FIRST BANCORP /PR/ (FBP) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial

Condition and Results of Operations (“MD&A”)

The following MD&A

relates to the accompanying

audited consolidated financial

statements of First BanCorp.

(the “Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

of

America

(“GAAP”).

See

“Special

Items”

and

“Basis

of

Presentation”

below

for

information

about

why

non-GAAP

financial

measures are presented

and the reconciliation

of non-GAAP financial

measures to the

most comparable GAAP

financial measures for

which the reconciliation is not presented earlier.

The detailed financial discussion that follows focuses on

2022 results compared to 2021.

For a discussion of 2021 results compared

to

2020,

see

Item

7,

Management’s

Discussion

and

Analysis

of

Financial

Condition

and

Results

of

Operations

included

in

the

Corporation’s

Annual

Report

on

Form

10-K

for

the

year

ended

December

31,

2021,

filed

with

the

Securities

and

Exchange

Commission (“SEC”) on March 1, 2022.

In

this

discussion

and

analysis

of

our

financial

condition

and

results

of

operations,

we

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

provisions

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”).

Forward-looking statements are not historical

facts or statements of current conditions,

but instead represent only our beliefs regar

ding

future events, many of

which, by their nature, are inherently

uncertain and outside our control.

By identifying these statements

for you

in this manner,

we are alerting you to

the possibility that our actual

results, financial condition, liquidity

and capital actions may

differ

materially from the anticipated results,

financial condition, liquidity and capital

actions in these forward-looking statements.

Important

factors that

could cause

our results,

financial condition,

liquidity and

capital actions

to differ

from those

in these

statements include,

among others, those described in “Risk Factors” in Part I, Item 1A of this Form 10-K.

DESCRIPTION OF BUSINESS

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“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.

SIGNIFICANT EVENTS

Economy

The Corporation

remains cautiously optimistic

on economic conditions

in Puerto Rico,

its principal market.

Total

non-farm payroll

employment

rose

to

a

decade

high

of

927,100

in

December

2022,

or

a

4%

year-over-year

increase.

Moreover,

the

most

recent

Economic Development

Bank for

Puerto Rico’s

Economic Activity

Index (“EDB-EAI”),

which is

highly correlated

to Puerto

Rico’s

real gross

national product

(“GNP”) in

both level

and annual

growth rates,

showed a

2.6% growth

for the

first nine

months of

2022.

Although

global

expectations

point

to

an

economic

slowdown

in

the

United

States,

the

Corporation

expects

growth

in

the

local

economy

to

be

sustained

by

the

large

amount

of

federal

disaster

relief

funds

that

are

pending

to

be

disbursed.

Over

$45

billion

remaining

obligated

disaster

recovery

funding

has

been

earmarked

to

support

broad

based

economic

development

and

rebuilding

initiatives.

Growth

in

economic

activity,

the

robustness

of

the

labor

market,

supply

chain

complications

and

geopolitical

matters,

have

contributed to rising

inflation. In response,

the Federal Reserve (the

“FED”) has raised interest

rates and has

been reducing the

size of

its balance

sheet. Furthermore,

the FED

signaled that

it would

continue to

implement these

policy actions

in order

to bring

inflation

down. The

timing and

impact of

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.

We

delivered positive

results in

2022, driven

by continued

execution of

strategic initiatives

including loan

and lease

growth,

and

expanded

fee

income

while

maintaining

disciplined

expense

management.

Credit

continues

to

perform

well,

reflecting

lower

nonaccrual and adversely

classified loan balances,

as well as charge

-off rates that

are still lower

than pre-pandemic

levels. 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

the Corporation

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.

42

See

“Update

on

the

Puerto

Rico

Fiscal

Situation”

below

for

additional

information

on

the

economic

and

fiscal

crisis

that

Puerto

Rico has experienced for more than a decade.

Return of Capital to Shareholders

In 2022, the

Corporation returned

approximately $363

million, or 119%

of 2022 earnings,

to its shareholders

through $275

million

in repurchases of common stock and the payment of $88 million in common

stock dividends.

For the year ended December

31, 2022, the Corporation repurchased

approximately 19.4 million shares of

common stock for a total

purchase

price

of

$275.0

million

under

previously

publicly-announced

stock

repurchase

programs.

Of

this

total,

$225.0

million

of

common

stock,

representing

16.0

million

common

shares

at

a

weighted-average

price

of

$14.06,

were

repurchased

under

the

$350

million

stock

repurchase

program

announced

on

April

27,

2022

(the

“2022

Repurchase

Plan”).

As

of

February

21,

2023,

the

Corporation

has

repurchased

approximately

18.1

million

shares

of

common

stock

totaling

$254.9

million

through

open

market

purchases

under

the

2022

Repurchase

Plan.

With

the

additional

purchases,

the

Corporation

has

$95.1

million

remaining

for

share

repurchases under the 2022 Repurchase Plan.

On February

9, 2023,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.14

per common

share, which

represents an

increase of

$0.02 per

common share,

or a

17% increase,

compared to

its most

recent dividend

paid in

December 2022.

The dividend

is payable

on March

10,

2023 to

shareholders of

record

at the

close of

business on

February

24, 2023.

The increased

quarterly dividend level equates to an annualized dividend of $0.56 per common

share.

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

final

rule

12

C.F.R.

Part

253,

“Regulation

Implementing

the LIBOR

Act (Regulation

ZZ)” (the

“Final Rule”).

The Final

Rule 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

the

final

rule,

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,

the

final

rule

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

December 31,

2022, the

Corporation’s

risk exposure

to USD

LIBOR consisted

of the

following: (i)

$1.4 billion

of variable-

rate

commercial

and

construction

loans

(including

unused

commitments),

(ii)

$44.6

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)

$124.4 million of

Puerto

Rico

municipalities

bonds

held

as

part

of

the

held-to-maturity

debt

securities

portfolio,

and

(iv)

$183.8

million

of

junior

subordinated

debentures

reported

as

other

borrowings

in

the

accompanying

audited

consolidated

statements

of

financial

condition

included

in