First Bancorp. Announces Earnings for the Quarter and Year Ended December 31, 2022

• Net income of $73.2 million, or $0.40 per diluted share, for the fourth quarter of 2022, compared to $74.6 million, or $0.40 per diluted share, for the third quarter of 2022. Income before income taxes of $106.5 million for the fourth quarter of 2022, compared to $106.6 million for the third quarter of 2022.
• Net income of $305.1 million, or $1.59 per diluted share, for the year ended December 31, 2022, compared to $281.0 million, or $1.31 per diluted share, for the year ended December 31, 2021. Income before income taxes of $447.6 million for the year ended December 31, 2022, compared to $427.8 million for the year ended December 31, 2021.
• On a non-GAAP basis, pre-tax, pre-provision income of $122.2 million for the fourth quarter of 2022, compared to pre-tax, pre-provision income of $122.4 million for the third quarter of 2022. Pre-tax, pre-provision income for the year ended December 31, 2022 was $475.3 million, an increase of $83.8 million, or 21%, compared to adjusted pre-tax, pre-provision income of $391.5 million for the year ended December 31, 2021.
• Net interest income decreased to $205.6 million for the fourth quarter of 2022, compared to $207.9 million for the third quarter of 2022, primarily due to an increase in interest expense as a result of higher cost of deposits combined with a higher level of borrowings, partially offset by the upward repricing of variable-rate commercial loans and higher average loan balances.
• Net interest margin increased to 4.37% for the fourth quarter of 2022, compared to 4.31% for the third quarter of 2022, mainly due to the change in asset mix to higher yielding earning assets, partially offset by higher cost of funds.
• Provision for credit losses of $15.7 million for the fourth quarter of 2022, relatively flat compared to $15.8 million for the third quarter of 2022.
• Non-interest income of $29.6 million for the fourth quarter of 2022, relatively flat compared to $29.7 million for the third quarter of 2022.
• Non-interest expenses decreased by $2.3 million to $112.9 million for the fourth quarter of 2022, compared to $115.2 million for the third quarter of 2022, mainly driven by higher net gains on other real estate owned (“OREO”) operations. The efficiency ratio for the fourth quarter of 2022 was 48.02%, compared to 48.48% for the third quarter of 2022.
• Income tax expense of $33.4 million for the fourth quarter of 2022, an increase of $1.4 million, compared to $32.0 million for the third quarter of 2022.
• Credit quality variances:
  • Non-performing assets decreased by $14.1 million to $129.2 million as of December 31, 2022, compared to $143.3 million as of September 30, 2022. The decline was mainly driven by the restoration to accrual status of a $5.2 million commercial and industrial loan and a $7.1 million decrease in the OREO portfolio balance, mainly associated with sales of residential properties.
  • An annualized net charge-offs to average loans ratio of 0.46% for the fourth quarter of 2022, compared to 0.31% for the third quarter of 2022, mainly due to a $3.6 million increase in consumer loans net charge-offs and a $1.2 million increase in commercial and construction net charge-offs during the fourth quarter of 2022.
• Total loans increased $254.3 million from the prior quarter to $11.6 billion as of December 31, 2022. The variance consisted of increases of $130.2 million in commercial and construction loans, $107.7 million in consumer loans, and $16.4 million in residential mortgage loans. Excluding the $11.1 million decrease in the carrying value of the Small Business Administration Paycheck Protection Program (“SBA PPP”) loan portfolio, the growth in the commercial and construction loans portfolio was $141.3 million driven by several large commercial loans in excess of $10 million originated in both the Puerto Rico and Florida regions.
• Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $1.3 billion in the fourth quarter of 2022, a net increase of $191.4 million compared to the third quarter of 2022. The net increase in total loan originations consisted of: (i) a $186.7 million increase in commercial and construction loan originations; (ii) an $11.8 million increase in residential mortgage loan originations; and (iii) a $7.1 million decrease in consumer loan originations.
• Total deposits, excluding brokered certificates of deposit (“CDs”) and government deposits, decreased by $314.9 million to $13.3 billion as of December 31, 2022, reflecting reductions in both retail consumer and commercial transactional and savings account balances across all regions, partially offset by an increase in time deposits.
• Government deposits decreased in the fourth quarter by $171.9 million and totaled $2.8 billion as of December 31, 2022, reflecting decreases of $157.4 million in the Puerto Rico region and $16.0 million in the Virgin Islands region, partially offset by an increase of $1.5 million in the Florida region.
• Brokered CDs increased by $60.6 million during the fourth quarter to $105.8 million as of December 31, 2022.
• Borrowings increased by $550.1 million during the fourth quarter to $933.9 million as of December 31, 2022, including a $675.0 million increase in Federal Home Loan Bank (“FHLB”) advances and a $124.9 million reduction in securities sold under agreements to repurchase.
• The cash and liquid securities to total assets ratio increased to 19.02% as of December 31, 2022, compared to 18.57% as of September 30, 2022.
• During the fourth quarter of 2022, First BanCorp. has repurchased approximately 3.5 million shares for a total purchase price of $50.0 million. For the year ended December 31, 2022, First BanCorp. repurchased approximately 19.4 million shares for a total purchase price of $275.0 million.
• Capital ratios remained higher than required regulatory levels for bank holding companies and well-capitalized banks. Estimated total capital, common equity tier 1 capital (“CET1”), tier 1 capital, and leverage ratios were 19.21%, 16.53%, 16.53%, and 10.70%, respectively, as of December 31, 2022. On a non-GAAP basis, the tangible common equity ratio was 6.81% as of December 31, 2022, compared to 6.55% as of September 30, 2022.

First BanCorp. (the “Corporation” or “First BanCorp.”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $73.2 million, or $0.40 per diluted share, for the fourth quarter of 2022, compared to $74.6 million, or $0.40 per diluted share, for the third quarter of 2022, and $73.6 million, or $0.35 per diluted share, for the fourth quarter of 2021.

For the year ended December 31, 2022, the Corporation reported net income of $305.1 million or $1.59 per diluted share, compared to $281.0 million, or $1.31 per diluted share, for the year ended December 31, 2021.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We closed the year with another strong quarter of organic growth and notable improvement across franchise metrics. We generated $73.2 million in net income, or $0.40 per diluted share, and reached $122.2 million in pre-tax, pre-provision income, highlighting once again our solid earnings generation capacity and expense management discipline. The loan portfolio grew by $254.3 million during the quarter, driven by strong loan origination activity, particularly in the commercial and consumer business segments. Net interest margin expanded by 6 basis points, asset quality improved, and we reached the lowest efficiency ratio among our peers at 48.02%. In line with industry trends, core deposits, net of brokered and government deposits, decreased by $314.9 million during the quarter as households unwind excess liquidity associated with pandemic-related programs. Our main market continues to be supported by a large amount of disaster relief funds flowing into the economy, strong consumer demand, and positive labor market trends.

“Over the course of 2022, the organization performed exceptionally well reflecting one of its best performing years on record. We registered organic loan growth of $762 million or 10% (excluding SBA PPP loans and strategic reduction of residential mortgages), achieved a record pre-tax pre-provision income of $475.3 million, up 21% when compared to 2021, and reached a decade low non-performing asset ratio of 0.69%. Responsible and value driven capital allocation has allowed us to grow the franchise and invest for the future, while supporting our communities and colleagues and returning approximately $363 million, or 119% of 2022 earnings, to our shareholders through repurchases of common stock and the payment of common stock dividends.

“We remain vigilant to changing global economic conditions and the effect that restrictive monetary policies may continue to have on the overall inflationary environment. We believe that our organization has ample experience navigating uncertainty and is well equipped to manage rising market challenges going into the next cycle. We are highly encouraged by the growth prospects in our main market which should continue to benefit from rebuilding activity over the next few years.”

NON-GAAP DISCLOSURES

This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted earnings per diluted share, and adjusted pre-tax, pre-provision income that exclude the effect of items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”). Other non-GAAP financial measures include adjusted net interest income and margin, tangible common equity, tangible book value per common share, and certain capital ratios. These measures should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures, the accompanying tables (Exhibit A), which are an integral part of this press release, and the Corporation’s other financial information that is presented in accordance with GAAP. Management believes that the presentation of these non-GAAP financial measures enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. The Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process.

SPECIAL ITEMS

The financial results for the fourth and third quarters of 2022 and year ended December 31, 2022 did not include any significant Special Item. The financial results for the fourth quarter of 2021 and year ended December 31, 2021 included the significant Special Items discussed below.

Quarter ended December 31, 2021

- Merger and restructuring costs of $1.9 million ($1.2 million after-tax, calculated based on the statutory rate of 37.5%) in connection with the Banco Santander Puerto Rico (“BSPR”) acquisition integration process and related restructuring initiatives.

- Costs of $4 thousand ($3 thousand after-tax, calculated based on the statutory rate of 37.5%) related to the COVID-19 pandemic response efforts, consisting primarily of costs related to additional cleaning, safety materials, and security measures.

Year ended December 31, 2021

- Merger and restructuring costs of $26.4 million ($16.5 million after-tax, calculated based on the statutory rate of 37.5%) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in 2021 included approximately $6.5 million related to previously announced Employee Voluntary Separation Program (the “VSP”) as well as involuntary separation actions implemented in the Puerto Rico region. In addition, these costs included costs related to system conversions, accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan, and other integration related efforts.

- Costs of $3.0 million ($1.9 million after-tax, calculated based on the statutory rate of 37.5%) related to the COVID-19 pandemic response efforts, consisting primarily of costs related to additional cleaning, safety materials, and security measures.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $73.2 million for the fourth quarter of 2022, or $0.40 per diluted share, compared to $74.6 million for the third quarter of 2022, or $0.40 per diluted share. For the year ended December 31, 2022, net income was $305.1 million or $ 1.59 per diluted share, compared to adjusted net income of $295.7 million or $1.40 per diluted share for the year ended December 31, 2021. The following table shows the net income and earnings per diluted share for the fourth and third quarters of 2022 and for the year ended December 31, 2022, and reconciles, for the fourth quarter of 2021 and for the year ended December 31, 2021 the net income to adjusted net income and adjusted earnings per diluted share, which are non-GAAP financial measures that exclude the significant Special Items identified above.

INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $106.5 million for the fourth and third quarters of 2022. For the year ended December 31, 2022, income before income taxes was $447.6 million, compared to $427.8 million for the same period in 2021. Pre-tax, pre-provision income was $122.2 million for the fourth quarter of 2022, compared to $122.4 million for the third quarter of 2022. For the year ended December 31, 2022, pre-tax, pre-provision income was $475.3 million, compared to adjusted pre-tax, pre-provision income of $391.5 million for the same period in 2021. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters and for the years ended December 31, 2022 and 2021:

NET INTEREST INCOME

The following table sets forth information concerning net interest income for the last five quarters:

Net interest income amounted to $205.6 million for the fourth quarter of 2022, a decrease of $2.3 million, compared to $207.9 million for the third quarter of 2022. The decrease in net interest income was mainly due to:

• A $13.1 million increase in interest expense, including:

- a net increase of $11.1 million in interest expense on interest-bearing deposits, primarily associated with higher average rates paid in the fourth quarter, partially offset by the effects of a $407.4 million reduction in the average balance of interest-bearing deposits;

- a $2.0 million increase in interest expense on FHLB advances mainly associated with an increased use of short-term advances taken in the fourth quarter, which increased the average balance by $124.5 million, and higher rates paid on FHLB advances in the fourth quarter; and

- interest expense on other borrowings remained relatively flat as compared to the third quarter, including an increase of $0.7 million due to the repricing of junior subordinated debentures that are tied to LIBOR, which was almost entirely offset by a $0.6 million decrease in the interest expense associated with $200.0 million of securities sold under agreements to repurchase called prior to maturity during the fourth quarter, net of an increase of short-term securities sold under agreements to repurchase in the fourth quarter.

• A $1.2 million decrease in interest income from interest-bearing cash balances, mainly attributable to the effects of the $488.3 million reduction in the average balance of interest-bearing cash, primarily consisting of cash balances held at the FED, partially offset by increased market rates.

• A $0.5 million decrease in interest income on residential mortgage loans, primarily due to lower interest cash collections on nonaccrual loans and the effect of a $16.7 million reduction in the average balance of this portfolio.

Partially offset by:

• An $8.2 million increase in interest income on commercial and construction loans, primarily due to the upward repricing of variable-rate commercial and construction loans, which resulted in an increase of approximately $8.2 million in interest income, and an increase of $72.2 million in the average balance of this portfolio (excluding SBA PPP loans), which resulted in an increase of approximately $1.0 million in interest income. These variances were partially offset by a $1.3 million reduction in interest income from SBA PPP loans.

The interest rate on approximately 56% of the Corporation’s commercial and construction loans is variable, 42% is based upon LIBOR, SOFR and other indexes and 14% is based upon the Prime rate index. For the fourth quarter of 2022, the average one-month LIBOR increased 143 basis points, the average three-month LIBOR increased 151 basis points, the average Prime rate increased 146 basis points, and the average three-month SOFR increased 140 basis points, compared to the average rates for such indexes during the third quarter of 2022.

• A $3.7 million increase in interest income on consumer loans and finance leases, primarily due to an increase of approximately $110.9 million in the average balance of this portfolio, which increased interest income by approximately $2.6 million and, to a lesser extent, the effects of higher yields in the consumer credit card portfolio.

• A $0.7 million increase in interest income from government obligations debt securities, mainly associated with the upward repricing of variable-rate Puerto Rico municipal bonds held as part of the held-to-maturity debt securities portfolio.

Net interest margin for the fourth quarter of 2022 increased to 4.37%, when compared to 4.31% for the third quarter of 2022, mainly due to a change in asset mix to higher yielding earning assets, partially offset by higher cost of funds.

NON-INTEREST INCOME

The following table sets forth information concerning non-interest income for the last five quarters:

Non-interest income amounted to $29.6 million for the fourth quarter of 2022, relatively flat compared to $29.7 million for the third quarter of 2022. The $0.1 million decrease in non-interest income was mainly due to:

• A $0.8 million decrease in revenues from mortgage banking activities, mainly driven by a $1.2 million increase in mark-to-market losses from to-be-announced (“TBA”) mortgage-backed securities (“MBS”) forward contracts, partially offset by a $0.4 million increase related to the net change in mark-to-market gains on interest rate lock commitments.

• A $0.6 million decrease in service charges and fees on deposit accounts, mainly associated with a $0.7 million adjustment to reverse previously recognized fees on non-sufficient funds as part of changes in the fees structure.

Partially offset by:

• A $0.8 million increase related to seasonally higher transactional fee income from point-of-sale (“POS”) terminals, credit and debit cards, and merchant-related transactions and, to a lesser extent, the effect in the third quarter of disruptions in digital transactions experienced in connection with Hurricane Fiona.

• A $0.3 million increase in insurance commission income.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses for the last five quarters:

Non-interest expenses amounted to $112.9 million in the fourth quarter of 2022, a decrease of $2.3 million from $115.2 million in the third quarter of 2022. The $2.3 million decrease reflects, among other things, the following significant variances:

• A $1.5 million increase in net gains on OREO operations, mainly due to a $2.4 million increase in net realized gains on sales of OREO properties, primarily residential properties in the Puerto Rico region, partially offset by a $0.6 million write-down to the value of a commercial OREO property in the Puerto Rico region recorded during the fourth quarter of 2022.

• A $0.7 million decrease in occupancy and equipment costs, mainly related to lower energy costs and repairs and maintenance charges, including automatic teller machine (“ATM”) maintenance charges as a result of a recent contract renewal.

• A $0.7 million decrease in employees’ compensation and benefits expense, driven by a $1.0 million decrease in bonuses and a $0.5 million increase in deferred loan origination costs associated with a higher volume of commercial loan originations, partially offset by a $0.5 million increase in compensation expense due to the full quarter effect of merit increases in the third quarter, net of the effect of one less business day in the fourth quarter of 2022.

Partially offset by:

• A $0.5 million increase in business promotion expenses, mainly related to a $0.7 million increase in sponsorship and public relations activities, partially offset by the effect during the third quarter of $0.3 million in donations to non-profit organizations in the municipalities most affected by Hurricane Fiona.

INCOME TAXES

The Corporation recorded an income tax expense of $33.4 million for the fourth quarter of 2022, compared to $32.0 million for the third quarter of 2022. The increase was mainly related to the effect during the third quarter of a benefit recognized on discrete items.

The Corporation’s effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, was 31.2%, compared to an estimated effective tax rate of 31.8% for the third quarter of 2022. As of December 31, 2022, the Corporation had a deferred tax asset of $155.6 million, net of a valuation allowance of $185.5 million against the deferred tax assets. The Corporation’s banking subsidiary, FirstBank, had a deferred tax asset of $155.6 million, net of a valuation allowance of $149.5 million.

CREDIT QUALITY

Non-Performing Assets

The following table sets forth information concerning non-performing assets for the last five quarters:

Variances in credit quality metrics:

• Total non-performing assets decreased by $14.1 million to $129.2 million as of December 31, 2022, compared to $143.3 million as of September 30, 2022. Total nonaccrual loans held for investment decreased by $7.6 million to $89.9 million as of December 31, 2022, compared to $97.5 million as of September 30, 2022.

The decrease in non-performing assets was mainly driven by:

- A $9.3 million decrease in nonaccrual commercial and construction loans, mainly related to the restoration to accrual status of a $5.2 million commercial and industrial loan and a $1.2 million collection of a commercial and industrial loan during the fourth quarter.

- A $7.1 million decrease in the OREO portfolio balance, mainly related to sales of residential properties in the Puerto Rico region.

- A $0.2 million decrease in nonaccrual residential mortgage loans, mainly related to $3.0 million of loans restored to accrual status, $1.6 million in collections, and $1.3 million in loans transferred to OREO, partially offset by inflows of $5.8 million, including the inflow of a $1.4 million loan in the Florida region.

Partially offset by:

- A $1.9 million increase in nonaccrual consumer loans, associated with the overall portfolio growth, mainly auto loans.

- A $0.5 million increase in other repossessed property, mainly due to auto repossessions.

• Inflows to nonaccrual loans held for investment were $24.1 million, a $3.8 million increase compared to inflows of $20.3 million in the third quarter of 2022. Inflows to nonaccrual consumer loans were $17.9 million, an increase of $2.6 million compared to inflows of $15.3 million in the third quarter of 2022. Inflows to nonaccrual residential mortgage loans were $5.8 million in the fourth quarter of 2022, an increase of $1.0 million compared to inflows of $4.8 million in the third quarter of 2022. Inflows to nonaccrual commercial and construction loans were $0.4 million in the fourth quarter of 2022, an increase of $0.2 million compared to inflows of $0.2 million in the third quarter of 2022. See Early Delinquency below for additional information.

• Adversely classified commercial and construction loans decreased by $59.8 million to $93.6 million as of December 31, 2022. The decrease was mostly driven by the aforementioned sale of a $23.9 million commercial and industrial loan participation in the Florida region; the payoff of a $16.2 million commercial and industrial loan in the Puerto Rico region; two commercial and industrial loan upgrades amounting to $10.1 million, of which $5.2 million was related to the aforementioned loan restored to accrual status; and the aforementioned $1.2 million repayment of a commercial and industrial loan.

• Total Troubled Debt Restructured (“TDR”) loans held for investment were $366.7 million as of December 31, 2022, down $21.0 million from September 30, 2022. Approximately $328.1 million of total TDR loans held for investment were in accrual status as of December 31, 2022. These figures exclude $53.9 million of government-guaranteed TDR residential mortgage loans (i.e., Federal Housing Administration and Veterans Administration loans).

Early Delinquency

Total loans held for investment in early delinquency (i.e., 30-89 days past due accruing loans, as defined in regulatory reporting instructions) amounted to $104.9 million as of December 31, 2022, a decrease of $9.0 million, compared to $113.9 million as of September 30, 2022. The variances by major portfolio categories are as follows:

- Residential mortgage loans in early delinquency decreased by $3.6 million to $28.2 million.

- Commercial and construction loans in early delinquency decreased by $2.4 million to $5.8 million, mainly due to the payoff of a $2.0 million commercial and industrial line of credit.

- Consumer loans in early delinquency decreased in the fourth quarter by $3.0 million to $70.9 million, mainly in auto loans.

Allowance for Credit Losses

The following table summarizes the activity of the allowance for credit losses (“ACL”) for on-balance sheet and off-balance sheet exposures during the fourth and third quarters of 2022:

The main variances of the total ACL by main categories are discussed below:

Allowance for Credit Losses for Loans and Finance Leases

As of December 31, 2022, the ACL for loans and finance leases was $260.5 million, an increase of $2.6 million, from $257.9 million as of September 30, 2022. The ACL for commercial and construction loans increased by $2.7 million, mostly due to an increase in the size of the loan portfolio and a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the commercial real estate (“CRE”) price index, partially offset by reserve releases totaling $4.8 million associated with the aforementioned large adversely classified loans that were paid off or sold during the fourth quarter of 2022. The ACL for consumer loans increased by $2.2 million, primarily reflecting the effect of the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels associated to the overall portfolio growth. On the other hand, the ACL for residential mortgage loans decreased by $2.3 million, mainly due to a decrease in qualitative adjustments due to improvements in underlying portfolio metrics.

• The provision for credit losses on loans and finance leases was $15.6 million for the fourth quarter of 2022, compared to $14.4 million in the third quarter of 2022.

- Provision for credit losses for the commercial and construction loan portfolio was an expense of $3.4 million for the fourth quarter of 2022, compared to a net benefit of $3.8 million in the third quarter of 2022. The expense recognized during the fourth quarter of 2022 was related mostly to the increase in the size of the loan portfolio and a less favorable economic outlook in the projection of certain forecasted macroeconomic variables, such as the CRE price index, partially offset by the aforementioned reserve reductions. Meanwhile, the net benefit recognized during the third quarter of 2022 was related mostly to a reduction in reserves due to improvements in financial information of certain borrowers.

- Provision for credit losses for the consumer loans and finance leases portfolio was $14.0 million for the fourth quarter of 2022, compared to $17.4 million in the third quarter of 2022, primarily reflecting a reduction in qualitative reserves, partially offset by the effect of the increase in the size of the consumer loan portfolios and the increase in historical charge-off levels associated to the overall portfolio growth.

- Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $1.8 million for the fourth quarter of 2022, compared to an expense of $0.8 million in the third quarter of 2022. The net benefit recorded in the fourth quarter of 2022 was primarily related to the decrease in qualitative adjustments due to the aforementioned improvements in underlying portfolio metrics.

• The ratio of the ACL for loans and finance leases to total loans held for investment was 2.25% as of December 31, 2022, compared to 2.28% as of September 30, 2022. The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 290% as of December 31, 2022, compared to 264% as of September 30, 2022.

Net Charge-Offs

The following table presents ratios of annualized net charge-offs (recoveries) to average loans held-in-portfolio for the last five quarters:

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

Net charge-offs were $13.0 million for the fourth quarter of 2022, or an annualized 0.46% of average loans, compared to $8.6 million, or an annualized 0.31% of average loans, in the third quarter of 2022. The increase of $4.4 million in net charge-offs included the following:

• A $3.6 million increase in consumer loan net charge-offs, reflected across all major portfolio classes.

• A $1.2 million increase in commercial and construction loan net charge-offs mainly related to a $1.7 million charge-off recorded in connection with the aforementioned sale of an adversely classified commercial and industrial loan participation in the Florida region.

Partially offset by:

• A $0.4 million decrease in residential mortgage loan net charge-offs.

Allowance for Credit Losses for Unfunded Loan Commitments

The Corporation estimates expected credit losses over the contractual period during which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of December 31, 2022, the ACL for off-balance sheet credit exposures was $4.3 million, compared to $4.2 million as of September 30, 2022.

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

As of December 31, 2022, the ACL for held-to-maturity debt securities was $8.3 million, relatively flat when compared to September 30, 2022. The ACL for held-to-maturity debt securities related only to Puerto Rico municipal bonds.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $18.6 billion as of December 31, 2022, up $192.5 million from September 30, 2022.

The following variances within the main components of total assets are noted:

• A $74.5 million decrease in cash and cash equivalents mainly related to the overall decline in total deposits, the funding of new loan originations, and the repurchase of approximately 3.5 million shares of common stock for a total purchase price of approximately $50.0 million, partially offset by an increase in borrowings. The cash and liquid securities to total assets ratio improved to 19.02% as of December 31, 2022, compared to 18.57% as of September 30, 2022.

• A $47.0 million decrease in investment securities, mainly driven by repayments of approximately $137.0 million primarily related to U.S. agencies MBS, partially offset by a $60.1 million increase in the fair value of available-for-sale debt securities attributable to changes in market interest rates, and a $30.6 million increase in investment of FHLB stock.

• A $254.3 million increase in total loans. The loan growth consisted of increases of $210.5 million in the Puerto Rico region, $37.7 million in the Florida region, and $6.1 million in the Virgin Islands region. On a portfolio basis, the loan growth consisted of increases of $130.2 million in commercial and construction loans (net of an $11.1 million decrease in the carrying value of the SBA PPP loan portfolio), $107.7 million in consumer loans, and $16.4 million in residential mortgage loans. Excluding the $11.1 million decrease in the carrying value of the SBA PPP loan portfolio, commercial and construction loans increased by $141.3 million, mainly reflecting the origination of loans related to ten commercial and construction relationships, each in excess of $10 million, that increased the portfolio balance by $257.2 million. This variance was partially offset by payoffs and paydowns, of which $51.6 million related to payoffs and paydowns of four commercial and construction relationships each in excess of $10 million, and the sale of a $23.9 million adversely classified commercial and industrial loan participation in the Florida region.
  
  
  
  Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), amounted to $1.3 billion in the fourth quarter of 2022, a net increase of $191.4 million compared to the third quarter of 2022. The net increase in total loan originations consisted of: (i) a $186.7 million increase in commercial and construction loan originations, primarily related to commercial mortgage loans; (ii) an $11.8 million increase in residential mortgage loan originations; and (iii) a $7.1 million decrease in consumer loan originations, primarily related to personal loans.
  
  
  
  Total loan originations in the Puerto Rico region amounted to $1.0 billion in the fourth quarter of 2022, a net increase of $213.1 million when compared to $835.8 million in the third quarter of 2022. The $213.1 million net increase in total loan originations consisted of: (i) a $217.6 million increase in commercial and construction loan originations and (ii) a $1.8 million increase in residential mortgage loan originations, partially offset by a (iii) a $6.3 million decrease in consumer loan originations.
  
  
  
  Total loan originations in the Virgin Islands region amounted to $21.1 million in the fourth quarter of 2022, compared to $17.8 million in the third quarter of 2022. The $3.3 million net increase in total loan originations consisted of a $7.3 million increase in residential mortgage loan originations, partially offset by (i) a $3.2 million decrease in commercial and construction loan originations, and (ii) a $0.8 million decrease in consumer loan originations.
  
  
  
  Total loan originations in the Florida region amounted to $242.1 million in the fourth quarter of 2022, compared to $267.1 million in the third quarter of 2022. The $25.0 million decrease in total loan originations consisted of a $27.7 million decrease in commercial and construction loan originations, partially offset by a $2.7 million increase in residential mortgage loan originations.

Total liabilities were approximately $17.3 billion as of December 31, 2022, an increase of $132.3 million from September 30, 2022.

The increase in total liabilities was mainly due to:

• A $550.1 million net increase in borrowings, including $475.0 million in short-term FHLB advances (average cost of 4.56%) and $75.1 million in securities sold under agreements to repurchase (average cost of 4.55%) reflecting actions taken as part of management’s liquidity and funding needs. In addition, the Corporation added $200.0 million of long-term FHLB advances in the fourth quarter of 2022 at an average cost of 4.25%, and repaid prior to maturity $200.0 million of long-term securities sold under agreements to repurchase carried at a cost of 3.90% upon the exercise of the counterparty’s call option in the fourth quarter of 2022.

• A $60.6 million increase in brokered CDs.

Partially offset by:

• A $314.9 million decrease in total deposits, excluding brokered CDs and government deposits, reflecting reductions of $169.9 million in the Florida region, $137.8 million in the Puerto Rico region, and $7.2 million in the Virgin Islands region.

• A $171.9 million decrease in government deposits, consisting of decreases of $157.4 million in the Puerto Rico region and $16.0 million in the Virgin Islands region, partially offset by an increase of $1.5 million in the Florida region.

Total stockholders’ equity amounted to $1.3 billion as of December 31, 2022, an increase of $60.2 million from September 30, 2022. The increase was driven by earnings generated in the fourth quarter and the $60.1 million increase in the fair value of available-for-sale debt securities due to changes in market interest rates recognized as part of accumulated other comprehensive loss, partially offset by the repurchase of approximately 3.5 million shares of common stock for a total purchase price of approximately $50.0 million and $22.2 million in quarterly dividends declared to common stock shareholders.

As of December 31, 2022, capital ratios exceeded the required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated CET1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 16.53%, 16.53%, 19.21%, and 10.70%, respectively, as of December 31, 2022, compared to CET1 capital, tier 1 capital, total capital and leverage ratios of 16.66%, 16.66%, 19.38%, and 10.36%, respectively, as of September 30, 2022.

Meanwhile, estimated CET1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank Puerto Rico, were 16.84%, 17.65%, 18.90%, and 11.43%, respectively, as of December 31, 2022, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 17.00%, 17.82%, 19.07%, and 11.08%, respectively, as of September 30, 2022.

Tangible Common Equity

The Corporation’s tangible common equity ratio increased to 6.81% as of December 31, 2022, compared to 6.55% as of September 30, 2022. The increase in tangible common equity includes the effect of a $60.1 million increase in the fair value of available-for-sale debt securities due to changes in market interest rates recognized as part of accumulated other comprehensive loss, partially offset by $50.0 million in repurchases of common stock and $22.2 million in quarterly dividends declared during the fourth quarter.

The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets to the most comparable GAAP items as of the indicated dates:

Exposure to Puerto Rico Government

As of December 31, 2022, the Corporation had $338.9 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, an increase of $11.7 million when compared to $327.2 million as of September 30, 2022, mainly due to a $12.8 million loan granted to a municipality in Puerto Rico that is supported by assigned property tax revenues. As of December 31, 2022, 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 $114.0 million consisted of loans and obligations which are supported by one or more specific sources of municipal revenues. The Corporation’s total direct exposure to the Puerto Rico government also included $10.8 million in loans extended to an affiliate of a public corporation, $27.4 million in loans to an agency of the Puerto Rico central government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.3 million (fair value of $2.2 million as of December 31, 2022), included as part of the Corporation’s available-for-sale debt securities portfolio. This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages and had an unrealized loss of $1.1 million as of December 31, 2022, of which $0.4 million is due to credit deterioration.

The aforementioned exposure to municipalities in Puerto Rico included $165.7 million of financing arrangements with Puerto Rico municipalities that were issued in bond form but underwritten as loans with features that are typically found in commercial loans. These bonds are accounted for as held-to-maturity debt securities. As of December 31, 2022, the ACL for these securities was $8.3 million, relatively flat when compared to September 30, 2022.

As of December 31, 2022, the Corporation had $2.3 billion of public sector deposits in Puerto Rico, compared to $2.5 billion as of September 30, 2022. Approximately 24% of the public sector deposits as of December 31, 2022, were from municipalities and municipal agencies in Puerto Rico and 76% were from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.

Conference Call / Webcast Information

First BanCorp.’s senior management will host an earnings conference call and live webcast on Friday, January 27, 2023, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site: fbpinvestor.com or through a dial-in telephone number at (844) 200-6205 or (929) 526–1599 for international callers. The participant access code is 291448. The Corporation recommends that listeners go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp.’s website, fbpinvestor.com, until January 27, 2024. A telephone replay will be available one hour after the end of the conference call through February 26, 2023 at (866) 813-9403. The replay access code is 044230.

Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s future economic, operational and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “will,” “plans,” “forecast,” “believe” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof, and advises readers that any such forward-looking statements are not guarantees 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, including, but not limited to, the uncertainties more fully discussed in Part I, Item 1A, “Risk Factors” of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021 and the following, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: 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 and an increase in non-interest expenses which would impact the Corporation’s margins and may adversely impact origination volumes and financial performance; the long-term effects of the COVID-19 pandemic and their impact on the Corporation’s business, operations and financial condition, including the impact of any residual risks related to the Corporation’s participation in the SBA PPP; adverse changes in general economic conditions in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, 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 and credit quality of the Corporation’s assets; the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking,” identity theft and state-sponsored cyberthreats, and the occurrence of any, which may result in misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; general competitive factors, industry consolidation 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 ultimate outcome of the debt restructuring plan of Puerto Rico (“Plan of Adjustment” or “PoA”) and the 2022 Fiscal Plan for Puerto Rico as certified by the Financial Oversight and Management Board for Puerto Rico, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; the impact of government financial assistance for hurricane recovery and other disaster relief on economic activity in Puerto Rico; uncertainty as to the availability of wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances, and brokered CDs; the impact of changes in accounting standards or assumptions in applying those standards, on forecasts of economic variables considered for the determination of the ACL; the ability of FirstBank to realize the benefits of its net deferred tax assets; the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation; the 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 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 effect of changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Federal Reserve Board, the Federal Reserve Bank of New York, the Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies and regulators in Puerto Rico and the U.S. and British Virgin Islands; 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 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.

Basis of Presentation

Use of Non-GAAP Financial Measures

This press release contains GAAP financial measures and non-GAAP financial measures. Non-GAAP financial measures are used when management believes them to be helpful to an investor’s understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the most comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the most comparable GAAP financial measure, can be found in the text or in the tables in or attached to this press release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented in accordance with GAAP.

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 equity less preferred equity, goodwill, and other intangibles. Tangible assets are total assets less goodwill and other intangibles. Management uses and believes that many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with other 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 disclosure 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.

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes or health epidemics. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, finance leases and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items regarded as Special Items, such as merger and restructuring costs in connection with the acquisition of BSPR and related integration and restructuring efforts, and costs incurred in connection with the COVID-19 pandemic response efforts, because management believes these items are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

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

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis 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 tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that management believes facilitates comparison of results to the results of peers.

The following table reconciles net interest income in accordance with GAAP to net interest income excluding valuations, and net interest income on a tax-equivalent basis for the fourth and third quarters of 2022, the fourth quarter of 2021 and the year ended December 31, 2022 and 2021, respectively. The table also reconciles net interest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.