this

entity

revenues

generated

the

merchant

contracts

over

the

term

the

-year

agreement.

December 31, 2021

and 2020, the contract

liability amounted to approximately

1.1

million and $

1.4

million, respectively,

which will

recognized

over

the

remaining

term

the

contract.

For

the

years

ended

December

31,

2021,

2020,

and

2019,

the

Corporation

recognized

revenue and

its contract

liabilities decreased

by approximately

0.7

million, $

0.3

million, and

0.3

million, respectively,

due

the

completion

performance

over

time.

There

were

changes

contract

liabilities

due

changes

transaction

price

estimates.

The following table shows the activity of contract liabilities for the years ended

December 31, 2021, 2020 and 2019:

(In thousands)

2021

2020

2019

Beginning Balance

2,151

2,476

2,071

Plus:

Additions

730

Less:

Revenue recognized

(708)

(325)

Ending balance

1,443

2,151

2,476

A contract

asset is

the right

to consideration

for transferred

goods or

services when

the amount

is conditioned

on something

other

than

the

passage

time.

As of

December 31, 2021

and

2020,

there

were

receivables

from

contracts

with

customers

contract

assets recorded on the Corporation’s

consolidated financial statements.

Other

Except for the contract liabilities noted above, the Corporation did

not have any significant performance obligations as of December

31, 2021.

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)

258

NOTE 32 –

SUPPLEMENTAL STATEMENT OF

CASH FLOWS

INFORMATION

Supplemental

statement

of cash

flows information

is as follows

for the

indicated

periods:

Year

Ended December 31,

2021

2020

2019

(In thousands)

Cash paid for:

Interest on borrowings

68,668

94,872

107,010

Income tax

15,477

16,713

13,495

Operating cash flow from operating leases

19,328

13,464

10,219

Non-cash investing and financing activities:

Additions to OREO

19,348

7,249

40,398

Additions to auto and other repossessed assets

33,408

36,203

47,643

Capitalization of servicing assets

5,194

4,864

4,039

Loan securitizations

191,434

221,491

235,258

Loans held for investment transferred to held for sale

33,010

10,817

24,470

Payable related to unsettled purchases of available-for-sale

investment

24,033

ROU asset obtained in exchange for operating lease liabilities

4,553

1,328

10,762

Adoption of lease accounting standard:

ROU asset operating leases

57,178

Operating lease liabilities

59,818

Acquisition (see Note 2):

Consideration

584

1,280,424

Fair value of assets acquired

605

5,561,564

Liabilities assumed

4,291,674

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

259

NOTE 33 –

REGULATORY MATTERS, COMMITMENTS,

AND CONTINGENCIES

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. As of

December 31, 2021, and 2020,

the Corporation and FirstBank exceeded

the minimum regulatory capital

ratios

for

capital

adequacy

purposes

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

considered

well

capitalized

institution under

the regulatory framework

for prompt corrective

action. As of

December 31, 2021,

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

an additional

capital

conservation

buffer

2.5

% to

avoid

limitations on

both (i)

capital distributions

(

e.g.

, repurchases

of capital

instruments,

dividends

and interest payments

on capital

instruments) and

(ii)

discretionary bonus payments to executive officers and

heads of major business lines.

Under

the

Basel

III

rules,

order

considered

adequately

capitalized

and

not

subject

the

above

noted

limitations,

the

Corporation

is required

to maintain:

(i) a

minimum Common

Equity Tier

1 (“CET1”)

capital to

risk-weighted assets

ratio of

at least

4.5

%, plus the

2.5

% “capital conservation

buffer,”

resulting in a

required minimum CET1

capital ratio of

at least

%; (ii) a

minimum

ratio of

total Tier

1 capital

to risk-weighted

assets of

at least

6.0

%, plus

the

2.5

% capital

conservation buffer,

resulting in

a required

minimum Tier

1 capital ratio

8.5

%; (iii) a minimum

ratio of total Tier

1 plus Tier

2 capital to

risk-weighted assets of

at least

8.0

plus the

2.5

% capital

conservation buffer,

resulting in

a required

minimum total

capital ratio

10.5

%; and

(iv) a

required minimum

leverage ratio of

%, calculated as the ratio of Tier 1 capital to average on-balance

sheet (non-risk adjusted) assets.

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, at the

election of

a qualified

banking organization,

the day 1

impact to retained

earnings plus

% of

the change

in the

ACL (excluding

PCD loans)

from January

1, 2020 to

December 31,

2021 will

be delayed

for

two years and phased-in at

% per year beginning on January

1, 2022 over a three-year period, resulting

in a total transition period of

five years. Accordingly,

as of December 31, 2021,

the capital measures of the Corporation

and the Bank excluded

64.8

million (to be

phased-in

during

the next

three years)

that

represents

the CECL

day

impact

retained

earnings

plus

% of

the increase

the

allowance

for

credit

losses (as

defined

the

interim

final rule)

from

January

2020

to December

31,

2021.

The

federal financial

regulatory agencies may

take other measures

affecting regulatory capital

to address the COVID-19

pandemic, although the

nature and

impact of such measures cannot be predicted at this time.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

260

The regulatory

capital position of

the Corporation and

the Bank as

of December 31,

2021 and 2020,

which reflects the

delay in the

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 December 31, 2021

Total Capital (to

risk-weighted assets)

First BanCorp.

2,433,953

20.50%

949,637

8.0%

N/A

FirstBank

2,401,390

20.23%

949,556

8.0%

1,186,944

10.0%

CET1 Capital

(to risk-weighted assets)

First BanCorp.

2,112,630

17.80%

534,171

4.5%

N/A

FirstBank

2,150,317

18.12%

534,125

4.5%

771,514

6.5%

Tier I Capital (to

risk-weighted assets)

First BanCorp.

2,112,630

17.80%

712,228

6.0%

N/A

FirstBank

2,258,317

19.03%

712,167

6.0%

949,556

8.0%

Leverage ratio

First BanCorp.

2,112,630

10.14%

833,091

4.0%

N/A

FirstBank

2,258,317

10.85%

832,773

4.0%

1,040,967

5.0%

As of December 31, 2020

Total Capital (to

risk-weighted assets)

First BanCorp.

2,416,682

20.37%

948,890

8.0%

N/A

FirstBank

2,360,493

19.91%

948,624

8.0%

1,185,780

10.0%

CET1 Capital

(to risk-weighted assets)

First BanCorp.

2,053,045

17.31%

533,751

4.5%

N/A

FirstBank

1,903,251

16.05%

533,601

4.5%

770,757

6.5%

Tier I Capital (to

risk-weighted assets)

First BanCorp.

2,089,149

17.61%

711,667

6.0%

N/A

FirstBank

2,211,251

18.65%

711,468

6.0%

948,624

8.0%

Leverage ratio

First BanCorp.

2,089,149

11.26%

742,352

4.0%

N/A

FirstBank

2,211,251

11.92%

741,841

4.0%

927,301

5.0%

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

credit as of the indicated dates:

December 31,

2021

2020

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

197,917

119,900

Unused personal lines of credit

1,180,824

1,180,860

Commercial lines of credit

725,259

759,947

Commercial letters of credit

151,140

135,987

Standby letters of credit

4,342

4,964

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

261

The

Corporation’s

exposure

credit

loss

the

event

nonperformance

the

other

party

the

financial

instrument

commitments to extend credit

and standby letters of credit

is represented by the contractual amount

of those instruments. Management

uses the same

credit policies

and approval process

in entering into

commitments and

conditional obligations

as it does

for on-balance

sheet instruments.

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

other

termination

clauses.

Since

certain

commitments

are

expected to

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.

In the case of credit cards and personal lines of credit,

the Corporation can cancel the unused credit facility at any

time

and without cause.

general,

commercial

and

standby

letters

credit

are

issued

facilitate

foreign

and

domestic

trade

transactions.

Normally,

commercial and standby

letters of credit

are short-term commitments

used to finance

commercial contracts for

the shipment of goods.

The

collateral

for

these

letters

credit

includes

cash

available

commercial

lines

credit.

The

fair

value

commercial

and

standby letters

of credit

is based

on the

fees currently

charged for

such agreements,

which, as

of December 31,

2021 and

2020, were

not significant.

The

Corporation

obtained

from

GNMA

commitment

authority

issue

GNMA

MBS. Under

this

program,

for

2021,

the

Corporation sold approximately $

191.4

million (2020 - $

221.5

million) of FHA/VA

mortgage loan production into GNMA MBS.

As of

December 31,

2021, 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

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 December 31, 2021, no such disclosures were necessary.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

262

NOTE 34 – DERIVATIVE

INSTRUMENTS AND HEDGING ACTIVITIES

One of

the market

risks facing

the Corporation

is interest

rate risk,

which includes

the risk that

changes in

interest rates

will result

in changes in the value of

the Corporation’s assets or

liabilities and will adversely

affect the Corporation’s

net interest income from its

loan

and

investment

portfolios.

The

overall

objective

the

Corporation’s

interest

rate

risk

management

activities

reduce

the

variability of earnings caused by changes in interest rates.

The Corporation designates

a derivative as a

fair value hedge, cash

flow hedge or economic

undesignated hedge when

it enters into

the

derivative

contract.

December

31,

2021

and

2020,

all

derivatives

held

the

Corporation

were

considered

economic

undesignated

hedges.

The

Corporation

records

these

undesignated

hedges

fair value

with

the

resulting

gain

or loss

recognized

current earnings.

The following summarizes the principal derivative activities used by

the Corporation in managing interest rate risk:

Interest rate cap

agreements

– Interest rate cap agreements

provide the right to receive

cash if a reference interest rate

rises above a

contractual rate.

The value of

the interest

rate cap increases

as the

reference interest

rate rises. The

Corporation enters

into interest

rate cap agreements for protection from rising interest rates.

Forward

Contracts

–

Forward

contracts

are

primarily

sales

to-be-announced

(“TBA”)

MBS

that

will

settle

over

the

standard

delivery

date

and

not

qualify

“regular

way”

security

trades.

Regular-way

security

trades

are

contracts

that

have

net

settlement provision and no market

mechanism to facilitate net settlement

and that provide for delivery

of a security within the time

frame

generally

established

regulations

conventions

the

marketplace

exchange

which

the

transaction

being

executed.

The forward

sales are

considered

derivative

instruments

that need

to be

marked

to market.

The Corporation

uses these

securities

economically

hedge

the

FHA/VA

residential

mortgage

loan

securitizations

the mortgage

-banking

operations.

The

Corporation

also

reports

as forward

contracts

the mandatory

mortgage

loan

sales commitments

that

it enters

into with

GSEs that

require or

permit net settlement

via a pair-off

transaction or the

payment of

a pair-off

fee. Unrealized gains

(losses) are recogni

zed

as part of mortgage banking activities in the consolidated statements of

income.

Interest

Rate

Lock

Commitments

–

Interest

rate

lock

commitments

are

agreements

under

which

the

Corporation

agrees to

extend

credit to a borrower under

certain specified terms and conditions in

which the interest rate and the maxim

um amount of the loan are

set prior to funding.

Under the agreement,

the Corporation commits

to lend funds to

a potential borrower,

generally on a fixed

rate

basis, regardless of whether interest rates change in the market.

Interest rate swaps

– The Corporation acquired interest rate swaps as a result of the acquisition of

BSPR. An interest rate swap is an

agreement

between

two

entities

exchange

cash

flows

the

future.

The

agreements

acquired

from

BSPR

consist

the

Corporation offering

borrower-facing derivative

products using a

“back-to-back” structure

in which the

borrower-facing derivative

transaction is paired

with an identical, offsetting

transaction with an

approved dealer-counterparty.

By using a back-to-back

trading

structure, both

the commercial

borrower and

the Corporation

are largely

insulated from

market risk

and volatility.

The agreements

set the

dates on

which

the cash

flows will

be paid

and

the manner

in which

the cash

flows will

be calculated.

The fair

values of

these swaps

are recorded

as components

of other

assets or

accounts payable

and other

liabilities in

the Corporation’s

consolidated

statements of financial

condition. Changes in

the fair values of

interest rate swaps,

which occur due

to changes in interest

rates, are

recorded in the consolidated statements of income as a component of interest income

on loans.

satisfy

the

needs

its

customers,

the

Corporation

may

enter

into

non-hedging

transactions.

these

transactions,

the

Corporation generally participates as

a buyer in one

of the agreements and

as a seller in the

other agreement under

the same terms and

conditions.

In addition, the Corporation

enters into certain contracts

with embedded derivatives that

do not require separate accounting

as these

are clearly and closely

related to the economic

characteristics of the host

contract. When the embedded

derivative possesses economic

characteristics that are not clearly and closely related

to the economic characteristics of the host contract,

it is bifurcated, carried at fair

value, and designated as a trading or non-hedging derivative instrument.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

263

The following table summarizes the notional amounts of all derivative instruments as of the

indicated dates:

Notional Amounts

(1)

As of December 31,

2021

2020

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

12,588

15,864

Written interest rate cap agreements

14,500

Purchased interest rate cap agreements

14,500

Interest rate lock commitments

12,097

19,931

Forward Contracts:

Sale of TBA GNMA MBS pools

27,000

42,000

Forward loan sales commitments

12,668

19,998

93,353

126,793

(1) Notional amounts are presented on a gross basis with no netting of offsetting

exposure positions.

The following table summarizes for derivative instruments their fair values and

location in the consolidated statements of financial

condition as of the indicated dates:

Asset Derivatives

Liability Derivatives

Statements of

December 31,

Financial Condition

2021

2020

Statements of

2021

2020

Location

Fair Value

Financial Condition Location

Fair Value

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

Other assets

1,098

1,622

Accounts payable and other liabilities

1,092

1,639

Written interest rate cap agreements

Other assets

Accounts payable and other liabilities

Purchased interest rate cap agreements

Other assets

Accounts payable and other liabilities

Interest rate lock commitments

Other assets

379

737

Accounts payable and other liabilities

Forward Contracts:

Sales of TBA GNMA MBS pools

Other assets

102

Accounts payable and other liabilities

280

Forward loan sales commitments

Other assets

Accounts payable and other liabilities

1,505

2,482

1,178

1,920

The following table summarizes the effect of derivative instruments

on the consolidated statements of income for the indicated

periods:

Gain (or Loss)

Location of Unrealized Gain (Loss)

Year ended

on Derivative Recognized in

December 31,

Statements of Income

2021

2020

2019

(In thousands)

Undesignated economic hedges:

Interest rate contracts:

Interest rate swap agreements

Interest income - Loans

Written and purchased interest rate cap agreements

Interest income - Loans

(6)

Interest rate lock commitments

Mortgage Banking Activities

(687)

576

224

Forward contracts:

Sales of TBA GNMA MBS pools

Mortgage Banking Activities

114

(54)

245

Forward loan sales commitments

Mortgage Banking Activities

(37)

Total (loss) gain on derivatives

(550)

512

471

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

264

Derivative

instruments

are

subject

market

risk.

the

case

with

investment

securities,

the

market

value

derivative

instruments

is largely

function

the financial

market’s

expectations

regarding

the future

direction

of interest

rates.

Accordingly,

current market

values are

not necessarily

indicative of

the future

impact of

derivative instruments

on earnings.

This will

depend, for

the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations

for rates in the future.

As of

December 31,

2021, the

Corporation had

not entered

into any

derivative instrument

containing credit-risk-related

contingent

features.

Credit and Market Risk of Derivatives

The

Corporation

uses

derivative

instruments

manage

interest

rate

risk.

using

derivative

instruments,

the

Corporation

exposed to

credit and market

risk. If the

counterparty fails to

perform, credit

risk is equal

to the extent

of the Corporation’s

fair value

gain on the derivative.

When the fair value of a derivative instrument contract is positive, this generally

indicates that the counterparty

owes

the

Corporation

which,

therefore,

creates

credit

risk

for

the

Corporation.

When

the

fair

value

derivative

instrument

contract is

negative, the

Corporation owes

the counterparty

and, therefore,

it has

no credit risk.

The Corporation

minimizes its credit

risk in

derivative instruments

by entering

into transactions

with reputable

broker dealers

(

i.e.,

financial institutions)

that are

reviewed

periodically by

the Management Investment

and Asset Liability

Committee of

the Corporation

(the “MIALCO”)

and by the

Board of

Directors.

The

Corporation

also

has

policy

requiring

that

all

derivative

instrument

contracts

governed

International

Swaps

and

Derivatives

Association

Master

Agreement,

which

includes

provision

for

netting.

The

Corporation

has

policy

diversifying derivatives counterparties to reduce the consequences of counterparty

default.

The

Corporation

had

credit

risk

1.5

million

December

31,

2021

(2020 - $

2.5

million)

derivative

instruments

with

positive

fair

values.

The

credit

risk

does

not

consider

the

value

any

collateral

and

the

effects

legally

enforceable

master

netting agreements. There were

credit losses associated with derivative instruments recognized in 2021,

2020, or 2019.

Market risk is

the adverse effect

that a change

in interest rates

or implied volatility

rates has on

the value of

a financial instrument.

The Corporation

manages the

market risk

associated with

interest rate

contracts by

establishing and

monitoring limits

as to

the types

and degree of risk that may be undertaken.

The

MIALCO

monitors

the

Corporation’s

derivative

activities

part

its

risk-management

oversight

the

Corporation’s

treasury functions.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

265

NOTE 35 – OFFSETTING OF ASSETS AND LIABILITIES

The

Corporation

enters

into

master

agreements

with

counterparties,

primarily

derivatives

and

repurchase

agreements,

that may allow for netting

of exposures in the event

of default. In an event

of default, each party has

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. The

following tables present information

about contracts subject to offsetting

provisions related to financial

assets and liabilities as well as derivative assets and liabilities, as of the indicated dates:

Offsetting of Financial Assets and Derivative Assets

As of December 31, 2021

Gross Amounts Not Offset

in the Statement of

Financial Condition

Net Amounts of

Assets Presented in

the Statement of

Financial

Condition

Gross

Amounts of

Recognized

Assets

Gross Amounts

Offset in the

Statement of

Financial

Condition

Financial

Instruments

Cash

Collateral

Net Amount

(In thousands)

Description

Derivatives

(8)

As of December 31, 2020

Gross Amounts Not Offset

in the Statement of

Financial Condition

Net Amounts of

Assets Presented in

the Statement of

Financial

Condition

Gross

Amounts of

Recognized

Assets

Gross Amounts

Offset in the

Statement of

Financial

Condition

Financial

Instruments

Cash

Collateral

Net Amount

(In thousands)

Description

Derivatives

(89)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

266

Offsetting of Financial Liabilities and Derivative Liabilities

As of December 31, 2021

Gross Amounts Not Offset

in the Statement of Financial

Condition

Net Amounts of

Liabilities

Presented in the

Statement of

Financial

Condition

Gross Amounts

of Recognized

Liabilities

Gross

Amounts

Offset in the

Statement of

Financial

Condition

Financial

Instruments

Cash

Collateral

Net

Amount

(In thousands)

Description

Derivatives

1,170

(1,170)

Securities sold under agreements to repurchase

300,000

(300,000)

Total

301,170

(301,170)

As of December 31, 2020

Gross Amounts Not Offset

in the Statement of Financial

Condition

Net Amounts of

Liabilities

Presented in the

Statement of

Financial

Condition

Gross Amounts

of Recognized

Liabilities

Gross

Amounts

Offset in the

Statement of

Financial

Condition

Financial

Instruments

Cash

Collateral

Net

Amount

(In thousands)

Description

Derivatives

1,919

(1,919)

Securities sold under agreements to repurchase

300,000

(300,000)

Total

301,919

(301,919)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

267

NOTE 36 –

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.

December

31,

2021,

the

Corporation

had

six

reportable segments: Commercial and

Corporate Banking; Mortgage Banking;

Consumer (Retail) 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

Commercial

and

Corporate

Banking

segment

consists

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,

as well

as other

products, such

cash

management

and

business

management

services.

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage

Banking

segment

also

acquires

and

sells

mortgages

the

secondary

markets.

addition,

the

Mortgage

Banking

segment

includes

mortgage

loans

purchased

from

other

local

banks

and

mortgage

bankers.

The

Consumer

(Retail)

Banking

segment

consists

the

Corporation’s

consumer

lending

and

deposit-taking

activities conducted mainly

through its branch network

and loan centers. The

Treasury and Investments

segment is 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,

Mortgage

Banking,

Consumer

(Retail)

Banking,

and

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,” above.

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.

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)

For the year ended December 31, 2021:

Interest income

144,203

271,127

201,684

67,841

82,194

27,659

794,708

Net (charge) credit for transfer of funds

(39,565)

38,859

(9,767)

14,687

(4,214)

Interest expense

(28,283)

(23,197)

(12,013)

(1,286)

(64,779)

Net interest income

104,638

281,703

191,917

59,331

65,967

26,373

729,929

Provision for credit losses - (benefit) expense

(16,030)

20,322

(67,544)

(136)

(975)

(1,335)

(65,698)

Non-interest income

24,278

69,774

16,032

227

3,963

6,890

121,164

Direct non-interest expenses

29,125

165,357

36,219

4,093

33,902

28,084

296,780

Segment income

115,821

165,798

239,274

55,601

37,003

6,514

620,011

Average earnings assets

2,506,365

2,551,278

3,793,945

7,827,326

2,126,528

430,499

19,235,941

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

268

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

For the year ended December 31, 2020:

Interest income

128,043

240,725

155,254

55,003

84,169

29,788

692,982

Net (charge) credit for transfer of funds

(52,018)

18,771

(19,663)

59,074

(6,164)

Interest expense

(38,818)

(26,198)

(23,980)

(3,664)

(92,660)

Net interest income

76,025

220,678

135,591

87,879

54,025

26,124

600,322

Provision for credit losses - expense

22,518

54,094

74,607

2,774

12,592

4,400

170,985

Non-interest income

22,069

50,962

12,606

13,708

4,630

7,251

111,226

Direct non-interest expenses

33,054

131,133

28,631

3,449

33,782

28,815

258,864

Segment income

42,522

86,413

44,959

95,364

12,281

160

281,699

Average earnings assets

2,241,753

2,202,595

3,039,786

4,232,144

2,026,619

458,608

14,201,505

Mortgage

Banking

Consumer (Retail)

Banking

Commercial

and Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

For the year ended December 31, 2019:

Interest income

120,981

216,066

148,224

63,175

97,406

30,045

675,897

Net (charge) credit for transfer of funds

(52,178)

66,675

(56,958)

47,477

(5,016)

Interest expense

(38,206)

(37,026)

(29,851)

(3,733)

(108,816)

Net interest income

68,803

244,535

91,266

73,626

62,539

26,312

567,081

Provision for credit losses - expense (benefit)

13,499

41,043

(17,977)

7,296

(4,048)

39,813

Non-interest income (loss)

16,825

51,729

11,714

(225)

2,807

7,722

90,572

Direct non-interest expenses

34,825

116,854

35,130

2,729

34,070

28,995

252,603

Segment income

37,304

138,367

85,827

70,672

23,980

9,087

365,237

Average earnings assets

2,161,772

1,960,352

2,489,933

2,487,084

1,931,015

467,252

11,497,408

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

periods:

Year Ended

December 31,

2021

2020

2019

(In thousands)

Net income:

Total income for segments

620,011

281,699

365,237

Other operating expenses (1)

192,194

165,376

125,865

Income before income taxes

427,817

116,323

239,372

Income tax expense

146,792

14,050

71,995

Total consolidated net income

281,025

102,273

167,377

Average assets:

Total average earning assets for segments

19,235,941

14,201,505

11,497,408

Average non-earning assets

1,067,092

1,031,141

954,726

Total consolidated average assets

20,303,033

15,232,646

12,452,134

(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)

269

The following table presents revenues (interest income plus non-interest income) and selected balance sheet data by geography based on

the location in which the transaction was originated as of indicated dates:

2021

2020

2019

(In thousands)

Revenues:

Puerto Rico

795,166

678,370

628,489

United States

86,157

88,799

100,213

Virgin Islands

34,549

37,039

37,767

Total consolidated revenues

915,872

804,208

766,469

Selected Balance Sheet Information:

Total assets:

Puerto Rico

18,175,910

16,091,112

10,059,890

United States

2,189,440

2,117,966

2,048,260

Virgin Islands

419,925

583,993

503,116

Loans:

Puerto Rico

8,755,434

9,367,032

6,695,953

United States

1,948,716

1,993,797

1,879,346

Virgin Islands

391,663

466,749

466,383

Deposits:

Puerto Rico (1)

14,113,874

12,338,934

6,422,864

United States (2)

1,928,749

1,622,481

1,661,657

Virgin Islands

1,742,271

1,355,968

1,263,908

(1)

For 2021, 2020, and 2019, includes $

34.2

million, $

109.0

million, and $

243.4

million, respectively, of brokered

CDs allocated to Puerto Rico operations.

(2)

For 2021, 2020, and 2019 includes $

66.2

million, $

107.1

million, and $

191.7

million, respectively, of brokered CDs

allocated to the United States operations.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

270

NOTE 37-

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

as of December 31, 2021

and 2020, and the

results of its operations

and cash flows for

the years ended December

31, 2021, 2020, and

2019:

Statements of Financial Condition

As of December 31,

2021

2020

(In thousands)

Assets

Cash and due from banks

20,751

10,909

Money market investments

6,211

Other investment securities

285

Investment in First Bank Puerto Rico, at equity

2,247,289

2,396,963

Investment in First Bank Insurance Agency,

at equity

19,521

41,313

Investment in FBP Statutory Trust I

1,951

Investment in FBP Statutory Trust II

3,561

Other assets

366

2,023

Total assets

2,293,724

2,463,216

Liabilities and Stockholders' Equity

Liabilities:

Other borrowings

183,762

Accounts payable and other liabilities

8,195

4,275

Total liabilities

191,957

188,037

Stockholders' equity

2,101,767

2,275,179

Total liabilities and stockholders'

equity

2,293,724

2,463,216

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

271

Statements of Income

Year

Ended December 31,

2021

2020

2019

(In thousands)

Income

Interest income on money market investments

233

Dividend income from banking subsidiaries

98,060

52,707

42,243

Dividend income from non-banking subsidiaries

30,000

Other income

154

439

283

128,265

53,217

42,759

Expense

Other borrowings

5,135

6,355

9,424

Other operating expenses

1,929

2,097

2,131

7,064

8,452

11,555

Gain on early extinguishment of debt

Income before income taxes and equity

in undistributed earnings of subsidiaries

121,201

44,859

31,204

Income tax expense

2,854

2,429

2,752

Equity in undistributed earnings of subsidiaries

162,678

59,843

138,925

Net income

281,025

102,273

167,377

Other comprehensive (loss) income, net of tax

(139,454)

48,691

47,179

Comprehensive income

141,571

150,964

214,556

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS-(Continued)

272

Statements of Cash Flows

Year Ended December 31,

2021

2020

2019

(In thousands)

Cash flows from operating activities:

Net income

281,025

102,273

167,377

Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation

149

231

314

Equity in undistributed earnings of subsidiaries

(162,678)

(59,843)

(138,925)

Gain on early extinguishment of debt

(94)

Net decrease (increase) in other assets

1,657

(1,514)

11,710

Net increase (decrease) in other liabilities

3,578

(459)

526

Net cash provided by operating activities

123,731

40,594

41,002

Cash flows from investing activities:

Return of capital from wholly-owned subsidiaries

(1)

200,000

Net cash provided by investing activities

200,000

Cash flows from financing activities:

Repurchase of common stock

(216,522)

(206)

(1,959)

Repayment of junior subordinated debentures

(282)

Dividends paid on common stock

(65,021)

(43,416)

(30,356)

Dividends paid on preferred stock

(2,453)

(2,676)

Redemption of preferred stock - Series A through E

(36,104)

Net cash used in financing activities

(320,100)

(46,580)

(34,991)

Net increase (decrease) in cash and cash equivalents

3,631

(5,986)

6,011

Cash and cash equivalents at beginning of the year

17,120

23,106

17,095

Cash and cash equivalents at end of year

20,751

17,120

23,106

Cash and cash equivalents include:

Cash and due from banks

20,751

10,909

16,895

Money market instruments

6,211

20,751

17,120

23,106

(1)

During 2021 First Bank of Puerto Rico, a wholly-owned subsidiary of First BanCorp., redeemed $

200

million or

million shares of its preferred stock.

NOTE 38 –

SUBSEQUENT

EVENTS

The Corporation has performed an evaluation of all events occurring

subsequent to December 31, 2021; management has determined

that

there

were

events occurring

this

period that

require disclosure

adjustment to

the

accompanying financial statements.

273

Item 9. Changes in and Disagreements with Accountants on Accounting

and

Financial Disclosures

Nothing to report.

Item 9A. 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

in Rule

13a-15(e) and

15d-15(e) under

the Exchange

Act) as

of the

end of the

period covered by

this Annual Report

on Form 10-K.

Based on this evaluation

as of the period

covered by this Form

10-K,

our

CEO

and

CFO

concluded

that

the

Corporation’s

disclosure

controls

and

procedures

were

effective

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

recorded,

processed,

summarized

and

reported

within

the

time

periods

specified

SEC

rules

and

forms

and

accumulated

and

reported

the

Corporation’s

management,

including

the

CEO and

CFO, as

appropriate

allow

timely

decisions

regarding required disclosure.

Management’s Report on Internal Control

over Financial Reporting

Our management’s

report on Internal

Control over

Financial Reporting

is included

in Item 8

and incorporated

herein by

reference.

Management

has

conducted

assessment

the

Corporation’s

internal

control

over

financial

reporting

December

31,

2021

based

the

criteria

established

Internal

Control

–

Integrated

Framework

(2013

)

issued

the

Committee

Sponsoring

Organizations

the

Treadway

Commission

(COSO).

Based

upon

that

assessment,

management

concluded

that

the

Corporation’s

internal control over financial reporting was effective

as of December 31, 2021.

The effectiveness of the Corporation’s

internal control over financial reporting as of December

31, 2021 has been audited by Crowe

LLP,

an independent registered public accounting firm, as stated in their report

included in Item 8 of this Annual Report Form 10-K.

Changes in Internal Control over Financial Reporting

There

have

been

changes

the

Corporation’s

internal

control

over

financial

reporting

during

our

most

recent

quarter

ended

December 31,

2021 that

have materially

affected, or

are reasonably likely

to materially

affect, the

Corporation’s

internal control

over

financial reporting.

Item 9B. Other Information

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

274

PART

III

Item 10. Directors, Executive Officers and Corporate Governance

Information

in response

to this

item is

incorporated

herein by

reference from

the sections

entitled “Information

with Respect

Nominees Standing

for Election as

Directors and

with respect to

Executive Officers

of the Corporation,”

“Corporate Governance

and

Related Matters,” “Delinquent

Section 16(A)

Reports” and “Audit

Committee Report”

contained in First

BanCorp.’s

definitive Proxy

Statement

for

use

connection

with

its

2022

Annual

Meeting

Stockholders

(the

“Proxy

Statement”)

filed

with

the

SEC

within 120 days of the close of First BanCorp.’s

2021

fiscal year.

Item 11. Executive Compensation.

Information

response

this

item

incorporated

herein

reference

from

the

sections

entitled

“Compensation

Committee

Interlocks

and

Insider

Participation,”

“Compensation

Directors,”

“Compensation

Discussion

and

Analysis,”

“Executive

Compensation

Disclosure”

and

“Compensation

Committee

Report”

First

BanCorp.’s

Proxy

Statement

filed

with

the

SEC

within 120 days of the close of First BanCorp.’s

2021 fiscal year.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters

Securities authorized for issuance under equity compensation plans

The following table sets forth information about First BanCorp. common stock

authorized for issuance under

First BanCorp.’s existing

equity compensation plans as of December 31, 2021:

(c)

(a)

(b)

Number of Securities

Remaining Available

for

Future Issuance Under

Equity Compensation

Plans (Excluding

Securities Reflected in

Column (a))

Number of Securities

to be Issued Upon

Exercise of

Outstanding Options,

warrants and rights

Weighted Average

Exercise Price of

Outstanding Options,

warrants and rights

Plan category

Equity compensation plans, approved by stockholders

814,899

(1)

4,308,921

(2)

Equity compensation plans

not approved by stockholders

N/A

Total

814,899

4,308,921

(1)

Amount represents

unvested performance-based units

granted to

executives, with

each unit

representing one

share of

the Corporation's

common stock.

Performance

will vest

on the

achievement of

pre-established performance

target

goal at

the

end of

three-year performance

period.

Refer to

Note 22

- "Stock-Based

Compensation" of the Notes to Consolidated Financial Statements

for more information on performance units.

(2)

Securities available for future issuance under the First BanCorp. 2008

Omnibus Incentive Plan (the "Omnibus Plan"), which was initially approved

by stockholders on

April 29, 2008. Most recently,

on May 24, 2016,

the Omnibus Plan was amended

to, among other things, increase

the number of shares of

common stock reserved for

issuance under

the Omnibus

Plan and

extend the

term of

the Omnibus

Plan to

May 24,

2026. The

Omnibus Plan

provides for

equity-based compensation incentives

through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other stock-based awards. As amended, this

plan provides

for the

issuance of

up to

14,169,807 shares

common stock,

subject to

adjustments for

stock splits,

reorganization and

other similar

events. As

December 31, 2021, 4,308,921 shares of Common Stock were

available for future issuance under the Omnibus Plan.

Additional information in response to this item is incorporated by reference

from the section entitled “Security Ownership of

Certain Beneficial Owners and Management” in First BanCorp.’s

Proxy Statement to be filed with the SEC within 120 days of the

close of First BanCorp.’s 2021

fiscal year.

Item 13. Certain Relationships and Related Transactions,

and Director Independence

Information in response to this item is incorporated herein by reference from

the sections entitled “Certain Relationships and Related

Person Transactions” and “Corporate

Governance and Related Matters” in First BanCorp.’s

Proxy Statement to be filed with the SEC

within 120 days of the close of First BanCorp.’s

2021 fiscal year.

275

Item 14. Principal Accountant Fees and Services.

Audit Fees

Information

response

this

item

incorporated

herein

reference

from

the

section

entitled

“Audit

Fees”

and

“Audit

Committee

Report”

in First

BanCorp.’s

Proxy Statement

to be

filed

with the

SEC within

120

days of

the close

of First

BanCorp.’s

2021 fiscal year.

PART

Item 15. Exhibits and Financial Statement Schedules

(a) List of documents filed as part of this report.

(1)

Financial Statements.

The

following

consolidated

financial

statements

First

BanCorp.,

together

with

the

reports

thereon

First

BanCorp.’s

independent registered public

accounting firm, Crowe

LLP (PCAOB ID No.

173),

dated March 1, 202

2, are included

in Item 8 of

this

Annual Report on Form 10-K:

– Report of Crowe LLP,

Independent Registered Public Accounting Firm.

–

Attestation Report of Crowe LLP,

Independent Registered Public Accounting Firm on Internal Control over

Financial

Reporting.

–Consolidated Statements of Financial Condition as of December

31, 2021 and 2020.

–Consolidated Statements of Income for Each of the Three Years

in the Period Ended December 31, 2021.

– Consolidated Statements of Comprehensive Income for Each

of the Three Years

in the Period Ended December 31, 2021.

– Consolidated Statements of Cash Flows for Each of the Three Years

in the Period Ended December 31, 2021.

– Consolidated Statements of Changes in Stockholders’ Equity for

Each of the Three Years

in the Period Ended December 31,

2021.

– Notes to the Consolidated Financial Statements.

(2) Financial statement schedules.

All financial schedules have been omitted because they are not applicable or

the required information is shown in the financial

statements or notes thereto.

(b) Exhibits listed in the Exhibit Index below are filed herewith as part of this Annual Report

on Form 10-K and are incorporated

herein by reference.

Item 16. Form 10-K Summary

Not applicable.

276

EXHIBIT INDEX

Exhibit

No.

Description

2.1

Stock Purchase Agreement, dated October 21, 2019, among Santander Holdings USA, Inc., FirstBank Puerto Rico, and,

solely for the purpose set forth therein, First BanCorp, incorporated by reference from Exhibit 2.1 of the Form 8-K filed on

October 22, 2019.

(1)

2.2

Amendment No. 1 to the Stock Purchase Agreement, dated September 1, 2020, by and among Santander Holdings USA,

Inc., FirstBank Puerto Rico, and, solely for the purpose set forth therein, First BanCorp, incorporated by reference from

Exhibit 2.1 of the Form 10-Q for the quarter ended September 30, 2020 filed on November 9, 2020.

3.1

Restated Articles of Incorporation, incorporated by reference from Exhibit 3.1 of the Registration Statement on Form S-1/A

filed by First BanCorp on October 20, 2011.

3.2

Amended and Restated By-Laws, incorporated by reference from Exhibit 3.2 of the Form 8-K filed by First BanCorp on

March 31, 2020.

4.1

Description of First BanCorp. capital stock, incorporated by reference from Exhibit 4.1 of the Form 10-K filed on March 2,

2020.

10.1*

First BanCorp Omnibus Incentive Plan, as amended, incorporated by reference from Exhibit 99.1 to the Form S-8 filed by

First BanCorp on June 21,2016.

10.2*

Employment Agreement—Aurelio Alemán, incorporated by reference from the Form 10-K for the year ended December

31, 1998 filed by First BanCorp on March 26, 1999.

10.3*

Amendment No. 1 to Employment Agreement—Aurelio Alemán, incorporated by reference from Exhibit 10.2 of the Form

10-Q for the quarter ended March 31, 2009 filed by First BanCorp on May 11, 2009.

10.4*

Amendment No. 2 to Employment Agreement—Aurelio Alemán, incorporated by reference from Exhibit 10.6 of the Form

10-K for the year ended December 31, 2009 filed by First BanCorp on March 2, 2010.

10.5*

Employment Agreement—Orlando Berges, incorporated by reference from Exhibit 10.1 of the Form 10-Q for the quarter

ended June 30, 2009 filed by First BanCorp on August 11, 2009.

10.6*

Form of Restricted Stock Award Agreement incorporated by reference from Exhibit 10.23 to the Form S-1/A filed by First

BanCorp on July 16, 2010.

10.7*

Letter Agreement between First BanCorp. and Roberto R. Herencia, incorporated by reference from Exhibit 10.1 of the

Form 8-K/A filed by First BanCorp on November 2, 2011.

10.8*

Revised Non-management Chairman of the Board Compensation Structure, incorporated by reference from Exhibit 10.1 of

the Form 10-Q for the quarter ended September 30, 2017 filed by First BanCorp. on November 9, 2017.

10.9*

Stock Purchase Agreement between First BanCorp and Roberto Herencia dated February 17, 2012, incorporated by

reference from Exhibit 10.36 of the Form 10-K for the fiscal year ended December 31, 2011 filed by First BanCorp. on

March 13, 2012.

10.10*

Non – Employee Director Compensation Structure, incorporated by reference from Exhibit 10.1 of the Form 10-Q for the

quarter ended September 30, 2017 filed by First BanCorp on November 9, 2017.

10.11*

Offer Letter between First BanCorp and Juan Acosta Reboyras incorporated by reference from Exhibit 10.1 of the Form 8-

K filed on September 3, 2014.

10.12*

Offer Letter between First BanCorp and Luz A. Crespo incorporated by reference from Exhibit 10.1 of the Form 8-K filed

on February 9, 2015.

10.13*

Offer Letter between First BanCorp and John A. Heffern incorporated by reference from Exhibit 10.1 of the Form 8-K filed

on November 1, 2017.

10.14*

Form of First BanCorp Long-Term Incentive Award Agreement incorporated by reference from Exhibit 10.1 of the Form

10-Q for the quarter ended March 31, 2018.

10.15*

Form of Executive Employment Agreement executed by each executive officer incorporated by reference from Exhibit

10.1 of the Form 10-Q for the quarter ended June 30, 2018.

10.16*

Offer Letter between First BanCorp and Daniel E. Frye incorporated by reference from Exhibit 10.1 of the Form 8-K filed

on August 31, 2018.

10.17*

Offer Letter between First BanCorp and Félix M. Villamil incorporated by reference from Exhibit 10.1 of the Form 8-K

filed on November 5, 2020.

10.18*

Offer Letter between First BanCorp and Patricia M. Eaves incorporated

by reference from Exhibit 10.1 of the Form 8-K

filed on April 1, 2021.

14.1

Code of Ethics for CEO and Senior Financial Officers, incorporated by reference from Exhibit 14.1 of the Form 10-K for

the fiscal year ended December 31, 2008 filed by First BanCorp on March 2, 2009.

21.1

List of First BanCorp’s subsidiaries

23.1

Consent of Crowe LLP

31.1

Section 302 Certification of the CEO

31.2

Section 302 Certification of the CFO

32.1

Section 906 Certification of the CEO

32.2

Section 906 Certification of the CFO

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

277

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. Annual Report on Form

10-K for the year ended December 31, 2021, formatted in

Inline

XBRL (included within the Exhibit 101 attachments)

_____________________________

(1) Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The registrant will furnish a copy of any omitted schedule as a supplement to the SEC or its staff upon request.

*Management contract or compensatory plan or agreement.

278

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.

By:

/s/ Aurelio Alemán

Date: 3/1/2022

Aurelio Alemán

President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been

signed by the following persons on behalf

of the registrant and in the capacities and on the dates indicated.

/s/ Aurelio Alemán

Date: 3/1/2022

Aurelio Alemán

President, Chief Executive Officer and Director

/s/ Orlando Berges

Date: 3/1/2022

Orlando Berges, CPA

Executive Vice President

and Chief Financial Officer

/s/ Roberto R. Herencia

Date: 3/1/2022

Roberto R. Herencia,

Director and Chairman of the Board

/s/ Patricia M. Eaves

Date: 3/1/2022

Patricia M. Eaves,

Director

/s/ Luz A. Crespo

Date: 3/1/2022

Luz A. Crespo,

Director

/s/ Juan Acosta-Reboyras

Date: 3/1/2022

Juan Acosta-Reboyras,

Director

/s/ John A. Heffern

Date: 3/1/2022

John A. Heffern,

Director

/s/ Daniel E. Frye

Date: 3/1/2022

Daniel E. Frye,

Director

/s/ Tracey Dedrick

Date: 3/1/2022

Tracey Dedrick,

Director

/s/ Felix Villamil

Date: 3/1/2022

Felix Villamil,

Director

/s/ Said Ortiz

Date: 3/1/2022

Said Ortiz, CPA

Senior Vice President and

Chief Accounting Officer