First BanCorp. Announces Earnings for the Quarter and Year Ended December 31, 2021

• Net income of $73.6 million and $281.0 million, for the fourth quarter and year ended December 31, 2021, resulting in earnings per diluted share, of $0.35 and $1.31 for the same periods, respectively. Net income was $75.7 million, or $0.36 per diluted share, for the third quarter of 2021 and $102.3 million for the year ended December 31, 2020.
• Income before income taxes of $115.3 million and $427.8 million for the fourth quarter of 2021 and year ended December 31, 2021 compared to $112.7 million and $116.3 million for the third quarter of 2021 and year ended December 31, 2020.
• On a non-GAAP basis, adjusted pre-tax, pre-provision income of $104.9 million and $391.5 million for the fourth quarter of 2021 and year ended December 31, 2021, compared to $103.6 million and $299.8 million for the third quarter of 2021 and year ended December 31, 2020.
• Results for the fourth and third quarters of 2021 included the following items of note:
  • Provision for credit losses was a net benefit of $12.2 million ($7.6 million after-tax, or an increase of $0.06 per diluted share) for the fourth quarter of 2021, reflecting, among other things, continued improvements in the long-term outlook of certain macroeconomic variables, and lower loans outstanding, mainly in the residential mortgage loan portfolio. The provision for credit losses for the third quarter of 2021 was a net benefit of $12.1 million ($7.6 million after-tax, or an increase of $0.04 per diluted share).
  • Merger and restructuring costs of $1.9 million for the fourth quarter of 2021 ($1.2 million after-tax, or a decrease of $0.01 per diluted share) associated with the acquisition of Banco Santander Puerto Rico (“BSPR”), compared to $2.3 million for the third quarter of 2021 ($1.4 million after-tax, or a decrease of $0.01 per diluted share). Early in the third quarter of 2021, First BanCorp completed the conversion of the remaining BSPR’s core systems into FirstBank’s systems with the conversion of the deposit, debit card, online banking, automated teller machine (“ATM”), and cash management platforms.
• Net interest income decreased slightly to $184.1 million for the fourth quarter of 2021, compared to $184.7 million for the third quarter of 2021.
• Net interest margin remained relatively flat at 3.61% for the fourth quarter of 2021, compared to 3.60% for the third quarter of 2021. The mix of interest-earning assets also remained constant when compared to the third quarter, where the total average loans portfolio represented 55% of total average interest-earning assets and cash balances and investments securities comprised approximately 45% of total average interest-earnings assets.
• Non-interest income increased by $0.5 million to $30.4 million for the fourth quarter of 2021 compared to $29.9 million for the third quarter of 2021.
• Non-interest expenses decreased by $2.5 million to $111.5 million for the fourth quarter of 2021, compared to $114.0 million for the third quarter of 2021. Total non-interest expenses for the fourth quarter of 2021 included $1.9 million of merger and restructuring costs, compared to $2.3 million in the third quarter of 2021.
• Income tax expense was $41.6 million for the fourth quarter of 2021, compared to $37.1 million for the third quarter of 2021. The variance was primarily related to a higher effective tax rate for the year resulting from a higher proportion of taxable to exempt income than previously estimated for the year.
• Credit quality variances:
  • Non-performing assets (“NPAs”) decreased by $14.3 million to $158.1 million as of December 31, 2021, compared to $172.4 million as of September 30, 2021. The decrease was driven primarily by the sale of a $3.1 million non-performing construction loan, as well as reductions of $5.5 million in nonaccrual residential mortgage loans and a decrease of $3.0 million in other real estate owned (“OREO”).
  • An annualized net charge-offs to average loans ratio of 0.26 % for the fourth quarter of 2021, compared to 0.99% for the third quarter of 2021. A bulk sale of nonaccrual residential mortgage loans and related servicing advances added $23.1 million in net charge-offs in the third quarter of 2021. Excluding the effect of net charge-offs related to the bulk sale, the annualized net charge-offs to average loans ratio was 0.17% in the third quarter of 2021.
• Total deposits, excluding brokered deposits and government deposits, increased by $64.2 million to $14.2 billion as of December 31, 2021. The increase was primarily related to higher balances in savings and demand deposit accounts mainly in the Puerto Rico region, partially offset by a decrease in retail certificates of deposit (“CDs”).
• Government deposits decreased in the fourth quarter by $254.6 million and totaled $3.3 billion as of December 31, 2021, consisting of decreases of $141.3 million and $114.0 million in the Puerto Rico and Virgin Islands regions, respectively, partially offset by a slight increase of $0.7 million in the Florida region.
• Brokered CDs decreased by $8.1 million during the fourth quarter to $100.4 million as of December 31, 2021 and non-maturity brokered deposits decreased in the fourth quarter by $1.2 million to $247.5 million as of December 31, 2021.
• Total loans decreased in the fourth quarter by $75.5 million to $11.1 billion as of December 31, 2021. The decrease consisted of reductions of $45.7 million in commercial and construction loans and $111.6 million in residential mortgage loans, partially offset by an $81.9 million increase in consumer loans. The decrease in commercial and construction loans reflects, among other things, a $73.3 million reduction in Small Business Administration Paycheck Protection Program (“SBA PPP”) loans.
• 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 2021, up $223.2 million compared to the third quarter of 2021.
• Liquidity levels have remained high with the ratio of cash and liquid securities to total assets at 27.0% as of December 31, 2021, compared to 27.3% as of September 30, 2021.
• During the fourth quarter, First BanCorp. repurchased 4.6 million shares of its common stock through private and open market transactions for a total purchase price of approximately $63.9 million. In addition, First BanCorp. executed the previously announced redemption of the $36.1 million outstanding preferred stock.
• 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 of 20.50%, 17.80%, 17.80%, and 10.14%, respectively, as of December 31, 2021. The tangible common equity ratio was 9.81% as of December 31, 2021.

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 $73.6 million, or $0.35 per diluted share, for the fourth quarter of 2021, compared to $75.7 million, or $0.36 per diluted share, for the third quarter of 2021, and $50.1 million, or $0.23 per diluted share, for the fourth quarter of 2020. Financial results for the fourth quarter of 2021 include a net benefit of $12.2 million ($7.6 million after-tax, or an increase of $0.06 per diluted share) recorded to the provision for credit losses, compared to a net benefit of $12.1 million ($7.6 million after-tax, or an increase of $0.04 per diluted share) for the third quarter of 2021. In addition, during the fourth quarter of 2021, the Corporation recorded merger and restructuring costs of $1.9 million ($1.2 million after-tax, or a decrease of $0.01 per diluted share) related to the BSPR integration process and related restructuring initiatives, compared to $2.3 million ($1.4 million after-tax, or a decrease of $0.01 per diluted share) for the third quarter of 2021. In the fourth quarter the Corporation repurchased 4,619,014 shares of its common stock and redeemed the $36.1 million of outstanding preferred stock. Since the inception of the $300 million repurchase program through December 31, 2021, the Corporation has repurchased 16,740,467 shares of common stock at a cost of approximately $213.9 million or $12.78 per share, which includes transaction costs, and redeemed all of the $36.1 million in outstanding preferred stock. As of December 31, 2021, the Corporation has approximately $50 million of share repurchase authorization remaining under the current program.

For the year ended December 31, 2021, the Corporation reported net income of $281.0 million or $1.31 per diluted share, compared to $102.3 million, or $0.46 per diluted share, for the year ended December 31, 2020. Adjusted pre-tax, pre-provision income increased by 30.6% to $391.5 million in 2021 as compared to $299.8 million in the prior year. The results reflect the acquisition of Banco Santander on September 1, 2020. In addition, total NPAs decreased by $135.4 million, or 46.13%, to $158.1 million as of December 31, 2021, as compared to total NPAs as of December 31, 2020.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are extremely encouraged by another record quarter for our franchise as we report strong core performance across all business metrics. We generated $73.6 million in net income for the fourth quarter, representing $0.35 per diluted share, and reached $104.9 million in pre-tax, pre-provision income. Loan originations for the fourth quarter were $1.3 billion, the best quarter we have had this year, with strong originations in the Puerto Rico and Florida regions. However, total loans decreased in the quarter by $75.5 million largely driven by a $73.3 million reduction in SBA PPP loans, the repayment of four large commercial relationships in the Florida and Virgin Islands regions that amounted to $124.6 million and a $111.6 million reduction in residential mortgage loans, partially offset by strong auto and commercial originations. Asset quality continued to benefit from an improving economic outlook, with non-performing assets at 0.76% of total assets. Core deposits, net of brokered and government deposits, grew by $64.2 million during the quarter primarily in savings and demand deposit accounts in Puerto Rico.

Core results for the year reflect transformational progress on multiple fronts. We generated $281.0 million of net income, or $1.31 per diluted share, compared to $102.3 million or $0.46 per diluted share in 2020. We registered a 30.6% increase in adjusted pre-tax pre-provision income and grew total loan originations and renewals (excluding PPP and credit card utilization activity) by 20% when compared to 2020. We completed the timely integration of the acquired operations during the year, executing on all the operational efficiencies planned as part of the transaction and achieving the established financial targets. The transaction allowed us to expand our footprint, while strengthening our leadership position in the Puerto Rico market. Improved economic backdrop and strong tailwinds in our main market should continue to drive core performance in the near future. Moreover, the pandemic triggered an accelerated adoption of digital channels which continue to grow significantly, with digital engagement improving across all our digital functionalities. We are well positioned to compete in an increasingly digital banking system.

Finally, we delivered on our commitment to increase shareholder value. During the year, we returned 112% of 2021 earnings through the repurchase of $213.9 million in common shares, the redemption of $36.1 million in preferred stock, and the payment of $65.4 million in common stock dividends. Our ample capital position will allow us to continue growing the franchise, while delivering value to our shareholders.”

NON-GAAP DISCLOSURES

This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest expenses, tangible common equity, tangible book value per common share, certain capital ratios, and certain other financial measures 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”), and 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.

SPECIAL ITEMS

The financial results for the fourth and third quarters of 2021 and fourth quarter of 2020 included the following significant Special Items:

Quarter ended December 31, 2021

- Merger and restructuring costs of $1.9 million ($1.2 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the fourth quarter were primarily related to additional branch consolidations that are expected to be completed during the first half of 2022.

Quarter ended September 30, 2021

- Merger and restructuring costs of $2.3 million ($1.4 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the third quarter were primarily related to system conversions completed early in the third quarter and other integration related efforts.

- Costs of $0.6 million ($0.4 million after-tax) related to COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security measures.

Quarter ended December 31, 2020

- Merger and restructuring costs of $12.3 million ($7.7 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the fourth quarter of 2020 included a $4.3 million charge associated with an Employee Voluntary Separation Program (“VSP”) offered to eligible employees in the Puerto Rico region. In addition to the charge associated with the VSP, merger and restructuring costs in the fourth quarter of 2020 primarily included bonuses, consulting fees, and expenses related to system conversions and other integration related efforts.

- Costs of $1.1 million ($0.7 million after-tax) related to the COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security matters.

- Loss of $0.2 million realized on sales of available-for-sale investment securities. The loss realized at the tax-exempt international banking entity subsidiary level had no effect on the income tax expense recorded in the fourth quarter of 2020.

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

Net income was $73.6 million for the fourth quarter of 2021, or $0.35 per diluted share, compared to $75.7 million for the third quarter of 2021, or $0.36 per diluted share. Adjusted net income was $74.8 million, or $0.36 per diluted share, for the fourth quarter of 2021, compared to $77.5 million, or $0.37 per diluted share, for the third quarter of 2021. The following table reconciles for the fourth and third quarters of 2021 and the fourth quarter of 2020 the net income to adjusted net income and adjusted earnings per 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 $115.3 million for the fourth quarter of 2021, compared to $112.7 million for the third quarter of 2021. Adjusted pre-tax, pre-provision income was $104.9 million for the fourth quarter of 2021, up $1.3 million from the third quarter of 2021. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:

NET INTEREST INCOME

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

Net interest income amounted to $184.1 million for the fourth quarter of 2021, a decrease of $0.6 million, compared to $184.7 million for the third quarter of 2021. The slight decrease in net interest income was mainly due to:

• A $1.5 million decrease in interest income on commercial and construction loans, primarily due to a decrease of approximately $1.2 million in earned fees on SBA PPP loans attributable to lower early cancellation of SBA PPP loans when compared to prior quarter.

• A $1.3 million decrease in interest income on residential mortgage loans, primarily due to the reduction in the average balance of this portfolio.

This decrease was partially offset by:

• A $1.3 million increase in interest income on consumer loans and finance leases, primarily due to an increase of approximately $91.5 million in the average balance of this portfolio, largely related to auto loans portfolio, which resulted in an increase in interest income of approximately $1.1 million.

• A $1.1 million decrease in interest expense, including, a decrease in the average balances of brokered CDs and retail certificate of deposits and a reduction in rates for time deposits, which resulted in a decrease in interest expense of approximately $1.0 million. In addition, during December 2021 approximately $120.0 million of FHLB advances matured and were repaid, resulting in a decrease of approximately $0.1 million of interest expense.

Net interest margin for the fourth quarter of 2021 increased slightly to 3.61%, when compared to 3.60% for the third quarter of 2021. The improvement on the net interest margin reflects a decrease on the average cost of interest-bearing deposits which showed a 3 basis points reduction as time deposits continue to reset at lower interest rates. Consistent with the third quarter, the average balance of interest-bearing cash deposited at the FED and investment securities continued to represent approximately 45% of total average interest-earning assets and the average balance of the loan portfolio represented 55% of total average interest-earning assets in the fourth quarter.

The fourth quarter results continue to reflect the effect of SBA PPP loans. Interest and earned deferred fees on SBA PPP loans in the fourth quarter of 2021 amounted to $5.0 million, compared to $6.5 million in the third quarter of 2021.

NON-INTEREST INCOME

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

Non-interest income amounted to $30.4 million for the fourth quarter of 2021, compared to $29.9 million for the third quarter of 2021. The main variances within the components of non-interest income include:

• A $0.8 million increase in service charges on deposit accounts mostly due to higher account fees recognized for checking and savings accounts associated with a higher volume of transactions processed during the quarter.

• A $0.6 million gain, included as part of Other operating income in the table above, related to the settlement and collection of an insurance claim associated with a damaged property.

This increase was partially offset by:

• A $0.9 million decrease in revenues from mortgage banking activities, driven by a $0.3 million decrease in realized gains on sales of residential mortgage loans in the secondary market associated with a lower volume of sales and a decrease of $0.4 million related to the net change in mark-to-market gains and losses from both interest rate lock commitments and To-Be-Announced (“TBA”) mortgage-backed securities (“MBS”) forward contracts.

NON-INTEREST EXPENSES

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

Non-interest expenses amounted to $111.5 million in the fourth quarter of 2021, a decrease of $2.5 million from $114.0 million in the third quarter of 2021. Included in non-interest expenses are the following Special Items:

• Merger and restructuring costs associated with the acquisition of BSPR of $1.9 million for the fourth quarter of 2021, compared to $2.3 million for the third quarter of 2021. Fourth quarter expenses are mostly related to four additional branch consolidations to be completed in the first half of 2022.

• COVID-19 pandemic-related expenses of $4 thousand for the fourth quarter of 2021, compared to $0.6 million for the third quarter of 2021. COVID-19 pandemic-related expenses for the fourth and third quarters of 2021 primarily consist of expenses associated with cleaning and security protocols, included as part of Occupancy and equipment in the table above.

On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the Special Items mentioned above, amounted to $109.6 million for the fourth quarter of 2021, compared to $111.1 million for the third quarter of 2021. The $1.5 million decrease in adjusted non-interest expenses reflects, among other things, the following significant variances:

• A $1.6 million decrease in total professional service fees, including a decrease of approximately $1.3 million resulting from the elimination of temporary technology processing and data-related costs of the acquired BSPR operations after completion of system conversions during the third quarter of 2021.

• A $1.1 million decrease in adjusted occupancy and equipment costs, which include a decrease of approximately $0.6 million resulting from the reversal of previously accrued expenses related to the resolution of a property tax contingency in the fourth quarter of 2021 and a decrease of approximately $0.3 million related to certain technology services not required after completion of conversion of the acquired BSPR operation.

• A $0.5 million decrease in employee’s compensation and benefits mainly associated with continued trend in vacant positions and an overall reduction in bonus expense.

Partially offset by:

• A $2.4 million increase in business promotion expenses. The increase was mainly due to a $2.2 million increase in advertising and sponsorship activities.

• A $0.7 million decrease in net gains on OREO operations mainly due to a $1.1 million decrease in net gains realized on the sales of OREO properties, including the effect in the third quarter of a $0.8 million gain recorded on the sale of a $20.7 million commercial OREO property in the Puerto Rico region.

The adjusted non-interest expense financial metric presented above is a non-GAAP financial measure. See Basis of Presentation for additional information and the reconciliation of total non-interest expense and certain non-interest expense components to adjusted total non-interest expense and certain adjusted non-interest expense components.

INCOME TAXES

The Corporation recorded an income tax expense of $41.6 million for the fourth quarter of 2021, compared to $37.1 million for the third quarter of 2021. The variance was primarily related to a higher effective tax rate resulting from a higher than previously estimated proportion of taxable to exempt income for the year.

The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, increased to 33.9% compared to 33.2% for the third quarter of 2021. As of December 31, 2021, the Corporation had a deferred tax asset of $208.5 million (net of a valuation allowance of $107.3 million, including a valuation allowance of $69.7 million against the deferred tax assets of the Corporation’s banking subsidiary, FirstBank).

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 $14.3 million to $158.1 million as of December 31, 2021, compared to $172.4 million as of September 30, 2021. Total nonaccrual loans held for investment decreased by $11.4 million to $110.7 million as of December 31, 2021, compared to $122.1 million as of September 30, 2021.

The decrease in non-performing assets consisted of:

- A $6.8 million decrease in nonaccrual commercial and construction loans, primarily due to the sale of a $3.1 million nonaccrual construction loan in the Puerto Rico region.

- A $5.5 million decrease in nonaccrual residential mortgage loans, mostly driven by collections and loans restored to accrual status during the fourth quarter.

Partially offset by:

- A $0.8 million increase in nonaccrual consumer loans, primarily auto loans. Notwithstanding, the ratio of nonaccrual loans to total consumer loans continued to decrease by virtue of the underlying positive loan growth.

• Inflows to nonaccrual loans held for investment were $15.0 million, a $1.9 million decrease compared to inflows of $16.9 million in the third quarter of 2021. Inflows to nonaccrual consumer loans were $10.0 million, an increase of $1.0 million compared to inflows of $9.0 million in the third quarter of 2021. Inflows to nonaccrual residential mortgage loans were $3.6 million in the fourth quarter of 2021, a decrease of $2.7 million compared to inflows of $6.3 million in the third quarter of 2021. Inflows to nonaccrual commercial and construction loans were $1.5 million in the fourth quarter of 2021, a decrease of $0.1 million compared to inflows of $1.6 million in the third quarter of 2021. See Early Delinquency, CARES Act Modifications, and SBA PPP Loans below for additional information.

• Adversely classified commercial and construction loans decreased by $65.0 million to $177.3 million as of December 31, 2021, mostly driven by the upgrades of the credit risk classification of two commercial relationships in the Puerto Rico region totaling $31.3 million, the sale of a $3.1 million construction loan in the Puerto Rico region and the sale of a $15.1 million classified commercial loan in the Florida region.

• Total Troubled Debt Restructured (“TDR”) loans held for investment were $414.7 million as of December 31, 2021, down $13.9 million from September 30, 2021. Approximately $363.4 million of total TDR loans held for investment were in accrual status as of December 31, 2021. These figures exclude $57.6 million of TDR residential mortgage loans guaranteed by the U.S. federal government (i.e., Federal Housing Administration and Veterans Administration loans).

Early Delinquency, CARES Act Modifications, and SBA PPP Loans

Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $90.3 million as of December 31, 2021, a decrease of $17.0 million, compared to $107.3 million as of September 30, 2021. The variances by major portfolio categories are as follows:

- Commercial and construction loans in early delinquency decreased in the fourth quarter by $21.8 million to $6.7 million as of December 31, 2021. The decrease is mostly related to the payoff of a $5.4 million commercial real estate loan and the refinancing of three commercial and construction loans, totaling approximately $8.1 million, that matured during the third quarter and were in the process of being renewed.

- Residential mortgage loans in early delinquency decreased by $2.1 million to $34.2 million as of December 31, 2021, and consumer loans in early delinquency increased by $6.9 million to $49.4 million as of December 31, 2021.

As of December 31, 2021, commercial loans totaling $342.4 million, or 3.10% of the balance of the total loan portfolio held for investment, were permanently modified under the provisions of Section 4013 of the Coronavirus Aid, Relief, and Economic Security (the “CARES”) Act of 2020, as amended by Section 541 of the Consolidated Appropriations Act. These permanent modifications primarily relate to loans to commercial borrowers in industries with longer expected recovery times, mostly hospitality, retail and entertainment industries.

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 2021:

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

Allowance for Credit Losses for Loans and Finance Leases

The following table sets forth information concerning the ACL for loans and finance leases during the periods indicated:

• As of December 31, 2021, the ACL for loans and finance leases was $269.0 million, down $19.3 million from September 30, 2021. The reduction of the ACL for residential mortgage loans was $8.4 million in the fourth quarter, primarily due to an overall reduction in the size of this portfolio, as well as reductions related to the continued improvement in the long-term outlook of macroeconomic variables and their impact on qualitative reserves. In addition, there was an ACL net reduction of $14.9 million for commercial and construction loans reflecting, among other things, continued improvements in the long-term outlook of macroeconomic variables to which the reserve is correlated and the overall decline in the size of the commercial and construction loan portfolio. The ACL for consumer loans increased by $4.0 million in the fourth quarter, primarily reflecting the effect of the increase in the size of the consumer loan and finance leases portfolios, and to a certain extent, some increase in cumulative historical charge-off levels mostly related to the credit card loan portfolio.

• The provision for credit losses on loans and finance leases was a net benefit of $12.2 million for the fourth quarter of 2021, compared to a net benefit of $8.7 million in the third quarter of 2021. The following table shows the breakdown of the provision for credit losses net benefit by portfolio for the fourth and third quarters of 2021:

- Provision for credit losses for the commercial and construction loan portfolio was a net benefit of $14.2 million for the fourth quarter of 2021, compared to a net benefit of $8.6 million in the third quarter of 2021. The net benefit recorded in the fourth quarter of 2021, reflects reductions in qualitative reserves mostly associated with continued improvements in the long-term outlook of forecasted macroeconomic variables, primarily in the commercial real estate price index, and the overall decrease in the size of the commercial and construction loan portfolios.

- Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $7.4 million for the fourth quarter of 2021, compared to a benefit of $6.2 million in the third quarter of 2021. The net benefit recorded for the fourth quarter of 2021 was primarily related to the overall decrease in the size of the residential mortgage portfolio and continued improvements in the long-term outlook of forecasted macroeconomic variables, such as unemployment rate and housing price index.

- Provision for credit losses for the consumer loans and finance leases portfolio was $9.4 million for the fourth quarter of 2021, compared to $6.1 million in the third quarter of 2021. The charges to the provision in the fourth quarter of 2021 were primarily related to the increase in the size of the auto and finance leases loan portfolios and some increase in cumulative historical charge-off levels related to the credit card loans portfolio.

• The ratio of the ACL for loans and finance leases to total loans held for investment was 2.43% as of December 31, 2021, compared to 2.59% as of September 30, 2021. No ACL was allocated to SBA PPP loans since they are fully guaranteed. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was 2.46% as of December 31, 2021, compared to 2.64% as of September 30, 2021. The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 243% as of December 31, 2021, compared to 236% as of September 30, 2021.

The following table sets forth information concerning the composition of the Corporation’s ACL for loans and finance leases as of December 31, 2021 and September 30, 2021 by loan category:

Net Charge-Offs

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

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 $7.1 million for the fourth quarter of 2021, or an annualized 0.26% of average loans, compared to $27.9 million, or an annualized 0.99% of average loans, in the third quarter of 2021. The bulk sale of $52.5 million nonaccrual residential mortgage loans and related servicing advance receivables added $23.1 million in net charge-offs in the third quarter. Adjusted for those net charge-offs, total net charge-offs in the third quarter were $4.8 million, or an annualized 0.17% of average loans. The variances in net charge-offs by portfolio categories consisted of:

• A $22.5 million decrease in residential mortgage loan net charge-offs, related to the $23.1 million of net charge-offs recorded in connection with nonaccrual loans sold in the third quarter.

• A $0.7 million increase in commercial and construction loan net charge-offs.

• A $1.0 million increase in consumer loan net charge-offs, driven by higher charge-offs taken on auto loans, credit card loans and small personal loans.

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, 2021, the ACL for off-balance sheet credit exposures was $1.5 million, down $0.3 million from $1.8 million as of September 30, 2021.

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

As of December 31, 2021, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. As of December 31, 2021, the ACL for held-to-maturity debt securities was $8.6 million compared to $8.3 million as of September 30, 2021.

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

As of December 31, 2021, the ACL for available-for-sale debt securities was $1.1 million, relatively unchanged from September 30, 2021.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $20.8 billion as of December 31, 2021, down $470.9 million from September 30, 2021.

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

• A $115.1 million decrease in cash and cash equivalents mainly attributable to the repurchase of 4.6 million shares of common stock for a total purchase price of $63.9 million and the redemption of $36.1 million in Series A through E Preferred Stocks in the fourth quarter.

• A $240.9 million decrease in investment securities, mainly driven by prepayments of approximately $276.3 million of U.S. agencies MBS and a $50.3 million decrease in the fair value of available-for-sale investment securities attributable to changes in market interest rates, partially offset by purchases of U.S. government and agencies securities totaling $111.4 million during the fourth quarter.

• A $75.5 million decrease in total loans. The decrease consisted of reductions of $42.0 million in the Florida region, and $35.2 million in the Virgin Island region, partially offset by a $1.8 million increase in the Puerto Rico region. On a portfolio basis, the decrease consisted of reductions of $45.7 million in commercial and construction loans (including a $73.3 million decrease in the SBA PPP loan portfolio), and $111.6 million in residential mortgage loans, partially offset by an increase of $81.9 million in consumer loans, including a $91.4 million increase in auto loans and leases. Excluding the $73.3 million decrease in the carrying value of the SBA PPP loan portfolio, the commercial and construction loans increased by $27.6 million reflecting, strong originations in the commercial and industrial portfolio partially offset by the repayment of four large commercial relationships in the Florida and Virgin Islands regions that amounted to $124.6 million, including an early payoff of a $54.3 million commercial loan in the Florida region.

The increase in the Puerto Rico region consisted of increases of $83.7 million in consumer loans, primarily auto loans and finance leases, and $3.7 million in commercial and construction loans (net of a $55.3 million decrease in the SBA PPP loan portfolio) partially offset by a decrease of $85.5 million in the residential mortgage loan portfolio. Excluding the $55.3 million decrease in the SBA PPP loan portfolio, commercial and construction loans in the Puerto Rico region increased by $59.0 million. The decline in the residential mortgage loan portfolio reflects repayments and charge-offs, which more than offset the volume of new loan originations kept on the balance sheet. Approximately 80% of the $125.9 million residential mortgage loan originations in the Puerto Rico region during the fourth quarter of 2021 consisted of conforming loan originations and refinancings. Conforming mortgage loans are generally originated with the intent to sell in the secondary market to the Government National Mortgage Association (“GNMA”) and U.S. government-sponsored agencies. The growth in consumer loans was driven by new loan originations, primarily auto loans and finance leases, partially offset by reductions in the balances of personal loans and credit card loans.

The decrease in total loans in the Florida region consisted of reductions of $16.7 million in commercial and construction loans (including an $11.8 million decrease in the SBA PPP loan portfolio), $23.2 million in residential mortgage loans, and $2.2 million in consumer loans. Excluding the decrease in the SBA PPP loan portfolio, commercial and construction loans in the Florida region decreased by $4.9 million, mainly due to the early payoff of a large commercial loan amounting to $54.3 million and the sale of a $15.1 million adversely classified loan related to a commercial relationship in the transportation industry, partially offset by two commercial loan originations amounting to $54.3 million.

The decrease in total loans in the Virgin Islands region consisted of a reduction of $32.7 million in commercial and construction loans, mainly related to a $6.2 million decrease in the SBA PPP loan portfolio and the repayment of a $23.2 million commercial and industrial loan, and a reduction of $2.9 million in residential mortgage loans, partially offset by a $0.4 million increase in consumer loans.

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 2021, up $223.2 million compared to the third quarter of 2021. Increase in total loan originations primarily consisted of: (i) a $220.3 million increase in commercial and construction loan originations; (ii) a $7.7 million increase in residential mortgage loan originations, primarily in the Puerto Rico region, and (iii) a $4.9 million decrease in consumer loan originations.

Total loan originations in the Puerto Rico region amounted to $987.8 million in the fourth quarter of 2021, up $159.2 million when compared to $828.6 million in the third quarter of 2021. The $159.2 million increase in total loan originations in the Puerto Rico region consisted of (i) a $154.1 million increase in commercial and construction loan originations, (ii) a $10.5 million increase in residential mortgage loan originations; and (iii) an $5.4 million decrease in consumer loan originations.

Total loan originations in the Florida region amounted to $284.2 million in the fourth quarter of 2021, compared to $241.6 million in the third quarter of 2021. The increase of $42.6 million in total loan originations in the Florida region consisted of (i) a $48.3 million increase in commercial and construction loan originations, driven by two originations totaling $54.3 million and a (ii) a $5.6 million decrease in residential mortgage loan originations.

Total loan originations in the Virgin Islands region amounted to $41.5 million in the fourth quarter of 2021, compared to $20.1 million in the third quarter of 2021. The increase of $21.4 million in total loan originations consisted of (i) a $17.9 million increase in commercial and construction loan originations and (ii) a $2.9 million increase in residential mortgage loan originations and (iii) a $0.5 million increase in consumer loan originations.

Total liabilities were approximately $18.7 billion as of December 31, 2021, down $374.7 million from September 30, 2021.

The decrease in total liabilities was mainly due to:

• A $254.6 million decrease in government deposits, consisting of reductions of $141.3 million in the Puerto Rico region and $114.0 million in the Virgin Islands region, partially offset by an increase of $0.7 million in the Florida region. The decrease in the Puerto Rico region reflects reduction in balances of transactional accounts of public corporations, agencies of the central government, and certain municipalities. The decrease in the Virgin Islands region was driven by a portion of American Rescue Plan Act (“ARPA”) federal funds previously received that are being deployed for its intended use.

• A $120.0 million decrease related to repayment at maturity of FHLB advances that carried an average cost of approximately 2.65%.

Total stockholders’ equity amounted to $2.1 billion as of December 31, 2021, a decrease of $96.2 million from September 30, 2021. The decrease was driven by the repurchase of 4.6 million shares of common stock for a total purchase price of approximately $63.9 million, the redemption of $36.1 million of the Series A through E Preferred Stock payment of quarterly dividend to common stock shareholders of $20.5 million and a $50.3 million decrease recorded as part of Other comprehensive (loss) income in the consolidated statements of financial condition, mostly attributable to the change in the fair value of available-for-sale investment securities. These variances were partially offset by earnings generated in the fourth quarter.

As of December 31, 2021, capital ratios exceeded the required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 17.80%, 17.80%, 20.50%, and 10.14%, respectively, as of December 31, 2021, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 17.62%, 17.92%, 20.67%, and 10.17%, respectively, as of September 30, 2021.

Meanwhile, the estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank Puerto Rico, were 18.12%, 19.03%, 20.23%, and 10.85%, respectively, as of December 31, 2021, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 17.62%, 18.95%, 20.20%, and 10.75%, respectively, as of September 30, 2021.

Tangible Common Equity

The Corporation’s tangible common equity ratio decreased to 9.81% as of December 31, 2021, compared to 9.87% as of September 30, 2021.

The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the most comparable GAAP items:

Exposure to Puerto Rico Government

As of December 31, 2021, the Corporation had $360.1 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, compared to $362.6 million as of September 30, 2021. As of December 31, 2021, approximately $187.8 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $122.8 million consisted of municipal revenue or special obligation bonds. The Corporation’s total direct exposure to the Puerto Rico government also included $12.5 million in loans extended to an affiliate of a public corporation, $33.4 million in loans to an agency of the Puerto Rico central government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (“PRHFA”), at an amortized cost of $3.6 million (fair value of $2.9 million as of December 31, 2021), included as part of the Corporation’s available-for-sale investment securities portfolio. This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages and had an unrealized loss of $0.7 million as of December 31, 2021, of which $0.3 million is due to credit deterioration and was charged against earnings through an ACL during 2020.

The aforementioned exposure to municipalities in Puerto Rico included $178.1 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 investment securities. As of December 31, 2021, the ACL for these securities was $8.5 million, compared to $8.3 million as of September 30, 2021.

As of December 31, 2021, the Corporation had $2.7 billion of public sector deposits in Puerto Rico, compared to $2.8 billion as of September 30, 2021. Approximately 19% of the public sector deposits as of December 31, 2021 was from municipalities and municipal agencies in Puerto Rico and 81% was 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 Wednesday, January 26, 2022, 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: www.1firstbank.com or through a dial-in telephone number at (844) 200-6205 or (929) 526–1599 for international callers. The participant access code is 076605. 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, www.1firstbank.com, until January 26, 2023. A telephone replay will be available one hour after the end of the conference call through February 25, 2022 at (929) 458-6194 or (866) 813-9403 for international callers. The replay access code is 590642.

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,” “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 following, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: uncertainties relating to the impact of the COVID-19 pandemic, including new variants and mutations of the virus, such as the Omicron variant, and the efficacy and acceptance of various vaccines and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that the COVID-19 pandemic may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements; risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to the COVID-19 pandemic and the Corporation’s participation in any such responses or programs, such as the SBA PPP established by the CARES Act of 2020, including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs; risks, uncertainties and other factors related to the Corporation’s acquisition of BSPR, including the risk that the Corporation may not realize, either fully or on a timely basis, the cost savings and any other synergies from the acquisition that the Corporation expected, because of deposit attrition, customer loss and/or revenue loss as a result of unexpected factors or events, including those that are outside of our control; uncertainty as to the ultimate outcomes of actions taken, or those that may be taken, by the Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to address the Commonwealth of Puerto Rico’s financial situation, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; the impact that a resumption of the slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products; uncertainty as to the availability of wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances and brokered CDs; the effect of a resumption of deteriorating economic conditions in the real estate markets and the consumer and commercial sectors and their impact on the credit quality of the Corporation’s loans and other assets, which may contribute to, among other things, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures; the impact of changes in accounting standards or assumptions in applying those standards, including the continuing impact of the COVID-19 pandemic on forecasts of economic variables considered for the determination of the ACL required by the CECL accounting standard; 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 impact of rising interest rates and inflation on the Corporation, including a decrease in demand for new mortgage loan originations and refinancings and increased competition for borrowers, which would likely pressure the Corporation’s margins and have an adverse impact on origination volumes and financial performance; adverse changes in general economic conditions in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; the effect of changes in the interest rate environment, including the cessation of the London Interbank Offered Rate, which could adversely affect the Corporation’s results of operations, cash flows, and liquidity; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio are determined to be credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s exposure to the Puerto Rico government’s debt securities held as part of the available-for-sale securities portfolio with a fair value of $2.9 million ($3.6 million – amortized cost) and an allowance for credit losses of $0.3 million; uncertainty about legislative, tax or regulatory changes that affect financial services companies in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; 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 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 Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, ransomware, malware, “denial of service” attacks, “hacking” and identity theft, and the occurrence of any of which may result in misuse or misappropriation of confidential or proprietary information and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; the risk that the FDIC may increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expenses; the impact on the Corporation’s results of operations and financial condition of business acquisitions, such as the acquisition of BSPR, and dispositions; a need to recognize impairments on the Corporation’s financial instruments, goodwill and other intangible assets relating to business acquisitions, including as a result of the COVID-19 pandemic; 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; 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; and general competitive factors and industry consolidation. 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 it 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 earnings 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, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management uses and believe that 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 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, such as the COVID-19 pandemic in 2020 and 2021. 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.

The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the years ended December 31, 2021 and 2020:

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 2021, the fourth quarter of 2020, and the year ended December 31, 2021 and 2020. The table also reconciles net interest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.

Financial measures adjusted to exclude the effect of Special 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.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income and non-interest expenses, and the components of each, to exclude items that management identifies as Special Items because management believes they are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

• Adjusted net income – The adjusted net income amounts for the fourth and third quarters of 2021 and the fourth quarter of 2020 reflect the following exclusions:

- Merger and restructuring costs of $1.9 million, $2.3 million, and $12.3 million recorded in the fourth quarter of 2021, third quarter of 2021, and fourth quarter of 2020, respectively, related to transaction costs and restructuring initiatives in connection with the acquisition of BSPR.

- COVID-19 pandemic-related expenses of $4 thousand, $0.6 million and $1.1 million in the fourth quarter of 2021, third quarter of 2021, and fourth quarter of 2020, respectively.

- Loss of $0.2 million on the sales of U.S. agencies MBS and U.S. Treasury Notes recorded in the fourth quarter of 2020 and third quarter of 2020, respectively.

- The tax-related effects of all of the pre-tax items mentioned in the above bullets as follows:

• Tax benefit of $0.7 million, $0.9 million and $4.6 million in the fourth quarter of 2021, third quarter of 2021, and fourth quarter of 2020, respectively, related to merger and restructuring costs in connection with the acquisition of BSPR (calculated based on the statutory tax rate of 37.5%).

• Tax benefit of $2 thousand, $0.2 million, and $0.4 million in the fourth quarter of 2021, third quarter of 2021, and fourth quarter of 2020, respectively, in connection with COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of 37.5%).

• No tax benefit was recorded for the loss on sales of U.S. agencies MBS in the fourth quarter of 2020. Those sales consisted of tax-exempt securities or were recorded at the tax-exempt international banking entity subsidiary level.

• Adjusted non-interest expenses – The following tables reconcile for the fourth quarter of 2021 and third quarter of 2021 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes the relevant Special Items identified above: