FIRST BANCORP /PR/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______

FORM10-Q (Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedMarch 31, 2023 or [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to _____

COMMISSION FILE NUMBER001-14793

FIRST BANCORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Puerto Rico66-0561882 (State or other jurisdiction of(I.R.S. Employer incorporation or organization)Identification No.)
1519 Ponce de León Avenue,Stop 2300908 San Juan,Puerto Rico(Zip Code)

(Address of principal executive offices)
(787)729-8200 (Registrant’s telephone number, including area code)
Not applicable (Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered Common Stock ($0.10 par value per share)FBPNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes☑No
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☑No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated filer☐

Non-accelerated filer☐Smaller reporting company☐ Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐No☑ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock:179,788,698shares outstanding as of May 1, 2023.

FIRST BANCORP.

INDEX PAGE

PART I. FINANCIAL INFORMATIONPAGE Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2023 and December 31,5 2022 Consolidated Statements of Income (Unaudited) – Quarters ended March 31, 2023 and 2022 6

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) – Quarters ended March 31, 2023 and 20227

Consolidated Statements of Cash Flows (Unaudited) – Quarters ended March 31, 2023 and 20228

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Quarters ended March 31, 2023 and 20229 Notes to Consolidated Financial Statements (Unaudited)10 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations73 Item 3. Quantitative and Qualitative Disclosures About Market Risk121 Item 4. Controls and Procedures121

PART II. OTHER INFORMATION Item 1. Legal Proceedings122 Item 1A. Risk Factors122 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds124 Item 6. Exhibits125

SIGNATURES

Forward-Looking Statements

This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the

“Exchange Act”), which are subject to the safe harbor created by such sections. When used in this Form 10-Q or future filings by First BanCorp. (the “Corporation,” “we,” “us,” or “our”) with the U.S. Securities and Exchange Commission (the “SEC”), in the Corporation’s press releases or in other public or stockholder communications made by the Corporation, or in oral statements made on behalf of the Corporation by, or with the approval of, an authorized executive officer, the words or phrases “would,” “intends,” “will,” “expect,” “should,” “plans,” “forecast,” “anticipate,” “look forward,” “believes,” and other terms of similar meaning or import, or the negatives of these terms or variations of them, in connection with any discussion of future operating, financial or other performance are meant to identify “forward-looking statements.”

The Corporation cautions readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and advises readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.

Factors that could cause results 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,” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”) and the following:

●the impacts of rising interest rates and inflation on the Corporation, including a decrease in demand for new loan originations and refinancings, increased competition for borrowers, attrition in deposits, a reduction in the fair value of the Corporation’s debt securities portfolio, and an increase in non-interest expenses which would impact the Corporation’s earnings and may adversely impact origination volumes, liquidity, and financial performance;

●volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions taken by governmental agencies to stabilize the financial system, which could result in, among other things, bank deposit runoffs and liquidity constraints;

●the effect of continued changes in the fiscal and monetary policies and regulations of the United States (“U.S.”) federal government, the Puerto Rico government and other governments, including those determined by the Board of the Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Reserve Bank of New York (the “New York FED” or the “FED”), the Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies and regulators in Puerto Rico, the U.S., and the U.S. Virgin Islands (the “USVI) and British Virgin Islands (the “BVI”);

●uncertainty as to the ability of the Corporation’s banking subsidiary, FirstBank Puerto Rico (“FirstBank” or the “Bank”), to retain its core deposits and generate sufficient cash flow through its wholesale funding sources, such as securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and brokered certificates of deposit (“brokered CDs”), which in turn affects its ability to make dividend payments to the Corporation and could result in selling certain investment securities portfolio at a loss;

●adverse changes in general economic conditions in Puerto Rico, the U.S., and the USVI and BVI, including in the interest rate environment, unemployment rates, market liquidity, housing absorption rates, real estate markets, and U.S. capital markets, which may affect funding sources, loan portfolio performance and credit quality, market prices of investment securities, and demand for the Corporation’s products and services, and which may reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets;

●the impact of government financial assistance for hurricane recovery and other disaster relief on economic activity in Puerto Rico, and the timing and pace of disbursements of funds earmarked for disaster relief;

●the long-term economic and other effects of the COVID-19 pandemic and their impact on the Corporation’s business, operations, and financial condition;

●the ability of the Corporation, FirstBank, and third-party service providers to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking,” identity theft, and statesponsored cyberthreats, and the occurrence of and response to any, such as a recent security incident at one of our third-party vendors, which may result in misuse or misappropriation of confidential or proprietary information, disruption, or damage to our systems or those of third-party service providers, increased costs and losses or an adverse effect to our reputation;

●general competitive factors and other market risks as well as the implementation of strategic growth opportunities, including risks, uncertainties, and other factors or events related to any business acquisitions or dispositions;

●uncertainty as to the implementation of the debt restructuring plan of Puerto Rico (“Plan of Adjustment” or “PoA”) and the fiscal plan for Puerto Rico as certified on April 3, 2023 (the “2023 Fiscal Plan”) by the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”), or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments and tax regulations in Puerto Rico;

●the impact of changes in accounting standards, or assumptions in applying those standards, on forecasts of economic variables considered for the determination of the allowance for credit losses (“ACL”);

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

●environmental, social, and governance matters, including our climate-related initiatives and commitments;

●the impacts of natural or man-made disasters, widespread health emergencies, geopolitical conflicts (including the ongoing conflict in Ukraine), terrorist attacks, or other catastrophic external events, including impacts of such events on general economic conditions and on the Corporation’s assumptions regarding forecasts of economic variables;

●the effect of changes in the interest rate environment, including uncertainty about the effect of the cessation of the London Interbank Offered Rate (“LIBOR”);

●any adverse change in the Corporation’s ability to attract and retain clients and gain acceptance from current and prospective customers for new products and services, including those related to the offering of digital banking and financial services;

●the risk that additional portions of the unrealized losses in the Corporation’s debt securities portfolio are determined to be credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s available-for-sale debt securities portfolio;

●the impacts of applicable legislative, tax, or regulatory changes on the Corporation’s financial condition or performance;

●the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate;

●the risk that the FDIC may further increase the deposit insurance premium and/or require special assessments, causing an additional increase in the Corporation’s non-interest expenses;

●any need to recognize impairments on the Corporation’s financial instruments, goodwill, and other intangible assets;

●the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of FirstBank and preclude the Corporation’s Board of Directors (the “Board”) from declaring dividends; and

●uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels, and compliance with applicable laws, regulations and related requirements.

The Corporation does not undertake, and specifically disclaims any obligation to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.

(In thousands, except for share information)
ASSETS
Cash and due from banks								$	822,542	$	478,480
Money market investments:
Time deposits with other financial institutions									300		300
Other short-term investments									759		1,725
Total money market investments									1,059		2,025
Available-for-sale debt securities, at fair value:
Securities pledged with creditors’ rights to repledge									181,009		81,103
Other available-for-sale debt securities								5,408,247		5,518,417
Total available-for-sale debt securities, at fair value (amortized cost of $					6,300,696	as of March 31, 2023, and
$6,398,197	as of December 31, 2022; ACL of $		449as of March 31, 2023 and $		458	as of December 31, 2022)		5,589,256		5,599,520
Held-to-maturity debt securities, at amortized cost, net of ACL of $				7,646	as of March 31, 2023 and $		8,286
as of December 31, 2022 (fair value of $		419,752	as of March 31, 2023 and $		427,115	as of December 31, 2022)			423,749		429,251
Equity securities									66,714		55,289
Total investment securities								6,079,719		6,084,060
Loans, net of ACL of $	265,567	as of March 31, 2023 and $		260,464as of December 31, 2022				11,312,418		11,292,361
Mortgage loans held for sale, at lower of cost or market									15,183		12,306
Total loans, net								11,327,601		11,304,667
Accrued interest receivable on loans and investments									63,841		69,730
Premises and equipment, net									137,580		142,935
Other real estate owned (“OREO”)									32,862		31,641
Deferred tax asset, net									154,780		155,584
Goodwill									38,611		38,611
Other intangible assets									19,073		21,118
Other assets									299,446		305,633
Total assets								$18,977,114		$18,634,484
LIABILITIES
Non-interest-bearing deposits								$6,024,304		$6,112,884
Interest-bearing deposits								10,027,661		10,030,583
Total deposits								16,051,965		16,143,467
Short-term securities sold under agreements to repurchase									172,982		75,133
Advances from the FHLB:
Short-term									425,000		475,000
Long-term									500,000		200,000
Total advances from the FHLB									925,000		675,000
Other long-term borrowings									183,762		183,762
Accounts payable and other liabilities									237,812		231,582
Total liabilities								17,571,521		17,308,944
Commitments and contingencies (See Note 22)									(nil)		(nil)
STOCKHOLDERS’ EQUITY
Common stock, $	0.10par value,	2,000,000,000	shares authorized;	223,663,116	shares issued;	179,788,698
shares outstanding as of March 31, 2023 and			182,709,059	as of December 31, 2022					22,366		22,366
Additional paid-in capital									959,912		970,722
Retained earnings, includes legal surplus reserve of $			168,484					1,688,176		1,644,209
Treasury stock (at cost) of	43,874,418	shares as of March 31, 2023 and		40,954,057	shares as of December 31, 2022				( 547,311 )	( 506,979 )
Accumulated other comprehensive loss, net of tax of $			8,468						( 717,550 )	( 804,778 )
Total stockholders’ equity								1,405,593		1,325,540
Total liabilities and stockholders’ equity								$18,977,114		$18,634,484
			The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)| (In thousands, except per share information) | | | | |
| --- | --- | --- | --- | --- |
| Interest and dividend income: | | | | |
| Loans | $ | 210,636 | $ | 173,787 |
| Investment securities | | 27,110 | | 23,247 |
| Money market investments and interest-bearing cash accounts | | 4,650 | | 820 |
| Total interest and dividend income | | 242,396 | | 197,854 |
| Interest expense: | | | | |
| Deposits | | 29,885 | | 7,652 |
| Securities sold under agreements to repurchase: | | | | |
| Short-term | | 1,069 | | - |
| Long-term | | - | | 2,182 |
| Advances from the FHLB: | | | | |
| Short-term | | 4,341 | | - |
| Long-term | | 2,835 | | 1,063 |
| Other long-term borrowings | | 3,381 | | 1,333 |
| Total interest expense | | 41,511 | | 12,230 |
| Net interest income | | 200,885 | | 185,624 |
| Provision for credit losses - expense (benefit): | | | | |
| Loans and finance leases | | 16,256 | | ( 16,989 ) |
| Unfunded loan commitments | | ( 105 ) | | ( 178 ) |
| Debt securities | | ( 649 ) | | 3,365 |
| Provision for credit losses - expense (benefit) | | 15,502 | | ( 13,802 ) |
| Net interest income after provision for credit losses | | 185,383 | | 199,426 |
| Non-interest income: | | | | |
| Service charges and fees on deposit accounts | | 9,541 | | 9,363 |
| Mortgage banking activities | | 2,812 | | 5,206 |
| Insurance commission income | | 4,847 | | 5,275 |
| Card and processing income | | 10,918 | | 9,681 |
| Other non-interest income | | 4,400 | | 3,333 |
| Total non-interest income | | 32,518 | | 32,858 |
| Non-interest expenses: | | | | |
| Employees’ compensation and benefits | | 56,422 | | 49,554 |
| Occupancy and equipment | | 21,186 | | 22,386 |
| Business promotion | | 3,975 | | 3,463 |
| Professional service fees | | 11,973 | | 10,594 |
| Taxes, other than income taxes | | 5,112 | | 5,018 |
| FDIC deposit insurance | | 2,133 | | 1,673 |
| Net gain on OREO operations | | ( 1,996 ) | | ( 720 ) |
| Credit and debit card processing expenses | | 5,318 | | 4,121 |
| Communications | | 2,216 | | 2,151 |
| Other non-interest expenses | | 8,929 | | 8,419 |
| Total non-interest expenses | | 115,268 | | 106,659 |
| Income before income taxes | | 102,633 | | 125,625 |
| Income tax expense | | 31,935 | | 43,025 |
| Net income | $ | 70,698 | $ | 82,600 |

Net income attributable to common stockholders	$	70,698	$	82,600
Net income per common share:
Basic	$	0.39	$	0.42

Diluted$0.39$0.41

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)| | | | 2023 | | 2022 |
| --- | --- | --- | --- | --- | --- |
| (In thousands) | | | | | |
| Net income | | $ | 70,698 | $ | 82,600 |
| Other comprehensive income (loss), net of tax: | | | | | |
| Available-for-sale debt securities: | | | | | |
| Net unrealized holding gains (losses) on debt securities | | | 87,228 | | ( 331,834 ) |
| Other comprehensive income (loss) for the period, net of tax | | | 87,228 | | ( 331,834 ) |
| Total comprehensive income (loss) | | $ | 157,926 | $ | ( 249,234 ) |
| | The accompanying notes are an integral part of these statements. | | | | |

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Quarter Ended March 31,

20232022| (In thousands)Cash flows from operating activities: | | | | |
| --- | --- | --- | --- | --- |
| Net income | $ | 70,698 | $ | 82,600 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
| Depreciation and amortizationAmortization of intangible assets | | 5,0802,045 | | 5,8722,286 |
| Provision for credit losses - expense (benefit)Deferred income tax expense | | 15,5021,564 | | ( 13,802 )31,707 |
| Stock-based compensationUnrealized loss (gain) on derivative instruments | | 2,0753 | | 1,182( 618 ) |
| Net gain on disposals or sales, and impairments of premises and equipment and other assetsNet gain on sales of loans and valuation adjustments | | ( 766 )( 8 ) | | ( 2,461 )( 26 ) |
| Net amortization of discounts, premiums, and deferred loan fees and costsOriginations and purchases of loans held for sale | | ( 38,500 )283 | | ( 86,802 )( 2,933 ) |
| Sales and repayments of loans held for saleAmortization of broker placement fees | | 34,83644 | | 93,73935 |
| Net amortization of premiums and discounts on investment securitiesDecrease in accrued interest receivable | | 8,566630 | | 1,6903,919 |
| Increase (decrease) in accrued interest payable(Increase) decrease in other assets | | 3,752168 | | ( 906 )352 |
| Increase (decrease) increase in other liabilities | | 9,443 | | ( 1,000 ) |
| Net cash provided by operating activities | | 115,415 | | 114,834 |
| Cash flows from investing activities:Net disbursements on loans held for investment | | ( 71,193 ) | | ( 48,370 ) |
| Proceeds from sales of loans held for investmentProceeds from sales of repossessed assets | | 12,3472,552 | | 1,3069,361 |
| Purchases of available-for-sale debt securitiesProceeds from principal repayments and maturities of available-for-sale debt securities | | 113,218- | | ( 497,327 )208,397 |
| Proceeds from principal repayments and maturities of held-to-maturity debt securitiesAdditions to premises and equipment | | ( 1,689 )6,652 | | ( 6,764 )400 |
| Proceeds from sales of premises and equipment and other assetsNet purchases of other investments securities | | ( 11,360 )8 | | ( 21 )26 |
| Cash flows from financing activities:Net cash provided by (used in) investing activities | | 50,535 | | ( 332,992 ) |
| Net decrease in depositsNet proceeds from short-term borrowings | | ( 92,354 )47,849 | | ( 456,211 )- |
| Repayments of long-term borrowingsProceeds from long-term borrowings | | 300,000- | | ( 100,000 )- |
| Repurchase of outstanding common stockDividends paid on common stock | | ( 53,217 )( 25,132 ) | | ( 52,713 )( 19,727 ) |
| Net cash provided by (used in) financing activities | | 177,146 | | ( 628,651 ) |
| Net increase (decrease) in cash and cash equivalentsCash and cash equivalents at beginning of year | | 343,096480,505 | | 2,543,058( 846,809 ) |
| Cash and cash equivalents at end of period | $ | 823,601 | $ | 1,696,249 |

Cash and cash equivalents include:
Cash and due from banksMoney market investments	$	822,5421,059	$	1,694,0662,183
	$	823,601	$	1,696,249

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)| | | Quarter Ended March 31, | | |
| --- | --- | --- | --- | --- |
| | | 2023 | | 2022 |
| (In thousands, except per share information) | | | | |
| Common Stock | $ | 22,366 | $ | 22,366 |

Additional Paid-In Capital:
Balance at beginning of period	970,722	972,547
Stock-based compensation expense	2,075	1,182
Common stock reissued under stock-based compensation plan	( 13,139 )	( 6,980 )
Restricted stock forfeited	254	22
Balance at end of period	959,912	966,771

Retained Earnings:
Balance at beginning of period			1,644,209	1,427,295
Impact of adoption of Accounting Standards Update (“ASU”) 2022-02 (See Note 1)			( 1,357 )	-
Net income			70,698	82,600
Dividends on common stock (2023 - $	0.14per share; 2022 - $	0.10per share)	( 25,374 )	( 19,900 )
Balance at end of period			1,688,176	1,489,995

Treasury Stock (at cost)
Balance at beginning of period	( 506,979 )	( 236,442 )
Common stock repurchases (See Note 14)	( 53,217 )	( 52,713 )
Common stock reissued under stock-based compensation plan	13,139	6,980
Restricted stock forfeited	( 254 )	( 22 )
Balance at end of period	( 547,311 )	( 282,197 )

Accumulated Other Comprehensive Loss, net of tax:
Balance at beginning of period			( 804,778 )		( 83,999 )
Other comprehensive income (loss), net of tax			87,228		( 331,834 )
Balance at end of period			( 717,550 )		( 415,833 )
Total stockholders’ equity		$	1,405,593	$	1,781,102
	The accompanying notes are an integral part of these statements.

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS| | | PAGE |
| --- | --- | --- |
| Note 1 – | Basis of Presentation and Significant Accounting Policies | 11 |
| Note 2 – | Debt Securities | 13 |
| Note 3 – | Loans Held for Investment | 23 |
| Note 4– | Allowance for Credit Losses for Loans and Finance Leases | 40 |
| Note 5 – | Other Real Estate Owned | 42 |
| Note 6– | Goodwill and Other Intangibles | 43 |
| Note 7 – | Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets | 44 |
| Note 8 – | Deposits | 48 |
| Note 9 – | Securities Sold Under Agreements to Repurchase (Repurchase Agreements) | 49 |
| Note 10 – | Advances from the Federal Home Loan Bank (“FHLB”) | 50 |
| Note 11 – | Other Long-Term Borrowings | 50 |
| Note 12 – | Earnings per Common Share | 51 |
| Note 13 – | Stock-Based Compensation | 52 |
| Note 14 – | Stockholders’ Equity | 55 |
| Note 15 – | Accumulated Other Comprehensive Loss | 57 |
| Note 16 – | Employee Benefit Plans | 57 |
| Note 17 – | Income Taxes | 58 |
| Note 18– | Fair Value | 60 |
| Note 19– | Revenue from Contracts with Customers | 64 |
| Note 20 – | Segment Information | 66 |
| Note 21 – | Supplemental Statement of Cash Flows Information | 68 |
| Note 22 – | Regulatory Matters, Commitments, and Contingencies | 69 |
| Note 23 – | First BanCorp. (Holding Company Only) Financial Information | 72 |

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES The Consolidated Financial Statements (unaudited) for the quarter ended March 31, 2023 (the “unaudited consolidated financial statements”) of First BanCorp. (the “Corporation”) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2022 (the “audited consolidated financial statements”) included in the 2022 Annual Report on Form 10-K, as updated by the information contained in this report. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements, which are included in the 2022 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the quarter ended March 31, 2023 are not necessarily indicative of the results to be expected for the entire year. Adoption of New Accounting Requirements Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” Effective January 1, 2023, the Corporation adopted ASU 2022-02, which removed the existing measurement and disclosure requirements for Troubled Debt Restructured (“TDR”) loans, added additional disclosure requirements related to modifications provided to borrowers experiencing financial difficulty regardless of whether the refinancing is accounted for as a new loan, and amends the guidance on vintage disclosures to require disclosure of gross charge-offs by year of origination. Prior to adoption, a change in contractual terms of a loan where a borrower was experiencing financial difficulty and received a concession not available through other sources was required to be disclosed as a TDR, whereas now a borrower that is experiencing financial difficulty and there has been a direct change to the timing or amount of contractual cash flows in the form of principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, a term extension, or any combination of these types of loan modifications in the current period needs to be disclosed. ASU 2022-02 did not amend the definition of financial difficulty. Modifications of receivables are within the scope of ASU 2022-02 if they are accounted for in accordance with Accounting Standards Codification (“ASC”) 310-20. As such, finance leases are not within the scope of ASU 2022-02. Such modifications are evaluated following the requirements in ASC 310-20 to determine whether they should be accounted for as a new loan or a continuation of the existing loan. ASU 2022-02 also eliminated the requirement to use a discounted cash flow method for TDRs for the determination of the ACL, and allows the option of a non-discounted cash flow portfolio-based approach for modified loans to borrowers experiencing financial difficulties. The Corporation elected to apply a non-discounted cash flow, portfolio-based ACL approach for modified loans to borrowers experiencing financial difficulties for all portfolios, using a modified retrospective transition method. The adoption resulted in a net increase to the ACL of approximately $ 2.1 million and a decrease to retained earnings of approximately $ 1.3 million, after tax, predominantly driven by residential mortgage loans. The amount of defined modifications given to borrowers experiencing financial difficulty is disclosed in Note 3 – Loans Held for Investment, along with the financial impact of those modifications. The Corporation was not impacted by the adoption of the following ASUs during the first quarter of 2023: ● ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method” ● ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts With Customers”

Recently Issued Accounting Standards Not Yet Effective or Not Yet Adopted

Standard Description Effective Date Effect on the financial statements ASU 2023-02, "Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method" In March 2023, the FASB issued ASU 2023-02 which, among other things, allows tax equity investments, regardless of the tax credit program from which the income tax credits are received, to be accounted for using the proportional amortization method if certain conditions are met and requires specific disclosures of such investments. The election needs to be made on a tax-credit- program-by-tax-credit-program basis. January 1, 2024. Early adoption is permitted in any interim period. The Corporation does not expect to be impacted by the amendments of this ASU since it does not hold tax equity investments. ASU 2023-01, "Leases (Topic 842): Common Control Arrangements" In March 2023, the FASB issued ASU 2023-01 which, among other things, generally requires a lessee in a common-control lease arrangement to amortize leasehold improvements over the useful life regardless of the lease term, subject to certain exceptions. In addition, a lessee that no longer controls the use of the underlying asset will account for the transfer of the underlying asset as an adjustment to equity. January 1, 2024. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. The Corporation is evaluating the impact that this ASU will have on its financial statements. The Corporation does not expect to be materially impacted by the adoption of this ASU during the first quarter of 2024.

For other issued accounting standards not yet effective or not yet adopted, see Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K.

NOTE 2 – DEBT SECURITIES Available-for-Sale Debt Securities The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale debt securities by contractual maturities as of March 31, 2023 were as follows:

March 31, 2023 Amortized cost (1) Gross ACL Fair value Unrealized Weighted- Gains Losses average yield% (Dollars in thousands) U.S. Treasury securities: Due within one year $ 27,744 $ - $ 890 $ - $ 26,854 0.61 After 1 to 5 years 120,916 - 7,348 - 113,568 0.69 U.S. government-sponsored entities (“GSEs”) obligations: Due within one year 189,174 - 5,100 - 184,074 0.42 After 1 to 5 years 2,349,522 22 190,986 - 2,158,558 0.84 After 5 to 10 years 41,916 8 4,998 - 36,926 1.64 After 10 years 11,625 27 - - 11,652 5.15 Puerto Rico government obligations: After 10 years (2) 3,302 - 733 366 2,203 - United States and Puerto Rico government obligations 2,744,199 57 210,055 366 2,533,835 0.83 Mortgage-backed securities (“MBS”): Residential MBS: Freddie Mac (“FHLMC”) certificates: After 1 to 5 years 10,023 - 454 - 9,569 1.98 After 5 to 10 years 187,007 - 15,912 - 171,095 1.56 After 10 years 1,068,680 - 170,021 - 898,659 1.41 1,265,710 - 186,387 - 1,079,323 1.44 Ginnie Mae (“GNMA”) certificates: Due within one year 3 - - - 3 2.42 After 1 to 5 years 23,293 - 1,253 - 22,040 1.31 After 5 to 10 years 33,939 - 2,720 - 31,219 1.69 After 10 years 225,680 119 24,080 - 201,719 2.58 282,915 119 28,053 - 254,981 2.37 Fannie Mae (“FNMA”) certificates: After 1 to 5 years 24,446 - 1,249 - 23,197 1.72 After 5 to 10 years 353,397 - 28,963 - 324,434 1.74 After 10 years 1,133,757 104 168,025 - 965,836 1.37 1,511,600 104 198,237 - 1,313,467 1.47 Collateralized mortgage obligations issued or guaranteed by the FHLMC, FNMA and GNMA (“CMOs”): After 10 years 296,022 - 52,540 - 243,482 1.49 Private label: After 10 years 7,695 - 2,210 83 5,402 7.25 Total Residential MBS 3,363,942 223 467,427 83 2,896,655 1.55 Commercial MBS: After 1 to 5 years 27,584 7 4,551 - 23,040 2.27 After 5 to 10 years 44,584 - 4,929 - 39,655 1.90 After 10 years 120,387 - 24,316 - 96,071 1.23 Total Commercial MBS 192,555 7 33,796 - 158,766 1.53 Total MBS 3,556,497 230 501,223 83 3,055,421 1.54 Total available-for-sale debt securities $ 6,300,696 $ 287 $ 711,278 $ 449 $ 5,589,256 1.23 (1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $ 10.7 million as of March 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and excluded from the estimate of credit losses. (2) Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (“PRHFA”) that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

The amortized cost, gross unrealized gains and losses, ACL, estimated fair value, and weighted-average yield of available-for-sale debt securities by contractual maturities as of December 31, 2022 were as follows:

December 31, 2022 Amortized cost (1) Gross ACL Fair value Unrealized Weighted- Gains Losses average yield% (Dollars in thousands) U.S. Treasury securities: Due within one year $ 7,493 $ - $ 309 $ - $ 7,184 0.22 After 1 to 5 years 141,366 - 9,675 - 131,691 0.70 U.S. GSEs’ obligations: Due within one year 129,018 - 4,036 - 124,982 0.32 After 1 to 5 years 2,395,273 22 227,724 - 2,167,571 0.83 After 5 to 10 years 56,251 13 7,670 - 48,594 1.54 After 10 years 12,170 36 - - 12,206 4.62 Puerto Rico government obligations: After 10 years (2) 3,331 - 755 375 2,201 - United States and Puerto Rico government obligations 2,744,902 71 250,169 375 2,494,429 0.83 MBS: Residential MBS: FHLMC certificates: After 1 to 5 years 4,235 - 169 - 4,066 2.33 After 5 to 10 years 201,072 - 18,709 - 182,363 1.55 After 10 years 1,092,289 - 186,558 - 905,731 1.38 1,297,596 - 205,436 - 1,092,160 1.41 GNMA certificates: Due within one year 5 - - - 5 1.73 After 1 to 5 years 15,508 - 622 - 14,886 2.00 After 5 to 10 years 45,322 1 3,809 - 41,514 1.31 After 10 years 232,632 51 27,169 - 205,514 2.47 293,467 52 31,600 - 261,919 2.27 FNMA certificates: After 1 to 5 years 9,685 - 521 - 9,164 1.76 After 5 to 10 years 358,346 - 31,620 - 326,726 1.68 After 10 years 1,186,635 124 186,757 - 1,000,002 1.38 1,554,666 124 218,898 - 1,335,892 1.45 CMOs: After 10 years 302,232 - 56,539 - 245,693 1.44 Private label: After 10 years 7,903 - 2,026 83 5,794 6.83 Total Residential MBS 3,455,864 176 514,499 83 2,941,458 1.52 Commercial MBS: After 1 to 5 years 30,578 - 4,463 - 26,115 2.43 After 5 to 10 years 44,889 - 5,603 - 39,286 1.89 After 10 years 121,464 - 23,732 - 97,732 1.23 Total Commercial MBS 196,931 - 33,798 - 163,133 1.56 Total MBS 3,652,795 176 548,297 83 3,104,591 1.52 Other Due within one year 500 - - - 500 0.84 Total available-for-sale debt securities $ 6,398,197 $ 247 $ 798,466 458 $ 5,599,520 1.22 (1) Excludes accrued interest receivable on available-for-sale debt securities that totaled $ 11.1 million as of December 31, 2022 reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and excluded from the estimate of credit losses. (2) Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

Maturities of available-for-sale debt securities are based on the period of final contractual maturity. Expected maturities might differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on available-for-sale debt securities is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on available-for-sale debt securities is presented as part of other comprehensive loss

in the consolidated statements of financial condition.
The following tables present the fair value and gross unrealized losses of the Corporation’s available-for-sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2023 and December 31, 2022. The tables also include debt securities for which an ACL was recorded.

As of March 31, 2023 Less than 12 months 12 months or more Total Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) Debt securities: U.S. Treasury and U.S. GSEs’ obligations $ 17,615 $ 611 $ 2,496,925 $ 208,711 $ 2,514,540 $ 209,322 Puerto Rico government obligations - - 2,203 733 (1) 2,203 733 MBS: Residential MBS: FHLMC 21,354 710 1,057,950 185,677 1,079,304 186,387 GNMA 45,949 868 197,581 27,185 243,530 28,053 FNMA 41,186 1,741 1,262,700 196,496 1,303,886 198,237 CMOs 10,596 117 232,886 52,423 243,482 52,540 Private label - - 5,402 2,210 (1) 5,402 2,210 Commercial MBS 3,833 220 148,640 33,576 152,473 33,796 $ 140,533 $ 4,267 $ 5,404,287 $ 707,011 $ 5,544,820 $ 711,278 7923 (1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of March 31, 2023, the PRHFA bond and private label MBS had an ACL of $ 0.4 million and $ 0.1 million, respectively. As of December 31, 2022 Less than 12 months 12 months or more Total Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) Debt securities: U.S. Treasury and U.S. GSEs’ obligations $ 298,313 $ 18,057 $ 2,174,724 $ 231,357 $ 2,473,037 $ 249,414 Puerto Rico government obligations - - 2,201 755 (1) 2,201 755 MBS: Residential MBS: FHLMC 260,524 45,424 831,637 160,012 1,092,161 205,436 GNMA 74,829 3,433 179,854 28,167 254,683 31,600 FNMA 405,977 49,479 920,200 169,419 1,326,177 218,898 CMOs 45,370 6,735 200,323 49,804 245,693 56,539 Private label - - 5,794 2,026 (1) 5,794 2,026 Commercial MBS 30,179 2,215 132,953 31,583 163,132 33,798 $ 1,115,192 $ 125,343 $ 4,447,686 $ 673,123 $ 5,562,878 $ 798,466 (1) Unrealized losses do not include the credit loss component recorded as part of the ACL. As of December 31, 2022, the PRHFA bond and private label MBS had an ACL of $ 0.4 million and $ 0.1 million, respectively.

Assessment for Credit Losses Debt securities issued by U.S. government agencies, U.S. GSEs, and the U.S. Treasury, including notes and MBS, accounted for substantially all of the total available-for-sale portfolio as of March 31, 2023, 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 it is likely that it will not be required to sell the securities before their anticipated recovery, the Corporation does not consider impairments on these securities to be credit related as of March 31, 2023. 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 a fair value of $ 5.4 million, which had unrealized losses of approximately $ 2.3 million as of March 31, 2023, of which $ 0.1 million is due to credit deterioration and is 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. Following the provisions of the Adjustable Interest Rate Act (the “LIBOR Act”) and Regulation ZZ, the LIBOR reference on these contracts will automatically transition by operation of law to 3-month CME Term Secured Overnight Financing Rate (“SOFR”), plus a spread adjustment of 0.26161% on the first reset date after U.S. dollar (“USD”) LIBOR ceases publication in June 2023. The underlying collateral is 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. As of March 31, 2023, the Corporation did not have the intent to sell these securities and determined that it is 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 probability of default (“PDs”) and loss given default (“LGDs”) that considered, among other things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates and the housing price index. Under this approach, expected cash flows (interest and principal) were discounted at the Treasury yield curve as of the reporting date. Significant assumptions in the valuation of the private label MBS were as follows:

As of As of March 31, 2023 December 31, 2022 Weighted Range Weighted Range Average Minimum Maximum Average Minimum Maximum Discount rate 16.0 % 16.0 % 16.0 % 16.2 % 16.2 % 16.2 % Prepayment rate 9.2 % 1.6 % 12.6 % 11.8 % 1.5 % 15.2 % Projected cumulative loss rate 5.2 % 0.2 % 14.9 % 5.6 % 0.3 % 15.6 %

The Corporation evaluates if a credit loss exists, primarily by monitoring adverse variances in the present value of expected cash flows. As of each of March 31, 2023 and December 31, 2022, the ACL for these private label MBS was $ 0.1 million.

As of March 31, 2023, the Corporation’s available-for-sale debt securities portfolio also included a residential pass-through MBS issued by the PRHFA, collateralized by certain second mortgages, with a fair value of $ 2.2 million, which had an unrealized loss of approximately $ 1.1 million. Approximately $ 0.4 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 in 2010. This residential pass-through MBS was structured as a zero-coupon bond for the first ten years (until July 2019). The underlying source of repayment on this residential pass-through MBS are second mortgage loans in Puerto Rico. PRHFA, not the Puerto Rico government, provides a guarantee in the event of default and subsequent foreclosure of the properties underlying the second mortgage loans. During 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 on a discounted cash flow methodology that considered the structure and terms of the debt security. The Corporation utilized PDs and LGDs that considered, among other things, historical payment performance, loan-to-value attributes, and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates, the housing price index, and expected recovery from the PRHFA guarantee. Under this approach, expected cash flows (interest and principal) were discounted at the Treasury yield curve plus a spread 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 of this residential pass-through MBS, PRHFA’s ability to honor its insurance will depend on, among other factors, the financial condition of PRHFA at the time such obligation becomes due and payable. Deterioration of the Puerto Rico economy or fiscal health of the PRHFA could impact the value of these securities, resulting in additional losses to the Corporation. As of March 31, 2023, 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. The following tables present a roll-forward by major security type for the quarters ended March 31, 2023 and 2022 of the ACL on available-for-sale debt securities:

Quarter Ended March 31, 2023 Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 83 $ 375 $ 458 Provision for credit losses - benefit - ( 9 ) ( 9 ) ACL on available-for-sale debt securities $ 83 $ 366 $ 449 Quarter Ended March 31, 2022 Private label MBS Puerto Rico Government Obligations Total (In thousands) Beginning balance $ 797 $ 308 $ 1,105 Provision for credit losses - benefit ( 388 ) - ( 388 ) Net charge-offs ( 6 ) - ( 6 ) ACL on available-for-sale debt securities $ 403 $ 308 $ 711

Held-to-Maturity Debt Securities The amortized cost, gross unrecognized gains and losses, estimated fair value, ACL, weighted-average yield and contractual maturities of held-to-maturity debt securities as of March 31, 2023 and December 31, 2022 were as follows :

March 31, 2023 Amortized cost (1) Gross Unrecognized Fair value Weighted- Gains Losses ACL average yield% (Dollars in thousands) Puerto Rico municipal bonds: Due within one year $ 1,204 $ - $ 10 $ 1,194 $ 24 5.70 After 1 to 5 years 42,633 679 1,001 42,311 659 6.74 After 5 to 10 years 55,940 1,482 603 56,819 2,918 7.10 After 10 years 66,023 - 1,804 64,219 4,045 8.12 Total Puerto Rico municipal bonds 165,800 2,161 3,418 164,543 7,646 7.40 MBS: Residential MBS: FHLMC certificates: After 5 to 10 years $ 20,129 $ - $ 762 $ 19,367 $ - 3.03 After 10 years 19,176 - 596 18,580 - 4.30 39,305 - 1,358 37,947 - 3.65 GNMA certificates: ` After 10 years 18,502 - 795 17,707 - 3.31 FNMA certificates: After 10 years 71,258 - 2,190 69,068 - 4.16 CMOs: After 10 years 32,522 - 1,154 31,368 - 3.49 Total Residential MBS 161,587 - 5,497 156,090 - 3.81 Commercial MBS: After 1 to 5 years 9,576 - 348 9,228 - 3.48 After 10 years 94,432 - 4,541 89,891 - 3.15 Total Commercial MBS 104,008 - 4,889 99,119 - 3.18 Total MBS 265,595 - 10,386 255,209 - 3.56 Total held-to-maturity debt securities $ 431,395 $ 2,161 $ 13,804 $ 419,752 $ 7,646 5.04 (1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $ 3.7 million as of March 31, 2023, was reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and is excluded from the estimate of credit losses.

December 31, 2022 Amortized cost (1) Gross Unrecognized Fair value Weighted- Gains Losses ACL average yield% (Dollars in thousands) Puerto Rico municipal bonds: Due within one year $ 1,202 $ - $ 15 $ 1,187 $ 2 5.20 After 1 to 5 years 42,530 886 1,076 42,340 656 6.34 After 5 to 10 years 55,956 3,182 360 58,778 3,243 6.29 After 10 years 66,022 - 1,318 64,704 4,385 7.10 Total held-to-maturity debt securities $ 165,710 $ 4,068 $ 2,769 $ 167,009 $ 8,286 6.62 MBS: Residential MBS: FHLMC certificates: After 5 to 10 years $ 21,443 $ - $ 746 $ 20,697 $ - 3.03 After 10 years 19,362 - 888 18,474 - 4.21 40,805 - 1,634 39,171 - 3.59 GNMA certificates: ` After 10 years 19,131 - 943 18,188 - 3.35 FNMA certificates: After 10 years 72,347 - 3,155 69,192 - 4.14 CMOs: After 10 years 34,456 - 1,424 33,032 - 3.49 Total Residential MBS 166,739 - 7,156 159,583 - 3.78 Commercial MBS: After 1 to 5 years 9,621 - 396 9,225 - 3.48 After 10 years 95,467 - 4,169 91,298 - 3.15 Total Commercial MBS 105,088 - 4,565 100,523 - 3.18 Total MBS 271,827 - 11,721 260,106 - 3.55 Total held-to-maturity debt securities $ 437,537 $ 4,068 $ 14,490 $ 427,115 $ 8,286 4.71 (1) Excludes accrued interest receivable on held-to-maturity debt securities that totaled $ 5.5 million as of December 31, 2022, was reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and is excluded from the estimate of credit losses.

The following tables present the Corporation’s held-to-maturity debt securities’ fair value and gross unrecognized losses, aggregated by category and length of time that individual securities had been in a continuous unrecognized loss position, as of March 31, 2023 and December 31, 2022, including debt securities for which an ACL was recorded:

As of March 31, 2023 Less than 12 months 12 months or more Total Unrecognized Unrecognized Unrecognized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) Debt securities: Puerto Rico municipal bonds $ - $ - $ 108,266 $ 3,418 $ 108,266 $ 3,418 MBS: Residential MBS: FHLMC certificates 37,947 1,358 - - 37,947 1,358 GNMA certificates 17,707 795 - - 17,707 795 FNMA certificates 69,068 2,190 - - 69,068 2,190 CMOs 31,368 1,154 - - 31,368 1,154 Commercial MBS 99,119 4,889 - - 99,119 4,889 Total held-to-maturity debt securities $ 255,209 $ 10,386 $ 108,266 $ 3,418 $ 363,475 $ 13,804 As of December 31, 2022 Less than 12 months 12 months or more Total Unrecognized Unrecognized Unrecognized Fair Value Losses Fair Value Losses Fair Value Losses (In thousands) Debt securities: Puerto Rico municipal bonds $ - $ - $ 98,797 $ 2,769 $ 98,797 $ 2,769 MBS: Residential MBS: FHLMC certificates 39,171 1,634 - - 39,171 1,634 GNMA certificates 18,188 943 - - 18,188 943 FNMA certificates 69,192 3,155 - - 69,192 3,155 CMOs 33,032 1,424 - - 33,032 1,424 Commercial MBS 100,523 4,565 - - 100,523 4,565 Total held-to-maturity debt securities $ 260,106 $ 11,721 $ 98,797 $ 2,769 $ 358,903 $ 14,490

The Corporation classifies the held-to-maturity debt securities portfolio into the following major security types: MBS issued by GSEs and Puerto Rico municipal bonds. As of March 31, 2023, all of the MBS included in the held-to-maturity debt securities portfolio were issued by GSEs. The Corporation does not recognize an ACL for these securities since they are highly rated by major rating agencies and have a long history of no credit losses. In the case of Puerto Rico municipal bonds, the Corporation determines the ACL based on the product of a cumulative PD and LGD, and the amortized cost basis of the bonds over their remaining expected life as described in Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. The Corporation performs periodic credit quality reviews on these issuers. All of the Puerto Rico municipal bonds were current as to scheduled contractual payments as of March 31, 2023. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. The Puerto Rico municipal bonds had an ACL of $ 7.6 million as of March 31, 2023, compared to $ 8.3 million as of December 31, 2022, mostly related to a reduction in qualitative reserves driven by updated financial information of certain bond issuers received during the first quarter of 2023. The following table presents the activity in the ACL for held-to-maturity debt securities by major security type for the quarters ended March 31, 2023 and 2022:

Puerto Rico Municipal Bonds Quarter Ended March 31, 2023 March 31, 2022 (In thousands) Beginning Balance $ 8,286 $ 8,571 Provision for credit losses - (benefit) expense ( 640 ) 3,753 ACL on held-to-maturity debt securities $ 7,646 $ 12,324

During the second quarter of 2019, the oversight board established by PROMESA announced the designation of Puerto Rico’s 78 municipalities as covered instrumentalities under PROMESA. Municipalities may be affected by the negative economic and other effects resulting from expense, revenue, or cash management measures taken by the Puerto Rico government to address its fiscal situation, or measures included in its fiscal plan or fiscal plans of other government entities. Given the inherent uncertainties about the fiscal situation of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to be taken, by other government entities in response to economic and fiscal challenges on municipalities, the Corporation cannot be certain whether future charges to the ACL on these securities will be required. From time to time, the Corporation has securities held to maturity with an original maturity of three months or less that are considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial condition. As of March 31, 2023 and December 31, 2022, the Corporation had no outstanding securities held to maturity that were classified as cash and cash equivalents.

Credit Quality Indicators: The held-to-maturity debt securities portfolio consisted of GSEs ’ MBS and financing arrangements with Puerto Rico municipalities issued in bond form. As previously mentioned, the Corporation expects no credit losses on GSEs MBS. The Puerto Rico municipal bonds are accounted for as securities but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Corporation monitors the credit quality of these municipal bonds through the use of internal credit-risk ratings, which are generally updated on a quarterly basis. The Corporation considers a municipal bond as a criticized asset if its risk rating 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. For the definitions of the internal credit-risk ratings, see Note 3 – Debt Securities, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. The Corporation periodically reviews its Puerto Rico municipal bonds to evaluate if they are properly classified, and to measure credit losses on these securities. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and administratively to the Chief Risk Officer. The Loan Review Group performs annual comprehensive credit process reviews of the Bank’s commercial loan portfolios, including the above-mentioned Puerto Rico municipal bonds accounted for as held-to-maturity debt securities. The objective of these loan reviews is to 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 of 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.

As of March 31, 2023 and December 31, 2022, all Puerto Rico municipal bonds classified as held-to-maturity were classified as Pass.

NOTE 3 – LOANS HELD FOR INVESTMENT The following table provides information about the loan portfolio held for investment by portfolio segment and disaggregated by geographic locations as of the indicated dates:

As of March 31, As of December 31, 2023 2022 (In thousands) Puerto Rico and Virgin Islands region: Residential mortgage loans, mainly secured by first mortgages $ 2,381,782 $ 2,417,900 Construction loans 48,195 34,772 Commercial mortgage loans 1,829,173 1,834,204 Commercial and Industrial ("C&I") loans 1,941,228 1,860,109 Consumer loans 3,398,245 3,317,489 Loans held for investment $ 9,598,623 $ 9,464,474 Florida region: Residential mortgage loans, mainly secured by first mortgages $ 429,746 $ 429,390 Construction loans 95,469 98,181 Commercial mortgage loans 524,486 524,647 C&I loans 920,961 1,026,154 Consumer loans 8,700 9,979 Loans held for investment $ 1,979,362 $ 2,088,351 Total: Residential mortgage loans, mainly secured by first mortgages $ 2,811,528 $ 2,847,290 Construction loans 143,664 132,953 Commercial mortgage loans 2,353,659 2,358,851 C&I loans (1) 2,862,189 2,886,263 Consumer loans 3,406,945 3,327,468 Loans held for investment (2) 11,577,985 11,552,825 ACL on loans and finance leases ( 265,567 ) ( 260,464 ) Loans held for investment, net $ 11,312,418 $ 11,292,361 (1) As of March 31, 2023 and December 31, 2022, includes $ 837.8 million and $ 838.5 million, respectively, of commercial loans that were secured by real estate and the primary source of repayment at origination was not dependent upon the real estate. (2) Includes accretable fair value net purchase discounts of $ 28.3 million and $ 29.3 million as of March 31, 2023 and December 31, 2022, respectively.

The Corporation’s aging of the loan portfolio held for investment, as well as information about nonaccrual loans with no ACL, by portfolio classes as of March 31, 2023 and December 31, 2022 are as follows:

As of March 31, 2023 Days Past Due and Accruing Current 30-59 60-89 90+ (1) (2) (3) Nonaccrual (4) Total loans held for investment Nonaccrual Loans with no ACL (5) (In thousands) Residential mortgage loans, mainly secured by first mortgages: FHA/VA government-guaranteed loans (1) (3) (6) $ 67,977 $ - $ 1,869 $ 41,723 $ - $ 111,569 $ - Conventional residential mortgage loans (2) (6) 2,626,542 - 23,367 13,640 36,410 2,699,959 2,250 Commercial loans: Construction loans 141,870 - - - 1,794 143,664 972 Commercial mortgage loans (2) (6) 2,323,116 509 507 7,929 21,598 2,353,659 15,787 C&I loans 2,840,568 1,438 424 6,355 13,404 2,862,189 1,858 Consumer loans: Auto loans 1,780,593 34,754 6,380 - 11,138 1,832,865 3,342 Finance leases 743,656 8,056 1,562 - 2,208 755,482 344 Personal loans 353,214 4,160 2,098 - 1,263 360,735 - Credit cards 299,387 3,989 2,518 4,733 - 310,627 - Other consumer loans 143,035 1,916 958 - 1,327 147,236 21 Total loans held for investment $ 11,319,958 $ 54,822 $ 39,683 $ 74,380 $ 89,142 $ 11,577,985 $ 24,574 (1) It is the Corporation's policy to report delinquent Federal Housing Authority (“FHA”)/Veterans Affairs (“VA”) government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $ 25.9 million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent. (2) Includes purchased credit deteriorated ("PCD") loans previously accounted for under ASC Subtopic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality" ("ASC Subtopic 310-30") for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $ 10.4 million as of March 31, 2023 ($ 9.4 million conventional residential mortgage loans and $ 1.0 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. (3) Include rebooked loans, which were previously pooled into GNMA securities, amounting to $ 7.1 million as of March 31, 2023. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. (4) Nonaccrual loans in the Florida region amounted to $ 15.2 million as of March 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans. (5) Includes $ 0.3 million of nonaccrual C&I loans with no ACL in the Florida region as of March 31, 2023. (6) According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2023 amounted to $ 5.3 million, $ 60.7 million, and $ 1.1 million, respectively.

As of December 31, 2022 Days Past Due and Accruing Current 30-59 60-89 90+ (1)(2)(3) Nonaccrual (4) Total loans held for investment Nonaccrual Loans with no ACL (5) (In thousands) Residential mortgage loans, mainly secured by first mortgages: FHA/VA government-guaranteed loans (1) (3) (6) $ 67,116 $ - $ 2,586 $ 48,456 $ - $ 118,158 $ - Conventional residential mortgage loans (2) (6) 2,643,909 - 25,630 16,821 42,772 2,729,132 2,292 Commercial loans: Construction loans 130,617 - - 128 2,208 132,953 977 Commercial mortgage loans (2) (6) 2,330,094 300 2,367 3,771 22,319 2,358,851 15,991 C&I loans 2,868,989 1,984 1,128 6,332 7,830 2,886,263 3,300 Consumer loans: Auto loans 1,740,271 40,039 7,089 - 10,672 1,798,071 2,136 Finance leases 707,646 7,148 1,791 - 1,645 718,230 330 Personal loans 346,366 3,738 1,894 - 1,248 353,246 - Credit cards 301,013 3,705 2,238 4,775 - 311,731 - Other consumer loans 141,687 1,804 1,458 - 1,241 146,190 - Total loans held for investment $ 11,277,708 $ 58,718 $ 46,181 $ 80,283 $ 89,935 $ 11,552,825 $ 25,026 (1) It is the Corporation's policy to report delinquent FHA/VA government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $ 28.2 million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent. (2) Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $ 12.0 million as of December 31, 2022 ($ 11.0 million conventional residential mortgage loans and $ 1.0 million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above. (3) Include rebooked loans, which were previously pooled into GNMA securities, amounting to $ 10.3 million as of December 31, 2022. Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability. (4) Nonaccrual loans in the Florida region amounted to $ 8.3 million as of December 31, 2022, primarily nonaccrual residential mortgage loans. (5) Includes $ 0.3 million of nonaccrual C&I loans with no ACL in the Florida region as of December 31, 2022. (6) According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2022 amounted to $ 6.1 million, $ 65.2 million, and $ 1.6 million, respectively.

When 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 $ 0.6 million and $ 0.4 million for the quarters ended March 31, 2023 and 2022, respectively. For the quarters ended March 31, 2023 and 2022, the cash interest income recognized on nonaccrual loans amounted to $ 0.5 million and $ 0.4 million, respectively. As of March 31, 2023, the recorded investment on residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure amounted to $ 62.6 million, including $ 27.2 million of FHA/VA government-guaranteed mortgage loans, and $ 8.8 million of PCD loans acquired prior to the adoption, on January 1, 2020, of CECL. The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent. Foreclosure procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays, and title issues.

Credit Quality Indicators: The Corporation categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, C&I, and construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation periodically reviews its commercial and construction loans 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 of applicable credit facilities, the Corporation evaluates the corresponding loan grades. The Corporation uses the same definition for risk ratings as those described for Puerto Rico municipal bonds accounted for as held-to-maturity debt securities, as discussed in Note 3 – Debt Securities, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. 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 by origination year based on the internal credit-risk category as of March 31, 2023, the gross charge -offs for the quarter ended March 31, 2023 by portfolio classes and by origination year, and the amortized cost of commercial and construction loans by portfolio classes based on the internal credit-risk category as of December 31, 2022, was as follows:

As of March 31, 2023 Puerto Rico and Virgin Islands region Term Loans As of December 31, 2022 Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) CONSTRUCTION Risk Ratings: Pass $ 6,479 $ 16,509 $ 18,842 $ - $ - $ 3,885 $ - $ 45,715 $ 31,879 Criticized: Special Mention - - - - - - - - - Substandard - - - - - 2,480 - 2,480 2,893 Doubtful - - - - - - - - - Loss - - - - - - - - - Total construction loans $ 6,479 $ 16,509 $ 18,842 $ - $ - $ 6,365 $ - $ 48,195 $ 34,772 Charge-offs on construction loans $ - $ - $ - $ - $ - $ - $ - $ - COMMERCIAL MORTGAGE Risk Ratings: Pass $ 67,469 $ 391,295 $ 139,536 $ 325,141 $ 301,638 $ 400,794 $ 478 $ 1,626,351 $ 1,655,728 Criticized: Special Mention - 1,177 - 36,546 75 131,350 - 169,148 145,415 Substandard - 132 - - 2,797 30,745 - 33,674 33,061 Doubtful - - - - - - - - - Loss - - - - - - - - - Total commercial mortgage loans $ 67,469 $ 392,604 $ 139,536 $ 361,687 $ 304,510 $ 562,889 $ 478 $ 1,829,173 $ 1,834,204 Charge-offs on commercial mortgage loans $ - $ - $ - $ - $ - $ 18 $ - $ 18 C&I Risk Ratings: Pass $ 70,739 $ 303,603 $ 188,155 $ 181,284 $ 308,225 $ 254,283 $ 565,758 $ 1,872,047 $ 1,789,572 Criticized: Special Mention - 132 839 - 1,029 12,885 32,322 47,207 43,224 Substandard - - 396 652 13,430 7,117 379 21,974 27,313 Doubtful - - - - - - - - - Loss - - - - - - - - - Total C&I loans $ 70,739 $ 303,735 $ 189,390 $ 181,936 $ 322,684 $ 274,285 $ 598,459 $ 1,941,228 $ 1,860,109 Charge-offs on C&I loans $ - $ - $ - $ - $ - $ 63 $ 55 $ 118 (1) Excludes accrued interest receivable.

As of March 31, 2023 Term Loans As of December 31, 2022 Florida region Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) CONSTRUCTION Risk Ratings: Pass $ 107 $ 50,019 $ 42,867 $ - $ - $ - $ 2,476 $ 95,469 $ 98,181 Criticized: Special Mention - - - - - - - - - Substandard - - - - - - - - - Doubtful - - - - - - - - - Loss - - - - - - - - - Total construction loans $ 107 $ 50,019 $ 42,867 $ - $ - $ - $ 2,476 $ 95,469 $ 98,181 Charge-offs on construction loans $ - $ - $ - $ - $ - $ - $ - $ - COMMERCIAL MORTGAGE Risk Ratings: Pass $ 3,529 $ 177,392 $ 70,147 $ 41,024 $ 51,320 $ 140,177 $ 19,551 $ 503,140 $ 503,184 Criticized: Special Mention - - - 6,947 13,231 - - 20,178 20,295 Substandard - - - 1,168 - - - 1,168 1,168 Doubtful - - - - - - - - - Loss - - - - - - - - - Total commercial mortgage loans $ 3,529 $ 177,392 $ 70,147 $ 49,139 $ 64,551 $ 140,177 $ 19,551 $ 524,486 $ 524,647 Charge-offs on commercial mortgage loans $ - $ - $ - $ - $ - $ - $ - $ - C&I Risk Ratings: Pass $ 36,642 $ 276,868 $ 134,512 $ 75,953 $ 183,443 $ 72,650 $ 92,816 $ 872,884 $ 979,151 Criticized: Special Mention - - 19,677 - 5,974 11,725 - 37,376 17,905 Substandard - - - 264 195 2,854 300 3,613 29,098 Doubtful - - - - - 7,088 - 7,088 - Loss - - - - - - - - - Total C&I loans $ 36,642 $ 276,868 $ 154,189 $ 76,217 $ 189,612 $ 94,317 $ 93,116 $ 920,961 $ 1,026,154 Charge-offs on C&I loans $ - $ - $ - $ - $ - $ - $ - $ - (1) Excludes accrued interest receivable.

As of March 31, 2023 Total Term Loans As of December 31, 2022 Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) CONSTRUCTION Risk Ratings: Pass $ 6,586 $ 66,528 $ 61,709 $ - $ - $ 3,885 $ 2,476 $ 141,184 $ 130,060 Criticized: Special Mention - - - - - - - - - Substandard - - - - - 2,480 - 2,480 2,893 Doubtful - - - - - - - - - Loss - - - - - - - - - Total construction loans $ 6,586 $ 66,528 $ 61,709 $ - $ - $ 6,365 $ 2,476 $ 143,664 $ 132,953 Charge-offs on construction loans $ - $ - $ - $ - $ - $ - $ - $ - COMMERCIAL MORTGAGE Risk Ratings: Pass $ 70,998 $ 568,687 $ 209,683 $ 366,165 $ 352,958 $ 540,971 $ 20,029 $ 2,129,491 $ 2,158,912 Criticized: Special Mention - 1,177 - 43,493 13,306 131,350 - 189,326 165,710 Substandard - 132 - 1,168 2,797 30,745 - 34,842 34,229 Doubtful - - - - - - - - - Loss - - - - - - - - - Total commercial mortgage loans $ 70,998 $ 569,996 $ 209,683 $ 410,826 $ 369,061 $ 703,066 $ 20,029 $ 2,353,659 $ 2,358,851 Charge-offs on commercial mortgage loans $ - $ - $ - $ - $ - $ 18 $ - $ 18 C&I Risk Ratings: Pass $ 107,381 $ 580,471 $ 322,667 $ 257,237 $ 491,668 $ 326,933 $ 658,574 $ 2,744,931 $ 2,768,723 Criticized: Special Mention - 132 20,516 - 7,003 24,610 32,322 84,583 61,129 Substandard - - 396 916 13,625 9,971 679 25,587 56,411 Doubtful - - - - - 7,088 - 7,088 - Loss - - - - - - - - - Total C&I loans $ 107,381 $ 580,603 $ 343,579 $ 258,153 $ 512,296 $ 368,602 $ 691,575 $ 2,862,189 $ 2,886,263 Charge-offs on C&I loans $ - $ - $ - $ - $ - $ 63 $ 55 $ 118 (1) Excludes accrued interest receivable.

The following tables present the amortized cost of residential mortgage loans by portfolio classes and by origination year based on accrual status as of March 31, 2023, the gross charge-offs for the quarter ended March 31, 2023 by portfolio classes and by origination year, and the amortized cost of residential mortgage loans by portfolio classes based on accrual status as of December 31, 2022:

As of March 31, 2023 As of December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) Florida Region: FHA/VA government-guaranteed loans Accrual Status: Performing $ - $ - $ - $ - $ - $ 735 $ - $ 735 $ 742 Non-Performing - - - - - - - - - Total FHA/VA government-guaranteed loans $ - $ - $ - $ - $ - $ 735 $ - $ 735 $ 742 Conventional residential mortgage loans: Accrual Status: Performing $ 13,232 $ 81,619 $ 48,991 $ 31,157 $ 29,403 $ 217,192 $ - $ 421,594 $ 421,347 Non-Performing - - - - 265 7,152 - 7,417 7,301 Total conventional residential mortgage loans $ 13,232 $ 81,619 $ 48,991 $ 31,157 $ 29,668 $ 224,344 $ - $ 429,011 $ 428,648 Total: Accrual Status: Performing $ 13,232 $ 81,619 $ 48,991 $ 31,157 $ 29,403 $ 217,927 $ - $ 422,329 $ 422,089 Non-Performing - - - - 265 7,152 - 7,417 7,301 Total residential mortgage loans in Florida region $ 13,232 $ 81,619 $ 48,991 $ 31,157 $ 29,668 $ 225,079 $ - $ 429,746 $ 429,390 Charge-offs on residential mortgage loans $ - $ - $ - $ - $ - $ - $ - $ - (1) Excludes accrued interest receivable.

As of March 31, 2023 As of December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) Total: FHA/VA government-guaranteed loans Accrual Status: Performing $ - $ 696 $ 448 $ 765 $ 1,557 $ 108,103 $ - $ 111,569 $ 118,158 Non-Performing - - - - - - - - - Total FHA/VA government-guaranteed loans $ - $ 696 $ 448 $ 765 $ 1,557 $ 108,103 $ - $ 111,569 $ 118,158 Conventional residential mortgage loans: Accrual Status: Performing $ 38,091 $ 253,218 $ 123,683 $ 62,654 $ 77,108 $ 2,108,795 $ - $ 2,663,549 $ 2,686,360 Non-Performing - - 35 - 265 36,110 - 36,410 42,772 Total conventional residential mortgage loans $ 38,091 $ 253,218 $ 123,718 $ 62,654 $ 77,373 $ 2,144,905 $ - $ 2,699,959 $ 2,729,132 Total: Accrual Status: Performing $ 38,091 $ 253,914 $ 124,131 $ 63,419 $ 78,665 $ 2,216,898 $ - $ 2,775,118 $ 2,804,518 Non-Performing - - 35 - 265 36,110 - 36,410 42,772 Total residential mortgage loans $ 38,091 $ 253,914 $ 124,166 $ 63,419 $ 78,930 $ 2,253,008 $ - $ 2,811,528 $ 2,847,290 Charge-offs on residential mortgage loans $ - $ - $ - $ 3 $ - $ 980 $ - $ 983 (1) Excludes accrued interest receivable.

The following tables present the amortized cost of consumer loans by portfolio classes and by origination year based on accrual status as of March 31, 2023, the gross charge-offs for the quarter ended March 31, 2023 by portfolio classes and by origination, and the amortized cost of consumer loans by portfolio classes based on accrual status as of December 31, 2022:

As of March 31, 2023 As of December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) Puerto Rico and Virgin Islands Regions: Auto loans: Accrual Status: Performing $ 165,925 $ 638,402 $ 478,373 $ 234,358 $ 186,331 $ 115,561 $ - $ 1,818,950 $ 1,783,782 Non-Performing - 2,419 2,243 1,347 2,708 2,399 - 11,116 10,596 Total auto loans $ 165,925 $ 640,821 $ 480,616 $ 235,705 $ 189,039 $ 117,960 $ - $ 1,830,066 $ 1,794,378 Charge-offs on auto loans $ 19 $ 1,827 $ 1,210 $ 467 $ 632 $ 365 $ - $ 4,520 Finance leases: Accrual Status: Performing $ 78,870 $ 282,486 $ 183,061 $ 82,206 $ 74,421 $ 52,230 $ - $ 753,274 $ 716,585 Non-Performing - 551 222 433 376 626 - 2,208 1,645 Total finance leases $ 78,870 $ 283,037 $ 183,283 $ 82,639 $ 74,797 $ 52,856 $ - $ 755,482 $ 718,230 Charge-offs on finance leases $ - $ 227 $ 270 $ 97 $ 185 $ 200 $ - $ 979 Personal loans: Accrual Status: Performing $ 44,647 $ 163,311 $ 49,275 $ 25,703 $ 46,765 $ 29,411 $ - $ 359,112 $ 351,664 Non-Performing - 490 188 117 229 239 - 1,263 1,248 Total personal loans $ 44,647 $ 163,801 $ 49,463 $ 25,820 $ 46,994 $ 29,650 $ - $ 360,375 $ 352,912 Charge-offs on personal loans $ - $ 1,517 $ 840 $ 279 $ 680 $ 384 $ - $ 3,700 Credit cards: Accrual Status: Performing $ - $ - $ - $ - $ - $ - $ 310,627 $ 310,627 $ 311,731 Non-Performing - - - - - - - - - Total credit cards $ - $ - $ - $ - $ - $ - $ 310,627 $ 310,627 $ 311,731 Charge-offs on credit cards $ - $ - $ - $ - $ - $ - $ 4,057 $ 4,057 Other consumer loans: Accrual Status: Performing $ 23,413 $ 66,230 $ 17,612 $ 8,219 $ 9,851 $ 6,468 $ 8,700 $ 140,493 $ 139,116 Non-Performing - 540 171 59 104 230 98 1,202 1,122 Total other consumer loans $ 23,413 $ 66,770 $ 17,783 $ 8,278 $ 9,955 $ 6,698 $ 8,798 $ 141,695 $ 140,238 Charge-offs on other consumer loans $ 14 $ 1,842 $ 762 $ 174 $ 326 $ 178 $ 91 $ 3,387 Total: Performing $ 312,855 $ 1,150,429 $ 728,321 $ 350,486 $ 317,368 $ 203,670 $ 319,327 $ 3,382,456 $ 3,302,878 Non-Performing - 4,000 2,824 1,956 3,417 3,494 98 15,789 14,611 Total consumer loans in Puerto Rico and Virgin Islands region $ 312,855 $ 1,154,429 $ 731,145 $ 352,442 $ 320,785 $ 207,164 $ 319,425 $ 3,398,245 $ 3,317,489 Charge-offs on total consumer loans $ 33 $ 5,413 $ 3,082 $ 1,017 $ 1,823 $ 1,127 $ 4,148 $ 16,643 (1) Excludes accrued interest receivable.

As of March 31, 2023 As of December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) Florida Region: Auto loans: Accrual Status: Performing $ - $ - $ - $ - $ 259 $ 2,518 $ - $ 2,777 $ 3,617 Non-Performing - - - - - 22 - 22 76 Total auto loans $ - $ - $ - $ - $ 259 $ 2,540 $ - $ 2,799 $ 3,693 Charge-offs on auto loans $ - $ - $ - $ - $ 8 $ 147 $ - $ 155 Finance leases: Accrual Status: Performing $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Performing - - - - - - - - - Total finance leases $ - $ - $ - $ - $ - $ - $ - $ - $ - Charge-offs on finance leases $ - $ - $ - $ - $ - $ - $ - $ - Personal loans: Accrual Status: Performing $ 274 $ 8 $ 71 $ 7 $ - $ - $ - $ 360 $ 334 Non-Performing - - - - - - - - - Total personal loans $ 274 $ 8 $ 71 $ 7 $ - $ - $ - $ 360 $ 334 Charge-offs on personal loans $ - $ - $ - $ - $ - $ - $ - $ - Credit cards: Accrual Status: Performing $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Performing - - - - - - - - - Total credit cards $ - $ - $ - $ - $ - $ - $ - $ - $ - Charge-offs on credit cards $ - $ - $ - $ - $ - $ - $ - $ - Other consumer loans: Accrual Status: Performing $ - $ 49 $ 229 $ 460 $ - $ 2,455 $ 2,223 $ 5,416 $ 5,833 Non-Performing - - - - - 21 104 125 119 Total other consumer loans $ - $ 49 $ 229 $ 460 $ - $ 2,476 $ 2,327 $ 5,541 $ 5,952 Charge-offs on other consumer loans $ - $ - $ - $ - $ - $ - $ - $ - Total: Performing $ 274 $ 57 $ 300 $ 467 $ 259 $ 4,973 $ 2,223 $ 8,553 $ 9,784 Non-Performing - - - - - 43 104 147 195 Total consumer loans in Florida region $ 274 $ 57 $ 300 $ 467 $ 259 $ 5,016 $ 2,327 $ 8,700 $ 9,979 Charge-offs on total consumer loans $ - $ - $ - $ - $ 8 $ 147 $ - $ 155 (1) Excludes accrued interest receivable.

As of March 31, 2023 As of December 31, 2022 Term Loans Amortized Cost Basis by Origination Year (1) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total Total (In thousands) Total: Auto loans: Accrual Status: Performing $ 165,925 $ 638,402 $ 478,373 $ 234,358 $ 186,590 $ 118,079 $ - $ 1,821,727 $ 1,787,399 Non-Performing - 2,419 2,243 1,347 2,708 2,421 - 11,138 10,672 Total auto loans $ 165,925 $ 640,821 $ 480,616 $ 235,705 $ 189,298 $ 120,500 $ - $ 1,832,865 $ 1,798,071 Charge-offs on auto loans $ 19 $ 1,827 $ 1,210 $ 467 $ 640 $ 512 $ - $ 4,675 Finance leases: Accrual Status: Performing $ 78,870 $ 282,486 $ 183,061 $ 82,206 $ 74,421 $ 52,230 $ - $ 753,274 $ 716,585 Non-Performing - 551 222 433 376 626 - 2,208 1,645 Total finance leases $ 78,870 $ 283,037 $ 183,283 $ 82,639 $ 74,797 $ 52,856 $ - $ 755,482 $ 718,230 Charge-offs on finance leases $ - $ 227 $ 270 $ 97 $ 185 $ 200 $ - $ 979 Personal loans: Accrual Status: Performing $ 44,921 $ 163,319 $ 49,346 $ 25,710 $ 46,765 $ 29,411 $ - $ 359,472 $ 351,998 Non-Performing - 490 188 117 229 239 - 1,263 1,248 Total personal loans $ 44,921 $ 163,809 $ 49,534 $ 25,827 $ 46,994 $ 29,650 $ - $ 360,735 $ 353,246 Charge-offs on personal loans $ - $ 1,517 $ 840 $ 279 $ 680 $ 384 $ - $ 3,700 Credit cards: Accrual Status: Performing $ - $ - $ - $ - $ - $ - $ 310,627 $ 310,627 $ 311,731 Non-Performing - - - - - - - - - Total credit cards $ - $ - $ - $ - $ - $ - $ 310,627 $ 310,627 $ 311,731 Charge-offs on credit cards $ - $ - $ - $ - $ - $ - $ 4,057 $ 4,057 Other consumer loans: Accrual Status: Performing $ 23,413 $ 66,279 $ 17,841 $ 8,679 $ 9,851 $ 8,923 $ 10,923 $ 145,909 $ 144,949 Non-Performing - 540 171 59 104 251 202 1,327 1,241 Total other consumer loans $ 23,413 $ 66,819 $ 18,012 $ 8,738 $ 9,955 $ 9,174 $ 11,125 $ 147,236 $ 146,190 Charge-offs on other consumer loans $ 14 $ 1,842 $ 762 $ 174 $ 326 $ 178 $ 91 $ 3,387 Total: Performing $ 313,129 $ 1,150,486 $ 728,621 $ 350,953 $ 317,627 $ 208,643 $ 321,550 $ 3,391,009 $ 3,312,662 Non-Performing - 4,000 2,824 1,956 3,417 3,537 202 15,936 14,806 Total consumer loans $ 313,129 $ 1,154,486 $ 731,445 $ 352,909 $ 321,044 $ 212,180 $ 321,752 $ 3,406,945 $ 3,327,468 Charge-offs on total consumer loans $ 33 $ 5,413 $ 3,082 $ 1,017 $ 1,831 $ 1,274 $ 4,148 $ 16,798 (1) Excludes accrued interest receivable.

Accrued interest receivable on loans totaled $ 49.4 million as of March 31, 2023 ($ 53.1 million as of December 31, 2022), was reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition and is excluded from the estimate of credit losses.

The following tables present information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of March 31, 2023 and December 31, 2022 :

As of March 31, 2023 Collateral Dependent Loans - With Allowance Collateral Dependent Loans - With No Related Allowance Collateral Dependent Loans - Total Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance (In thousands) Residential mortgage loans: Conventional residential mortgage loans $ 34,257 $ 2,410 $ 152 $ 34,409 $ 2,410 Commercial loans: Construction loans - - 956 956 - Commercial mortgage loans 2,449 896 61,851 64,300 896 C&I loans 1,789 347 13,331 15,120 347 Consumer loans: Personal loans 55 1 - 55 1 Other consumer loans - - - - - $ 38,550 $ 3,654 $ 76,290 $ 114,840 $ 3,654

As of December 31, 2022 Collateral Dependent Loans - With Allowance Collateral Dependent Loans - With No Related Allowance Collateral Dependent Loans - Total Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance (In thousands) Residential mortgage loans: Conventional residential mortgage loans $ 36,206 $ 2,571 $ - $ 36,206 $ 2,571 Commercial loans: Construction loans - - 956 956 - Commercial mortgage loans 2,466 897 62,453 64,919 897 C&I loans 1,513 322 17,590 19,103 322 Consumer loans: Personal loans 56 1 64 120 1 Other consumer loans 207 29 - 207 29 $ 40,448 $ 3,820 $ 81,063 $ 121,511 $ 3,820

The allowance related to collateral dependent loans reported in the tables above includes qualitative adjustments applied to the loan portfolio that consider possible changes in circumstances that could ultimately impact credit losses and might not be reflected in historical data or forecasted data incorporated in the quantitative models. The underlying collateral for residential mortgage and consumer collateral dependent loans consisted of 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 March 31, 2023 was 69 %, compared to 70 % as of December 31, 2022, which was not considered a significant change in the extent to which collateral secured these loans.

Purchases and Sales of Loans In the ordinary course of business, the Corporation enters into securitization transactions and whole loan sales with GNMA and GSEs, such as FNMA and FHLMC. During the quarters ended March 31, 2023 and 2022, loans pooled into GNMA MBS amounted to approximately $ 29.4 million and $ 41.5 million, respectively, for which the Corporation recognized a net gain on sale of $ 0.9 million and $ 1.3 million, respectively. Also, during the quarter ended March 31, 2023, the Corporation sold approximately $ 8.0 million of performing residential mortgage loans to FNMA, of which the Corporation recognized a net gain on sale of $ 0.2 million. In addition, during the quarter ended March 31, 2022, the Corporation sold approximately $ 50.0 million and $ 2.4 million of performing residential mortgage loans to FNMA and FHLMC, respectively, of which the Corporation recognized a net gain on sale of $ 2.1 million and $ 0.1 million, respectively. The Corporation’s continuing involvement with the loans that it sells consists primarily of servicing the loans. In addition, the Corporation agrees to repurchase loans if it breaches any of the representations and warranties included in the sale agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines (i.e., ensuring that the mortgage was properly underwritten according to established guidelines). For loans pooled into GNMA MBS, the Corporation, as servicer, holds an option to repurchase individual delinquent loans issued on or after January 1, 2003 when certain delinquency criteria are met. This option gives the Corporation the unilateral ability, but not the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA. Since the Corporation is considered to have regained effective control over the loans, it is required to recognize the loans and a corresponding repurchase liability regardless of its intent to repurchase the loans. As of March 31, 2023 and December 31, 2022, rebooked GNMA delinquent loans that were included in the residential mortgage loan portfolio amounted to $ 7.1 million and $ 10.4 million, respectively. During the quarters ended March 31, 2023 and 2022, the Corporation repurchased, pursuant to the aforementioned repurchase option, $ 1.5 million and $ 0.5 million, respectively, of loans previously pooled into GNMA MBS. The principal balance of these loans is fully guaranteed, and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA. Historically, losses on these repurchases of GNMA delinquent loans have been immaterial and no provision has been made at the time of sale. Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation’s risk of loss with respect to these loans is also minimal as these repurchased loans are generally performing loans with documentation deficiencies. No significant purchases of loans were executed during the first quarter of 2023. During the quarter ended March 31, 2022, the Corporation purchased certain C&I loan participations in the Florida region totaling $ 46.4 million.

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 $ 11.6 billion as of March 31, 2023, credit risk concentration was approximately 80 % in Puerto Rico, 17 % in the U.S., and 3 % in the USVI and BVI. As of March 31, 2023, the Corporation had $ 170.9 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $ 169.8 million as of December 31, 2022. As of March 31, 2023, approximately $ 102.7 million consisted of loans extended to municipalities in Puerto Rico that are general obligations supported by assigned property tax revenues, and $ 28.0 million of loans which are supported by one or more specific sources of municipal revenues. The vast majority of revenues of 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 by law to levy special property taxes in such amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. In addition to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of March 31, 2023 included $ 10.2 million in loans granted to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”) and $ 30.0 million in loans to agencies or public corporations of the Puerto Rico government. In addition, as of March 31, 2023, the Corporation had $ 82.9 million in exposure to residential mortgage loans that are guaranteed by the PRHFA, a government instrumentality that has been designated as a covered entity under PROMESA, compared to $ 84.7 million as of December 31, 2022. 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 Corporation also has credit exposure to USVI government entities. As of March 31, 2023, the Corporation had $ 38.7 million in loans to USVI government public corporations, compared to $ 38.0 million as of December 31, 2022. As of March 31, 2023, all loans were currently performing and up to date on principal and interest payments.

Loss Mitigation Program for Borrowers Experiencing Financial Difficulty The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program. Depending upon the nature of a borrower’s financial condition, restructurings or loan modifications through this program are provided, as well as other restructurings of individual C&I, commercial mortgage, construction, and residential mortgage loans. The Corporation may also modify contractual terms to comply with regulations regarding the treatment of certain bankruptcy filings and discharge situations. See Note 1 – Basis of Presentation and Significant Accounting Policies, for additional information related to the accounting policies of loan modifications granted to borrowers experiencing financial difficulty. The loan modifications granted to borrowers experiencing financial difficulty that are associated to payment delays typically include the following: - Forbearance plans – Payments of either interest and/or principal are deferred for a pre-established period of time, generally not exceeding six months in any given year. The deferred interest and/or principal is repaid as either a lump sum payment at maturity date or by extending the loan’s maturity date by the number of forbearance months granted. - Payment plans – Borrowers are allowed to pay the regular monthly payment plus the pre-established delinquent amounts during a period generally not exceeding six months. At the end of the payment plan, the borrower is required to resume making its regularly scheduled loan payments. - Trial modifications – These types of loan modifications are granted for residential mortgage loans. Borrower s continue making reduced monthly payments during the trial period, which is generally of up to six months. The reduced payments that are made by the borrower during the trial period will result in a payment delay with respect to the original contractual terms of the loan since the loan has not yet been contractually modified. After successful completion of the trial period, the mortgage loan is contractually modified. Modifications in the form of a reduction in interest rate, term extension, an other-than-insignificant payment delay, or any combination of these types of loan modifications that have occurred in the current reporting period to a borrower experiencing financial difficulty are disclosed in the tables below. The below disclosures relate to loan modifications granted to borrowers experiencing financial difficulty in which there was a change in the timing and/or amount of contractual cash flows in the form of any of the aforementioned types of modifications, including restructurings that resulted in a more-than-insignificant payment delay. These disclosures exclude $ 0.9 million in restructured residential mortgage loans that are government -guaranteed (e.g., FHA/VA loans) and were modified during the quarter ended March 31, 2023.

The following table presents the amortized cost basis as of March 31, 2023 of loans modified to borrowers experiencing financial difficulty during the quarter ended March 31, 2023, by portfolio classes and type of modification granted, and the percentage of these modified loans relative to the total period-end amortized cost basis of receivables in the portfolio class: Quarter Ended March 31, 2023 Payment Delay Only Forbearance Payment Plan Trial Modification Interest Rate Reduction Term Extension Combination of Interest Rate Reduction and Term Extension Forgiveness of principal and/or interest Other Total Percentage of Total by Portfolio Classes (In thousands) Conventional residential mortgage loans $ - $ - $ 332 $ - $ 433 $ 115 $ - $ - $ 880 0.03 % Construction loans - - - - - - - - - - Commercial mortgage loans - - - - - - - - - - C&I loans - - - - - - - 40 (1) 40 0.00 % Consumer loans: Auto loans - - - - 89 38 - 584 (1) 711 0.04 % Personal loans - - - - 28 14 - - 42 0.01 % Credit cards - - - 289 (2) - - - - 289 0.09 % Other consumer loans - - - - 132 60 - 26 (1) 218 0.15 % Total modifications $ - $ - $ 332 $ 289 $ 682 $ 227 $ - $ 650 $ 2,180 (1) Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs. (2) Modification consists of reduction in interest rate and revocation of revolving line privileges.

The following table presents the financial effects of the modifications granted to borrowers experiencing financial difficulty during the quarter ended March 31, 2023, by portfolio classes, other than those associated to payment delay. The qualitative financial effects of the modifications associated to payment delay were discussed above, and as such, were excluded from the table below: Quarter Ended March 31, 2023 Combination of Interest Rate Reduction and Term Extension Weighted-Average Interest Rate Reduction (%) Weighted-Average Term Extension (in months) Weighted-Average Interest Rate Reduction (%) Weighted-Average Term Extension (in months) Weighted-Average Forgiveness of Principal and/or Interest (In thousands) Conventional residential mortgage loans - 98 2.11 % 141 $ - Construction loans - - - - - Commercial mortgage loans - - - - - C&I loans - - - - - Consumer loans: Auto loans - 22 2.88 % 28 - Personal loans - 30 3.36 % 12 - Credit cards 16.04 % - - - - Other consumer loans - 27 1.96 % 26 -

The following table presents the performance of loans modified during the quarter ended March 31, 2023 that were granted to borrowers experiencing financial difficulty, by portfolio classes: Quarter Ended March 31, 2023 30-59 60-89 90+ Total Delinquency Current Total (In thousands) Conventional residential mortgage loans $ - $ - $ - $ - $ 880 $ 880 Construction loans - - - - - - Commercial mortgage loans - - - - - - C&I loans - - - - 40 40 Consumer loans: Auto loans 44 138 - 182 529 711 Personal loans - - - - 42 42 Credit cards 103 89 - 192 97 289 Other consumer loans - - - - 218 218 Total modifications $ 147 $ 227 $ - $ 374 $ 1,806 $ 2,180

There were no loans modified to borrowers experiencing financial difficulty on or after January 1, 2023, which had a payment default (failure by the borrower to make payments of either principal, interest, or both for a period of 90 days or more) during the quarter ended March 31, 2023.

Troubled Debt Restructuring (“TDR”) Disclosures Prior to Adoption of ASU 2022-02 Prior to the adoption of ASU 2022-02, a restructuring of a loan constituted a TDR if the creditor, for economic or legal reason related to the borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. See Note 1 “Nature of Business and Summary of Significant Accounting Policies” and Note 4 “Loans Held for Investment” to the Consolidated Financial Statements in the 2022 Annual Report on Form 10-K for additional discussion of TDRs. The following tables present TDR loans completed during the quarter ended March 31, 2022:

Quarter Ended March 31, 2022 Interest rate below market Maturity or term extension Combination of reduction in interest rate and extension of maturity Forgiveness of principal and/or interest Other (1) Total (In thousands) Conventional residential mortgage loans $ 215 $ 731 $ 190 $ - $ 1,857 $ 2,993 Construction loans - - - - - - Commercial mortgage loans - - - - - - C&I loans - - - - 5 5 Consumer loans: Auto loans 792 54 147 - - 993 Finance leases - 246 - - 18 264 Personal loans - 60 18 - - 78 Credit cards (2) 189 - - - - 189 Other consumer loans 33 106 - 9 - 148 Total TDRs $ 1,229 $ 1,197 $ 355 $ 9 $ 1,880 $ 4,670 (1) Other concessions granted by the Corporation include payment plans under judicial stipulation or loss mitigation programs, or a combination of two or more of the concessions listed 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. (2) Concession consists of reduction in interest rate and revocation of revolving line privileges.

Quarter Ended March 31, 2022 Number of contracts Pre-modification Amortized Cost Post-modification Amortized Cost (Dollars in thousands) Conventional residential mortgage loans 23 $ 2,996 $ 2,993 Construction loans - - - Commercial mortgage loans - - - C&I loans 1 5 5 Consumer loans: Auto loans 51 995 993 Finance leases 13 264 264 Personal loans 5 78 78 Credit Cards 44 189 189 Other consumer loans 27 146 148 Total TDRs 164 $ 4,673 $ 4,670

Loan modifications considered TDR loans that defaulted (failure by the borrower to make payments of either principal, interest, or both for a period of 90 days or more) during the quarter ended March 31, 2022, and had become TDR loans during the 12-months preceding the default date, were as follows:

Quarter Ended March 31, 2022 Number of contracts Amortized Cost (Dollars in thousands) Conventional residential mortgage loans 3 $ 389 Construction loans - - Commercial mortgage loans - - C&I loans - - Consumer loans: Auto loans 24 522 Finance leases 1 16 Personal loans - - Credit cards 11 79 Other consumer loans 2 11 Total TDRs 41 $ 1,017

NOTE 4 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods: Residential Mortgage Loans Construction Loans Commercial Mortgage Commercial & Industrial Loans Consumer Loans Total Quarter Ended March 31, 2023 (In thousands) ACL: Beginning balance $ 62,760 $ 2,308 $ 35,064 $ 32,906 $ 127,426 $ 260,464 Impact of adoption of ASU 2022-02 2,056 - - 7 53 2,116 Provision for credit losses - expense (benefit) 73 860 1,246 ( 1,650 ) 15,727 16,256 Charge-offs ( 983 ) - ( 18 ) ( 118 ) ( 16,798 ) ( 17,917 ) Recoveries 497 63 168 90 3,830 4,648 Ending balance $ 64,403 $ 3,231 $ 36,460 $ 31,235 $ 130,238 $ 265,567

Residential Mortgage Loans Construction Loans Commercial Mortgage Commercial & Industrial Loans Consumer Loans Total Quarter Ended March 31, 2022 (In thousands) ACL: Beginning balance $ 74,837 $ 4,048 $ 52,771 $ 34,284 $ 103,090 $ 269,030 Provision for credit losses - (benefit) expense ( 4,871 ) ( 2,214 ) ( 22,640 ) 1,755 10,981 ( 16,989 ) Charge-offs ( 2,528 ) ( 44 ) ( 37 ) ( 290 ) ( 9,816 ) ( 12,715 ) Recoveries 1,382 52 44 1,035 3,608 6,121 Ending balance $ 68,820 $ 1,842 $ 30,138 $ 36,784 $ 107,863 $ 245,447

The Corporation estimates the ACL following the methodologies described in Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K, for each portfolio segment. The Corporation applie s probability weights to the baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. The economic scenarios used in the ACL determination contained assumptions related to economic uncertainties associated with geopolitical instability, high inflation levels, and the expected path of interest rate increases by the FED. As of March 31, 2023, the ACL for loans and finance leases was $ 265.6 million, an increase of $ 5.1 million, from $ 260.5 million as of December 31, 2022. The ACL for commercial and construction loans remained relatively flat when compared to the previous quarter as a result of the following offsetting factors: reserve increases of $ 5.0 million for a new nonaccrual commercial and industrial loan in the Florida region in the power generation industry; and $ 1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the commercial real estate price index (“CRE price index”); partially offset by reserve decreases of $ 6.1 million associated with the receipt of updated financial information of certain borrowers and the repayment of a $ 24.3 million adversely classified commercial and industrial participated loan in the Florida region. The ACL for consumer loans increased by $ 2.9 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels. The ACL for residential mortgage loans increased by $ 1.6 million, in part due to a $ 2.1 million cumulative increase in the ACL, due to the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans. This adjustment had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023. See Note 1 – Basis of Presentation and Significant Accounting Policies for information related to the adoption of ASU 2022-02 during the first quarter of 2023. Total net charge-offs increased by $ 6.7 million to $ 13.3 million during the first quarter of 2023, when compared to the same period in 2022. The variance consisted of a $ 6.8 million increase in net charge-offs on consumer and finance leases, reflected across all major portfolio classes, and a $ 0.6 million decrease in net recoveries in the commercial and construction loan portfolios, partially offset by a $ 0.7 million decrease in net charge-offs on residential mortgage loans.

The tables below present the ACL related to loans and finance leases and the carrying values of loans by portfolio segment as of March 31, 2023 and December 31, 2022: As of March 31, 2023 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans Commercial and Industrial Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,811,528 $ 143,664 $ 2,353,659 $ 2,862,189 $ 3,406,945 $ 11,577,985 Allowance for credit losses 64,403 3,231 36,460 31,235 130,238 265,567 Allowance for credit losses to amortized cost 2.29 % 2.25 % 1.55 % 1.09 % 3.82 % 2.29 %

As of December 31, 2022 Residential Mortgage Loans Construction Loans Commercial Mortgage Loans Commercial and Industrial Loans Consumer Loans Total (Dollars in thousands) Total loans held for investment: Amortized cost of loans $ 2,847,290 $ 132,953 $ 2,358,851 $ 2,886,263 $ 3,327,468 $ 11,552,825 Allowance for credit losses 62,760 2,308 35,064 32,906 127,426 260,464 Allowance for credit losses to amortized cost 2.20 % 1.74 % 1.49 % 1.14 % 3.83 % 2.25 %

In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. See Note 22 – Regulatory Matters, Commitments, and Contingencies for information on off -balance sheet exposures as of March 31, 2023 and December 31, 2022. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 – Nature of Business and Summary of Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. As of March 31, 2023, the ACL for off-balance sheet credit exposures decreased to $ 4.2 million, from $ 4.3 million as of December 31, 2022. The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters ended March 31, 2023 and 2022:

Quarter Ended March 31, 2023 2022 (In thousands) Beginning Balance $ 4,273 $ 1,537 Provision for credit losses - (benefit) ( 105 ) ( 178 ) Ending balance $ 4,168 $ 1,359

NOTE 5 – OTHER REAL ESTATE OWNED

The following table presents the OREO inventory as of the indicated dates: March 31, 2023 December 31, 2022 (In thousands) OREO balances, carrying value: Residential (1) $ 24,984 $ 24,025 Commercial 6,114 5,852 Construction 1,764 1,764 Total $ 32,862 $ 31,641 (1) Excludes $ 22.6 million and $ 23.5 million as of March 31, 2023 and December 31, 2022, respectively, of foreclosures that met the conditions of ASC Subtopic 310-40 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” and are presented as a receivable as part of other assets in the consolidated statements of financial condition.

See Note 18 - Fair Value for information on write-downs recorded on OREO properties during the quarters ended March 31, 2023 and 2022.

NOTE 6 – GOODWILL AND OTHER INTANGIBLES Goodwill Goodwill as of each of March 31, 2023 and December 31, 2022 amounted to $ 38.6 million. The Corporation’s policy is to assess goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth quarter of 2022, management performed a qualitative analysis over the carrying amount of each relevant reporting units’ goodwill and concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This assessment involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant events impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-likely- than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2022, the Corporation concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation determined that there have been no significant events since the last annual assessment that could indicate potential goodwill impairment on reporting units for which the goodwill is allocated. As a result, no impairment charges for goodwill were recorded during the quarter ended March 31, 2023. There were no changes in the carrying amount of goodwill during the quarter ended March 31, 2022.

Other Intangible Assets The following table presents the gross amount and accumulated amortization of the Corporation’s intangible assets subject to amortization as of the indicated dates:

As of As of March 31, December 31, 2023 2022 (Dollars in thousands) Core deposit intangible: Gross amount $ 87,544 $ 87,544 Accumulated amortization ( 68,557 ) ( 66,644 ) Net carrying amount $ 18,987 $ 20,900 Remaining amortization period (in years) 6.8 7.0 Purchased credit card relationship intangible: Gross amount $ 3,800 $ 3,800 Accumulated amortization ( 3,714 ) ( 3,595 ) Net carrying amount $ 86 $ 205 Remaining amortization period (in years) 0.4 0.7 Insurance customer relationship intangible: Gross amount $ - $ 1,067 Accumulated amortization - ( 1,054 ) Net carrying amount $ - $ 13 Remaining amortization period (in years) - 0.1

During the quarters ended March 31, 2023 and 2022, the Corporation recognized $ 2.0 million and $ 2.3 million, respectively, in amortization expense on its other intangibles subject to amortization.

The Corporation amortizes core deposit intangibles and customer relationship intangible 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 the customer relationship intangible. The Corporation analyzes core deposit intangibles and the customer relationship intangible annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that would indicate a possible impairment to the core deposit intangibles or the customer relationship intangible as of March 31, 2023. The estimated aggregate annual amortization expense related to the intangible assets subject to amortization for future periods was as follows as of March 31, 2023:

(In thousands) 2023 $ 5,691 2024 6,416 2025 3,509 2026 872 2027 872 2028 and after 1,713

NOTE 7 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIEs”) AND SERVICING ASSETS The Corporation transfers residential mortgage loans in sale or securitization transactions in which it has continuing involvement, including servicing responsibilities and guarantee arrangements. All such transfers have been accounted for as sales as required by applicable accounting guidance. When evaluating the need to consolidate counterparties to which the Corporation has transferred assets, or 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. If no scope exception is applicable and a variable interest exists, the Corporation then evaluates whether it is the primary beneficiary of the VIE and whether the entity should be consolidated or not. Below is a summary of transactions with VIEs for which the Corporation has retained some level of continuing involvement: Trust-Preferred Securities (“TRuPs”) In April 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $ 100 million of its variable -rate TRuPs. FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $ 3.1 million of FBP Statutory Trust I variable-rate common securities, to purchase $ 103.1 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. In September 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 of related issuance costs, are presented in the Corporation’s consolidated statements of financial condition as other long-term borrowings. The variable-rate TRuPs are fully and unconditionally guaranteed by the Corporation. The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September 20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs). As of each of March 31, 2023 and December 31, 2022, these Junior Subordinated Deferrable Debentures amounted to $ 183.8 million. Under the indentures, the Corporation has the right, from time to time, and without causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of March 31, 2023, the Corporation was current on all interest payments due on its subordinated debt.

Private Label MBS During 2004 and 2005, an unaffiliated party, referred to in this subsection as the seller, established a series of statutory trusts to effect the securitization of mortgage loans and the sale of trust certificates (“private label MBS”). The seller initially provided the servicing for a fee, which is senior to the obligations to pay private label MBS holders. The seller then entered into a sales agreement through which it sold and issued the private label MBS in favor 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 to 3-month LIBOR plus a spread. As mentioned above in Note 2, Debt Securities, pursuant to the provisions of the LIBOR Act and Regulation ZZ, the LIBOR reference of these private label MBS shall be replaced by the 3-month CME Term SOFR rate plus a spread adjustment of 0.26161% on the first reset date after USD LIBOR ceases publication in June 2023. 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 on the securities. This IO is limited to the weighted-average coupon on the mortgage loans. The FDIC became the owner of the IO upon its intervention of the seller, a failed financial institution. No recourse agreement exists, and the Bank, as the sole holder of the securities, absorbs all risks from losses on non-accruing loans and repossessed collateral. As of March 31, 2023, the amortized cost and fair value of these private label MBS amounted to $ 7.7 million and $ 5.4 million, respectively, with a weighted average yield of 7.25 %, which is included as part of the Corporation’s available-for-sale debt securities portfolio. As described in Note 2 – Debt Securities, the ACL on these private label MBS amounted to $ 0.1 million as of March 31, 2023.

Servicing Assets (MSRs) The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in 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 by GNMA and, under seller/servicer agreements, the Corporation is required to service the loans in accordance with the issuers’ servicing guidelines and standards. As of March 31, 2023, 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:

Quarter Ended March 31, 2023 2022 (In thousands) Balance at beginning of year $ 29,037 $ 30,986 Capitalization of servicing assets 532 1,130 Amortization ( 1,128 ) ( 1,330 ) Temporary impairment recoveries 4 55 Other (1) ( 14 ) ( 88 ) Balance at end of period $ 28,431 $ 30,753 (1) Mainly represents adjustments related to the repurchase of loans serviced for others.

Impairment charges are recognized through a valuation allowance for each individual stratum of 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:

Quarter Ended March 31, 2023 2022 (In thousands) Balance at beginning of year $ 12 $ 78 Recoveries ( 4 ) ( 55 ) Balance at end of period $ 8 $ 23

The components of net servicing income, included as part of mortgage banking activities in the consolidated statements of income, are shown below for the indicated periods:

Quarter Ended March 31, 2023 2022 (In thousands) Servicing fees $ 2,718 $ 2,819 Late charges and prepayment penalties 199 194 Adjustment for loans repurchased ( 14 ) ( 88 ) Servicing income, gross 2,903 2,925 Amortization and impairment of servicing assets ( 1,124 ) ( 1,275 ) Servicing income, net $ 1,779 $ 1,650

The Corporation’s MSRs are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair value at the time of sale of the related mortgages for the indicated periods ranged as follows:

Weighted Average Maximum Minimum Quarter Ended March 31, 2023 Constant prepayment rate: Government-guaranteed mortgage loans 6.7 % 11.6 % 4.8 % Conventional conforming mortgage loans 7.7 % 16.0 % 3.8 % Conventional non-conforming mortgage loans 5.7 % 7.0 % 2.1 % Discount rate: Government-guaranteed mortgage loans 11.5 % 11.5 % 11.5 % Conventional conforming mortgage loans 9.5 % 9.5 % 9.5 % Conventional non-conforming mortgage loans 12.8 % 14.0 % 11.5 % Quarter Ended March 31, 2022 Constant prepayment rate: Government-guaranteed mortgage loans 6.7 % 18.3 % 4.8 % Conventional conforming mortgage loans 6.6 % 18.4 % 3.4 % Conventional non-conforming mortgage loans 6.6 % 21.9 % 4.9 % Discount rate: Government-guaranteed mortgage loans 12.0 % 12.0 % 12.0 % Conventional conforming mortgage loans 10.0 % 10.0 % 10.0 % Conventional non-conforming mortgage loans 12.3 % 14.5 % 12.0 %

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 10 % and 20 % adverse changes in those assumptions for mortgage loans as of March 31, 2023 and December 31, 2022 were as follows:

March 31, December 31, 2023 2022 (In thousands) Carrying amount of servicing assets $ 28,431 $ 29,037 Fair value $ 45,270 $ 44,710 Weighted-average expected life (in years) 7.80 7.80 Constant prepayment rate (weighted-average annual rate) 6.34 % 6.40 % Decrease in fair value due to 10% adverse change $ 1,040 $ 1,048 Decrease in fair value due to 20% adverse change $ 2,036 $ 2,054 Discount rate (weighted-average annual rate) 10.70 % 10.69 % Decrease in fair value due to 10% adverse change $ 1,960 $ 1,925 Decrease in fair value due to 20% adverse change $ 3,770 $ 3,704

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10 % variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities .

NOTE 8 – DEPOSITS

The following table summarizes deposit balances as of the indicated dates: March 31, 2023 December 31, 2022 (In thousands) Type of account and interest rate: Non-interest-bearing deposit accounts $ 6,024,304 $ 6,112,884 Interest-bearing saving accounts 3,808,182 3,902,888 Interest-bearing checking accounts 3,547,963 3,770,993 Certificates of deposit (“CDs”) 2,418,611 2,250,876 Brokered CDs 252,905 105,826 Total $ 16,051,965 $ 16,143,467

The following table presents the contractual maturities of CDs, including brokered CDs, as of March 31, 2023: Total (In thousands) Three months or less $ 499,307 Over three months to six months 361,274 Over six months to one year 732,933 Over one year to two years 751,913 Over two years to three years 155,590 Over three years to four years 46,748 Over four years to five years 117,009 Over five years 6,742 Total $ 2,671,516

The following were the components of interest expense on deposits for the indicated periods: Quarter Ended March 31, 2023 2022 (In thousands) Interest expense on deposits $ 29,924 $ 7,817 Accretion of premiums from acquisitions ( 83 ) ( 200 ) Amortization of broker placement fees 44 35 Total $ 29,885 $ 7,652

Total U.S. time deposits with balances of more than $250,000 amounted to $ 1.1 billion and $ 1.0 billion as of March 31, 2023 and December 31, 2022, respectively. This amount does not include brokered CDs that are generally participated out by brokers in shares of less than the FDIC insurance limit. As of March 31, 2023 and December 31, 2022, unamortized broker placement fees amounted to $ 0.4 million and $ 0.3 million, respectively, which are amortized over the contractual maturity of the brokered CDs under the interest method.

NOTE 9 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (REPURCHASE AGREEMENTS) Repurchase agreements as of the indicated dates consisted of the following:

March 31, 2023 December 31, 2022 (In thousands) Short-term Fixed-rate repurchase agreements (1) $ 172,982 $ 75,133 (1) Weighted-average interest rate of 5.08 % and 4.55 % as of March 31, 2023 and December 31, 2022.

The $ 75.1 million in repurchase agreements outstanding as of December 31, 2022 matured and were repaid during the first quarter of 2023. In addition, the Corporation added $ 173.0 million in short-term repurchase agreements reflecting precautionary measures taken by management in light of recent instability in the banking sector. Repurchase agreements mature as follows as of the indicated date:

March 31, 2023 (In thousands) Within one month $ 172,982

As of March 31, 2023 and December 31, 2022, the securities underlying such agreements were delivered to the dealers with which the repurchase agreements were transacted. In accordance with the master agreements, in the event of default, repurchase agreements have a right of set-off against the other party for amounts owed under the related agreement and any other amount or obligation owed with respect to any other agreement or transaction between them. As of March 31, 2023 and December 31, 2022, repurchase agreements were fully collateralized and not offset in the consolidated statements of financial condition. Repurchase agreements as of March 31, 2023, grouped by counterparty, were as follows:

Weighted-Average Counterparty Amount Maturity (In Months) (Dollars in thousands) JP Morgan Chase $ 172,982 1

NOTE 10 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (“FHLB”)

The following is a summary of the advances from the FHLB as of the indicated dates: March 31, December 31, 2023 2022 (In thousands) Short-term Fixed -rate advances from the FHLB (1) $ 425,000 $ 475,000 Long-term Fixed -rate advances from the FHLB (2) 500,000 200,000 $ 925,000 $ 675,000 (1) Weighted-average interest rate of 5.04 % and 4.56 % as of March 31, 2023 and December 31, 2022, respectively. (2) Weighted-average interest rate of 4.45 % and 4.25 % as of March 31, 2023 and December 31, 2022, respectively.

Advances from the FHLB mature as follows as of the indicated date: March 31, 2023 (In thousands) Within one month $ 425,000 Over one to five years 500,000 Total $ 925,000

During the first quarter of 2023, the Corporation added $ 425.0 million of short-term FHLB advances at an average cost of 5.04 % and $ 300.0 million of long-term FHLB advances at an average cost of 4.59 %, and repaid upon maturity $ 475.0 million of short-term FHLB advances at an average cost of 4.56 %.

NOTE 11 – OTHER LONG-TERM BORROWINGS Junior Subordinated Debentures Junior subordinated debentures, as of the indicated dates, consisted of:

March 31, December 31, (In thousands) 2023 2022 Floating rate junior subordinated debentures (FBP Statutory Trust I) (1) (3) (4) $ 65,205 $ 65,205 Floating rate junior subordinated debentures (FBP Statutory Trust II) (2) (3) (4) 118,557 118,557 $ 183,762 $ 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 ( 7.66 % as of March 31, 2023 and 7.49 % as of December 31, 2022). (2) Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of 2.50 % over 3-month LIBOR ( 7.46 % as of March 31, 2023 and 7.25 % as of December 31, 2022). (3) Following the provisions of the LIBOR Act and Regulation ZZ, the LIBOR reference on these contracts will automatically transition by operation of law to three-month CME Term SOFR, plus a spread adjustment of 0.26161% on the first reset date after USD LIBOR ceases publication in June 2023. (4) See Note 7 - Non-Consolidated Variable Interest Entities ("VIEs") and Servicing Assets, for additional information on the nature and terms of these debentures.

NOTE 12 – EARNINGS PER COMMON . SHARE

The calculations of earnings per common share for the quarters ended March 31, 2023 and 2022 are as follows: Quarter Ended March 31, 2023 2022 (In thousands, except per share information) Net income attributable to common stockholders $ 70,698 $ 82,600 Weighted-Average Shares: Average common shares outstanding 180,215 198,130 Average potential dilutive common shares 1,021 1,407 Average common shares outstanding - assuming dilution 181,236 199,537 Earnings per common share: Basic $ 0.39 $ 0.42 Diluted $ 0.39 $ 0.41

Earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for any preferred stock dividends, including any dividends declared but not yet paid, and any cumulative dividends related to the current dividend period that have not been declared as of the end of the period. Basic weighted-average common shares outstanding exclude unvested shares of restricted stock that do not contain non-forfeitable dividend rights. Potential dilutive common shares consist of unvested shares of restricted stock and performance units (if any of the performance conditions are met as of the end of the reporting period), that do not contain non-forfeitable dividend or dividend equivalent rights using the treasury stock method. This method assumes that proceeds equal to the amount of compensation cost attributable to future services is used to repurchase shares on the open market at the average market price for the period. The difference between the number of potential dilutive shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Unvested shares of restricted stock outstanding during the period that result in lower potentially dilutive shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. There were no antidilutive shares of common stock during the quarters ended March 31, 2023 and 2022.

NOTE 13 – STOCK-BASED . COMPENSATION

The First Bancorp Omnibus Incentive Plan (the “Omnibus Plan”), which is effective until May 24, 2026, provides for equity-based and non equity-based compensation incentives (the “awards”). The Omnibus Plan authorizes the issuance of up to 14,169,807 shares of common stock, subject to adjustments for stock splits, reorganizations and other similar events. As of March 31, 2023, there were 3,142,813 authorized shares of common stock available for issuance under the Omnibus Plan. The Board, based on the recommendation of the Compensation and Benefits Committee of the Board, has the power and authority to determine those eligible to receive awards and to establish the terms and conditions of any awards, subject to various limits and vesting restrictions that apply to individual and aggregate awards. Restricted Stock Under the Omnibus Plan, the Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While the restricted stock is subject to forfeiture and does not contain non-forfeitable dividend rights, participants may exercise full voting rights with respect to the shares of restricted stock granted to them. The fair value of the shares of restricted stock granted was based on the market price of the Corporation’s common stock on the date of the respective grant. The shares of restricted stocks granted to employees are subject to the following vesting period: fifty percent ( 50 %) of those shares vest on the two-year anniversary of the grant date and the remaining 50 % vest on the three-year anniversary of the grant date. The shares of restricted stock granted to directors are generally subject to vesting on the one-year anniversary of the grant date. The Corporation issued 495,891 shares during the quarter ended March 31, 2023 in connection with restricted stock awards, which were reissued from treasury shares.

The following table summarizes the restricted stock activity under the Omnibus Plan during the quarters ended March 31, 2023 and 2022: Quarter ended Quarter ended March 31, 2023 March 31, 2022 Number of Weighted- Number of Weighted- shares of Average shares of Average restricted Grant Date restricted Grant Date stock Fair Value stock Fair Value Unvested shares outstanding at beginning of year 938,491 $ 9.14 1,148,775 $ 6.61 Granted (1) 495,891 11.99 299,440 13.15 Forfeited ( 25,415 ) 9.98 ( 3,092 ) 6.69 Vested ( 481,536 ) 5.93 ( 487,198 ) 5.72 Unvested shares outstanding at end of period 927,431 $ 12.32 957,925 $ 9.10 (1) For the quarter ended March 31, 2023, includes 3,502 shares of restricted stock awarded to independent directors and 492,389 shares of restricted stock awarded to employees, of which 33,718 shares were granted to retirement-eligible employees and thus charged to earnings as of the grant date. Includes for the quarter ended March 31, 2022, 3,048 shares of restricted stock awarded to independent directors and 296,392 shares of restricted stock awarded to employees, of which 6,084 shares were granted to retirement-eligible employees and thus charged to earnings as of the grant date.

For the quarters ended March 31, 2023 and 2022, the Corporation recognized $ 1.6 million and $ 0.9 million, respectively, of stock- based compensation expense related to restricted stock awards. As of March 31, 2023, there was $ 7.8 million of total unrecognized compensation cost related to unvested shares of restricted stock that the Corporation expects to recognize over a weighted average period of 2.1 years.

Performance Units Under the Omnibus Plan, the Corporation may award performance units to participants, with each unit representing the value of one share of the Corporation’s common stock. These awards, which are granted to executives, do not contain non-forfeitable rights to dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock. On March 16, 2023, the Corporation granted 216,876 performance units to executives. Performance units granted on or after March 16, 2023 will vest on the third anniversary of the effective date of the award based on actual achievement of two performance metrics weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the KBW Nasdaq Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured based upon the growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring transactions. The participant may earn 50 % of their target opportunity for threshold-level performance and up to 150 % of their target opportunity for maximum-level performance, based on the achievement of the performance goals during a three-year performance cycle. Amounts between threshold, target and maximum performance will vest on a proportional amount. Performance units granted prior to March 16, 2023 vest subject only to achievement of a TBVPS goal. In addition, the participant may earn only up to 100 % of their target opportunity. The following table summarizes the performance units activity under the Omnibus Plan during the quarters ended March 31, 2023 and 2022:

Quarter ended Quarter ended March 31, 2023 March 31, 2022 Number Weighted - Number Weighted - of Average of Average Performance Grant Date Performance Grant Date Units Fair Value Units Fair Value Performance units at beginning of year 791,923 7.36 814,899 7.06 Additions (1) 216,876 12.24 166,669 13.15 Vested (2) ( 474,538 ) 4.08 ( 189,645 ) 11.16 Performance units at end of period 534,261 12.25 791,923 7.36 (1) Units granted during the quarter ended March 31, 2023 are based on the achievement of the Relative TSR and TBVPS performance goals during a three-year performance cycle beginning January 1, 2023 and ending on December 31, 2025. Units granted during the quarter ended March 31, 2022 are based on the TBVPS achievement of the performance goal during a three- year performance cycle beginning January 1, 2022 and ending on December 31, 2024. (2) Units vested during the quarter ended March 31, 2023 are related to performance units granted in 2020 that met the pre-established target and were settled with shares of common stock reissued from treasury shares. Units vested during the quarter ended March 31, 2022 are related to performance units granted in 2019 that met the pre-established target and were settled with shares of common stock reissued from treasury shares.

The fair value of the performance units awarded during the quarter ended March 31, 2023 and 2022, that was based on the TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the grant and assuming attainment of 100% of target opportunity. As of March 31, 2023, there have been no changes on management’s assessment of the probability that the pre-established TBVPS goal will be achieved; as such, no cumulative adjustment to compensation expense has been recognized. The fair value of the performance units awarded during the quarter ended March 31, 2023, that was based on the Relative TSR component, was calculated using a Monte Carlo simulation. Since the Relative TSR component is considered a market condition, the fair value of the portion of the award based on Relative TSR is not revised subsequent to grant date based on actual performance. For the quarters ended March 31, 2023 and 2022, the Corporation recognized $ 0.5 million and $ 0.3 million, respectively, of stock- based compensation expense related to performance units. As of March 31, 2023, there was $ 4.7 million of total unrecognized compensation cost related to unvested performance units that the Corporation expects to recognize over a weighted average period of 2.4 years.

The following table summarizes the valuation assumptions used to calculate the fair value of the Relative TSR component of the performance units granted under the Omnibus Plan during the quarter ended March 31, 2023:

Quarter Ended March 31, 2023 Risk-free interest rate (1) 3.98 % Correlation coefficient 77.16 Expected dividend yield (2) - Expected volatility (3) 41.37 Expected life (in years) 2.79 (1) Based on the yield on zero-coupon U.S. Treasury STRIPS as of the grant date. (2) Assumes that dividends are reinvested at each ex-dividend date. (3) Calculated based on the historical volatility of each company's stock price with a look-back period equal to the simulation term using daily stock prices.

Shares withheld During the first quarter of 2023, the Corporation withheld 287,835 shares (first quarter of 2022 – 201,930 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.

NOTE 14 – STOCKHOLDERS’ EQUITY Stock Repurchase Programs On April 27, 2022, the Corporation announced that its Board approved a stock repurchase program, under which the Corporation may repurchase up to $ 350 million of its outstanding common stock, which commenced in the second quarter of 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s common stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified, suspended, or terminated at any time at the Corporation’s discretion. The program does not obligate the Corporation to acquire any specific number of shares and does not have an expiration date. During the first quarter of 2023, the Corporation repurchased 3,577,540 shares of common stock through open market transactions at an average purchase price of $ 13.98 per share for a total price of approximately $ 50 million. As of March 31, 2023, the Corporation has remaining authorization to repurchase approximately $ 75 million of common stock. Considering the industry-wide uncertain environment, the Corporation decided to pause share buybacks during the second quarter of 2023 and it expects to resume shares repurchases during the third quarter of 2023 subject to factors mentioned above. During the first quarter of 2022, the Corporation completed a previously publicly-announced $ 300 million stock repurchase program approved by the Board on April 26, 2021 by purchasing through open market transactions 3,409,697 shares of common stock at an average price of $ 14.66 for a total purchase price of approximately $ 50 million. Common Stock

The following table shows the change in shares of common stock outstanding for the quarters ended March 31, 2023, and 2022: Total Number of Shares Quarter Ended March 31, 2023 2022 Common stock outstanding, beginning balance 182,709,059 201,826,505 Common stock repurchased (1) ( 3,865,375 ) ( 3,611,627 ) Common stock reissued under stock-based compensation plan 970,429 489,085 Restricted stock forfeited ( 25,415 ) ( 3,092 ) Common stock outstanding, ending balances 179,788,698 198,700,871 (1) For the quarters ended March 31, 2023 and 2022 includes 287,835 and 201,930 shares, respectively, of common stock surrendered to cover officers' payroll and income taxes.

For the quarters ended March 31, 2023 and 2022, total cash dividends declared on shares of common stock amounted to $ 25.4 million and $ 19.9 million, respectively. On April 27, 2023 , the Corporation announced that its Board had declared a quarterly cash dividend of $ 0.14 per common share payable on June 9, 2023 to shareholders of record at the close of business on May 24, 2023 . The Corporation intends to continue to pay quarterly dividends on common stock. However, the Corporation’s common stock dividends, including the declaration, timing, and amount, remain subject to consideration and approval by the Corporation’s Board Directors at the relevant times.

Preferred Stock The Corporation has 50,000,000 authorized shares of preferred stock with a par value of $ 1.00 , redeemable at 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 when authorizing the issuance of that particular series. No shares of preferred stock were outstanding as of March 31, 2023 and December 31, 2022. Treasury Stock

The following table shows the change in shares of treasury stock for the quarters ended March 31, 2023 and 2022. Total Number of Shares Quarter Ended March 31, 2023 2022 Treasury stock, beginning balance 40,954,057 21,836,611 Common stock repurchased (1) 3,865,375 3,611,627 Common stock reissued under stock-based compensation plan ( 970,429 ) ( 489,085 ) Restricted stock forfeited 25,415 3,092 Treasury stock, ending balances 43,874,418 24,962,245 (1) For the quarters ended March 31, 2023 and 2022 includes 287,835 and 201,930 shares, respectively, of common stock surrendered to cover officers' payroll and income taxes.

FirstBank Statutory Reserve (Legal Surplus) The Puerto Rico Banking Law of 1933, as amended (the “Puerto Rico Banking Law”), 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 to the legal surplus reserve from retained earnings are not available for distribution to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $ 168.5 million as of each March 31, 2023 and December 31, 2022.

There werenotransfers to the legal surplus reserve during the quarter ended March 31, 2023.

NOTE 15 – ACCUMULATED OTHER COMPREHENSIVE LOSS The following table presents the changes in accumulated other comprehensive loss for the quarters ended March 31, 2023 and 2022:

Changes in Accumulated Other Comprehensive Loss by Component (1) Quarter ended March 31, 2023 2022 (In thousands) Unrealized net holding losses on available-for-sale debt securities: Beginning balance $ ( 805,972 ) $ ( 87,390 ) Other comprehensive income (loss) 87,228 ( 331,834 ) Ending balance $ ( 718,744 ) $ ( 419,224 ) Adjustment of pension and postretirement benefit plans: Beginning balance $ 1,194 $ 3,391 Other comprehensive income (loss) - - Ending balance $ 1,194 $ 3,391 ________ (1) All amounts presented are net of tax.

NOTE 16 – EMPLOYEE BENEFIT PLANS The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”), and a related complementary post-retirement benefit plan (the “Postretirement Benefit Plan”) covering medical benefits and life insurance after retirement that it obtained in the Banco Santander Puerto Rico (“BSPR”) acquisition on September 1, 2020. One defined benefit pension plan covers substantially all of BSPR’s former employees who were active before January 1, 2007, while the other defined benefit pension plan covers personnel of an institution previously acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the Pension Plans is frozen to all participants. The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting adjustment to accumulated other comprehensive loss pursuant to the ASC Topic 715, “Compensation-Retirement Benefits.”

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

Affected Line Item in the Consolidated Quarter Ended Statements of Income March 31, 2023 March 31, 2022 (In thousands) Net periodic cost (benefit), pension plans: Interest cost Other expenses $ 950 $ 654 Expected return on plan assets Other expenses ( 886 ) ( 1,039 ) Net periodic cost (benefit), pension plans 64 ( 385 ) Net periodic cost, postretirement plan Other expenses 6 1 Net periodic cost (benefit) $ 70 $ ( 384 )

NOTE 17 – INCOME TAXES Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, FirstBank is treated as a foreign corporation for U.S. and USVI income tax purposes and, accordingly, is generally subject to U.S. and USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a trade or business in those jurisdictions. Any such tax paid in the U.S. and USVI is also creditable against the Corporation’s Puerto Rico tax liability, subject to certain conditions and limitations. Under the Puerto Rico Internal Revenue Code of 2011 PR (the “2011 PR Code”), the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“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 is 10 years. 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 an effective tax rate lower than the Puerto Rico maximum statutory rate of 37.5 % mainly by investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an international banking entity (an “IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales are exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit 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.

For the first quarter of 2023, the Corporation recorded an income tax expense of $ 31.9 million compared to $ 43.0 million in the first quarter of 2022. The variance was primarily related to lower pre-tax income and a lower estimated effective tax rate as a result of a higher proportion of exempt to taxable income when compared to the same period in 2022. The Corporation’s estimated annual effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, was 31.2 % for the first quarter of 2023, compared to 32.9 % for the first quarter of 2022. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $ 154.8 million as of March 31, 2023, net of a valuation allowance of $ 139.1 million, compared to a net deferred tax asset of $ 155.6 million, net of a valuation allowance of $ 149.5 million, as of December 31, 2022. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital losses carry forward and unrealized losses of available-for-sale debt securities. The reduction in the valuation allowance was related to the change in the market value of available-for-sale debt securities, which resulted in a change in the deferred tax asset and an equal change in the valuation allowance without impacting earnings.

In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities that we 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. or USVI can be 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 a credit or deduction depends on our tax profile at each annual taxable period, which is dependent on various factors. For the first quarters of 2023 and 2022, the Corporation incurred current income tax expense of approximately $ 2.5 million and $ 1.6 million, respectively, related to its U.S. operations. The limitation did not impact the USVI operations in the first quarters of 2023 and 2022, respectively . 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 positions in income tax expense. As of March 31, 2023, 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 of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding amounts for current tax year positions, expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level of uncertainty, the status of 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 after a tax return is due or filed, whichever is later; 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 a given audit period could result in an adjustment to the Corporation’s liability for income taxes. Any such adjustment could be material to the results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to 2018 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2017 remain open to examination.

NOTE 18 – FAIR VALUE Fair Value Measurement ASC Topic 820, “Fair Value Measurement,” defines fair value as the exchange price that would be received for an asset or paid 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 assets and liabilities, which is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. One of three levels of inputs may be used to measure fair value: Level 1 Valuations of Level 1 assets and liabilities are obtained from readily-available pricing sources for market transactions involving identical assets or liabilities in active markets. Level 2 Va luations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Va luations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined by using pricing models for which the determination of fair value requires significant management judgment as to the estimation. See Note 25 – Fair Value , to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K for a description of the valuation methodologies used to measure financial instruments at fair value on a recurring basis.

Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2023 and December 31, 2022: As of March 31, 2023 As of December 31, 2022 Fair Value Measurements Using Fair Value Measurements Using Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (In thousands) Assets: Debt securities available for sale: U.S. Treasury securities $ 140,422 $ - $ - $ 140,422 $ 138,875 $ - $ - $ 138,875 Noncallable U.S. agencies debt securities - 428,675 - 428,675 - 389,787 - 389,787 Callable U.S. agencies debt securities - 1,962,535 - 1,962,535 - 1,963,566 - 1,963,566 MBS - 3,050,019 5,402 (1) 3,055,421 - 3,098,797 5,794 (1) 3,104,591 Puerto Rico government obligations - - 2,203 2,203 - - 2,201 2,201 Other investments - - - - - - 500 500 Equity securities 4,926 - - 4,926 4,861 - - 4,861 Derivative assets - 628 - 628 - 633 - 633 Liabilities: Derivative liabilities - 645 - 645 - 476 - 476 (1) Related to private label MBS.

The table below presents a reconciliation of the beginning and ending balances of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2023 and 2022: Quarter Ended March 31, 2023 2022 Level 3 Instruments Only Securities Available for Sale (1) Securities Available for Sale (1) (In thousands) Beginning balance $ 8,495 $ 11,084 Total gains (losses): Included in other comprehensive loss (unrealized) ( 162 ) ( 287 ) Included in earnings (unrealized) (2) 9 388 Principal repayments and amortization (3) ( 737 ) ( 538 ) Ending balance $ 7,605 $ 10,647 _______ (1) Amounts mostly related to private label MBS. (2) Changes in unrealized gains included in earnings were recognized within provision for credit losses - expense (benefit) and relate to assets still held as of the reporting date. (3) Includes the $ 0.5 million repayment of a matured debt security.

The tables below present quantitative information for significant assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2023 and December 31, 2022: March 31, 2023 Fair Value Valuation Technique Unobservable Input Range Weighted Average Minimum Maximum (Dollars in thousands) Available-for-sale debt securities: Private label MBS $ 5,402 Discounted cash flows Discount rate 16.0 % 16.0 % 16.0 % Prepayment rate 1.6 % 12.6 % 9.2 % Projected cumulative loss rate 0.2 % 14.9 % 5.2 % Puerto Rico government obligations $ 2,203 Discounted cash flows Discount rate 12.8 % 12.8 % 12.8 % Projected cumulative loss rate 19.0 % 19.0 % 19.0 %

December 31, 2022 Fair Value Valuation Technique Unobservable Input Range Weighted Average Minimum Maximum (Dollars in thousands) Available-for-sale debt securities: Private label MBS $ 5,794 Discounted cash flows Discount rate 16.2 % 16.2 % 16.2 % Prepayment rate 1.5 % 15.2 % 11.8 % Projected cumulative loss rate 0.3 % 15.6 % 5.6 % Puerto Rico government obligations $ 2,201 Discounted cash flows Discount rate 12.9 % 12.9 % 12.9 % Projected cumulative loss rate 19.3 % 19.3 % 19.3 %

Information about Sensitivity to Changes in Significant Unobservable Inputs Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption, and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default, loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of 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 debt security. 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 of the PRHFA guarantee. Under this approach, expected cash flows (interest and principal) are discounted at the Treasury yield curve plus a spread as of the reporting date and compared to the amortized cost.

Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP.

As of March 31, 2023, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non- recurring basis and still held at March 31, 2023, as shown in the following table: Carrying value as of March 31, Related to losses recorded for the Quarter Ended March 31, 2023 2022 2023 2022 (In thousands) Level 3: Loans receivable (1) $ 3,486 $ 25,951 $ ( 60 ) $ ( 3,539 ) OREO (2) 814 1,432 ( 33 ) ( 73 ) (1) Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable. (2) The Corporation derived the fair values from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio.

See Note 25 – Fair Value, to the audited consolidated financial statements to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K for qualitative information regarding the fair value measurements for Level 3 financial instruments measured at fair value on nonrecurring basis.

The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial instruments as of March 31, 2023 and December 31, 2022: Total Carrying Amount in Statement of Financial Condition as of March 31, 2023 Fair Value Estimate as of March 31, 2023 Level 1 Level 2 Level 3 (In thousands) Assets: Cash and due from banks and money market investments (amortized cost) $ 823,601 $ 823,601 $ 823,601 $ - $ - Available-for-sale debt securities (fair value) 5,589,256 5,589,256 140,422 5,441,229 7,605 Held-to-maturity debt securities (amortized cost) 431,395 Less: ACL on held-to-maturity debt securities ( 7,646 ) Held-to-maturity debt securities, net of ACL $ 423,749 419,752 - 255,209 164,543 Equity securities (amortized cost) 61,788 61,788 - 61,788 (1) - Other equity securities (fair value) 4,926 4,926 4,926 - - Loans held for sale (lower of cost or market) 15,183 15,214 - 15,214 - Loans held for investment (amortized cost) 11,577,985 Less: ACL for loans and finance leases ( 265,567 ) Loans held for investment, net of ACL $ 11,312,418 11,030,421 - - 11,030,421 MSRs (amortized cost) 28,431 45,270 - - 45,270 Derivative assets (fair value) (2) 628 628 - 628 - Liabilities: Deposits (amortized cost) $ 16,051,965 $ 16,039,550 $ - $ 16,039,550 $ - Short-term securities sold under agreements to repurchase (amortized cost) 172,982 173,936 - 173,936 - Advances from the FHLB (amortized cost): Short-term 425,000 426,665 - 426,665 - Long-term 500,000 501,990 - 501,990 - Other long-term borrowings (amortized cost) 183,762 187,183 - - 187,183 Derivative liabilities (fair value) (2) 645 645 - 645 - (1) Includes FHLB stock with a carrying value of $ 54.2 million, which are considered restricted. (2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

Total Carrying Amount in Statement of Financial Condition as of December 31, 2022 Fair Value Estimate as of December 31, 2022 Level 1 Level 2 Level 3 (In thousands) Assets: Cash and due from banks and money market investments (amortized cost) $ 480,505 $ 480,505 $ 480,505 $ - $ - Available-for-sale debt securities (fair value) 5,599,520 5,599,520 138,875 5,452,150 8,495 Held-to-maturity debt securities (amortized cost) 437,537 Less: ACL on held-to-maturity debt securities ( 8,286 ) Held-to-maturity debt securities, net of ACL $ 429,251 427,115 - 260,106 167,009 Equity securities (amortized cost) 50,428 50,428 - 50,428 (1) - Other equity securities (fair value) 4,861 4,861 4,861 - - Loans held for sale (lower of cost or market) 12,306 12,306 - 12,306 - Loans held for investment (amortized cost) 11,552,825 Less: ACL for loans and finance leases ( 260,464 ) Loans held for investment, net of ACL $ 11,292,361 11,106,809 - - 11,106,809 MSRs (amortized cost) 29,037 44,710 - - 44,710 Derivative assets (fair value) (2) 633 633 - 633 - Liabilities: Deposits (amortized cost) $ 16,143,467 $ 16,139,937 $ - $ 16,139,937 $ - Short-term securities sold under agreements to repurchase (amortized cost) 75,133 75,230 - 75,230 - Advances from the FHLB (amortized cost) Short-term 475,000 474,731 - 474,731 - Long-term 200,000 199,865 - 199,865 - Other long-term borrowings (amortized cost) 183,762 187,246 - - 187,246 Derivative liabilities (fair value) (2) 476 476 - 476 - (1) Includes FHLB stock with a carrying value of $ 42.9 million, which are considered restricted. (2) Includes interest rate swap agreements, interest rate caps, forward contracts, interest rate lock commitments, and forward loan sales commitments.

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and equipment, goodwill and other intangible assets, are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected future cash flows, and appropriate discount rates.

NOTE 19 – REVENUE FROM CONTRACTS WITH CUSTOMERS Revenue Recognition In accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”), revenues are recognized when control of promised goods or services is transferred to customers and in an amount that reflects the consideration to which the Corporation expects to be entitled in exchange for those goods or services. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Corporation assesses the goods or services that are promised within each contract, identifies the respective performance obligations, and assesses whether each promised good or service is distinct. The Corporation then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Disaggregation of Revenue The following tables summarize the Corporation’s revenue, which includes net interest income on financial instruments and non- interest income, disaggregated by type of service and business segment for the quarters ended March 31, 2023 and 2022:

Quarter ended March 31, 2023 Mortgage Banking Consumer (Retail) Banking Commercial and Corporate Treasury and Investments United States Operations Virgin Islands Operations Total (In thousands) Net interest income (1) $ 21,788 $ 137,744 $ 14,940 $ ( 658 ) $ 20,930 $ 6,141 $ 200,885 Service charges and fees on deposit accounts - 5,486 3,154 - 165 736 9,541 Insurance commissions - 4,640 - - 28 179 4,847 Merchant-related income - 2,263 - - 29 468 2,760 Credit and debit card fees - 7,638 22 - 2 496 8,158 Other service charges and fees 161 1,152 854 - 583 344 3,094 Not in scope of ASC Topic 606 (1) 2,913 855 145 160 40 5 4,118 Total non-interest income 3,074 22,034 4,175 160 847 2,228 32,518 Total Revenue $ 24,862 $ 159,778 $ 19,115 $ ( 498 ) $ 21,777 $ 8,369 $ 233,403

Quarter ended March 31, 2022 Mortgage Banking Consumer (Retail) Banking Commercial and Corporate Treasury and Investments United States Operations Virgin Islands Operations Total (In thousands) Net interest income (1) $ 25,779 $ 89,546 $ 40,415 $ 7,409 $ 16,482 $ 5,993 $ 185,624 Service charges and fees on deposit accounts - 5,539 2,976 - 138 710 9,363 Insurance commissions - 4,967 - - 29 279 5,275 Merchant-related income - 1,822 373 - 5 389 2,589 Credit and debit card fees - 6,671 16 - ( 7 ) 410 7,090 Other service charges and fees 143 1,110 1,113 - 499 157 3,022 Not in scope of ASC Topic 606 (1) 5,109 354 76 ( 112 ) 80 12 5,519 Total non-interest income 5,252 20,463 4,554 ( 112 ) 744 1,957 32,858 Total Revenue $ 31,031 $ 110,009 $ 44,969 $ 7,297 $ 17,226 $ 7,950 $ 218,482 (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.

For the quarters ended March 31, 2023 and 2022, most of the Corporation’s revenue within the scope of ASC Topic 606 was related to performance obligations satisfied at a point in time. See Note 26 – Revenue from Contracts with Customers, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K for a discussion of major revenue streams under the scope of ASC Topic 606. Contract Balances A contract liability is an entity’s obligation to transfer goods or services to a customer in exchange for consideration from the customer. FirstBank participates in a merchant revenue-sharing agreement with another entity to which the Bank sold its merchant contracts portfolio and related point-of-sale terminals, and a growth agreement with an international card service association to expand the customer base and enhance product offerings. FirstBank recognizes the revenue under these agreements over time, as the Bank completes its performance obligations. The following table shows the activity of contract liabilities for the quarters ended March 31, 2023 and 2022:

Quarter Ended March 31, 2023 2022 (In thousands) Beginning Balance $ 841 $ 1,443 Less: Revenue recognized ( 81 ) ( 289 ) Ending balance $ 760 $ 1,154

As of March 31, 2023 and 2022, there were no contract assets recorded on the Corporation’s consolidated financial statements. Other Except for the contract liabilities noted above, the Corporation did not have any significant performance obligations as of March 31, 2023. The Corporation also did not have any material contract acquisition costs and did not make any significant judgments or estimates in recognizing revenue for financial reporting purposes.

NOTE 20 – SEGMENT INFORMATION Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer, the operating segments are based primarily on the Corporation’s 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 March 31, 2023, the Corporation had six reportable segments: Mortgage Banking; Consumer (Retail) Banking; Commercial and Corporate Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable segments based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as the Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products, were also considered in the determination of the reportable segments. The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. In addition, the Mortgage Banking segment includes mortgage loans purchased from other local banks and mortgage bankers. The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted mainly through its branch network and loan centers. The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, and floor plan financings, as well as other products, such as cash management and business management services. The Treasury and Investments segment is responsible for the Corporation’s investment portfolio and treasury functions that are executed to manage and enhance liquidity. This segment lends funds to the Commercial and Corporate Banking, the Mortgage Banking, the Consumer (Retail) Banking, and the United States Operations segments to 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 of the segments are the same as those referred to in Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K. The Corporation evaluates the performance of the segments based on 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.

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 quarter ended March 31, 2023: Interest income $ 31,907 $ 83,174 $ 62,343 $ 27,466 $ 31,114 $ 6,392 $ 242,396 Net (charge) credit for transfer of funds ( 10,119 ) 77,735 ( 47,403 ) ( 19,539 ) ( 674 ) - - Interest expense - ( 23,165 ) - ( 8,585 ) ( 9,510 ) ( 251 ) ( 41,511 ) Net interest income (loss) 21,788 137,744 14,940 ( 658 ) 20,930 6,141 200,885 Provision for credit losses - (benefit) expense ( 506 ) 15,224 ( 2,536 ) ( 9 ) 4,655 ( 1,326 ) 15,502 Non-interest income 3,074 22,034 4,175 160 847 2,228 32,518 Direct non-interest expenses 5,087 41,627 9,365 947 8,304 6,825 72,155 Segment income (loss) $ 20,281 $ 102,927 $ 12,286 $ ( 1,436 ) $ 8,818 $ 2,870 $ 145,746 Average earnings assets $ 2,171,061 $ 3,174,150 $ 3,713,633 $ 6,216,498 $ 2,067,848 $ 366,338 $ 17,709,528

Mortgage Banking Consumer (Retail) Banking Commercial and Corporate Banking Treasury and Investments United States Operations Virgin Islands Operations Total (In thousands) For the quarter ended March 31, 2022: Interest income $ 33,071 $ 70,437 $ 47,027 $ 22,184 $ 18,857 $ 6,278 $ 197,854 Net (charge) credit for transfer of funds ( 7,292 ) 24,282 ( 6,612 ) ( 9,949 ) ( 429 ) - - Interest expense - ( 5,173 ) - ( 4,826 ) ( 1,946 ) ( 285 ) ( 12,230 ) Net interest income 25,779 89,546 40,415 7,409 16,482 5,993 185,624 Provision for credit losses - (benefit) expense ( 3,703 ) 11,144 ( 16,622 ) ( 388 ) ( 3,547 ) ( 686 ) ( 13,802 ) Non-interest income (loss) 5,252 20,463 4,554 ( 112 ) 744 1,957 32,858 Direct non-interest expenses 6,906 39,271 8,859 885 8,479 6,973 71,373 Segment income $ 27,828 $ 59,594 $ 52,732 $ 6,800 $ 12,294 $ 1,663 $ 160,911 Average earnings assets $ 2,293,648 $ 2,759,482 $ 3,664,104 $ 8,145,949 $ 2,065,638 $ 378,169 $ 19,306,990

The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods: Quarter Ended March 31, 2023 2022 (In thousands) Net income: Total income for segments $ 145,746 $ 160,911 Other operating expenses (1) 43,113 35,286 Income before income taxes 102,633 125,625 Income tax expense 31,935 43,025 Total consolidated net income $ 70,698 $ 82,600 Average assets: Total average earning assets for segments $ 17,709,528 $ 19,306,990 Average non-earning assets 847,628 947,011 Total consolidated average assets $ 18,557,156 $ 20,254,001 (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.

NOTE 21 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION Supplemental statement of cash flows information is as follows for the indicated periods:

Quarter Ended March 31, 2023 2022 (In thousands) Cash paid for: Interest on borrowings $ 37,798 $ 13,300 Income tax 10,926 2,598 Operating cash flow from operating leases 4,316 4,751 Non-cash investing and financing activities: Additions to OREO 6,414 6,770 Additions to auto and other repossessed assets 15,356 10,772 Capitalization of servicing assets 532 1,130 Loan securitizations 28,736 40,823 Loans held for investment transferred to held for sale 2,345 1,176 Payable related to unsettled purchases of available-for-sale debt securities - 15,000 ROU assets obtained in exchange for operating lease liabilities 1,630 2,791

NOTE 22 – REGULATORY MATTERS, COMMITMENTS, AND CONTINGENCIES Regulatory Matters The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by 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 of 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 March 31, 2023 and December 31, 2022, the Corporation and FirstBank exceeded the minimum regulatory capital ratios for capital adequacy purposes and FirstBank exceeded the minimum regulatory capital ratios to be considered a well capitalized institution under the regulatory framework for prompt corrective action. As of March 31, 2023, management does not believe that any condition has changed or event has occurred that would have changed the institution’s status. The Corporation and FirstBank compute risk-weighted assets using the standardized approach required by the U.S. Basel III capital rules (“Basel III rules”). The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5 % on certain regulatory capital ratios 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. 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 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, at the election of a qualified banking organization, the day one impact to retained earnings plus 25 % of the change in the ACL (as defined in the final rule) 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. Accordingly, as of March 31, 2023, the capital measures of the Corporation and the Bank included $ 32.4 million associated with the CECL day one impact to retained earnings plus 25 % of the increase in the ACL (as defined in the interim final rule) from January 1, 2020 to December 31, 2021, and $ 32.4 million remains excluded to be phase-in during the remainder of the three-year transition period. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19 pandemic and related macroeconomic conditions, although the nature and impact of such actions cannot be predicted at this time.

The regulatory capital position of the Corporation and the FirstBank as of March 31, 2023 and December 31, 2022, which reflects the delay in the full effect of CECL on regulatory capital, were as follows:

Regulatory Requirements Actual For Capital Adequacy Purposes To be Well -Capitalized Thresholds Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) As of March 31, 2023 Total Capital (to Risk-Weighted Assets) First BanCorp. $ 2,366,591 19.02 % $ 995,597 8.0 % N/A N/A % FirstBank $ 2,327,600 18.71 % $ 995,452 8.0 % $ 1,244,315 10.0 % CET1 Capital (to Risk-Weighted Assets) First BanCorp. $ 2,032,369 16.33 % $ 560,023 4.5 % N/A N/A % FirstBank $ 2,071,650 16.65 % $ 559,942 4.5 % $ 808,805 6.5 % Tier I Capital (to Risk-Weighted Assets) First BanCorp. $ 2,032,369 16.33 % $ 746,697 6.0 % N/A N/A % FirstBank $ 2,171,650 17.45 % $ 746,589 6.0 % $ 995,452 8.0 % Leverage ratio First BanCorp. $ 2,032,369 10.57 % $ 769,399 4.0 % N/A N/A % FirstBank $ 2,171,650 11.29 % $ 769,102 4.0 % $ 961,378 5.0 % As of December 31, 2022 Total Capital (to Risk-Weighted Assets) First BanCorp. $ 2,385,866 19.21 % $ 993,405 8.0 % N/A N/A % FirstBank $ 2,346,093 18.90 % $ 993,264 8.0 % $ 1,241,580 10.0 % CET1 Capital (to Risk-Weighted Assets) First BanCorp. $ 2,052,333 16.53 % $ 558,790 4.5 % N/A N/A % FirstBank $ 2,090,832 16.84 % $ 558,711 4.5 % $ 807,027 6.5 % Tier I Capital (to Risk-Weighted Assets) First BanCorp. $ 2,052,333 16.53 % $ 745,054 6.0 % N/A N/A % FirstBank $ 2,190,832 17.65 % $ 744,948 6.0 % $ 993,264 8.0 % Leverage ratio First BanCorp. $ 2,052,333 10.70 % $ 767,075 4.0 % N/A N/A % FirstBank $ 2,190,832 11.43 % $ 766,714 4.0 % $ 958,392 5.0 %

Commitments The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to 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. As of March 31, 2023, commitments to extend credit amounted to approximately $ 2.0 billion, of which $ 0.9 billion relates to retail credit card loans. In addition, commercial and financial standby letters of credit as of March 31, 2023 amounted to approximately $ 93.6 million. Contingencies As of March 31, 2023, First BanCorp. and its subsidiaries were defendants in various legal proceedings, claims and other loss contingencies arising in the ordinary course of business. On at least a 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 a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted as appropriate to 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 to be determined, the numerous unresolved issues in the proceedings, and the inherent uncertainty of 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 of legal proceedings, claims, and other loss contingencies is inherently uncertain, based on information currently available, management believes that the final disposition of the Corporation’s legal proceedings, claims and other loss contingencies, to the extent not previously provided for, will not have a material adverse effect on the Corporation’s consolidated financial position as a whole. If management believes that, based on available information, it is at least reasonably possible that a material loss (or material loss in excess of any accrual) will be incurred in connection with any legal contingencies, the Corporation discloses an estimate of 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 March 31, 2023, no such disclosures were necessary.

NOTE 23- FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION The following condensed financial information presents the financial position of First BanCorp. at the holding company level only as of March 31, 2023 and December 31, 2022, and the results of its operations for the quarters ended March 31, 2023 and 2022:

Statements of Financial Condition As of March 31, As of December 31, 2023 2022 (In thousands) Assets Cash and due from banks $ 13,981 $ 19,279 Other investment securities 735 735 Investment in First Bank Puerto Rico, at equity 1,544,874 1,464,026 Investment in First Bank Insurance Agency, at equity 32,374 28,770 Investment in FBP Statutory Trust I 1,951 1,951 Investment in FBP Statutory Trust II 3,561 3,561 Dividends receivable 637 624 Other assets 426 430 Total assets $ 1,598,539 $ 1,519,376 Liabilities and Stockholders’ Equity Liabilities: Long-term borrowings $ 183,762 $ 183,762 Accounts payable and other liabilities 9,184 10,074 Total liabilities 192,946 193,836 Stockholders’ equity 1,405,593 1,325,540 Total liabilities and stockholders’ equity $ 1,598,539 $ 1,519,376

Statements of Income Quarter Ended March 31, 2023 2022 (In thousands) Income Interest income on money market investments $ 53 $ 4 Dividend income from banking subsidiaries 78,870 63,593 Other income 102 40 Total income 79,025 63,637 Expense Other borrowings 3,381 1,333 Other operating expenses 410 439 Total expense 3,791 1,772 Income before income taxes and equity in undistributed earnings of subsidiaries 75,234 61,865 Income tax expense 1,078 1,106 Equity in undistributed earnings of subsidiaries (distribution in excess of earnings) ( 3,458 ) 21,841 Net income $ 70,698 $ 82,600 Other comprehensive income (loss), net of tax 87,228 ( 331,834 ) Comprehensive income (loss) $ 157,926 $ ( 249,234 )

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (“MD&A”)

The following MD&A relates to the accompanying unaudited 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, and our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”). This section also presents certain financial measures that are not based on generally accepted accounting principles in the United States of America (“GAAP”). See “Non-GAAP Financial Measures and Reconciliations” below for information about why non-GAAP financial measures are presented and references to reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures.

EXECUTIVE SUMMARY

First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico offering a full range of financial products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank

Puerto Rico (“FirstBank” or the “Bank”) and FirstBank Insurance Agency. Through its wholly -owned subsidiaries, the Corporation operates in Puerto Rico, the United States Virgin Islands (“USVI”), the British Virgin Islands (“BVI”), and the state of Florida, concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and insurance agency activities.

Recent Developments

Economy and Market Volatility

Growth in economic activity and demand for goods and services, alongside labor shortages, supply chain complications and geopolitical matters, have contributed to rising inflation. In response, the Federal Reserve has raised interest rates and has begun

reducing the size of its balance sheet. In March and May 2023, certain large U.S. regional banks with assets over $100 billion were closed and placed into receivership with the FDIC. The closures of those banks and adverse developments affecting other banks resulted in heightened levels of market volatility that has negatively impacted customer confidence in the safety and soundness of financial institutions. These developments have resulted in certain regional banks experiencing higher than normal deposit outflows and an elevated level of competition for available deposits in the market. The impact of market volatility from the adverse developments in the banking industry, along with continued high inflation and rising interest rates on our business and related financial results, will depend on future developments, which are highly uncertain and difficult to predict.

Our results this quarter reflect continued discipline expense management, stable credit quality metrics, a sound liquidity position, and solid capital levels, despite the market disruption. With our disciplined and proactive approach, the Corporation is well positioned to manage through the uncertain economic outlook on the horizon. As of March 31, 2023, the Corporation had approximately $5.5 billion of unused available liquidity, representing 114% of total estimated uninsured deposits, excluding fully collateralized deposits, of $4.8 billion, and a strong capital position with a common equity tier 1 (“CET1”) ratio of 16.33%.

In the aftermath of the recent bank failures, the banking agencies could propose certain actions that may impact capital ratios or the FDIC deposit insurance premium.

See “Risk Management – Liquidity Risk” below for additional information about the Corporation’s funding sources and strategy.

Return of Capital to Shareholders

In the first quarter of 2023, the Corporation returned approximately $75.1 million, or 106% of first quarter 2023 earnings, to its shareholders through $50.0 million in repurchases of common stock and the payment of $25.1 million in common stock dividends, which reflects an increase in the common stock dividend by 17%, from $0.12 for the fourth quarter of 2022 to $0.14 per share for the first quarter of 2023.

As of March 31, 2023, the Corporation has remaining authorization to repurchase approximately $75 million of common stock. Due to recent market events, the Corporation intends to temporarily pause common stock repurchases during the second quarter of 2023 and expects to resume such repurchases during the third quarter of 2023 subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions.

London Interbank Offered Rate (“LIBOR”) Transition

On January 1, 2022, the publication of certain U.S. Dollar (“USD”) LIBOR settings ceased. The publication of the most commonly used overnight, one-month, three-month, six-month and twelve-month USD LIBOR will cease immediately after June 30, 2023, except that per the UK Financial Conduct Authority (the “FCA”) proposal, the one-, three-, and six-month tenors will continue to be published on a “non-representative,” synthetic basis until September 30, 2024.

The Adjustable Interest Rate Act (the “LIBOR Act”), that was enacted in March 2022, provides a statutory framework to replace USD LIBOR for contracts governed by U.S. law that do not have clear and practicable provisions for replacing USD LIBOR after June 30, 2023 (“tough legacy contracts”). On December 16, 2022, the FED adopted Regulation ZZ, which identifies replacement benchmark rates based on the Secured Overnight Financing Rate (“SOFR”) to replace the aforementioned USD LIBOR settings that will cease after June 30, 2023 in contracts subject to the LIBOR Act. Under Regulation ZZ, tough legacy contracts will be converted by operation of law to various forms of SOFR, along with a spread adjustment, upon a LIBOR replacement date (i.e., the first London banking day after June 30, 2023). The spread adjustment was designed to compensate for USD LIBOR being higher than SOFR in two regards. First, USD LIBOR is an unsecured rate while SOFR is a secured rate. Second, USD LIBOR includes term premia. In addition, Regulation ZZ codifies safe harbor protections for selection or use of SOFR as a replacement benchmark and clarifies who would be considered a “determining person” able to elect a replacement benchmark when USD LIBOR ceases to be published as representative on June 30, 2023.

As of March 31, 2023, the Corporation’s risk exposure to USD LIBOR that mature after June 30, 2023 consisted of the following:
(i) $1.2 billion of variable-rate commercial and construction loans (including unused commitments), (ii) $40.7 million of U.S.
agencies debt securities and private label mortgage-backed securities (“MBS”) held as part of the available-for-sale debt securities portfolio, (iii) $124.7 million of Puerto Rico municipalities bonds held as part of the held-to-maturity debt securities portfolio, and (iv)
$183.8 million of junior subordi nated debentures reported as other long-term borrowings in the consolidated statements of financial condition. Most of these contracts contain adequate features to convert to an alternative interest rate; however, as of March 31, 2023, contracts totaling approximately $338.4 million do not contain fallback language mainly consisting of the aforementioned Puerto Rico municipalities bonds held as part of the held-to-maturity debt securities portfolio and the junior subordinated debentures. Following the provisions of the LIBOR Act and Regulation ZZ, the LIBOR reference on the junior subordinated debentures will automatically transition by operation of law to 3-month CME Term SOFR, plus a spread adjustment of 0.26161% on the first reset date after USD LIBOR ceases publication in June 2023. In addition, for the transition of any residual exposure after June 30, 2023, the Corporation expects to follow the provisions of the LIBOR Act and Regulation ZZ.

The Corporation continues to execute its LIBOR transition workplan. Source systems have been updated to support alternative reference rates. At this time alternative reference rates are predominantly SOFR based. In addition, the Corporation continues working with its interest rate risk monitoring framework and a strategy for managing interest rate risk during the transition from LIBOR to SOFR. We continue to monitor market developments and legislative and regulatory updates, with additional updates expected through the remainder of 2023.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. In preparing the consolidated financial statements, management is required to make estimates, assumptions, and judgments that affect the amounts recorded for assets, liabilities and contingent liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Note 1 of the Notes to Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K, as supplemented by this report including this MD&A, describes the significant accounting policies we used in our Consolidated Financial Statements.

Not all significant accounting policies require management to make difficult, subjective or complex judgments. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of uncertainty and have had or are

reasonably likely to have a material impact on the Corporation’s financial condition and results of operations. The Corporation’s critical accounting estimates that are particularly susceptible to significant changes include, but are not limited to, the following: (i)
the allowance for credit losses (“ACL”); (ii) valuation of financial instruments; and (iii) income taxes. For more information regarding valuation of financial instruments and income taxes policies, assumptions, and judgments, see “Critical Accounting Estimates” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),” in the 2022 Annual Report on Form 10-K. The “Risk Management – Credit Risk Management” section below details the policies, assumptions, and judgments related to the ACL. Actual results could differ from estimates and assumptions if different outcomes or conditions prevail.

Overview of Results of Operations

First BanCorp.'s results of operations depend primarily on its net interest income, which is the difference between the interest income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including the following: (i) the interest rate environment; (ii) the volumes, mix, and composition of interest-earning assets, and interest-bearing liabilities; and (iii) the repricing characteristics of these assets and liabilities. The Corporation ’s results of operations also depend on the provision for credit losses, non-interest expenses (such as personnel, occupancy, the FDIC deposit insurance premium and other costs), non-interest income (mainly service charges and fees on deposits, cards and processing income, and insurance income), gains (losses) on sales of investments, gains (losses) on mortgage banking activities, and income taxes.

The Corporation had net income of $70.7 million, or $0.39 per diluted common share, for the quarter ended March 31, 2023, compared to $82.6 million, or $0.41 per diluted common share, for the quarter ended March 31, 2022. Other relevant selected financial indicators for the periods presented are included below:| Key Performance Indicator: | | (1) | | |
| --- | --- | --- | --- | --- |
| Return on Average Assets | | (2) | 1.55% | 1.65% |
| Return on Average Total Equity | | (3) | 21.00 | 16.64 |
| Efficiency Ratio | (4) | | 49.39 | 48.82 |

(1)These financial ratios are used by Management to monitor the Corporation’s financial performance and whether it is using its assets efficiently.
(2)Indicates how profitable the Corporation is in relation to its total assets and is calculated by dividing net income on an annualized basis by its average total assets.
(3)Measures the Corporation’s performance based on its average stockholders’ equity and is calculated by dividing net income on an annualized basis by its average total stockholders’ equity.
(4)Measures how much the Corporation incurred to generate a dollar of revenue and is calculated by dividing non-interest expenses by total revenue.

The key drivers of the Corporation’s GAAP financial results for the quarter ended March 31, 2023, compared to the first quarter of 2022, include the following:

●Net interest income for the quarter ended March 31, 2023 increased to $200.9 million, compared to $185.6 million for the first quarter of 2022, mainly driven by the effect in the commercial loan portfolio of higher market interest rates in the upward repricing of variable -rate loans and in new loan originations, and the growth in consumer loans, partially offset by an increase in interest expense due to the increase in borrowings and a 110 basis point increase in the average cost of interest-bearing liabilities. See "Net Interest Income" below for additional information.

●The provision for credit losses on loans, finance leases, unfunded loan commitments and debt securities for the quarter ended March 31, 2023 was an expense of $15.5 million, compared to a net benefit of $13.8 million for the first quarter of 2022, mainly due to the $4.7 million increase in the provision for the consumer loan portfolios and the net benefit of $23.1 million recorded in the first quarter of 2022 for the commercial and construction loan portfolio as a result of reductions in qualitative reserves as a result of reduced uncertainty regarding COVID-19.

Net charge-offs totaled $13.3 million for the quarter ended March 31, 2023, or 0.46% of average loans on an annualized basis, compared to net charge-offs of $6.6 million, or 0.24% of average loans, for the first quarter of 2022. The increase in net charge-offs was mainly in consumer 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 $32.5 million for the quarter ended March 31, 2023, compared to $32.9 million for the first quarter of 2022. See “Non-Interest Income” below for additional information.

●Non-interest expenses for the quarter ended March 31, 2023 increased by $8.6 million to $115.3 million, mainly driven by a $6.9 million increase in employees’ compensation and benefits expenses due to annual salary merit increases and an increase in bonuses, stock-based compensation expense of retirement-eligible employees, payroll taxes, and medical insurance premium costs. The efficiency ratio for the first quarter of 2023 was 49.39%, as compared to 48.82% for the same period in 2022. See “Non-Interest Expenses” below for additional information.

●Income tax expense decreased to $31.9 million for the first quarter of 2023, compared to $43.0 million for the same period in

2022 driven by a lower pre-tax income. The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, decrease to 31.2% for the first quarter of 2023, compared to 32.9% for the first quarter of 2022, reflecting a higher proportion of exempt to taxable income. See “Income Taxes” below and Note 17 – Income Taxes , to the unaudited consolidated financial statements herein for additional information.

●As of March 31, 2023, total assets were approximately $19.0 billion, an increase of $342.6 million from December 31, 2022,

primarily due to a $343.1 million increase in cash and cash equivalents, which was mainly attributable to a $347.8 million addition to borrowings to increase available cash as a precautionary measure in light of recent instability in the banking sector and a $28.0 million increase in total loans, partially offset by the $4.3 million decrease in total investment securities. See “Financial Condition and Operating Data Analysis” below for additional information.

●As of March 31, 2023, total liabilities were $17.6 billion, an increase of $262.5 million from December 31, 2022, mainly driven by the $347.8 million increase in borrowings, partially offset by an overall decrease in total deposits. See “Risk Management – Liquidity Risk” below for additional information about the Corporation’s funding sources and strategy.

●The Bank’s primary sources of funding are consumer and commercial core deposits, which exclude government deposits and

brokered CDs. As of March 31, 2023, these core deposits amounting to $13.1 billion funded 69.17% of total assets. In addition to approximately $3.2 billion in cash and free high quality liquid assets, the Bank maintains borrowing capacity at the FHLB and the FED Discount Window. As of March 31, 2023, the Corporation had approximately $1.4 billion available for funding under the FED’s Discount Window and $882.5 million available for additional borrowing capacity on FHLB lines of credit based on collateral pledged at these entities. On a combined basis, as of March 31, 2023, the Corporation had $5.5 billion available to meet liquidity needs. See “Risk Management – Liquidity Risk” below for additional information about the Corporation’s funding sources and strategy.

●As of March 31, 2023, the Corporation’s total stockholders’ equity was $1.4 billion, an increase of $80.1 million from

December 31, 2022. The increase was driven by an $87.2 million increase in the fair value of available-for-sale debt securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition, as a result of changes in market interest rates, and the earnings generated during the first quarter of 2023. These increases were partially offset by the repurchase of approximately 3.6 million shares of common stock for a total purchase price of approximately $50.0 million and $25.4 million in dividends declared to common stock shareholders during the first quarter of 2023. The Corporation’s CET1 capital, tier 1 capital, total capital, and leverage ratios were 16.33%, 16.33%, 19.02%, and 10.57%, respectively, as of March 31, 2023, compared to CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.53%, 16.53%, 19.21%, and 10.70%, respectively, as of December 31, 2022. See “Risk Management – Capital” below for additional information.

●Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving commitments, increased by $5.5 million to $1.2 billion for the quarter ended March 31, 2023. See “Financial Condition and Operating Data Analysis” below for additional information.

●Total non-performing assets were $129.0 million as of March 31, 2023, a decrease of $0.2 million, from December 31, 2022.

The net decrease was driven by a $6.3 million reduction in nonaccrual residential mortgage loans, mostly due to loans restored to accrual status, collections and foreclosures; partially offset by a $4.4 million increase in nonaccrual commercial and construction loans, mainly related to the inflow of a $7.1 million commercial and industrial participated loan in the Florida region related to a borrower engaged in the power generation industry . See “Risk Management – Nonaccrual Loans and Non- Performing Assets” below for additional information.

●Adversely classified commercial and construction loans decreased by $23.6 million to $70.0 million as of March 31, 2023, compared to December 31, 2022, mainly driven by the payoff of a $24.3 million commercial and industrial participated loan in the Florida region in the leisure and hospitality industry.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation has included in this Quarterly Report on Form 10-Q (“Form 10-Q”) the following financial measures that are not recognized under GAAP, which are referred to as non-GAAP financial measures:

Net Interest Income, Interest Rate Spread, and Net Interest Margin, Excluding Valuations , and on a Tax -Equivalent Basis

Net interest income, interest rate spread, and net interest margin, excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis, are reported in order to provide to investors additional information about the Corporation’s net interest

income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes 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 at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully taxequivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that facilitates comparison of results to the results of peers.

See “Result of Operations – Net Interest Income” below, for the table that reconciles net interest income in accordance with GAAP to the non-GAAP financial measure of net interest income, excluding valuations, and on a tax-equivalent basis for the indicated periods. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and on a tax-equivalent basis.

Tangible Common Equity Ratio and Tangible Book Value Per Common Share

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity

less goodwill and other intangibles. Similarly, tangible assets are total assets less goodwill and other intangibles. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that disclosures of these financial measures may be useful to investors. Neither tangible common equity nor tangible assets, or the related measures, should be considered in isolation or as a substitute for stockholders’ equity, total assets, or any other measure calculated in accordance with GAAP. Moreover, the manner in which the Corporation calculates its tangible common equity, tangible assets, and any other related measures may differ from that of other companies reporting measures with similar names.

See “Risk Management – Capital” below for the table that reconciles the Corporation’s total equity and total assets in accordance with GAAP to the tangible common equity and tangible assets figures used to calculate the non-GAAP financial measures of Tangible Common Equity Ratio and Tangible Book Value per Common Share.

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 is subject to interest rate risk due to the repricing and maturity

mismatch of the Corporation’s assets and liabilities. In addition, variable sources of interest income, such as loan fees, periodic dividends, and collection of interest on nonaccrual loans, can fluctuate from period to period. Net interest income for the quarter ended March 31, 2023 was $200.9 million, compared to $185.6 million for the first quarter of 2022. On a tax-equivalent basis and excluding the changes in the fair value of derivative instruments, net interest income for the quarter ended March 31, 2023 was $207.2 million compared to $192.8 million for the quarter ended March 31, 2022.

The following tables include a detailed analysis of net interest income for the indicated periods. Part I presents average volumes (based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an 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 intere st income. For each category of interest-earning assets and interest-bearing liabilities, the tables provide information on changes in (i) volume (changes in volume multiplied by prior period rates), and (ii) rate (changes in 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 on an adjusted tax equivalent basis and excluding the change in the fair value of derivative instruments is a non-GAAP financial measure. For the definition of this non-GAAP financial measure, refer to the discussion in “Non-GAAP Measures and Reconciliations” above.

Part I| | | Average volume | | Interest income | (1)/ expense | | Average rate | (1) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Quarter ended March 31, | | 2023 | 2022 | 2023 | | 2022 | 2023 | 2022 |
| (Dollars in thousands) | | | | | | | | |
| Interest-earning assets: | | | | | | | | |
| Money market and other short-term investments | | $404,249 | $1,835,766 | $4,650 | $ | 820 | 4.67% | 0.18% |
| Government obligations | (2) | 2,909,976 | 2,736,095 | 10,765 | | 8,232 | 1.50% | 1.22% |
| MBS | | 3,864,145 | 4,041,975 | 19,396 | | 19,420 | 2.04% | 1.95% |
| FHLB stock | | 40,838 | 21,465 | | 421 | 287 | 4.18% | 5.42% |
| Other investments | | 13,139 | 11,786 | | 139 | 21 | 4.29% | 0.72% |
| Total investments | (3) | 7,232,347 | 8,647,087 | 35,371 | | 28,780 | 1.98% | 1.35% |
| Residential mortgage loans | | 2,835,240 | 2,961,456 | 39,794 | | 40,687 | 5.69% | 5.57% |
| Construction loans | | 146,041 | 114,732 | 2,676 | | 1,524 | 7.43% | 5.39% |
| Commercial and industrial ("C&I") and commercial mortgage loans | | 5,167,727 | 5,103,870 | 85,885 | | 62,004 | 6.74% | 4.93% |
| Finance leases | | 735,500 | 588,200 | 13,809 | | 10,912 | 7.61% | 7.52% |
| Consumer loans | | 2,634,891 | 2,338,597 | 71,214 | | 61,151 | 10.96% | 10.60% |
| Total loans | (4)(5) | 11,519,399 | 11,106,855 | 213,378 | | 176,278 | 7.51% | 6.44% |
| Total interest-earning assets | | $18,751,746 | $19,753,942 | $248,749 | $ | 205,058 | 5.38% | 4.21% |
| Interest-bearing liabilities: | | | | | | | | |
| Time deposits | | $2,342,360 | $2,363,045 | $10,782 | $ | 4,421 | 1.87% | 0.76% |
| Brokered certificates of deposit ("CDs") | | 166,698 | 91,713 | 1,587 | | 477 | 3.86% | 2.11% |
| Other interest-bearing deposits | | 7,544,901 | 8,132,149 | 17,516 | | 2,754 | 0.94% | 0.14% |
| Securities sold under agreements to repurchase | | 91,004 | 241,111 | 1,069 | | 2,182 | 4.76% | 3.67% |
| Advances from the FHLB | | 629,167 | 200,000 | 7,176 | | 1,063 | 4.63% | 2.16% |
| Other long-term borrowings | | 183,762 | 183,762 | 3,381 | | 1,333 | 7.46% | 2.94% |
| Total interest-bearing liabilities | | $10,957,892 | $11,211,780 | $41,511 | $ | 12,230 | 1.54% | 0.44% |

Net interest income on a tax-equivalent basis and excluding valuations$207,238$192,828 Interest rate spread3.84%3.77% Net interest margin4.48%3.96% (1)On an adjusted tax-equivalent basis. The Corporation estimated the adjusted tax-equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 37.5% and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets.
Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread and net interest margin on a fully tax-equivalent basis.
Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. The Corporation excludes changes in the fair value of derivatives from interest income and interest expense because the changes in valuation do not affect interest received or paid. See “Non-GAAP Measures and Reconciliations” above.
(2)Government obligations include debt issued by government-sponsored agencies.

(3)Unrealized gains and losses on available-for-sale debt securities are excluded from the average volumes.

(4)Average loan balances include the average of nonaccrual loans.

(5)Interest income on loans includes $3.1 million and $2.6 million for the quarters ended March 31, 2023 and 2022, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio.

Part IIQuarter ended March 31,| | | | | Variance due to: | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Volume | | | Rate | | Total | |
| (In thousands) | | | | | | | | |
| Interest income on interest-earning assets: | | | | | | | | |
| Money market and other short-term investments | | $ | (8,698) | $ | 12,528 | $ | | 3,830 |
| Government obligations | | | 549 | | 1,984 | | | 2,533 |
| MBS | | | (885) | | | 861 | | (24) |
| FHLB stock | | | 232 | | | (98) | | 134 |
| Other investments | | | 3 | | | 115 | | 118 |
| Total investments | | | (8,799) | | 15,390 | | | 6,591 |
| Residential mortgage loans | | | (1,771) | | | 878 | | (893) |
| Construction loans | | | 482 | | | 670 | | 1,152 |
| C&l and commercial mortgage loans | | | 785 | | 23,096 | | 23,881 | |
| Finance leases | | | 2,764 | | | 133 | | 2,897 |
| Consumer loans | | | 7,953 | | 2,110 | | 10,063 | |
| Total loans | | | 10,213 | | 26,887 | | 37,100 | |
| | Total interest income | $ | 1,414 | $ | 42,277 | $ | 43,691 | |
| Interest expense on interest-bearing liabilities: | | | | | | | | |
| Time deposits | | $ | (67) | $ | 6,428 | $ | | 6,361 |
| Brokered CDs | | | 551 | | | 559 | | 1,110 |
| Other interest-bearing deposits | | | (573) | | 15,335 | | 14,762 | |
| Securities sold under agreements to repurchase | | | (1,561) | | | 448 | (1,113) | |
| Advances from the FHLB | | | 3,985 | | 2,128 | | | 6,113 |
| Other borrowings | | | - | | 2,048 | | | 2,048 |
| | Total interest expense | | 2,335 | | 26,946 | | 29,281 | |
| Change in net interest income | | $ | (921) | $ | 15,331 | $ | 14,410 | |

Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and U.S.
government-sponsored entities (“GSEs”), generate interest that is exempt from income tax, principally in Puerto Rico. Also, interest and gains on sales of investments held by the Corporation’s international banking entities (“IBEs”) are tax-exempt under Puerto Rico tax law (see Note 17 - Income Taxes, to the unaudited consolidated financial statements herein 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 of net interest income, excluding the effects of the changes in the fair value of the derivative instruments, provides additional information about the Corporation’s net interest income and facilitates comparability and analysis from period to period. The changes in the fair value of the derivative instruments have no effect on interest due on interestbearing 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:| | | Quarter Ended March 31, | | | |
| --- | --- | --- | --- | --- | --- |
| | | 2023 | | 2022 | |
| (Dollars in thousands) | | | | | |
| Interest income - GAAP | $ | 242,396 | $ | 197,854 | |
| Unrealized loss (gain) on derivative instruments | | | 6 | | (15) |
| Interest income excluding valuations | | 242,402 | | 197,839 | |
| Tax-equivalent adjustment | | | 6,347 | | 7,219 |
| Interest income on a tax-equivalent basis and excluding valuations | $ | 248,749 | $ | 205,058 | |
| Interest expense - GAAP | $ | 41,511 | $ | 12,230 | |
| Net interest income - GAAP | $ | 200,885 | $ | 185,624 | |
| Net interest income excluding valuations | $ | 200,891 | $ | 185,609 | |
| Net interest income on a tax-equivalent basis and excluding valuations | $ | 207,238 | $ | 192,828 | |
| Average Balances | | | | | |
| Loans and leases | $ | 11,519,399 | $ | 11,106,855 | |
| Total securities, other short-term investments and interest-bearing cash balances | | 7,232,347 | | 8,647,087 | |
| Average Interest-Earning Assets | $ | 18,751,746 | $ | 19,753,942 | |
| Average Interest-Bearing Liabilities | $ | 10,957,892 | $ | 11,211,780 | |
| Average Yield/Rate | | | | | |
| Average yield on interest-earning assets - GAAP | | | 5.24% | | 4.06% |
| Average rate on interest-bearing liabilities - GAAP | | | 1.54% | | 0.44% |
| Net interest spread - GAAP | | | 3.70% | | 3.62% |
| Net interest margin - GAAP | | | 4.34% | | 3.81% |
| Average yield on interest-earning assets excluding valuations | | | 5.24% | | 4.06% |
| Average rate on interest-bearing liabilities | | | 1.54% | | 0.44% |
| Net interest spread excluding valuations | | | 3.70% | | 3.62% |
| Net interest margin excluding valuations | | | 4.34% | | 3.81% |
| Average yield on interest-earning assets on a tax-equivalent basis and excluding valuations | | | 5.38% | | 4.21% |
| Average rate on interest-bearing liabilities | | | 1.54% | | 0.44% |
| Net interest spread on a tax-equivalent basis and excluding valuations | | | 3.84% | | 3.77% |

Net interest margin on a tax-equivalent basis and excluding valuations4.48%3.96%

Net interest income amounted to $200.9 million for the quarter ended March 31, 2023, an increase of $15.3 million, when compared to $185.6 million for same period in 2022. The $15.3 million increase in net interest income was primarily due to:

●A $36.9 million increase in interest income on loans including:

-A $24.6 million increase in interest income on commercial and construction loans, of which approximately $25.1 million

was related to the effect of higher market interest rates in the upward repricing of variable-rate loans and in new loan originations, and approximately $2.5 million was related to the $210.9 million increase in the average balance of this portfolio (excluding Small Business Administration Paycheck Protection Program (“SBA PPP”) loans). These variances were partially offset by a reduction in interest income from SBA PPP loans. The interest income recognized from SBA PPP loans for the quarters ended March 31, 2023 and 2022 amounted to $0.2 million and $3.2 million, respectively.

The interest rate on approximately 55% of the Corporation’s commercial and construction loans is variable, 42% is based upon LIBOR, SOFR and other indexes and 13% is based upon the Prime rate index. For the first quarter of 2023, the average one-month LIBOR increased 439 basis points, the average three-month LIBOR increased 440 basis points, the average Prime rate increased 440 basis points, and the average three-month SOFR increased 444 basis points, compared to the average rates for such indexes during the first quarter of 2022.

-A $13.0 million increase in interest income on consumer loans and finance leases, primarily driven by the $443.6 million increase in the average balance of this portfolio, which increased interest income by approximately $10.5 million, and approximately $2.5 million increase in interest income associated to the positive effects of higher market interest rates on the consumer portfolio yields, primarily in the credit cards portfolio.

-A $0.7 million decrease in the residential mortgage loans portfolio interest income, primarily related to the $126.2 million reduction in the average balance of this portfolio, which resulted in an approximate decrease of $1.7 million in interest income, partially offset by the positive effect of new loan originations at higher current market interest rates.

●A $3.8 million increase in interest income from interest-bearing cash balances, which consisted primarily of cash balances deposited at the Federal Reserve Bank (“FED”), mainly due to the effect of higher market interest rates, partially offset by the $1.4 billion decrease in the average balance of interest-bearing cash.

●A $3.8 million increase in interest income on investment securities, mainly driven by:

-A $1.3 million increase in interest income on U.S. government and agencies debt securities, mainly driven by higheryielding securities purchased in the first quarter of 2022.

-A $1.3 million increase in interest income on Puerto Rico municipal bonds, mainly due to the upward repricing of variable-rate bonds.

-A $1.0 million increase in interest income on U.S. agencies MBS, mainly driven by a decrease in the premium amortization expense associated with lower prepayments and the positive effects from higher-yielding U.S. agencies MBS purchased in the second quarter of 2022. These variances were partially offset by a $177.8 million decrease in the average balance of this portfolio, which resulted in an approximate reduction of $0.9 million in interest income.

Partially offset by:

●A $22.2 million increase in interest expense on interest-bearing deposits, including :

-A $14.7 million increase in interest expense on interest-bearing checking and saving accounts, driven by an increase of $15.3 million in average rates paid in the first quarter of 2023 as a result of the overall higher interest rate environment, partially offset by a reduction of $587.2 million in the average balance of these deposits, which resulted in a decrease of approximately $0.6 million in interest expense.

-A $6.4 million increase in interest expense on time deposits, excluding brokered CDs, mainly associated with higher rates being paid in the first quarter of 2023 on new issuances and renewals also associated with the higher interest rate environment. The average cost of time deposits in the first quarter of 2023, excluding brokered CDs, increased 111 basis points to 1.87% when compared to the same period in 2022.

-A $1.1 million increase in interest expense on brokered CDs, driven by new issuances at current higher market interest rates that resulted in an increase of $75.0 million in the average balance, which resulted in additional interest expense of approximately $0.5 million.

●A$7.0 million net increase in interest expense on borrowings, including:

-A $6.1 million increase in interest expense on advances from the FHLB mainly associated with an increase in the average balance of $429.2 million to increase available cash, which resulted in additional interest expense of approximately $4.0 million, and the effect of approximately $2.1 million associated with new FHLB advances at higher interest rates.

-A$2.0 million increase in interest expense on other long-term borrowings, driven by the upward repricing of junior subordinated debentures tied to the increase in the three-month LIBOR index.

-A $1.1 million decrease in interest expense on repurchase agreements, mainly driven by a reduction in the average balance of $150.1 million.

Net interest margin for the first quarter of 2023 increased to 4.34%, compared to 3.81% for the same period in 2022, reflecting, among other things, the upward repricing of variable-rate commercial loans, the growth in higher yielding loans, primarily consumer loans, and the change in asset mix, reflecting an increase of higher -yielding assets. These factors were partially offset by the increase in borrowings in the first quarter of 2023 and a 11 0 basis points increase in the average cost of interest-bearing liabilities.

Provision for Credit Losses

The provision for credit losses consists of provisions for credit losses on loans and finance leases, unfunded loan commitments, as well as the debt securities portfolio. The principal changes in the provision for credit losses by main categories follow:

Provision for credit losses for loans and finance leases

The provision for credit losses for loans and finance leases was an expense of $16.3 million for the first quarter of 2023, compared to a net benefit of $17.0 million for the first quarter of 2022. The variances by major portfolio category were as follows:

●Provision for credit losses for the commercial and construction loan portfolio was an expense of $0.5 million the first quarter

of 2023, compared to a net benefit of $23.1 million for the first quarter of 2022. The expense recognized during the first quarter of 2023 was impacted by the following factors: reserve increases of $5.0 million for a new nonacccrual commercial and industrial participated loan in the Florida region in the power generation industry, and $1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the commercial real estate price index (“CRE price index”); partially offset by reserve decreases of $6.1 million associated with the receipt of updated financial information of certain borrowers. Meanwhile, the net benefit recorded in the first quarter of 2022 mainly reflects reductions in qualitative reserves mostly associated with a continued positive long-term outlook of forecasted macroeconomic variables, primarily in the commercial real estate price index, as a result of the reduced uncertainty regarding COVID-19, particularly on loans in the hotel, transportation and entertainment industries and, to a lesser extent, improvements in updated financial information received from borrowers during the first quarter of 2022.

●Provision for credit losses for the residential mortgage loan portfolio was an expense of $0.1 million for the first quarter of 2023, compared to a net benefit of $4.9 million for the first quarter of 2022. The net benefit recorded for the first quarter of 2022 was primarily related to the overall decrease in the size of the residential mortgage loan portfolio and continued improvements in the long-term outlook of forecasted macroeconomic variables, such as the housing price index.

●Provision for credit losses for the consumer loans and finance leases portfolio was $15.7 million for the first quarter of 2023, compared to $11.0 million for the first quarter of 2022. The increase primarily reflects the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels in all major portfolio classes.

Provision for credit losses for unfunded loan commitments

The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit was a net benefit of $0.1 million for each of the first quarters of 2023 and 2022.

Provision for credit losses for held-to-maturity and available-for-sale debt securities

The provision for credit losses for held-to-maturity securities was a net benefit of $0.6 million for the first quarter of 2023, compared to an expense of $3.7 million for the first quarter of 2022. The net benefit recorded during the first quarter of 2023 was mostly related to a reduction in qualitative reserves driven by updated financial information of certain bond issuers.

Non-Interest Income

Non-interest income amounted to $32.5 million for the first quarter of 2023, compared to $32.9 million for the same period in 2022.
The $0.4 million decrease in non-interest income was primarily due to:

●A $2.4 million decrease in revenues from mortgage banking activities, mainly driven by a decrease in net realized gain on sales of residential mortgage loans in the secondary market mainly due to a lower volume of sales. During the first quarters of 2023 and 2022, net gains of $1.1 million and $3.5 million, respectively, were recognized as a result of GNMA securitization transactions and whole loan sales to U.S. GSEs amounting to $37.4 million and $93.9 million, respectively.

●A $0.4 million decrease in insurance commission income, mainly in contingent commissions.

Partially offset by:

●A $1.2 million increase in card and processing income mainly related to higher interchange income and merchant-related referral fees received during the first quarter of 2023.

●A $1.1 million increase in other sources of non-interest income including: (i) a $0.3 million increase related to higher unused commitment fees; (ii) a $0.2 million increase related to higher benefit recognized in relation to purchased income tax credits realized; (iii) a $0.2 million increase in unrealized gains on marketable equity securities; and (iii) a $0.2 million increase in fees and commissions from insurance referrals.

Non-Interest Expenses

Non-interest expenses for the quarter ended March 31, 2023 amounted to $115.3 million, compared to $106.7 million for the same period in 2022. The efficiency ratio for the first quarter of 2023 was 49.39%, compared to 48.82% for the first quarter of 2022. The $8.6 million increase in non-interest expenses was primarily due to:

●A$6.9 million increase in employees’ compensation and benefits expenses, mainly driven by annual salary merit increases and an increase in bonuses, stock-based compensation expense of retirement-eligible employees, payroll taxes, and medical insurance premium costs.

●A$1.4 million increase in professional service fees, driven by a $1.2 million increase in outsourcing technology service fees.

●A$1.2 million increase in credit and debit card processing fees.

●A$0.5 million increase in business promotion expenses, mainly related to a $0.7 million increase in credit card loyalty rewards expense, partially offset by a $0.3 million decrease in sponsorship activities.

●A$0.5 million increase in FDI C deposit insurance cost, driven by the two basis points increase on the initial base deposit insurance assessment rate that came into effect during the first quarter of 2023.

Partially offset by:

●A$1.3 million increase in net gains on OREO operations, mainly driven by a $1.4 million increase in net realized gains on sales of OREO properties, primarily residential properties in the Puerto Rico region.

●A$1.2 million decrease in occupancy and equipment expenses, primarily related to a reduction in rental expenses and equipment-related depreciation charges.

Income Taxes

For the first quarter of 2023, the Corporation recorded an income tax expense of $31.9 million compared to $43.0 million for the same period in 2022. The decrease in income tax expense was mainly related to lower pre-tax income and a higher proportion of exempt to taxable income resulting in a lower effective tax rate.

The Corporation’s estimated annual effective tax rate in the first quarter of 2023, excluding entities from which a tax benefit cannot be recognized and discrete items, was 31.2%, compared to 32.9% for the first quarter of 2022. See Note 17 - Income Taxes, to the unaudited consolidated financial statements herein for additional information.

FINANCIAL CONDITION AND OPERATING ANALYSIS

Assets

The Corporation’s total assets were $19.0 billion as of March 31, 2023, an increase of $342.6 million from December 31, 2022. The increase was primarily related to a $343.1 million increase in cash and cash equivalents mainly attributable to the $347.8 million increase in borrowings to enhance available cash as a precautionary measure in light of recent instability in the banking sector. In addition, as further discussed below, total loans increased by $28.0 million. These variances were partially offset by a $4.3 million decrease in total investment securities.

Loans Receivable, including Loans Held for Sale

As of March 31, 2023, the Corporation’s total loan portfolio before the ACL amounted to $11.6 billion, an increase of $28.0 million compared to December 31, 2022. The increase consisted of a $141.5 million growth in the Puerto Rico region, partially offset by decreases of $108.6 million in the Florida region and $4.9 million in the Virgin Islands region. On a portfolio basis, the increase consisted of a $79.5 million growth in consumer loans, including a $72.0 million increase in auto and leases, partially offset by decreases of $32.9 million in residential mortgage loans and $18.6 million in commercial and construction loans.

As of March 31, 2023, the loans held for the Corporation’s investment portfolio was comprised of commercial and construction loans (46%), residential real estate loans (24%), and consumer and finance leases (30%). Of the total gross loan portfolio held for investment of $11.6 billion as of March 31, 2023, the Corporation had credit risk concentration of approximately 80% in the Puerto Rico region, 17% 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 March 31, 2023	Puerto Rico	Virgin Islands		United States		Total
(In thousands)
Residential mortgage loans	$2,205,659	$176,123	$	429,746	$	2,811,528
Construction loans	44,297		3,898	95,469		143,664
Commercial mortgage loans	1,766,479	62,694		524,486		2,353,659
Commercial and Industrial loans	1,872,215	69,013		920,961		2,862,189
Total commercial loans	3,682,991	135,605		1,540,916		5,359,512
Consumer loans and finance leases	3,335,014	63,231		8,700		3,406,945
Total loans held for investment, gross	$9,223,664	$374,959	$	1,979,362	$	11,577,985
Loans held for sale	14,830		-		353	15,183
Total loans, gross	$9,238,494	$374,959	$	1,979,715	$	11,593,168

As of December 31, 2022Puerto RicoVirgin IslandsUnited StatesTotal| (In thousands) | | | | | |
| --- | --- | --- | --- | --- | --- |
| Residential mortgage loans | $2,237,983 | $179,917 | $ | 429,390 | $2,847,290 |
| Construction loans | 30,529 | | 4,243 | 98,181 | 132,953 |
| Commercial mortgage loans | 1,768,890 | 65,314 | | 524,647 | 2,358,851 |
| Commercial and Industrial loans | 1,791,235 | 68,874 | | 1,026,154 | 2,886,263 |
| Total commercial loans | 3,590,654 | 138,431 | | 1,648,982 | 5,378,067 |
| Consumer loans and finance leases | 3,256,070 | 61,419 | | 9,979 | 3,327,468 |
| Total loans held for investment, gross | $9,084,707 | $379,767 | $ | 2,088,351 | $11,552,825 |
| Loans held for sale | 12,306 | | - | - | 12,306 |
| Total loans, gross | $9,097,013 | $379,767 | $ | 2,088,351 | $11,565,131 |

Residential Real Estate Loans

As of March 31, 2023, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by $32.9 million, as compared to the balance as of December 31, 2022. The decline in the residential mortgage loan portfolio reflects decreases of $29.8 million in the Puerto Rico region and $3.8 million in the Virgin Islands region, partially offset by an increase of $0.7 million in the Florida region. The decline was driven by repayments, foreclosures, and charge -offs, which more than offset the volume of new loan originations kept on the balance sheet.

The majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico and the Virgin Islands regions as of March 31, 2023 consisted of fixed-rate loans that traditionally carry higher yields than residential mortgage loans in the Florida region. In the Florida region, approximately 44% of the residential mortgage loan portfolio consisted of hybrid adjustable-rate mortgages. In accordance with the Corporation’s underwriting guidelines, residential mortgage loans are primarily fully documented loans, and the Corporation does not originate negative amortization loans.

Commercial and Construction Loans

As of March 31, 2023, the Corporation’s commercial and construction loan portfolio decreased by $18.6 million, as compared to the balance as of December 31, 2022.

In the Florida region, commercial and construction loans decreased by $108.1 million, as compared to the balance as of December 31, 2022. This decrease reflected $93.3 million in payoffs and paydowns of five commercial and industrial relationships in the Florida region, each in excess of $10 million, including the payoff of a $24.3 million commercial and industrial participated loan in the leisure and hospitality industry.

In the Virgin Islands region, commercial and construction loans decreased by $2.8 million, as compared to the balance as of December 31, 2022.

In the Puerto Rico region, commercial and construction loans increased by $92.3 million, as compared to the balance as of December 31, 2022. This increase was driven by the origination of several loans, including four commercial relationships, each in excess of $10 million, that increased the portfolio amount by $54.2 million.

As of March 31, 2023, the Corporation had $170.9 million outstanding in loans extended to the Puerto Rico government, its municipalities, and public corporations, compared to $169.8 million as of December 31, 2022. See “Exposure to Puerto Rico Government” below for additional information.

The Corporation also has credit exposure to USVI government entities. As of March 31, 2023, the Corporation had $38.7 million in loans to USVI government public corporations, compared to $38.0 million as of December 31, 2022. See “Exposure to USVI Government” below for additional information.

As of March 31, 2023, the Corporation’s total commercial mortgage loan exposure amounted to $2.4 billion, or 44% of the total commercial loan portfolio. Of this total, $379 million and $38 million is in office real estate in the Puerto Rico and Florida regions, respectively. Total office real estate maturing during the remainder of 2023 and 2024 amounted to $107 million.

As of March 31, 2023, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused commitments)
amounted to $1.1 billion as of each of March 31, 2023 and December 31, 2022. As of March 31, 2023, approximately $207.6 million of the SNC exposure is related to the portfolio in Puerto Rico and $858.3 million is related to the portfolio in the Florida region.

Consumer Loans and Finance Leases

As of March 31, 2023, the Corporation’s consumer loan and finance lease portfolio increased by $79.5 million to $3.4 billion, as compared to the portfolio balance of $3.3 billion as of December 31, 2022. This increase was mainly related to increases of $34.8 million and $37.2 million in the auto loans and finance leases portfolios, respectively. The growth in consumer loans is mainly reflected in the Puerto Rico region across all portfolio classes.

Loan Production

First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation may supplement its residential mortgage originations with wholesale servicing released mortgage loan purchases from mortgage bankers.
The Corporation manages its construction and commercial loan originations through centralized units and most of its originations come from existing customers, as well as through referrals and direct solicitations. Auto loans and finance leases originations rely primarily on relationships with auto dealers and dedicated sales professionals who serve selected locations to facilitate originations.

The following table provides a breakdown of First BanCorp.’s loan production, including purchases, refinancings, renewals and draws from existing revolving and non-revolving commitments, for the indicated periods:| (In thousands) | | | | |
| --- | --- | --- | --- | --- |
| Residential mortgage | $ | 77,302 | $ | 122,513 |
| Construction | | 35,499 | | 19,986 |
| Commercial mortgage | | 88,692 | | 127,985 |
| Commercial and Industrial | | 555,882 | | 490,296 |
| Consumer | | 435,318 | | 426,467 |
| Total loan production | $ | 1,192,693 | $ | 1,187,247 |

During the quarter ended March 31, 2023, total loan originations, including purchases, refinancings, and draws from existing revolving and non-revolving commitments, amounted to approximately $1.2 billion, an increase of $5.5 million, compared to the first quarter of 2022.

Residential mortgage loan originations for the quarter ended March 31, 2023 amounted to $77.3 million, compared to $122.5 million for the first quarter of 2022. The decrease of $45.2 million in the first quarter of 2023, as compared to the same period in 2022,

reflects declines of $42.2 million in the Puerto Rico region, $2.5 million in the Florida region, and $0.5 million in the Virgin Islands region. Approximately 60% of the $61.5 million residential mortgage loan originations in the Puerto Rico region during the first quarter of 2023 were of conforming loans, compared to 67% of $103.7 million for the first quarter of 2022. The decrease during the first quarter of 2023 is related to a lower volume of conforming loan originations and refinancings, in part due to a higher interest rate environment.

Commercial and construction loan originations (excluding government loans) for the quarter ended March 31, 2023 amounted to $672.8 million, compared to $633.8 million for the first quarter of 2022. The increase of $39.0 million in the first quarter of 2023 consisted of increases of $93.7 million and $0.5 million in the Puerto Rico and the Virgin Islands regions, respectively, partially offset by a decrease of $55.2 million in the Florida region.

Government loan originations for the quarter ended March 31, 2023 amounted to $7.2 million, an increase of $2.8 million, compared to $4.4 million for the first quarter of 2022. Government loan originations during the first quarter of 2023 were mainly

related to the origination of a loan to an agency of the Puerto Rico government for a low-income housing project and the utilization of an arranged overdraft line of credit of a government entity in the Virgin Islands region. Government loan originations during the first quarter of 2022 were related to the utilization of an arranged overdraft line of credit of a government entity in the Virgin Islands region.

Originations of auto loans (including finance leases) for the quarter ended March 31, 2023 amounted to $245.1 million, compared to $261.3 million for the first quarter of 2022. The decrease in the first quarter of 2023, as compared to the same quarter of 2022,

consisted of a $17.5 million decrease in the Puerto Rico region, partially offset by a $1.3 million increase in the Virgin Islands region.
Other consumer loan originations, other than credit cards, for the quarter ended March 31, 2023 amounted to $71.9 million, compared to $55.7 million for the first quarter of 2022. Most of the increase in other consumer loan originations for the first quarter of 2023, as compared with the same period in 2022, was in the Puerto Rico region. The utilization activity on the outstanding credit card portfolio for the quarter ended March 31, 2023 amounted to $118.4 million, compared to $109.5 million for the same period in 2022.

Investment Activities

As part of its liquidity, revenue diversification, and interest rate risk management strategies, First BanCorp. maintains a debt securities portfolio classified as available for sale or held to maturity.

The Corporation’s total available-for-sale debt securities portfolio as of March 31, 2023 amounted to $5.6 billion, a $10.3 million decrease from December 31, 2022. The decrease was mainly driven by repayments of approximately $95.9 million of U.S. agencies

and MBS, partially offset by an $87.2 million increase in fair value attributable to changes in market interest rates. As of March 31, 2023, the Corporation had a net unrealized loss on available-for-sale debt securities of $711.0 million. This unrealized loss is attributable to instruments on book s carrying a lower interest rate than market rates. The Corporation expects that this unrealized loss will reverse over time. The Corporation expects the portfolio to continue to decrease as repayments are received over the next two years and further expects that the accumulated other comprehensive loss will decrease accordingly, excluding the impact of market interest rates.

As of March 31, 2023, substantially all of the Corporation’s available-for-sale debt securities portfolio was invested in U.S.
government and agencies debentures and fixed-rate GSEs’ MBS. In addition, as of March 31, 2023, the Corporation held a bond issued by the PRHFA, classified as available for sale, specifically a residential pass-through MBS in the aggregate amount of $3.3 million (fair value - $2.2 million). This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and had an unrealized loss of $1.1 million as of March 31, 2023, of which $0.4 million is due to credit deterioration. During 2021, the Corporation placed this instrument in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

As of March 31, 2023, the Corporation’s held-to-maturity debt securities portfolio, before the ACL, decreased to $431.4 million, compared to $437.5 million as of December 31, 2022. Held-to-maturity debt securities consisted of fixed-rate GSEs’ MBS and financing arrangements with Puerto Rico municipalities issued in bond form, which the Corporation accounts for as securities, but which were underwritten as loans with features that are typically found in commercial loans. Puerto Rico municipal bonds typically are not issued in bearer form, are not registered with the Securities and Exchange Commission, and are not rated by external credit agencies. These bonds have seniority to the payment of operating costs and expenses of the municipality and, in most cases, are supported by assigned property tax revenues. As of March 31, 2023, approximately 74% of the Corporation’s municipality bonds consisted of obligations issued by four of the largest municipalities in Puerto Rico. The municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and loans.
Given the uncertainties as to the effects that the fiscal position of the Puerto Rico central government, and the measures taken, or to be taken, by other government entities may have on municipalities, the Corporation cannot be certain whether future charges to the ACL on these securities will be required. As of March 31, 2023, the ACL for held-to-maturity debt securities was $7.6 million, compared to $8.3 million as of December 31, 2022.

See “Risk Management – Exposure to Puerto Rico Government” below for information and details about the Corporation’s total direct exposure to the Puerto Rico government, including municipalities and “Credit Risk Management” below for the ACL of the exposure to Puerto Rico municipal bonds.

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

March 31, 2023December 31, 2022| (In thousands) | | | | |
| --- | --- | --- | --- | --- |
| Money market investments | $ | 1,059 | $ | 2,025 |
| Available-for-sale debt securities, at fair value: | | | | |
| U.S. government and agencies obligations | | 2,531,632 | | 2,492,228 |
| Puerto Rico government obligations | | 2,203 | | 2,201 |
| Residential | | 2,896,655 | | 2,941,458 |
| Commercial | | 158,766 | | 163,133 |
| Other | | - | | 500 |
| Total available-for-sale debt securities, at fair value | | 5,589,256 | | 5,599,520 |
| Held-to-maturity debt securities, at amortized cost: | | | | |
| Residential | | 161,587 | | 166,739 |
| Commercial | | 104,008 | | 105,088 |
| Puerto Rico municipal bonds | | 165,800 | | 165,710 |
| ACL for held-to-maturity Puerto Rico municipal bonds | | (7,646) | | (8,286) |
| Total held-to-maturity debt securities | | 423,749 | | 429,251 |
| Equity securities, including $54.2 million and $42.9 million of FHLB stock | | | | |
| as of March 31, 2023 and December 31, 2022, respectively | | 66,714 | | 55,289 |
| Total money market investments and investment securities | $ | 6,080,778 | $ | 6,086,085 |

The carrying values of debt securities as of March 31, 2023 by contractual maturity (excluding MBS), are shown below:| | Carrying Amount | | Weighted-Average Yield % | |
| --- | --- | --- | --- | --- |
| (Dollars in thousands) | | | | |
| U.S. government and agencies obligations: | | | | |
| Due within one year | $ | 210,928 | | 0.44 |
| Due after one year through five years | | 2,272,126 | | 0.83 |
| Due after five years through ten years | | 36,926 | | 1.64 |
| Due after ten years | | 11,652 | | 5.15 |
| | | 2,531,632 | | 0.83 |
| Puerto Rico government and municipalities obligations: | | | | |
| Due within one year | | 1,204 | | 5.70 |
| Due after one year through five years | | 42,633 | | 6.74 |
| Due after five years through ten years | | 55,940 | | 7.10 |
| Due after ten years | | 68,226 | | 7.73 |
| | | 168,003 | | 7.26 |
| MBS | | 3,321,016 | | 1.68 |
| ACL on held-to-maturity debt securities | | (7,646) | | - |
| Total debt securities | $ | 6,013,005 | | 1.48 |

Net interest income in future periods could be affected by prepayments of MBS. Any acceleration in the prepayments of MBS purchased at a premiumwould lower yields on these securities, since the amortization of premiums paid upon acquisition would

accelerate. Conversely, acceleration of the prepayments of MBS would increase yields on securities purchased at a discount, since the amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Net interest income in future periods might also be affected by the Corporation’s investment in callable securities. As of March 31, 2023, the Corporation had approximately $2.0 billion in callable debt securities (U.S. agencies debt securities) with an average yield of 0.84%, of which approximately 59% were purchased at a discount and 5% at a premium. See “Risk Management” below for further analysis of the effects of changing interest rates on the Corporation’s net interest income and the Corporation’s interest rate risk management strategies. Also, refer to Note 2 – Debt Securities to the unaudited consolidated financial statements herein for additional information regarding the Corporation’s debt securities portfolio.

RISK MANAGEMENT

General

Risks are inherent in virtually all aspects of the Corporation’s business activities and operations. Consequently, effective risk management is fundamental to the success of the Corporation. The primary goals of risk management are to ensure that the Corporation’s risk-taking activities are consistent with the Corporation’s objectives and risk tolerance, and that there is an appropriate balance between risks and rewards in order to maximize stockholder value.

The Corporation has in place a risk management framework to monitor, evaluate and manage the principal risks assumed in conducting its activities. First BanCorp.’s business is subject to eleven broad categories of risks: (i) liquidity risk; (ii) interest rate risk;
(iii) market risk; (iv) credit risk; (v) operational risk; (vi) legal and regulatory risk; (vii) reputational risk; (viii) model risk; (ix) capital risk; (x) strategic risk; and (xi) information technology risk. First BanCorp. has adopted policies and procedures designed to identify and manage the risks to which the Corporation is exposed.

The Corporation’s risk management policies are described below, as well as in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2022 Annual Report on Form 10-K.

Liquidity Risk

Liquidity risk involves the ongoing ability to 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 to meet liquidity needs and accommodate fluctuations in asset and liability levels due to changes in the Corporation’s business operations or unanticipated events.

The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, or First Bancorp., which is the holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary, or FirstBank.

The Asset and Liability Committee of the Board is responsible for overseeing management’s establishment of the Corporation’s liquidity policy, as well as approving operating and contingency procedures and monitoring liquidity on an ongoing basis. The Management’s Investment and Asset Liability Committee (“MIALCO”), which reports to the Board’s 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, market risk, and other related matters.

The MIALCO is composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Corporate Strategic and Business Development Director, the Treasury and Investments Risk Manager, the

Financial Planning and Asset and Liability Management (“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 on a weekly basis. The Treasury and Investments Accounting and Operations area of the Corporate Controller’s Department is responsible for calculating the liquidity measurements used by the Treasury and Investment Division to review the Corporation’s liquidity position on a monthly basis. The Financial Planning and ALM Division is responsible to estimate the liquidity gap for longer periods.

To ensure adequate liquidity through the full range of potential operating environments and market conditions, the Corporation conducts its liquidity management and business activities in a manner that is intended to preserve and enhance funding stability, flexibility, and diversity. Key components of this operating strategy include a strong focus on the continued development of customer-based funding, the maintenance of direct relationships with wholesale market funding providers, and the maintenance of 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 of stress, specify and quantify sources of liquidity, outline actions and procedures for effectively managing liquidity through a period of stress, and define roles and responsibilities for the Corporation’s employees. Under the contingency funding plans, the Corporation stresses the balance sheet and the liquidity position to critical levels that mimic difficulties in generating funds or even maintaining the current funding position of the Corporation and the Bank and are designed to help ensure the ability of the Corporation and the Bank to honor their respective commitments. The Corporation has established liquidity triggers that the MIALCO monitors in order to maintain the ordinary funding of the banking business. The MIALCO developed contingency funding plans for the following three scenarios: a credit rating downgrade, an economic cycle downturn event, and a concentration event. The Board’s Asset and Liability Committee reviews and approves these plans on an annual basis.

The Corporation manages its liquidity in a proactive manner and in an effort to maintain a sound liquidity position. It uses multiple measures to monitor its liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. Cash

and cash equivalents amounted to $823.6 million as of March 31, 2023, compared to $480.5 million as of December 31, 2022. Free high-quality liquid securities that could be liquidated or pledged within one day amounted to $2.4 billion as of March 31, 2023, compared to $3.1 billion as of December 31, 2022. As of March 31, 2023, the estimated core liquidity reserve (which includes cash and free high quality liquid assets such as U.S. government and GSEs obligations that could be liquidated or pledged within one day) was $3.2 billion, or 16.77% of total assets, compared to $3.5 billion, or 19.02% of total assets as of December 31, 2022. The basic liquidity ratio (which adds available secured lines of credit to the core liquidity) was approximately 21.42% of total assets as of March 31, 2023, compared to 22.48% of total assets as of December 31, 2022.

As of March 31, 2023, in addition to the aforementioned $3.2 billion in cash and free high quality liquid assets, the Corporation had $882.5 million available for credit with the FHLB based on the value of collateral pledged with the FHLB. The Corporation also

maintains borrowing capacity at the FED Discount Window. The Corporation does not consider borrowing capacity from the FED Discount Window as a primary source of liquidity but had approximately $1.4 billion available for funding under the FED’s BIC Program as of March 31, 2023 as an additional contingent source of liquidity. Total loans pledged to the FED Discount Window amounted to $2.3 billion as of March 31, 2023. The Corporation also 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. On a combined basis, as of March 31, 2023, the Corporation had $5.5 billion available to meet liquidity needs , while maintaining a strong capital position.

The Bank had $252.9 million in brokered CDs as of March 31, 2023, of which approximately $180.9 million mature over the next twelve months. Liquidity at the Bank level is highly dependent on bank deposits, which fund 84.9% of the Bank’s assets (or 83.5% excluding brokered CDs). Historically, the use of brokered CDs has been an additional source of funding for the Corporation as it provides an additional efficient channel for funding diversification and can be obtained faster than regular retail deposits. Funding through brokered CDs may continue to increase the overall cost of funding for the Corporation and impact the net interest margin.

In addition, as further discussed below, the Corporation maintain a large, stable core deposit base and a diversified base of readily available wholesale funding sources, including advances from the FHLB through pledged borrowing capacity, securities sold under agreements to repurchase, and access to certificates of deposit issued through brokers. Funding through wholesale funding may continue to increase the overall cost of funding for the Corporation and impact the net interest margin.

Over the last year, the FED’s policies to control the inflationary economic environment, including repeated market interest rate increases, have resulted in excess liquidity gradually tapering off and impacting the Corporation’s core deposit balances as

customers have allocated cash into higher yielding options. During the first quarter of 2023, the banking industry in the U.S.
mainland experienced deposit runoff that led to the collapse of certain financial institutions. As a precautionary measure, during the first quarter of 2023, the Corporation increased the use of advances from the FHLB, repurchase agreements, and other sources, such as wholesale funding brokers, to increase cash and cash equivalents. Increased use of long-term FHLB advances has been part of the Corporation’s interest rate risk management strategy to mitigate the impact of market interest rate increases. The additional use and future levels of these sources of funding are dependent on factors such as the loan portfolio future pipeline and customers continuing to allocate more cash into higher yielding alternatives, among other factors. The Corporation believes that as uncertainty in the banking industry eases certain short-term borrowings will be repaid and not renewed.

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 to 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 March 31, 2023, the Corporation’s commitments to extend credit amounted to approximately $2.0 billion. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since certain commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the Corporation has the option to reevaluate the agreement prior to additional disbursements. There have been no significant or 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 following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates:

March 31, 2023December 31, 2022| Commitments to extend credit: | | | | |
| --- | --- | --- | --- | --- |
| Construction undisbursed funds | $ | 200,105 | $ | 170,639 |
| Unused credit card lines | | 949,701 | | 936,231 |
| Unused personal lines of credit | | 41,639 | | 41,988 |
| Commercial lines of credit | | 772,240 | | 761,634 |

Letters of credit:
Commercial letters of credit	84,724	68,647
Standby letters of credit	8,886	9,160

The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction and, thus, affect the Corporation’s liquidity position. These transactions are designed to (i) meet the financial needs of 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 $4.0 billion as of March 31,

Our material cash requirements comprise primarily of contractual obligations to make future payments related to time deposits, short-term borrowings, long-term debt, and operating lease obligations. We also have other contractual cash obligations related to certain binding agreements we have entered into for services including outsourcing of technology services, security, advertising and other services which are not material to our liquidity needs. We currently anticipate that our available funds, credit facilities, and cash flows 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 of funding to help ensure that adequate levels of 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 of short-term funds are deposits, including brokered CDs. Additional funding is provided by short- and long-term securities sold under agreements to repurchase and lines of credit with the FHLB. Consistent with its strategy, the Corporation has been seeking to add core deposits.

The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation also sells mortgage loans as a supplementary source of funding and has obtained long-term funding in the past through the issuance of notes and long-term brokered CDs. In addition, the Corporation also maintains as additional contingent sources borrowing capacity at the FED’s BIC Program and recently enrolled in the FED’s Bank Term Funding Program (“BTFP”).

While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available borrowing capacity and efforts to grow core deposits will be adequate to provide the necessary funding for the Corporation’s business plans in the foreseeable future.

The Corporation’s principal sources of funding are discussed below:

Retail core deposits– The Corporation’s deposit products include regular savings accounts, demand deposit accounts, money market accounts, and retail CDs. As of March 31, 2023, the Corporation’s core deposits, which exclude government deposits and brokered

CDs, decreased by $142.7 million to $13.1 billion from $13.3 billion as of December 31, 2022. The decrease was primarily related to saving and checking accounts in the Florida region used for loan repayments, as well as customers continuing to reallocate cash into higher-yielding alternatives. Notwithstanding, these reductions were partially offset by an increase in time deposits, including a shift from non-interest bearing or low-interest bearing products to time deposits, driven by higher rates offered, as well as certain large commercial deposit inflows in the Puerto Rico region. The average balance per retail core deposit account is $26 thousand.

Government deposits– As of March 31, 2023, the Corporation had $2.2 billion of Puerto Rico public sector deposits ($2.0 billion in

transactional accounts and $161.9 million in time deposits), compared to $2.3 billion as of December 31, 2022. The decrease was primarily related to reductions in the balance of operational accounts of a public corporation. These deposits are insured by the FDIC up to the applicable limits and the uninsured portions is fully collateralized. Approximately 25% of the public sector deposits as of March 31, 2023 were from municipalities and municipal agencies in Puerto Rico and 75% were from public corporations, the central government and agencies, and U.S. federal government agencies in Puerto Rico.

In addition, as of March 31, 2023, the Corporation had $462.0 million of government deposits in the Virgin Islands region (December 31, 2022 - $442.8 million) and $11.3 million in the Florida region (December 31, 2022 - $11.6 million).

The uninsured portions of government deposits were collateralized by securities and loans with an amortized cost of $3.1 billion as of each of March 31, 2023 and December 31, 2022, and an estimated market value of $2.8 billion and $2.7 billion, respectively. In addition to securities and loans, as of each of March 31, 2023 and December 31, 2022, the Corporation used $200.0 million in letters of credit issued by the FHLB as pledges for public deposits in the Virgin Islands.

Estimate of Uninsured Deposits –As of March 31, 2023 and December 31, 2022, the estimated amount of uninsured deposits

totaled $7.2 billion and $7.6 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 balances presented as of March 31, 2023 and December 31, 2022, include the uninsured portion of government deposits, which are fully collateralized as previously mentioned.
Excluding fully collateralized deposits, $4.8 billion of these deposits are uninsured, which represent 30.13% of total deposits, excluding brokered CDs, as of March 31, 2023, compared to $4.9 billion, or 30.65% of total deposits, excluding brokered CDs, as of December 31, 2022. The amount of uninsured deposits is calculated based on the same methodologies and assumptions used for our bank regulatory reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank.

The following table presents by contractual maturities the amount of U.S. time deposits in excess of FDIC insurance limits (over $250,000) and other time deposits that are otherwise uninsured as of March 31, 2023:

3 months or3 months to6 months to (In thousands)less6 months1 yearOver 1 yearTotal U.S. time deposits in excess of FDIC insurance limits$125,162$84,861$217,846$341,507$769,376 Other uninsured time deposits$18,814$10,058$9,864$5,647$44,383

Brokered CDs– Total brokered CDs increased by $147.1 million to $252.9 million as of March 31, 2023, compared to $105.8 million as of December 31, 2022. The increase reflects the effect of new issuances amounting to $189.7 million with an all-in cost of 4.70%, partially offset by approximately $42.6 million of maturing brokered CDs, with an all-in cost of 4.06%, that were paid off during the first quarter of 2023.

The average remaining term to maturity of the brokered CDs outstanding as of March 31, 2023 was approximately 1.1 years.

The use of brokered CDs provides an efficient channel for funding diversification and interest rate management. Brokered CDs are insured by the FDIC up to regulatory limits and can be obtained faster than regular retail deposits.

Refer to “Net Interest Income” above for information about average balances of interest-bearing deposits and the average interest rate paid on deposits, for the quarters ended March 31, 2023 and 2022.

Securities sold under agreements to repurchase -The Corporation’s investment portfolio is funded in part with repurchase agreements. The Corporation’s outstanding short-term securities sold under repurchase agreements amounted to $173.0 million as of

March 31, 2023, compared to $75.1 million as of December 31, 2022. During the first quarter of 2023, the Corporation added $173.0 million of short-term repurchase agreements at an average cost of 5.08% reflecting precautionary measures taken by management in light of recent instability in the banking sector, and repaid upon maturity $75.1 million of short-term repurchase agreements at an average cost of 4.55%. In addition to these repurchase agreements, the Corporation has been able to maintain access to credit by using cost-effective sources such as FHLB advances. See Note 9 – Securities Sold Under Agreements to Repurchase (Repurchase Agreements) to the unaudited consolidated financial statements herein 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 of the collateral pledged, the Corporation has not experienced margin calls from counterparties arising from credit-quality-related write-downs in valuations.

Advances from the FHLB –The Bank 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 March 31, 2023, the outstanding balance of fixed-rate FHLB advances was $925.0 million, compared to $675.0 million as of December 31, 2022. During the first quarter of 2023, the Corporation added $425.0 million of short-term FHLB advances at an average cost of 5.04% and $300.0 million of long-term FHLB advances at an average cost of 4.59%, and repaid upon maturity $475.0 million of short-term FHLB advances at an average cost of 4.56%. Of the $925.0 million in FHLB advances as of March 31, 2023, $700.0 million were pledged with investment securities and $225.0 million were pledged with mortgage loans. As of March 31, 2023, the Corporation had $882.5 million available for additional credit on FHLB lines of credit based on collateral pledged at the FHLB of New York.

Trust Preferred Securities –In 2004, FBP Statutory Trusts I and II, statutory trusts that are wholly-owned by the Corporation and not

consolidated in the Corporation’s financial statements, sold to institutional investors variable-rate TRuPs and used the proceeds of these issuances, together with the proceeds of the purchases by the Corporation of variable rate common securities, to purchase junior subordinated deferrable debentures. The subordinated debentures are presented in the Corporation’s consolidated statements of financial condition as other long-term borrowings. As of each of March 31, 2023 and December 31, 2022, the Corporation had subordinated debentures outstanding in the aggregate amount of $183.8 million with maturity dates from June 17, 2034 through September 20, 2034. Under the indentures, the Corporation has the right, from time to time, and without causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of March 31, 2023, the Corporation was current on all interest payments due on its subordinated debt. See Note 11 – Other Long-Term Borrowings and Note 7 – Non-Consolidated Var iable Interest Entities (“VIEs”) and Servicing Assets to unaudited consolidated financial statements herein for additional information.

Other Sources of Funds and Liquidity- The Corporation’s principal uses of funds are for the origination of loans, the repayment of maturing deposits and borrowings, and deposits withdrawals. In connection with its mortgage banking activities, the Corporation has invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.

The enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed, from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highlyliquid, in large part because of the sale of mortgages through guarantee programs of the FHA, VA, U.S. Department of Housing and Urban Development (“HUD”), FNMA and FHLMC. During the first quarter of 2023, loans pooled into GNMA MBS amounted to approximately $29.4 million. Also, during the first quarter of 2023, the Corporation sold approx imately $8.0 million of performing residential mortgage loans to FNMA.

The FED Discount Window is a cost-efficient contingent source of funding for the Corporation in highly-volatile market conditions. As previously mentioned, although currently not in use, as of March 31, 2023, the Corporation had approximately $1.4 billion available for funding under the FED’s Discount Window based on collateral pledged at the FED.

The FED’s BTFP was established by the Federal Reserve Board in March 2023 as an additional source of funding for depository institutions to borrow up to the par value of eligible collateral for terms of up to one year. The BTFP eliminates the need for

depository institutions to sell their debt securities in times of stress. Eligible collateral includes high-quality securities such as U.S.
Treasuries, U.S. agency securities, and U.S. agency MBS. Borrowers that are eligible for primary credit under the Borrower-in- Custody Program (“BIC”) are eligible to borrow under the BTFP. In addition, any eligible collateral pledged to the discount window can be used under the BTFP. The rate for term advances will be the one-year overnight index swap rate plus 10 basis points and will

be fixed for the term of the advance on the day the advance is made. As previously mentioned, the Corporation enrolled in the BTFP during the first quarter of 2023 to further diversify its contingency funding sources.

Effect of Credit Ratings on Access to Liquidity

The Corporation’s liquidity is contingent upon its ability to obtain external sources of funding to 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 to be more expensive, which could, in turn, adversely affect its results of operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the Corporation’s own credit risk.

The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades.
Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation’s ability to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.

As of the date hereof, the Corporation’s credit as a long-term issuer is rated BB+ by S&P and BB by Fitch. As of the date hereof, FirstBank’s credit ratings as a long-term issuer are BB+ by S&P, one notch below S&P’s minimum BBB- level required to be

considered investment grade; and BB by Fitch, two notches below Fitch’s minimum BBB- level required to be considered investment grade. The Corporation’s credit ratings are dependent on a number of factors, both quantitative and qualitative, and are subject to 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 $823.6 million as of March 31, 2023, an increase of $343.1 million when compared to December 31, 2022. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first quarters of 2023 and 2022:

Cash Flows from Operating Activities

First BanCorp.’s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of cash flows. Management believes that cash flows from operations, available cash balances, and the Corporation’s ability to generate cash through short and long-term borrowings will be sufficient to fund the Corporation’s operating liquidity needs for the foreseeable future.

For the first quarters of 2023 and 2022, net cash provided by operating activities was $115.4 million and $114.8 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for non-cash items such as depreciation and amortization, deferred income tax expense and the provision for credit losses, as well as cash generated from sales of loans held for sale.

Cash Flows from Investing Activities

The Corporation’s investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling, and repaying available-for-sale and held-to-maturity debt securities. For the first quarter of 2023, net cash provided by investing activities was $50.5 million, primarily due to repayments of U.S. agencies MBS, partially offset by net disbursements on loans held for investment.

For the first quarter of 2022, net cash used in investing activities was $333.0 million, primarily due to purchases of U.S. agencies and MBS, and net disbursements on loans held for investment, partially offset by repayments of U.S. agencies and MBS.

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 quarter ended March 31, 2023, net cash provided by financing activities was $177.1 million, mainly reflecting net proceeds of $347.8 million from borrowings, partially offset by a decrease in total deposits and capital returned to stockholders.

For the first quarter of 2022, net cash used in financing activities was $628.7 million, mainly reflecting a decrease in government deposits, the repayment at maturity of a $100 million repurchase agreement and capital returned to stockholders.

Capital

As of March 31, 2023, the Corporation’s stockholders’ equity was $1.4 billion, an increase of $80.1 million from December 31, 2022. The growth was driven by the $87.2 million increase in the fair value of available-for-sale debt securities recorded as part of accumulated other comprehensive loss in the consolidated statements of financial condition, as a result of changes in market interest rates, and the earnings generated in the first quarter of 2023, partially offset by the repurchase of 3.6 million shares of common stock for a total purchase price of approximately $50.0 million, common stock dividends declared in the first quarter of 2023 totaling $25.4 million or $0.14 per common share, and the $1.3 million impact to retained earnings related to the adoption of Accounting Standards Update (“ASU”) 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.” See Note 1 – Basis of Presentation and Significant Accounting Policies and Note 4 – Allowance for Credit Losses for Loans and Finance Leases, for additional information related to the adoption of ASU 2022-02.

On April 27, 2023, the Corporation’s Board declared a quarterly cash dividend of $0.14 per common share payable on June 9, 2023 to shareholders of record at the close of business on May 24, 2023. The Corporation intends to continue to pay quarterly dividends on common stock. The Corporation’s common stock dividends, including the declaration, timing and amount, remain subject to the consideration and approval by the Corporation’s Board at the relevant times.

On April 27, 2022, the Corporation announced that its Board approved a stock repurchase program, under which the Corporation may repurchase up to $350 million of its outstanding common stock, which commenced in the second quarter of 2022. The Corporation’s stock repurchase program does not obligate it to acquire any specific number of shares and does not have an expiration date. As of March 31, 2023, the Corporation has repurchased approximately 19.6 million shares of common stock for a total purchase price of $275 million under this stock repurchase program. Considering the industry-wide uncertain environment, the Corporation decided to pause share buybacks during the second quarter of 2023 and it expects to resume shares repurchases during the third quarter of 2023. The Parent Company has no operations and depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, stock repurchases, and to fund all payments on its obligations, including debt obligations.

The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other intangible assets. Tangible assets are total assets less the previously mentioned intangible assets. See “Non-GAAP Financial Measures and Reconciliations” above for additional information.

The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets, non-GAAP financial measures, to total equity and total assets, respectively, as of March 31, 2023 and December 31, 2022, respectively:| | March 31, 2023 | | December 31, 2022 | |
| --- | --- | --- | --- | --- |
| (In thousands, except ratios and per share information) | | | | |
| Total equity - GAAP | $ | 1,405,593 | $ | 1,325,540 |
| Goodwill | | (38,611) | | (38,611) |
| Purchased credit card relationship intangible | | (86) | | (205) |
| Core deposit intangible | | (18,987) | | (20,900) |
| Insurance customer relationship intangible | | | - | (13) |
| Tangible common equity | $ | 1,347,909 | $ | 1,265,811 |
| Total assets - GAAP | $ | 18,977,114 | $ | 18,634,484 |
| Goodwill | | (38,611) | | (38,611) |
| Purchased credit card relationship intangible | | (86) | | (205) |
| Core deposit intangible | | (18,987) | | (20,900) |
| Insurance customer relationship intangible | | | - | (13) |
| Tangible assets | $ | 18,919,430 | $ | 18,574,755 |
| Common shares outstanding | | 179,789 | | 182,709 |
| Tangible common equity ratio | | 7.12% | | 6.81% |
| Tangible book value per common share | $ | 7.50 | $ | 6.93 |

See Note 22 - Regulatory Matters, Commitments and Contingencies, to the unaudited consolidated financial statements herein for the regulatory capital positions of the Corporation and FirstBank as of March 31, 2023 and December 31, 2022, respectively.

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 to the legal surplus reserve from retained earnings are not available for distribution to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s consolidated statements of financial condition, amounted to $168.5 million as of each of March 31, 2023 and December 31, 2022, respectively. There were no transfers to the legal surplus reserve during the first quarter of 2023.

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Interest Rate Risk Management

First BanCorp manages its asset/liability position to limit the effects of changes in interest rates on net interest income and to maintain stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk and monitors, among other things, current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market, liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues which may be pertinent to these areas. The MIALCO approves funding decisions in light of the Corporation’s overall strategies and objectives.

On at least a quarterly basis, the Corporation performs a consolidated net interest income simulation analysis to estimate the potential change in future earnings from projected changes in interest rates. These simulations are carried out over a one-to-five-year time horizon, assuming upward and downward yield curve shifts. The rate scenarios considered in these simulations reflect gradual upward and downward interest rate movements of 200 basis points (“bps”) during a 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 of the balance sheet components over the modeled periods. It is unlikely that actual events will match these assumptions in all cases. For this reason, the results of these forward-looking computations are only approximations of the true sensitivity of net interest income to changes in market interest rates. Several benchmark and market rate curves were used in the modeling process, primarily the LIBOR/Swap curve, SOFR curve, Prime Rate, U.S. Treasury yield curve, FHLB rates, brokered CDs rates, repurchase agreements rates, and the mortgage commitment rate of 30 years.

As of March 31, 2023, the Corporation forecasted the 12-month net interest income assuming March 31, 2023 interest rate curves remain constant. Then, net interest income was estimated under rising and falling rates scenarios. For the rising rate scenario, a gradual (ramp) parallel upward shift of the yield curve is assumed during the first twelve months (the “+200 ramp” scenario).
Conversely, for the falling rate scenario, a gradual (ramp) parallel downward shift of the yield curve is assumed during the first twelve months (the “-200 ramp” scenario).

The LIBOR/Swap rates for March 31, 2023, as compared to the January 31, 2023, rates used for the December 31, 2022 sensitivity analysis, reflected an increase in the short-term sector of the curve, or between one to twelve months, of 18 basis points (“bps”) on

average; while market rates decreased in the medium-term sector of the curve, or between 2 to 5 years, by 37 bps, and in the long-term sector of the curve, or over 5-year maturities, by 36 bps. A similar increase in market rates changes were observed in the Treasury and the SOFR curve of 29 and 13 bps in the short -term sector, respectively; while market rates decreased in the medium-term sector by 38 and 40 bps, respectively, and by 36 and 37 bps in the long-term sector, respectively.

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The following table presents the results of the simulations as of March 31, 2023 and December 31, 2022. Consistent with prior years, these exclude non-cash changes in the fair value of derivatives:| | | (Projected for the next 12 months) | | | | | (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 | $9.4 | 1.15 | %$ | 9.7 | 1.14% | $7.8 | 0.96 | %$ | 11.5 | 1.37% |
| - 200 bps ramp | $(12.6) | (1.54) | %$ | (12.7) | (1.49)% | $(13.1) | (1.61) | %$ | (17.0) | (2.03)% |

The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk by managing its asset composition while maintaining a sound liquidity position. See “Risk Management – Liquidity Risk” above for liquidity ratios.
As of March 31, 2023 and December 31, 2022, the simulations showed that the Corporation continues to have an asset-sensitive position.

As of March 31, 2023, the net interest income for the next twelve months under a non-static balance sheet scenario is estimated to increase by $9.7 million in the rising rate scenario, when compared against the base simulation. The decrease in net interest income sensitivity for the +200 bps ramp scenario, as compared to December 31, 2022, is primarily driven by the changes in the overall funding mix, including decreases in average non-interest deposits to total deposits and customers reallocating to higher yielding alternatives, partially offset by decreases in lower yielding assets, such as the investment portfolio being repaid, and being replaced by higher yielding assets due to the growth on the loan portfolio.

As of March 31, 2023, under a falling rate, non-static balance sheet scenario, the net interest income is estimated to decrease by $12.7 million, when compared against the base simulation. The change in net interest income sensitivity for the -200 bps ramp scenario, when compared to December 31, 2022, was driven by a higher deposit beta assumed in the March 31, 2023 simulation for non-maturity deposits, which under the falling rate scenario would reprice and consequently impact net interest income at a faster pace than the previous simulation.

Credit Risk Management

First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance-sheet instruments, principally loan commitments. Loans receivable represents loans that First BanCorp. holds for investment and, therefore, First

BanCorp. is at risk for the term of the loan. Loan commitments represent commitments to extend credit, subject to specific conditions, for specific amounts and maturities. These commitments may expose the Corporation to credit risk and are subject to the same review and approval process as for loans made by the Bank. See “Liquidity Risk” above for further details. The Corporation manages its credit risk through its credit policy, underwriting, monitoring of loan concentrations and related credit quality, counterparty credit risk, economic and market conditions, and legislative or regulatory mandates. The Corporation also performs independent loan review and quality control procedures, statistical analysis, comprehensive financial analysis, established management committees, and employs proactive collection and loss mitigation efforts. Furthermore, personnel performing structured loan workout functions are responsible for mitigating defaults and minimizing losses upon default within each region and for each business segment. In the case of 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.

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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 is a 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 as differences in underwriting standards, portfolio mix, delinquency level, or 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. Further, the Corporation periodically considers the need for qualitative reserves to the ACL. Qualitative adjustments may be related to and include, but are not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation 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 as changes in underwriting and loan resolution strategies, among others. The ACL for loans and finance leases is reviewed at least on a quarterly basis as part of the Corporation’s continued evaluation of its asset quality.

The Corporation applie s probability weights to the baseline and alternative downside economic scenarios to estimate the ACL with the baseline scenario carrying the highest weight. The economic scenarios used in the ACL determination contained assumptions related to economic uncertainties associated with geopolitical instability, high inflation levels, and the expected path of interest rate increases by the FED. As of March 31, 2023, the Corporation’s ACL model considered the following assumptions for key economic variables in the probability-weighted economic scenarios:

●Average Commercial Real Estate (“CRE”) Price Index at the national level is forecasted to contract by 2.55% for the remainder of 2023 and grow by 0.74% for 2024.

●Average Regional Home Price Index forecasts in Puerto Rico and Florida (purchase only prices) are expected to remain relatively flat for the remainder of 2023 and 2024.

●Average regional unemployment in Puerto Rico of 7.53% for the remainder of 2023 and 8.57% for 2024. For the Florida region and the U.S. mainland, average unemployment rate of 3.59% and 4.19%, respectively, for the remainder of 2023, and 4.23% and 4.62%, respectively, for 2024.

●Average annualized change in real gross domestic product (“GDP”) in the U.S. mainland of 0.89% for the remainder of 2023 and 1.52% for 2024.

It is difficult to estimate how potential changes in one factor or input might affect the overall ACL because management considers a wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss estimates to macroeconomic forecasts as of March 31, 2023, management compared the modeled estimates under the probabilityweighted economic scenarios against a more adverse scenario. Under this more adverse scenario, as an example, average unemployment rate for the Puerto Rico region increases to 8.04% for the remainder of 2023, compared to 7.53% for the same period on the probability-weighted economic scenario projections.

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To demonstrate the sensitivity to key economic parameters used in the calculation of the ACL at March 31, 2023, management calculated the difference between the quantitative ACL and this more adverse scenario. Excluding consideration of qualitative

adjustments, this sensitivity analysis would result in a hypothetic al increase in the ACL of approximately $34 million at March 31, 2023. This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall ACL as it does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be influenced by the judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain, particularly in light of recent economic conditions and challenges, which continue to evolve, management believes that its process to consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected credit losses were reasonable and appropriate for the quarter ended March 31, 2023.

As of March 31, 2023, the ACL for loans and finance leases was $265.6 million, an increase of $5.1 million from $260.5 million as of December 31, 2022. The ACL for commercial and construction loans remained relatively flat when compared to the previous quarter as a result of the following offsetting factors: reserve increases of $5.0 million for a new nonaccrual commercial and industrial loan in the Florida region in the power generation industry; and $1.1 million due to a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the CRE price index; partially offset by reserve decreases of $6.1 million associated with the receipt of updated financial information of certain borrowers and the repayment of a $24.3 million adversely classified commercial and industrial participated loan in the Florida region. The ACL for consumer loans increased by $2.9 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels.
The ACL for residential mortgage loans increased by $1.6 million, in part to a $2.1 million cumulative increase in the ACL due to the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans. This adjustment had a corresponding decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023. See Note 1– Basis of Presentation and Significant Accounting Policies, to the unaudited consolidated financial statements herein for information related to the adoption of ASU 2022 -02 during the first quarter of 2023.

The ratio of the ACL for loans and finance leases to total loans held for investment increased to 2.29% as of March 31, 2023, compared to 2.25% as of December 31, 2022. An explanation for the change for each portfolio follows:

●The ACL to total loans ratio for the residential mortgage portfolio increased from 2.20% as of December 31, 2022 to 2.29% as of March 31, 2023, primarily due to the aforementioned $2.1 million cumulative increase in the ACL due to the adoption of ASU 2022-02 during the first quarter of 2023.

●The ACL to total loans ratio for the construction loan portfolio increased from 1.74% as of December 31, 2022 to 2.25% as of March 31, 2023 as a result of new loan originations which have a longer duration and ultimately result in higher loss rates.

●The ACL to total loans ratio for the commercial mortgage portfolio increased from 1.49% as of December 31, 2022 to 1.55% as of March 31, 2023, primarily reflecting a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the CRE price index, partially offset by reserve decreases associated with the receipt of updated financial information of certain borrowers.

●The ACL to total loans ratio for the commercial and industrial portfolio decreased from 1.14% as of December 31, 2022 to

1.09% as of March 31, 2023, mainly due to reserve decreases associated with the receipt of updated financial information of certain borrowers and the repayment of a $24.3 million adversely classified commercial and industrial participated loan in the Florida region, partially offset by the aforementioned reserve increase of $5.0 million for a new nonaccrual commercial and industrial participated loan in the Florida region in the power generation industry.

●The ACL to total loans ratio for the consumer loan portfolio was 3.82% as of March 31, 2023, compared to 3.83% as of December 31, 2022.

The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 297.91% as of March 31, 2023, compared to 289.61% as of December 31, 2022.

Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is 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.

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As shown in the following tables, the ACL for loans and finance leases amounted to $265.6 million as of March 31, 2023, or 2.29% of total loans, compared with $260.5 million, or 2.25% of total loans, as of December 31, 2022. See “Results of Operations - Provision for Credit Losses” above for additional information.| (Dollars in thousands) | | | |
| --- | --- | --- | --- |
| ACL for loans and finance leases, beginning of year | $ | 260,464$ | 269,030 |
| Impact of adoption of ASU 2022-02 | | 2,116 | - |
| Provision for credit losses - expense (benefit): | | | |
| Residential mortgage | | 73 | (4,871) |
| Construction | | 860 | (2,214) |
| Commercial mortgage | | 1,246 | (22,640) |
| Commercial and industrial | | (1,650) | 1,755 |
| Consumer and finance leases | | 15,727 | 10,981 |
| Total provision for credit losses - expense (benefit) | | 16,256 | (16,989) |
| Charge-offs: | | | |
| Residential mortgage | | (983) | (2,528) |
| Construction | | - | (44) |
| Commercial mortgage | | (18) | (37) |
| Commercial and industrial | | (118) | (290) |
| Consumer and finance leases | | (16,798) | (9,816) |
| Total charge offs | | (17,917) | (12,715) |
| Recoveries: | | | |
| Residential mortgage | | 497 | 1,382 |
| Construction | | 63 | 52 |
| Commercial mortgage | | 168 | 44 |
| Commercial and industrial | | 90 | 1,035 |
| Consumer and finance leases | | 3,830 | 3,608 |
| Total recoveries | | 4,648 | 6,121 |
| Net charge-offs | | (13,269) | (6,594) |

ACL for loans and finance leases, end of period	265,567$	245,447
ACL for loans and finance leases to period-end total loans held for investment	2.29%	2.21%
Net charge-offs (annualized) to average loans outstanding during the period	0.46%	0.24%
Provision for credit losses - expense (benefit) for loans and finance leases to net charge-offs during the period	1.23x	-2.58x

105

The following tables set forth information concerning the composition of the Corporation's loan portfolio and related ACL by loan category, and the percentage of loan balances in each category to the total as such loans as of the indicated dates:| As of March 31, 2023 | Residential | | | Commercial | | | Consumer and | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars in thousands) | MortgageLoans | ConstructionLoans | | MortgageLoans | C&I Loans | | FinanceLeases | | Total |
| Total loans held for investment: | | | | | | | | | |
| Amortized cost of loansPercent of loans in each category to total loans | $2,811,52824 | $143,664 | | $2,353,65920 | $2,862,189 | 25 | $3,406,945 | 30$ | 11,577,985100 |
| | 64,403 | % | 3,2311% | 36,460 | % | 31,235% | 130,238 | % | 265,567% |
| Allowance for credit losses | | | | | | | | | % |
| Allowance for credit losses to amortized cost | 2.29 | % | 2.25% | 1.55 | % | 1.09% | 3.82 | % | 2.29 |

As of December 31, 2022	Residential			Commercial
(Dollars in thousands)	MortgageLoans	Construction	Loans	MortgageLoans	C&I Loans		Finance LeasesConsumer and		Total
Total loans held for investment:
Amortized cost of loansPercent of loans in each category to total loans	$2,847,290	25%$	132,9531%	$2,358,851	20%$	2,886,26325%%	$3,327,468	29%$	11,552,825100
Allowance for credit losses	62,760		2,308	35,064		32,906	127,426		260,464%
Allowance for credit losses to amortized cost	2.20	%	1.74%	1.49	%	1.14%	3.83	%	2.25%

Allowance for Credit Losses for Unfunded Loan Commitments

The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk as a result 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 March 31, 2023, the ACL for off-balance sheet credit exposures decreased by $0.1 million to $4.2 million, when compared to December 31, 2022.

Allowance for Credit Losses for Held-to-Maturity Debt Securities

As of March 31, 2023, the ACL for held-to-maturity securities portfolio was entirely related to financing arrangements with Puerto Rico municipalities issued in bond form, which the Corporation accounts for as securities, but which were underwritten as loans with features that are typically found in commercial loans. As of March 31, 2023, the ACL for held-to-maturity debt securities was $7.6 million, compared to $8.3 million as of December 31, 2022.

Allowance for Credit Losses for Available -for-Sale Debt Securities

The ACL for available-for-sale debt securities, which is associated with private label MBS and a residential pass-through MBS issued by the PRHFA, was $0.4 million as of March 31, 2023, compared to $0.5 million as of December 31, 2022.

106

Nonaccrual Loans and Non-performing Assets

Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale in 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 in doubt, the interest portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors. In addition, a large portion is secured with real estate collateral.

Nonaccrual Loans Policy

Residential Real Estate Loans— The Corporation generally classifies real estate loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more.

Commercial and Construction Loans— The Corporation classifies commercial loans (including commercial real estate and construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower.

Finance Leases— The Corporation classifies finance leases in nonaccrual status when it has not received interest and principal for a period of 90 days or more.

Consumer Loans— The Corporation classifies consumer loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.

Purchased Credit Deteriorated Loans (“PCD”)— For PCD loans, the nonaccrual status is determined in the same manner as for other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and

accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (ASC Subtopic 310 -30). As allowed by CECL, 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. Regarding interest income recognition, the prospective transition approach for PCD loans 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 with respect to which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics.

Other Real Estate Owned

OREO acquired in settlement of loans is carried at fair value less estimated costs to sell the real estate acquired. Appraisals are obtained periodically, generally on an annual basis.

Other Repossessed Property

The other repossessed property category generally includes repossessed boats and autos acquired in settlement of loans.
Repossessed boats and autos are recorded at the lower of cost or estimated fair value.

Other Non-Performing Assets

This category consisted of a residential pass-through MBS issued by the PRHFA placed in non-performing status in the second quarter of 2021 based on the delinquency status of the underlying second mortgage loans.

107

Loans Past-Due 90 Days and Still Accruing

These are accruing loans that are contractually delinquent 90 days or more. These past-due loans are either current as to interest but delinquent as to the payment of principal (i.e., well secured and in process of collection) or are insured or guaranteed under applicable

FHA, VA, or 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 to repurchase loans that meet GNMA’s specified delinquency criteria (e.g., borrowers fail 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. In addition, loans past due 90 days and still accruing include PCD loans, as mentioned above, and credit cards that continue accruing interest until charged-off at 180 days.| The following table presents non-performing assets as of the indicated dates: | | | | |
| --- | --- | --- | --- | --- |
| | March 31, 2023 | | December 31, 2022 | |
| (Dollars in thousands) | | | | |
| Nonaccrual loans held for investment: | | | | |
| Residential mortgage | $ | 36,410$ | | 42,772 |
| Construction | | 1,794 | | 2,208 |
| Commercial mortgage | | 21,598 | | 22,319 |
| Commercial and Industrial | | 13,404 | | 7,830 |
| Consumer and finance leases | | 15,936 | | 14,806 |
| Total nonaccrual loans held for investment | | 89,142 | | 89,935 |
| OREO | | 32,862 | | 31,641 |
| Other repossessed property | | 4,743 | | 5,380 |
| Other assets(1) | | 2,203 | | 2,202 |

Total non-performing assets$128,950$129,158| Past due loans 90 days and still accruing | (2) (3) (4) | $ | 74,380 | $ | 80,517 |
| --- | --- | --- | --- | --- | --- |
| Non-performing assets to total assets | | | 0.68% | | 0.69% |
| Nonaccrual loans held for investment to total loans held for investment | | | 0.77% | | 0.78% |
| ACL for loans and finance leases | | $ | 265,567$ | | 260,464 |
| ACL for loans and finance leases to total nonaccrual loans held for investment | | | 297.91% | | 289.61% |
| ACL for loans and finance leases to total nonaccrual loans held for investment, excluding residential real estate loans | | | 503.62% | | 552.26% |

(1)Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio.
(2)Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of

account” both at the time of adoption of CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more amounted to $10.4 million and $12.0 million as of March 31, 2023 and December 31, 2022, respectively.
(3)Includes FHA/VA government-guaranteed residential mortgage as loans past-due 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $25.9 million and $28.2 million of FHA government guaranteed residential mortgage loans that were over 15 months delinquent as of March 31, 2023 and December 31, 2022, respectively.
(4)Includes rebooked loans, which were previously pooled into GNMA securities, amounting to $7.1 million and $10.3 million as of March 31, 2023 and December 31, 2022, respectively.
Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria. For accounting purposes, the loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability.

108

Total nonaccrual loans were $89.1 million as of March 31, 2023. This represents a net decrease of $0.8 million from $89.9 million as of December 31, 2022. The net decrease was primarily related to a $6.3 million reduction in nonaccrual residential mortgage loans, partially offset by increases of $4.4 million and $1.1 million in nonaccrual commercial and construction loans and nonaccrual consumer loans, respectively.

The following table shows non-performing assets by geographic segment as of the indicated dates:| | March 31, 2023 | | December 31, 2022 | |
| --- | --- | --- | --- | --- |
| (In thousands) | | | | |
| Puerto Rico: | | | | |
| Nonaccrual loans held for investment: | | | | |
| Residential mortgage | $ | 22,924$ | | 28,857 |
| Construction | | 737 | | 831 |
| Commercial mortgage | | 13,677 | | 14,341 |
| Commercial and Industrial | | 4,589 | | 5,859 |
| Consumer and finance leases | | 15,483 | | 14,142 |
| Total nonaccrual loans held for investment | | 57,410 | | 64,030 |
| OREO | | 28,323 | | 28,135 |
| Other repossessed property | | 4,620 | | 5,275 |
| Other assets | | 2,203 | | 2,202 |
| Total non-performing assets | $ | 92,556$ | | 99,642 |
| Past due loans 90 days and still accruing | $ | 72,000$ | | 76,417 |
| Virgin Islands: | | | | |
| Nonaccrual loans held for investment: | | | | |
| Residential mortgage | $ | 6,069$ | | 6,614 |
| Construction | | 1,057 | | 1,377 |
| Commercial mortgage | | 7,921 | | 7,978 |
| Commercial and Industrial | | 1,163 | | 1,179 |
| Consumer | | 306 | | 469 |
| Total nonaccrual loans held for investment | | 16,516 | | 17,617 |
| OREO | | 4,539 | | 3,475 |
| Other repossessed property | | 112 | | 76 |
| Total non-performing assets | $ | 21,167$ | | 21,168 |
| Past due loans 90 days and still accruing | $ | 2,380$ | | 4,100 |
| United States: | | | | |
| Nonaccrual loans held for investment: | | | | |
| Residential mortgage | $ | 7,417$ | | 7,301 |
| Commercial and Industrial | | 7,652 | | 792 |
| Consumer | | 147 | | 195 |
| Total nonaccrual loans held for investment | | 15,216 | | 8,288 |
| OREO | | - | | 31 |
| Other repossessed property | | 11 | | 29 |

Total non-performing assets$15,227$8,348

109

Nonaccrual commercial and industrial loans increased by $5.6 million to $13.4 million as of March 31, 2023, from $7.8 million as of December 31, 2022. The increase was primarily driven by the migration to nonaccrual status of a $7.1 million commercial and industrial participated loan in the Florida region related to a borrower engaged in the power generation industry, partially offset by collections, including the payoff of an individual commercial and industrial loan of approximately $1.0 million in the Puerto Rico region.

Nonaccrual commercial mortgage loans decreased by $0.8 million to $21.5 million as of March 31, 2023, from $22.3 million as of December 31, 2022.

Nonaccrual construction loans decreased by $0.4 million to $1.8 million as of March 31, 2023, from $2.2 million as of December 31, 2022.

The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated periods:

CommercialCommercial &

ConstructionMortgageIndustrialTotal| Quarter Ended March 31, 2023 | | | | | |
| --- | --- | --- | --- | --- | --- |
| Beginning balance | $ | 2,208$ | 22,319$ | 7,830$ | 32,357 |
| Plus: | | | | | |
| Additions to nonaccrual | | 127 | 544 | 7,470 | 8,141 |
| Less: | | | | | |
| Loans returned to accrual status | | - | (361) | (152) | (513) |
| Nonaccrual loans transferred to OREO | | (332) | (162) | (183) | (677) |
| Nonaccrual loans charge-offs | | - | (18) | (118) | (136) |
| Loan collections | | (209) | (730) | (1,443) | (2,382) |
| Reclassification | | - | 6 | - | 6 |
| Ending balance | $ | 1,794$ | 21,598$ | 13,404$ | 36,796 |

CommercialCommercial &

ConstructionMortgageIndustrialTotal| Quarter Ended March 31, 2022 | | | | | |
| --- | --- | --- | --- | --- | --- |
| Beginning balance | $ | 2,664$ | 25,337$ | 17,135$ | 45,136 |
| Plus: | | | | | |
| Additions to nonaccrual | | - | 2,881 | 1,579 | 4,460 |
| Less: | | | | | |
| Loans returned to accrual status | | - | (201) | (209) | (410) |
| Nonaccrual loans transferred to OREO | | (13) | (461) | - | (474) |
| Nonaccrual loans charge-offs | | (40) | (37) | (290) | (367) |
| Loan collections | | (68) | (541) | (488) | (1,097) |
| Reclassification | | - | (402) | 402 | - |
| Ending balance | $ | 2,543$ | 26,576$ | 18,129$ | 47,248 |

110

Nonaccrual residential mortgage loans decreased by $6.3 million to $36.5 million as of March 31, 2023, compared to $42.8 million as of December 31, 2022. The decrease was primarily related to $3.9 million loans restored to accrual status, $2.7 million of loans transferred to OREO, and $1.6 million in collections, partially offset by inflows of $2.1 million.

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

Quarter Ended March 31,| | | 2023 | | | 2022 |
| --- | --- | --- | --- | --- | --- |
| (In thousands) | | | | | |
| Beginning balance | $ | | 42,772 | $ | 55,127 |

Plus:
Additions to nonaccrual		2,081		5,328
Less:
Loans returned to accrual status		(3,937)		(3,449)
Nonaccrual loans transferred to OREO		(2,710)		(937)
Nonaccrual loans charge-offs		(220)		(435)
Loan collections		(1,570)		(6,816)
Reclassification		(6)		-
Ending balance	$	36,410	$	48,818

The amount of nonaccrual consumer loans, including finance leases, increased by $1.1 million to $15.9 million as of March 31, 2023, compared to $14.8 million as of December 31, 2022. The increase was mainly reflected in the auto loans and finance leases portfolio.

As of March 31, 2023, approximately $22.7 million of the loans placed in nonaccrual status, mainly commercial loans, and residential loans, were current, or had delinquencies of less than 90 days in their interest payments. Collections on these loans are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.

During the quarter ended March 31, 2023, interest income of approximately $0.1 million related to nonaccrual loans with a carrying value of $29.5 million as of March 31, 2023, mainly nonaccrual commercial and construction loans, was applied against the related principal balances under the cost-recovery method.

Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $94.5 million as of March 31, 2023, a decrease of $10.4 million, compared to $104.9 million as of December 31, 2022. The variances by major portfolio categories are as follows:

●Consumer loans in early delinquency decreased by $4.5 million to $66.4 million, mainly in the auto loans portfolio.

●Residential mortgage loans in early delinquency decreased by $3.0 million to $25.2 million.

●Commercial and construction loans in early delinquency decreased by $2.9 million, mainly due to the migration to past due 90 days and still accruing of a $2.3 million commercial mortgage loan that matured and is in the process of renewal but for which the Corporation continues to receive interest and principal payments from the borrower.

In addition, the Corporation provides homeownership preservation assistance to its customers through a loss mitigation program.
Depending upon the nature of a borrower’s financial condition, restructurings or loan modifications through this program are

provided, as well as other restructurings of individual C&I, commercial mortgage, construction, and residential mortgage loans. See Note 1 – Basis of Presentation and Significant Accounting Policies, to the unaudited consolidated financial statements herein for additional information related to the accounting policies of loan modifications granted to borrowers experiencing financial difficulty.
In addition, see Note 3 - Loans Held for Investment, to the unaudited consolidated financial statements herein for additional information and statistics about the Corporation’s modified loans.

111

The OREO portfolio, which is part of non-performing assets, increased to $32.9 million as of March 31, 2023, compared to $31.6 million as of December 31, 2022. The following tables show the composition of the OREO portfolio as of March 31, 2023 and December 31, 2022, as well as the activity of the OREO portfolio by geographic area during the quarter ended March 31, 2023:

OREO Composition by Region| | | | As of March 31, 2023 | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| (In thousands) | Puerto Rico | | Virgin Islands | | Florida | Consolidated | |
| Residential | $ | 23,314$ | | 1,670$ | | -$ | 24,984 |
| Construction | | 1,705 | | 59 | | - | 1,764 |
| Commercial | | 3,304 | | 2,810 | | - | 6,114 |
| | $ | 28,323$ | | 4,539$ | | -$ | 32,862 |

			As of December 31, 2022
(In thousands)	Puerto Rico		Virgin Islands		Florida	Consolidated
Residential	$	23,388$		606$		31$	24,025
Construction		1,705		59		-	1,764
Commercial		3,042		2,810		-	5,852
	$	28,135$		3,475$		31$	31,641

OREO Activity by Region| | | | Quarter Ended March 31, 2023 | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| (In thousands) | Puerto Rico | | Virgin Islands | | Florida | Consolidated | |
| Beginning Balance | $ | 28,135$ | | 3,475$ | | 31$ | 31,641 |
| Additions | | 5,351 | | 1,064 | | - | 6,415 |
| Sales | | (4,409) | | - | | (31) | (4,440) |
| Write-downs and other adjustments | | (754) | | - | | - | (754) |
| Ending Balance | $ | 28,323$ | | 4,539$ | | -$ | 32,862 |

112

Net Charge-offs and Total Credit Losses

Net charge-offs totaled $13.3 million for the first quarter of 2023, or 0.46% of average loans on an annualized basis, compared to $6.6 million, or an annualized 0.24% of average loans for the first quarter of 2022.

Residential mortgage loans net charge-offs for the first quarter of 2023 were $0.5 million, or an annualized 0.07% of related average loans, compared to $1.2 million, or an annualized 0.15% of related average loans, for the first quarter of 2022. Approximately $0.2 million in charge-offs recorded during the first quarter of 2023 resulted from valuations of collateral dependent residential mortgage loans, compared to $0.4 million in for the same period in 2022. Net charge-offs on residential mortgage loans for the first quarter of 2023 also included $0.5 million related to foreclosures recorded during the first quarter of 2023, compared to $1.3 million recorded for the same period in 2022.

Construction loans net recoveries for the first quarter of 2023 were $0.1 million, or an annualized 0.17% of related average loans, compared to $8 thousand, or an annualized 0.03% of related average loans, for the same period in 2022.

Commercial mortgage loans net recoveries for the first quarter of 2023 were $0.1 million, or an annualized 0.03% of average commercial mortgage loans, compared to $7 thousand for the first quarter of 2022.

Commercial and industrial loans net charge-offs for the first quarter of 2023 were $28 thousand, compared to net recoveries of $0.8 million, or an annualized 0.10% of related average loans for the first quarter of 2022. For the first quarter of 2022, a $0.9 million recovery was recorded in the Puerto Rico region in connection with a nonaccrual commercial loan that was paid off during the quarter.

Net charge-offs of consumer loans and finance leases for the first quarter of 2023 were $13.0 million, or 1.54% of related average loans, compared to $6.1 million, or 0.85% of related average loans, for the first quarter of 2022.

The following table presents annualized net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods:| | Quarter Ended March 31, | | | |
| --- | --- | --- | --- | --- |
| | 2023 | | 2022 | |
| Residential mortgage | 0.07 | % | 0.15 | % |
| Construction | (0.17) | % | (0.03) | % |
| Commercial mortgage | (0.03) | % | | -% |
| Commercial and industrial | | -% | (0.10) | % |
| Consumer loans and finance leases | 1.54 | % | 0.85 | % |
| Total loans | 0.46 | % | 0.24 | % |

113

The following table presents net charge-offs (recoveries) to average loans held in various portfolios by geographic segment for the indicated periods:

Quarter Ended March 31,

20232022

PUERTO RICO: Residential mortgage0.10%0.19% Construction(0.47)%0.08% Commercial mortgage-%0.01% Commercial and industrial0.01%(0.16)% Consumer and finance leases1.53%0.83% Total loans0.58%0.29%

VIRGIN ISLANDS: Residential mortgage(0.08)%0.10% Commercial mortgage(0.21)%(0.22)% Commercial and industrial(0.01)%(0.01)% Consumer and finance leases2.19%1.78% Total loans0.29%0.25%

FLORIDA: Construction(0.05)%(0.09)% Commercial mortgage(0.09)%-% Consumer and finance leases0.17%1.31% Total loans(0.03)%0.01%

The above ratios are based on annualized charge -offs and are not necessarily indicative of the results expected for the entire year or in subsequent periods.

Total net charge -offs plus gains on OREO operations for the first quarter of 2023 amounted to $11.3 million, or a loss rate of 0.37% on an annualized basis of average loans and repossessed assets, compared to losses of $5.9 million, or a loss rate of 0.21% on an annualized basis, for the first quarter of 2022.

114

The following table presents information about the OREO inventory and credit losses for the indicated periods:

Quarter ended March 31,

20232022| OREO balances, carrying value: | | | | |
| --- | --- | --- | --- | --- |
| Residential | $ | 24,984 | $ | 32,208 |
| Construction | | 1,764 | | 3,458 |
| Commercial | | 6,114 | | 7,228 |
| Total | $ | 32,862 | $ | 42,894 |

OREO activity (number of properties):
Beginning property inventory	344	418
Properties acquired	59	68
Properties disposed	(59)	(44)
Ending property inventory	344	442

Average holding period (in days)
Residential	533	656
Construction	2,266	1,979
Commercial	2,468	2,011
Total average holding period (in days)	986	991

Market adjustments and gains (losses) on sale:
Residential	$	2,490$	992
Construction		40	103
Commercial		(67)	(17)
Total net gain		2,463	1,078
Other OREO operations expenses		(467)	(358)
Net Gain on OREO operations	$	1,996$	720

(CHARGE-OFFS) RECOVERIES
Residential charge-offs, net		$	(486)	$	(1,146)
Construction recoveries, net			63		8
Commercial recoveries, net			122		752
Consumer and finance leases charge-offs, net			(12,968)		(6,208)
Total charge -offs, net			(13,269)		(6,594)
TOTAL CREDIT LOSSES	(1)	$	(11,273)	$	(5,874)

LOSS RATIO PER CATEGORY	(2)
Residential		(0.28)%	0.02%
Construction		(0.28)%	(0.37)%
Commercial		-%	(0.06)%
Consumer		1.54%	0.85%
TOTAL CREDIT LOSS RATIO	(3)	0.37%	0.21%
(1)Equal to net gain on OREO operations plus charge-offs, net.

115

Operational Risk

The Corporation faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products. Coupled with external influences, such as market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. To 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 at appropriate levels throughout the organization. The purpose of these mechanisms is to 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, a risk assessment group works with the various business units to ensure consistency in policies,

processes and assessments. With respect to corporate-wide risks, such as 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 a counterparty’s performance obligations will be unenforceable. The

Corporation is subject to extensive regulation in the different jurisdictions in which it 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 to the Chief Risk Officer and is responsible for the oversight of 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 $11.6 billion as of March 31, 2023, the Corporation had credit risk of approximately 80% in the Puerto Rico region, 17% in the United States region, and 3% in the Virgin Islands region.

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Update on the Puerto Rico Fiscal and Economic Situation

A significant portion of the Corporation’s business activities and credit exposure is concentrated in the Commonwealth of Puerto Rico, which has experienced economic and fiscal distress over the last decade. Since declaring bankruptcy and benefitting from the enactment of the federal Puerto Rico Oversight, Management and Economic Stability Act (“PROMESA”) in 2016, the Government of Puerto Rico has made progress on fiscal matters primarily by restructuring a large portion of its outstanding public debt and identifying funding sources for its unfunded pension system.

Economic Indicators

On November 10, 2022, the Puerto Rico Planning Board (“PRPB”) presented the Economic Report to the Governor, which provides an analysis of Puerto Rico’s economy during fiscal year 2021 and a short-term forecast for fiscal years 2022 and 2023.

According to the PRPB, Puerto Rico’s real gross national product (“GNP”) expanded by 1.0% in fiscal year 2021, significantly above the PRPB’s original baseline projection of a 2.0% contraction. According to the report, real GNP growth was primarily driven by a sharp increase in personal consumption expenditures reflecting the relaxation of COVID-related restrictions, as well as the impact of the substantial disaster relief funding deployed over the period. To a lesser extent, growth in fiscal year 2021 was also driven by a higher level of investments in machinery, equipment, and construction. These favorable variances were partially offset by an increase in imports, a reduction in exports, and a negative change in the level of inventories. Although no official GNP data has been released to date for fiscal year 2022, the 2023 Fiscal Plan model estimates that Puerto Rico’s real GNP expanded by 2.0% in fiscal year 2022.

There are other indicators that gauge economic activity and are published with greater frequency, for example, the Economic Development Bank for Puerto Rico’s Economic Activity Index (“EDB-EAI”). Although not a direct measure of Puerto Rico’s real GNP, the EDB-EAI is correlated to Puerto Rico’s real GNP. For February 2023, preliminary estimates showed that the EDB-EAI increased 0.3% on a month-over-month; however, it stood 0.2% lower on a year-over-year basis. Over the 12-month period ended February 28, 2023, the EDB-EAI averaged 124.5, approximately 0.9% above the comparable figure a year earlier.

Fiscal Plan

On April 3, 2023, the PROMESA oversight board certified the 2023 Fiscal Plan for Puerto Rico (the “2023 Fiscal Plan”). Unlike previous versions of the fiscal plan, the PROMESA oversight board segregated the 2023 Fiscal Plan into three different volumes. As

the first fiscal plan certified in a post-bankruptcy environment, Volume 1 presents a Transformation Plan that highlights priority areas to cement fiscal responsibility, accelerate economic growth in a sustainable manner, and restore market access to Puerto Rico. Volume 2 provides additional details on economic trends and financial projections, and Volume 3 maps out the supplementary implementation details to guide the government’s implementation of the requirements of the 2023 Fiscal Plan, as well as additional initiatives from prior fiscal plans which remain mandatory and are still pending to be implemented.

The 2023 Fiscal Plan prioritizes resource allocation across three major pillars: (i) entrenching a legacy of strong financial management through the implementation of a comprehensive financial management agenda, (ii) instilling a culture of public -sector

performance and excellence in order to properly deliver quality public services, and (iii) investing for economic growth to ensure sufficient revenues are generated to support the delivery of services. According to the Transformation Plan, the fiscal and economic turnaround of Puerto Rico cannot be accomplished without the implementation of structural economic reforms that promote sustainable economic development. These reforms include the power/energy sector reform to improve availability, reliability and affordability of energy, the K-12 and higher education reform to expand opportunity and prepare the workforce to compete for jobs of the future, and an infrastructure reform aimed at improving the efficiency of the economy and facilitate investment. The 2023 Fiscal Plan projects that these reforms, if implemented successfully, will contribute 0.75% in GNP growth by fiscal year 2026. Additionally, the 2023 Fiscal Plan provides a roadmap for a tax reform directed towards establishing a tax regime that is more competitive for investors and more equitable for individuals.

The 2023 Fiscal Plan notes that Puerto Rico has had a strong recovery in the aftermath of the pandemic crisis with labor participation trending positively and unemployment at historically low levels. However, it recognizes that such recovery has been

primarily fueled by the unprecedented influx of federal funds, which have an outsized and temporary impact that may mask underlying structural weaknesses in the economy. As such, the 2023 Fiscal Plan projects a 0.7% decline in real GNP for the current fiscal year 2023, followed by a period of near-zero real growth in the coming fiscal years 2024 through 2026. Also, the fiscal plan projects that Puerto Rico’s population will continue the long-term trend of steady decline. Notwithstanding, the Transformation Plan depicts that, if managed properly, these non-recurring federal funds can be leveraged into sustainable longer-term growth and opportunity.

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The 2023 Fiscal Plan projects that approximately $81 billion in total disaster relief funding, from federal and private sources, will be disbursed as part of the reconstruction efforts over a span of 18 years (fiscal years 2018 through 2035). These funds will benefit

individuals, the public (e.g., reconstruction of major infrastructure, roads, and schools), and will cover part of the Commonwealth’s share of the cost of disaster relief funding. Also, the 2023 Fiscal Plan projects accelerated deployment of the remaining COVID-19 relief funds in fiscal year 2023 through 2025, with approximately $9.3 billion expected to be disbursed, compared to $4.5 billion projected in the previous fiscal plan. Additionally, the 2023 Fiscal Plan continues to account for $2.3 billion in federal funds to Puerto Rico from the Bipartisan Infrastructure Law directed towards improving the Island’s infrastructure over fiscal years 2022 through 2026.

Debt Restructuring

Over 80% of Puerto Rico’s outstanding debt has been restructured to date. On March 15, 2022, the Plan of Adjustment of the central government’s debt became effective through the exchange of more than $33 billion of existing bonds and other claims into approximately $7 billion of new bonds, saving Puerto Rico more than $50 billion in debt payments to creditors. Also, the restructurings of the Puerto Rico Sales Tax Financing Corporation (“COFINA”), the Highways and Transportation Authority (“HTA”), and the Puerto Rico Aqueducts and Sewers Authority (“PRASA”) are expected to yield savings of approximately $17.5 billion, $3.0 billion, and $400 million, respectively, in future debt service payments. The main restructurings pending include that of the Puerto Rico Electric Power Authority (“PREPA”) and the Puerto Rico Industrial Company (“PRIDCO”).

According to the PROMESA oversight board, the filed PREPA Plan of Adjustment (“PREPA-POA”) reduces PREPA’s legacy financial and general unsecured debt by approximately 40% as it contemplates the issuance of $5.7 billion in new bonds that will be

exchanged for the discharge of approximately $10.0 billion in outstanding debt. The new bonds are expected to be paid from revenues generated by a “Legacy Charge”, which consists of a fixed and volumetric charge on customers’ bills that will vary based on the category of customer and level of usage. This Legacy Charge is expected to generate sufficient revenue to pay down the new bonds in 35 years based on the projections presented in PREPA’s 2022 certified fiscal plan. For pensions, the PREPA -POA provides PREPA’s pension system with treatment substantially similar to the treatment of the Commonwealth’s pensions. The PREPA -POA closes the pension system to new entrants, preserves the benefits of current retirees, eliminates any future cost of living adjustments, and ensures all benefits accrued to date by active participants are protected.

On March 23, 2022, the Title III Court issued a ruling that upholds the PROMESA oversight board’s position that PREPA bondholders’ collateral security is limited to the money PREPA deposits in accounts established pursuant to the trust agreement governing the issuance of the bonds. The court also rejected the bondholders’ contention that they have a general unsecured claim for the full amount of their principal and interest. As such, the court limited their unsecured claim to future net revenues for the remainder of the terms of the bonds. According to the PROMESA oversight board, this decision of the court was a significant win for Puerto Rico and its path to reliable electricity and economic growth.

Although PREPA’s overall mediation process has been slower than expected, PREPA’s Title III confirmation process is underway, a confirmation hearing has been set for mid-July 2023 and, according to the 2023 Fiscal Plan, the plan is expected to go effective by the second quarter of 2024.

Other Developments

Notable progress continues to be made as part of the ongoing efforts of prioritizing the restoration, improvement, and modernization of Puerto Rico’s infrastructure. According to the Central Office for Recovery, Reconstruction, and Resiliency (“COR3”), progress is evidenced by the significant increase in permanent work projects that have already started executing the reconstruction efforts with FEMA obligated funding. As of December 31, 2022, there were a total of 6,286 active permanent work projects reported, more than twice the comparable amount reported as of December 31, 2021, of 2,650 projects.

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Exposure to Puerto Rico Government

As of March 31, 2023, the Corporation had $340.0 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, compared to $338.9 million as of December 31, 2022. As of March 31, 2023, approximately $183.4 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, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $113.1 million of loans and obligations which are supported by one or more specific sources of municipal revenues.
Approximately 72% of the Corporation’s exposure to Puerto Rico municipalities consisted primarily of senior priority loans and obligations concentrated in four of the largest municipalities in Puerto Rico. The municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and notes.
Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from as expense, revenue, or cash management measures taken to address the Puerto Rico government’s fiscal problems and measures included in fiscal plans of other government entities. In addition to municipalities, the total direct exposure also included $10.2 million in loans to an affiliate of PREPA, $30.0 million in loans to agencies or public corporations of the Puerto Rico government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.3 million as part of its available-for-sale debt securities portfolio (fair value of $2.2 million as of March 31, 2023).

The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their maturities:

As of March 31, 2023

Investment

PortfolioTotal

(Amortized

cost)LoansExposure| Puerto Rico Housing Finance Authority: | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| After 10 years | $ | 3,302 | $ | - | $ | 3,302 |
| Total Puerto Rico Housing Finance Authority | | 3,302 | | - | | 3,302 |
| Agencies and public corporation of the Puerto Rico government: | | | | | | |
| After 1 to 5 years | | - | | 3,313 | | 3,313 |
| After 5 to 10 years | | - | | 26,671 | | 26,671 |
| Total agencies and public corporation of the Puerto Rico government | | - | | 29,984 | | 29,984 |
| Affiliate of the Puerto Rico Electric Power Authority: | | | | | | |
| Due within one year | | - | | 10,184 | | 10,184 |
| Total Puerto Rico government affiliate | | - | | 10,184 | | 10,184 |
| Total Puerto Rico public corporations and government affiliate | | - | | 40,168 | | 40,168 |
| Municipalities: | | | | | | |
| Due within one year | | 1,204 | | 18,148 | | 19,352 |
| After 1 to 5 years | | 42,633 | | 55,905 | | 98,538 |
| After 5 to 10 years | | 55,940 | | 56,652 | | 112,592 |
| After 10 years | | 66,023 | | - | | 66,023 |
| Total Municipalities | | 165,800 | | 130,705 | | 296,505 |
| Total Direct Government Exposure | $ | 169,102 | $ | 170,873 | $ | 339,975 |

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In addition, as of March 31, 2023, the Corporation had $82.9 million in exposure to residential mortgage loans that are guaranteed by the PRHFA, a governmental instrumentality that has been designated as a covered entity under PROMESA (December 31, 2022 –

$84.7 million). Residential mortgage loans guaranteed 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 of the principal for all loans under the mortgage loan insurance program. According to the most recently released audited financial statements of the PRHFA, as of June 30, 2021, the PRHFA’s mortgage loans insurance program covered loans in an aggregate amount of approximately $473 million. The regulations adopted by the PRHFA require the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance program. As of June 30, 2021, the most recent date as of which information is available, the PRHFA had a liability of approximately $5 million as an estimate of the losses inherent in the portfolio.

As of March 31, 2023, the Corporation had $2.2 billion of public sector deposits in Puerto Rico, compared to $2.3 billion as of December 31, 2022. Approximately 25% of the public sector deposits as of March 31, 2023 were from municipalities and municipal agencies in Puerto Rico and 75% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.

Exposure to USVI Government

The Corporation has operations in the USVI and has credit exposure to USVI government entities.

For many years, the USVI has been experiencing a number of fiscal and economic challenges that have deteriorated the overall financial and economic conditions in the area. On March 4, 2022, the United States Bureau of Economic Analysis (the “BEA”)

released its estimates of GDP for 2020. According to the BEA, the USVI’s real GDP decreased 2.2%. Also, the BEA revised its previously published real GDP growth estimate for 2019 from 2.2% to 2.8%. According to the BEA, the decline in real GDP for 2020 reflected decreases in exports of services, private fixed investment, personal consumption expenditures, and government spending primarily as a result of the effects of the COVID-19 pandemic. These decreases were partially offset by an increase in private inventory investment, reflecting an increase in crude oil and other petroleum products imported and stored in the islands. In addition, there were reductions in imports of goods including consumer goods and equipment, and in imports of services. According to the BEA, expenditures funded by the various federal grants and transfer payments are reflected in the GDP estimates; however, the full effects of the pandemic cannot be quantified in the GDP statistics for the USVI because the impacts are generally embedded in source data and cannot be separately identified.

Nonetheless, over the past two years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make progress on its rebuilding efforts related to Hurricanes Irma and Maria in 2017. According to data published by the

government, over $1.4 billion in disaster recovery funds were disbursed during 2021 and 2022, up 22% from the preceding 2-year period. On the fiscal front, revenues have trended positively and the USVI Government successfully completed the restructuring of the government employee retirement system. Although no official GDP data has been released for 2021 and/or 2022, the aforementioned developments, as well as the positive trend reflected by key economic indicators such as visitor arrivals, non-farm payrolls and unemployment rate potentially indicate that the territory has experienced an overall economic recovery since 2020.

PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of the debts of the USVI and its public corporations and instrumentalities. To 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 of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

As of March 31, 2023, the Corporation had $38.7 million in loans to USVI public corporations, compared to $38.0 million as of December 31, 2022. As of March 31, 2023, all loans were currently performing and up to date on principal and interest payments.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding market risk to which the Corporation is exposed, see the information contained in Part I, Item 2.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of First BanCorp.’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of

March 31, 2023. Based on this evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer 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 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to the Corporation’s management, including the Chief Executive Office and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

There were no changes to the Corporation’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our most recent quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II - OTHER INFORMATION

In accordance with the instructions to Part II, the other specified items in this part have been omitted because they are not applicable, or the information has been previously reported.

ITEM 1. LEGAL PROCEEDINGS

For a discussion of legal proceedings, see Note 22 – Regulatory Matters, Commitments and Contingencies, to unaudited consolidated financial statements herein, which is incorporated by reference in this Item 1.

ITEM 1A. RISK FACTORS

The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of factors. A detailed discussion of certain risk factors that could affect the Corporation’s future operations, financial condition or results for future periods is set forth in Part I, Item 1A., “Risk Factors,” in the 2022 Annual Report on Form 10-K. These risk factors, and others, could cause actual results to differ materially from historical results or the results contemplated by the forward-looking statements contained in this report. Also, refer to the discussion in “Forward Looking Statements” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Quarterly Report on Form 10-Q for additional information that may supplement or update the discussion of risk factors in the 2022 Annual Report on Form 10-K.

Other than as described below, there have been no material changes from those risk factors previously disclosed in Part I, Item 1A. “Risk Factors,” in the 2022 Annual Report on Form 10-K.

Cyber-attacks, system risks and data protection breaches to our computer systems and networks or those of third-party service providers could adversely affect our ability to conduct business, manage our exposure to risk or expand our business, result in the disclosure 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 is highly dependent on the security, controls and efficacy of our infrastructure, computer and data management systems, as well as those of our customers, suppliers, and other third parties. To 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 we interact, on whom we rely or who have access to our customers’personal or account

information, increasingly use personal mobile devices or computing devices that are outside of our network and control environments and are subject to their own cybersecurity risks. Our business relies on 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 in recent years, especially given the increasing sophistication and activities of organized computer criminals, hackers, and terrorists and our expansion of online and digital customer

services to better meet our customer’s needs. These threats may derive from fraud or malice on the part of our employees or thirdparty providers or may result from human error or accidental technological failure. These threats include cyber-attacks, such as computer viruses, malicious or destructive code, phishing attacks, denial of service attacks, or other security breach tactics that could result in the unauthorized release, gathering, monitoring, misuse, loss, destruction, or theft of confidential, proprietary, and other information, including intellectual property, of ours, our employees, our customers, or third parties, damages to systems, or otherwise material disruption to our or our customers’ or other third parties’ network access or business operations, both domestically and internationally.

While we maintain an Information Security Program that continuously monitors cyber-related risks and ultimately ensures protection for the processing, transmission, and storage of confidential, proprietary, and other information in our computer systems and networks, as well as a vendor management program to oversee third party and vendor risks, there is no guarantee that we will not be exposed to or be affected by a cybersecurity incident. For example, we recently learned that one of our third-party vendors was the victim of a security incident in April 2023 involving a set of data that included some information on FirstBank’s mortgage loan business. In response to learning of the incident, we promptly launched our own internal investigation, which confirmed that our own systems were not compromised, and any operational and financial impact was minimal. We are working with cybersecurity experts and legal counsel to fully assess the impact of the security incident reported by our third-party vendor and any required disclosures to the applicable regulatory authorities and impacted customers. Our vendor has indicated (and we have no evidence to the contrary) that to date there is no evidence that there has been any actual or attempted misuse of information. We may incur expenses related to the

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incident, including expenses to remediate and investigate this matter. Additionally, we remain subject to risks and uncertainties as a result of the incident, including legal, reputational and financial risks.

Cyber threats are rapidly changing, and future attacks or breaches could lead to other security breaches of the networks, systems, or devices that our customers use to access our integrated products and services, which, in turn, could result in unauthorized disclosure, release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary, and other information (including account data information) or data security compromises. As cyber threats continue to evolve, we may be required to expend significant additional resources 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 to provide full and reliable information about the cyberattack to our customers, third-party vendors, regulators, and the public.

A successful penetration or circumvention of our system security, or the systems of our customers, suppliers, and other third parties, could cause us serious negative consequences, including significant operational, reputational, legal, and regulatory costs and concerns.

Any of these adverse consequences could adversely impact our results of operations, liquidity, and financial condition. In addition, our insurance policies may not be adequate to compensate us 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 on economically reasonable terms, or at all. Insurers may also deny us coverage as to any future claim. Any of these results could harm our growth prospects, financial condition, business, and reputation.

The volatility in the financial services industry, including failures or rumored failures of other depository institutions, and actions taken by governmental agencies to stabilize the financial system, could result in, among other things, bank deposit runoffs

and liquidity constraints.

The closure and placement into receivership with the FDIC of certain large U.S. regional banks with assets over $100 billion in March and May 2023, and adverse developments affecting other banks, resulted in heightened levels of market volatility and consequently have negatively impacted customer confidence in the safety and soundness of financial institutions. These developments have resulted in certain regional banks experiencing higher than normal deposit outflows and an elevated level of competition for available deposits in the market.
Although we have not been materially impacted by these recent bank failures, the resulting speed at which news, including social media outlets, led depositors to withdraw funds from these and other financial institutions, as well as the volatile impact to stock prices, could have a material effect on operations. The impact of market volatility from the adverse developments in the banking industry, along with continued high inflation and rising interest rates on our business and related financial results, will depend on future developments, which are highly uncertain and difficult to predict.

In the aftermath of these recent bank failures, the banking agencies could propose certain actions that may impact capital ratios or the FDIC deposit insurance premium.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Corporation did not have any unregistered sales of equity securities during the quarter ended March 31, 2023.

Issuer Purchases of Equity Securities

The following table provides information in relation to the Corporation’s purchases of shares of its common stock during the quarter ended March 31, 2023:

Total Number ofApproximate Dollar Value

Shares Purchased asof Shares That May Yet be

Part of PubliclyPurchased Under These Total Number of SharesAverage PriceAnnounced Plans orPlans or Programs (In PeriodPurchasedPaid per ShareProgramsthousands)(1)| January 1, 2023 - January 31, 2023 | 306,106 | $ | 13.25 | 306,106 | $ | 120,944 |
| --- | --- | --- | --- | --- | --- | --- |
| February 1, 2023 - February 28, 2023 | 2,282,608 | | 14.24 | 2,282,608 | | 88,429 |
| March 1, 2023 - March 31, 2023 | 1,276,661 | | 13.04 | 988,826 | | 75,000 |

Total3,865,375(2)(3)3,577,540

(1)As of March 31, 2023, the Corporation was authorized to purchase up to $350 million of its common stock under the stock repurchase program, that was publicly announced on April 27, 2022, of which $275.0 million had been utilized. The remaining $75.0 million in the table represents the remaining amount authorized under the stock repurchase program as of March 31, 2023. The stock repurchase program does not obligate the Corporation to acquire any specific number of shares, does not have an expiration date and may be modified, suspended, or terminated at any time at the Corporation's discretion. Under the stock repurchase program, shares may be repurchased through open market purchases, accelerated share repurchases and/or privately negotiated transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.
(2)Includes 3,577,540 shares of common stock repurchased in the open market at an average price of $13.98 for a total purchase price of approximately $50.0 million.
(3)Includes 287,835 shares of common stock withheld by the Corporation to cover minimum tax withholding obligations upon the vesting of restricted stock and performance units. The Corporation intends to continue to satisfy statutory tax withholding obligations in connection with the vesting of outstanding restricted stock and performance units through the withholding of shares.

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ITEM 6. EXHIBITS

See the Exhibit Index below, which is incorporated by reference herein:

EXHIBIT INDEX

Exhibit No.Description

10.1Form of First BanCorp Long-Term Equity Incentive Award Agreement 31.1CEOCertification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document, filed herewith 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith 101.LABInline XBRL Taxonomy Extension Label Linkbase Document, filed herewith 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith 101.DEFInline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith 104The cover page of First BanCorp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL (included within the Exhibit 101 attachments)
Management contract or compensatory plan or agreement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized:

First BanCorp. Registrant

Date: May 10, 2023By: /s/ Aurelio Alemán Aurelio Alemán President and Chief Executive Officer

Date: May 10, 2023By: /s/ Orlando Berges Orlando Berges Executive Vice President and Chief Financial Officer

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