10-Q - FBP - Equibles

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

20549

____________

FORM

10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2025

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ___________________ to

___________________

COMMISSION FILE NUMBER

001-14793

FIRST BANCORP

(EXACT NAME OF REGISTRANT AS SPECIFIED

IN ITS CHARTER)

Puerto Rico

66-0561882

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1519 Ponce de León Avenue

Stop 23

San Juan

Puerto Rico

(Address of principal executive offices)

00908

(Zip Code)

(

787

)

729-8200

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock ($0.10 par value per share)

FBP

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed

all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the

preceding 12 months (or for such shorter period that the registrant

was required to file such reports), and (2) has been subject

to such filing requirements for the past 90

days.

Yes

☑

Indicate by check mark whether the registrant has submitted

electronically every Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T

(§ 232.405 of this chapter) during the preceding 12 months (or for

such shorter period that the registrant was required

to submit such files).

Yes

☑

Indicate by check mark whether the registrant is a large accelerated

filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging

growth company.

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2 of

the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to

use the extended transition period for complying with any

new or revised

financial accounting standards provided pursuant to Section 13(a)

of the Exchange Act.

Indicate by check mark whether the registrant is a shell company

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

Yes

☐

☑

Indicate the number of shares outstanding of each of the

issuer’s classes of common stock, as of the latest practicable date.

Common stock:

160,469,644

shares outstanding as of August 5, 2025.

FIRST BANCORP.

INDEX PAGE

PART

I. FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements:

Consolidated Statements of Financial

Condition (Unaudited) as of

June 30, 2025 and

December

31, 2024

Consolidated Statements

of Income

(Unaudited) –

Quarters and

Six-Month Periods

ended June

30, 2025 and 2024

Consolidated

Statements

Comprehensive

Income

(Unaudited)

–

Quarters

and

Six-Month

Periods ended June 30, 2025 and 2024

Consolidated Statements

of Cash Flows

(Unaudited) –

Six-Month Periods

ended June 30,

2025

and 2024

Consolidated

Statements of

Changes

in Stockholders’

Equity (Unaudited)

– Quarters

and Six-

Month Periods ended June 30, 2025 and 2024

Notes to Consolidated Financial Statements (Unaudited)

Item 2.

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

120

Item 4.

Controls and Procedures

120

PART

II. OTHER INFORMATION

Item 1.

Legal Proceedings

121

Item 1A.

Risk Factors

121

Item 2.

Item 5.

Unregistered Sales of Equity Securities and Use of Proceeds

Other Information

122

Item 6.

Exhibits

123

SIGNATURES

Forward-Looking Statements

This Quarterly

Report on

Form 10-Q

(this “Form

10-Q”) contains

forward-looking statements

within the

meaning of

Section 27A

of the Securities Act of 1933, as

amended (the “Securities Act”), and

Section 21E of the Securities Exchange

Act of 1934, as amended

(the “Exchange Act”),

which are subject to

the safe harbor created

by such sections. When

used in this Form

10-Q or future filings

First

BanCorp.

(the

“Corporation,”

“we,”

“us,”

“our”)

with

the

U.S.

Securities

and

Exchange

Commission

(the

“SEC”),

the

Corporation’s press

releases or in other public or

stockholder communications made by

the Corporation, or in oral statements

made on

behalf

the

Corporation

by,

with

the

approval

of,

authorized

executive

officer

the

Corporation,

the

words

phrases

“would,”

“intends,”

“will,”

“expect,”

“should,”

“plans,”

“forecast,”

“anticipate,”

“look

forward,”

“believes,”

and

other

terms

similar meaning or import, or the

negatives of these terms or variations

of them, in connection with

any discussion of future operating,

financial or other performance are meant to identify “forward-looking

statements.”

The Corporation cautions readers

not to place undue reliance on

any such “forward-looking statements,” which

speak only as of the

date made

or,

with respect

to such

forward-looking statements

contained in

this Form

10-Q, 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,

could cause

actual results

differ materially from those expressed in, or implied

by, such forward-looking

statements.

Factors

that

could

cause

results

differ

materially

from

those

expressed

in,

implied

by,

the

Corporation’s

forward-looking

statements include, but are not

limited to, risks described or

referenced in Part I, Item 1A,

“Risk Factors,” in the Corporation’s

Annual

Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Annual

Report on Form 10-K”), and the following:

●

the effect

of changes

in the

interest rate

environment

and inflation

levels on

the level,

composition

and performance

of the

Corporation’s

assets and

liabilities, and

corresponding

effects on

the Corporation’s

net interest

income, net

interest margin,

loan originations, deposit attrition, overall results of operations, and liquidity

position;

●

volatility

the

financial

services

industry,

which

could

result

in,

among

other

things,

bank

deposit

runoffs,

liquidity

constraints, and increased regulatory requirements and costs;

●

the effect of continued changes in the fiscal, monetary,

and trade policies and regulations of the United States (“U.S.”) federal

government, the

Puerto Rico

government and

other governments,

including those

determined by

the Board

of Governors

the Federal Reserve

System (the “Federal

Reserve Board”), the Federal

Reserve Bank of New

York

(the “FED”), the

Federal

Deposit

Insurance

Corporation

(the

“FDIC”),

government-sponsored

housing

agencies

and

regulators

Puerto

Rico,

the

U.S., and

the U.S.

Virgin

Islands (the

“USVI”) and

British Virgin

Islands (the

“BVI”), that

may affect

the future

results of

the Corporation;

●

uncertainty as

to the

ability of

the Corporation’s

banking subsidiary,

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), to

retain its core

deposits and

generate sufficient

cash flow through

its wholesale funding

sources, such as

securities sold under

agreements

repurchase,

Federal

Home

Loan

Bank

(“FHLB”)

advances,

and

brokered

certificates

deposit

(“brokered

CDs”), which may require us to sell investment securities at a loss;

●

adverse changes

in general political

and economic

conditions in Puerto

Rico, the U.S.,

and the USVI

and the BVI,

including

in the interest

rate environment, unemployment

rates, market liquidity

and volatility,

trade policies, housing

absorption rates,

real

estate

markets,

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

portfolio

performance

and

credit

quality,

market

prices

investment

securities,

and

demand

for

the

Corporation’s

products

and

services,

and which

may

reduce the Corporation’s revenues

and earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

Rico, and the timing and pace of disbursements of funds earmarked for

disaster relief;

●

the ability

of the

Corporation,

FirstBank,

and

third-party

service providers

to identify

and prevent

cyber-security

incidents,

such

data

security

breaches,

ransomware,

malware,

“denial

service”

attacks,

“hacking,”

identity

theft,

and

state-

categories

depend

variety

factors

including

recent

economic

events,

leading

national and

regional economic indicators,

and industry

trends. As of

June 30,

2025 and December

31, 2024, the

Corporation applied

100% probability

to the baseline

scenario for

the commercial mortgage

and construction

loan portfolios

since certain macroeconomic

variables

associated

with

commercial

real

estate

property

performance

and

the

commercial

real

estate

(“CRE”)

price

index,

particularly in

the Puerto

Rico region,

are expected

to continue

to perform

in a

more favorable

manner than

the alternative

downside

economic scenario.

As of June

30, 2025, the

ACL for loans

and finance

leases was $

248.6

million, an increase

of $

4.7

million, from $

243.9

million as

of December

31, 2024.

The increase

was mainly

related to

the ACL

for commercial

and construction

loans, which

increased by

7.4

million,

mainly

due

C&I

loan

growth,

deterioration

the

economic

outlook

the

forecasted

CRE

price

index,

and

updated

financial information of certain

commercial borrowers. Also, the

ACL for residential mortgage loans

increased by $

1.8

million mainly

due to

the longer

expected life

of newly

originated loans,

partially offset

by improvements

in macroeconomic

variables, such

as the

unemployment rate and the Housing Price Index.

Meanwhile, the

ACL for

consumer loans

decreased by

4.5

million, driven

by improvements

in macroeconomic

variables, mainly

in the projection of the unemployment rate, and reductions in the unsecured

loan portfolio volumes.

Net

charge-offs

were

19.1

million

and

40.5

million

for

the

second

quarter

and

first

six

months

2025,

compared

21.0

million

and

32.2

million,

respectively,

for

the

same

periods

2024.

The

1.9

million

decrease

net

charge-offs

for

the

second

quarter of

2025 was

driven by

a decrease

in consumer

loans and

finance leases

net charge

-offs.

The net

charge-offs

for the

first six

months

of 2025

and

2024 included

2.4

million

and

9.5

million,

respectively,

in recoveries

associated

with

the

bulk sales

fully

charged-off

consumer loans

and finance

leases. The

increase in

net charge-offs

for the

first six

months of

2025 was

also driven

by a

5.0

million recovery

associated with

a C&I

loan in

the Puerto

Rico region

during the

first six

months of

2024, partially

offset by

decrease in consumer loans and finance leases charge-offs.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The tables below

present the ACL

related to loans

and finance leases

and the carrying

values of loans

by portfolio segment

as of

June 30, 2025 and December 31, 2024:

As of June 30, 2025

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I

Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,859,158

245,350

2,502,475

3,516,008

3,747,011

12,870,002

Allowance for credit losses

42,448

4,551

22,746

39,359

139,474

248,578

Allowance for credit losses to

amortized cost

1.48

1.85

0.91

1.12

3.72

1.93

As of December 31, 2024

Residential Mortgage

Loans

Construction

Loans

Commercial Mortgage

Loans

C&I

Loans

Consumer Loans

Total

(Dollars in thousands)

Total loans held for investment:

Amortized cost of loans

2,828,431

228,396

2,565,984

3,366,038

3,757,707

12,746,556

Allowance for credit losses

40,654

3,824

22,447

33,034

143,983

243,942

Allowance for credit losses to

amortized cost

1.44

1.67

0.87

0.98

3.83

1.91

addition,

the

Corporation

estimates

expected

credit

losses

over

the

contractual

period

which

the

Corporation

exposed

credit

risk

via

contractual

obligation

extend

credit,

such

unfunded

loan

commitments

and

standby

letters

credit

for

commercial

and

construction

loans,

unless

the

obligation

unconditionally

cancellable

the

Corporation.

See

Note

–

“Regulatory

Matters,

Commitments

and

Contingencies”

for

information

off-balance

sheet

exposures

June

30,

2025

and

December 31,

Corporation estimates

the ACL

for these

off-balance

sheet exposures

following the

methodology described

Note

1 –

“Nature

of Business

and

Summary

of Significant

Accounting

Policies”

the audited

consolidated

financial statements

included in the

2024 Annual Report

on Form 10-K.

As of June 30,

2025, the ACL

for off-balance

sheet credit exposures

amounted to

3.4

million, compared to $

3.1

million as of December 31, 2024.

The following

table presents

the activity

in the

ACL for

unfunded loan

commitments and

standby letters

of credit

for the

quarters

and six-month periods ended June 30, 2025 and 2024:

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

(In thousands)

Beginning balance

3,080

4,919

3,143

4,638

Provision for credit losses - expense (benefit)

287

(417)

224

(136)

Ending balance

3,367

4,502

3,367

4,502

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 5

–

OTHER REAL ESTATE

OWNED (“OREO”)

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

June 30, 2025

December 31, 2024

(In thousands)

OREO balances, carrying value:

Residential

(1)

10,347

12,897

Construction

435

522

Commercial

3,667

3,887

Total

14,449

17,306

(1)

Excludes $

4.1

million and

5.2

million as

of June

30, 2025

and December

31, 2024,

respectively,

of foreclosures

that met

the conditions

of ASC

Subtopic 310-40

“Reclassification of

Residential Real

Estate Collateralized Consumer

Mortgage Loans upon

Foreclosure,” and

are presented as

a receivable as

part of other

assets in

the consolidated statements

of financial

condition.

See Note 15 – “Fair

Value”

for information on subsequent

measurement adjustments recorded

on OREO properties reported

as part

of “Net gain on OREO operations”

in the consolidated statements of

income during the quarters and six-month

periods ended June 30,

2025 and 2024.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 6 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIEs”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

sales

required

applicable accounting guidance.

When

evaluating

the

need

consolidate

counterparties

which

the

Corporation

has

transferred

assets,

with

which

the

Corporation has

entered into

other transactions,

the Corporation

first determines

if the

counterparty is

an entity

for which

a variable

interest

exists.

scope

exception

applicable

and

variable

interest

exists,

the

Corporation

then

evaluates

whether

the

primary beneficiary of the VIE and whether the entity should be consolidated

or not.

Below is a summary of transactions with VIEs for which the Corporation has retained

some level of continuing involvement:

Trust-Preferred

Securities (“TruPS”)

2004,

FBP Statutory

Trusts

and

II,

financing

trusts

that

are

wholly

owned

the Corporation

sold to

institutional

investors

100

million

and

125

million

its

variable-rate

TruPS,

respectively.

Such

proceeds,

along

with

the

proceeds

associated

with

the

Corporation’s purchase

of common securities of $

3.1

million and $

3.9

million, respectively,

were used to purchase $

103.1

million and

128.9

million,

respectively,

Junior

Subordinated

Deferrable

Debentures.

These

debentures,

net

issuance

costs,

are

reflected

part

“Long-term

borrowings”

the

Corporation’s

consolidated

statements

financial

condition.

See

Note

–

“Borrowings” for additional information related to the terms of these debentures.

During the first half of 2025,

the Corporation redeemed the remaining $

61.7

million of outstanding TruPS

as of December 31, 2024

contractual

call

price

100

further

explained

Note

–

“Stockholders’

Equity.”

Following

the

redemption

these

TruPS, FBP Statutory Trusts

I and II were liquidated by the Corporation.

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

securitize

mortgage

loans and

sell trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing

for

fee, then

sold and

issued the

private label

MBS in

favor of

FirstBank. Currently,

FirstBank is

the sole

owner of

these private

label MBS,

with

another third-party performing the servicing for a fee. The

FDIC became owner of an interest-only strip (“IO”) upon its intervention

the seller, a

failed financial institution, and,

as such, is entitled to receive

the excess of the interest income

less a servicing fee over

the

variable rate

income that

the Bank

earns on

the securities.

Since no

recourse agreement

exists, the

Bank, as

the sole

holder,

bears all

risks

from

losses on

non-accruing

loans and

repossessed

collateral.

As of

June

30,

2025,

the

amortized

cost

and

fair value

of these

private label

MBS amounted

to $

5.4

million and

3.8

million, respectively,

which is

included as

part of

the Corporation’s

available-

for-sale

debt

securities

portfolio,

compared

to an

amortized

cost

and

fair value

of $

6.1

million

and

4.2

million,

respectively,

as of

December 31,

As described

in Note 2

– “Debt Securities,”

the ACL on

these private label

MBS amounted

to $

0.2

million as of

each of June 30, 2025 and December 31, 2024.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Servicing Assets, or Mortgage Servicing Rights (“MSRs”)

The

Corporation

typically

transfers

first

lien

residential

mortgage

loans in

conjunction

with

GNMA

securitization

transactions

which the

loans are

exchanged for

cash or

securities that

are readily

redeemed for

cash proceeds

and servicing

rights. The

securities

issued

through

these

transactions

are

guaranteed

GNMA

and,

under

seller/servicer

agreements,

the

Corporation

required

service

the

loans

accordance

with

the

issuers’

servicing

guidelines

and

standards.

As of

June

30,

2025,

the Corporation

serviced

loans

securitized

through

GNMA

with

principal

balance

2.1

billion.

Also,

certain

conventional

conforming

loans

are

sold

FNMA

FHLMC

with

servicing

retained.

The

Corporation

recognizes

separate

assets

the

rights

service

loans

for

others,

whether those servicing

assets are originated or

purchased. MSRs are included

as part of other

assets in the consolidated

statements of

financial condition.

The changes in MSRs are shown below for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Balance at beginning of period

24,624

26,355

25,019

26,941

Capitalization of servicing assets

638

647

1,279

1,107

Amortization

(1,110)

(1,038)

(2,137)

(2,075)

Other

(1)

(22)

(12)

(31)

(21)

Balance at end of period

24,130

25,952

24,130

25,952

(1)

Consists of adjustments related to the repurchase of loans serviced

for others and temporary impairment charges.

The components

of net servicing

income, included as

part of mortgage

banking activities in

the consolidated statements

of income,

are shown below for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Servicing fees

2,382

2,605

5,060

5,178

Late charges and prepayment penalties

159

181

367

370

Other

(1)

(22)

(12)

(31)

(21)

Servicing income, gross

2,519

2,774

5,396

5,527

Amortization

(1,110)

(1,038)

(2,137)

(2,075)

Servicing income, net

1,409

1,736

3,259

3,452

(1)

Consists of adjustments related to the repurchase of loans serviced

for others and temporary impairment charges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The Corporation’s

MSRs are subject

to prepayment

and interest rate

risks. Key economic

assumptions used

in determining

the fair

value at the time of sale of the related mortgages for the indicated periods

ranged as follows:

Weighted Average

Maximum

Minimum

Six-Month Period Ended June 30, 2025

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

16.6

3.9

Conventional conforming mortgage loans

7.0

12.8

2.4

Conventional non-conforming mortgage loans

6.1

9.0

2.4

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

Conventional non-conforming mortgage loans

11.7

12.5

11.0

Six-Month Period Ended June 30, 2024

Constant prepayment rate:

Government-guaranteed mortgage loans

6.8

17.1

3.2

Conventional conforming mortgage loans

6.8

15.9

2.9

Conventional non-conforming mortgage loans

6.2

7.6

4.4

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

Conventional non-conforming mortgage loans

11.5

12.5

11.0

The weighted

averages of the

key economic

assumptions that the

Corporation used

in its valuation

model and the

sensitivity of the

current

fair

value

immediate

and

adverse

changes

those

assumptions

for

mortgage

loans

were

follows

the

indicated dates:

June 30, 2025

December 31, 2024

(In thousands)

Carrying amount of servicing assets

24,130

25,019

Fair value

42,617

43,046

Weighted-average

expected life (in years)

7.67

7.63

Constant prepayment rate (weighted-average annual

rate)

6.10

6.34

Decrease in fair value due to 10% adverse change

831

858

Decrease in fair value due to 20% adverse change

1,624

1,675

Discount rate (weighted-average annual rate)

10.75

10.72

Decrease in fair value due to 10% adverse change

1,795

1,815

Decrease in fair value due to 20% adverse change

3,458

3,495

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10%

variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change

in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is

calculated without changing any other assumption. In reality, changes in one factor may result in changes in another (for example,

increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 7 – DEPOSITS

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

June 30, 2025

December 31, 2024

(In thousands)

Type of account:

Non-interest-bearing deposit accounts

5,343,588

5,547,538

Interest-bearing checking accounts

3,961,817

4,308,116

Interest-bearing saving accounts

3,475,541

3,530,382

Time deposits

3,246,545

3,007,144

Brokered CDs

526,547

478,118

Total

16,554,038

16,871,298

The following table presents the remaining contractual maturities of time deposits,

including brokered CDs, as of June 30, 2025:

Total

(In thousands)

Three months or less

988,781

Over three months to six months

672,817

Over six months to one year

1,311,266

Over one year to two years

509,176

Over two years to three years

163,804

Over three years to four years

70,556

Over four years to five years

34,822

Over five years

21,870

Total

3,773,092

Total

Puerto Rico and

U.S. time deposits

with balances of

more than $250,000

amounted to $

1.7

billion and $

1.5

billion as of

June

30,

2025

and

December

31,

2024,

respectively.

This

amount

does

not

include

brokered

CDs

that

are

generally

participated

out

brokers in

shares of

less than

the FDIC

insurance limit.

As of

June 30,

2025 and

December 31,

2024, unamortized

broker placement

fees amounted

to $

0.9

million and

1.1

million, respectively,

which are

amortized over

the contractual

maturity of

the brokered

CDs

under the interest method.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 8 –BORROWINGS

Advances from the Federal Home Loan Bank (“FHLB”)

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

June 30, 2025

December 31, 2024

(In thousands)

Long-term

Fixed

-rate advances from the FHLB

(1)

320,000

500,000

(1)

Weighted-average interest rate of

4.37

% and

4.45

% as of June 30, 2025 and December 31, 2024, respectively.

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

June 30, 2025

(In thousands)

Three months or less

30,000

Over six months to one year

90,000

Over two years to three years

200,000

Total

(1)

320,000

(1) Average remaining term to maturity of

1.71

years.

Junior Subordinated Debentures

Junior subordinated debentures, as of the indicated dates, consisted of:

(In thousands)

June 30, 2025

December 31, 2024

Long-term floating rate junior subordinated debentures (FBP Statutory Trust I)

(1)

43,143

Long-term floating rate junior subordinated debentures (FBP Statutory Trust II)

(2)

18,557

61,700

(1)

Amount represents

junior subordinated

interest-bearing

debentures

due in

2034 with

a floating

interest rate

2.75

% over

3-month CME Term SOFR

plus a

0.26161

% tenor

spread

adjustment as of December 31, 2024 (

7.36

% as of December 31, 2024).

(2)

Amount represents

junior subordinated

interest-bearing

debentures

due in

2034 with

a floating

interest rate

2.50

% over

3-month CME Term SOFR

plus a

0.26161

% tenor

spread

adjustment as of December 31, 2024 (

7.12

% as of December 31, 2024).

See Note

6 –

“Non-Consolidated Variable

Interest Entities

(“VIEs”) and

Servicing Assets”

and Note

11 –

“Stockholders’ Equity”

for

additional

information

junior

subordinated

debentures,

including

the

61.7

million

redemption

the

remaining

outstanding

TruPS issued by FBP Statutory Trusts

I and II.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 9 – EARNINGS PER COMMON

The

calculations

earnings

per

common

for

the

quarters

and

six-month

periods

ended

June

30,

2025

and

2024

are

follows:

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

(In thousands, except per share information)

Net income attributable to common stockholders

80,180

75,838

157,239

149,296

Weighted-Average

Average common

shares outstanding

160,884

164,945

161,903

166,043

Average potential

dilutive common shares

629

598

722

627

Average common

shares outstanding - assuming dilution

161,513

165,543

162,625

166,670

Earnings per common share:

Basic

0.50

0.46

0.97

0.90

Diluted

0.50

0.46

0.97

0.90

Earnings

per

common

computed

dividing

net

income

attributable

common

stockholders

the

weighted-average

number

common

issued

and

outstanding.

Basic

weighted-average

common

outstanding

exclude

unvested shares

restricted stock that do not contain non-forfeitable dividend rights

Potential dilutive

common

shares consist

of unvested

shares of

restricted

stock

and

performance

units (if

any

of the

performance

conditions

are

met

the

end

the

reporting

period)

that

not

contain

non-forfeitable

dividend

equivalent

rights

using the

treasury stock

method. This

method assumes

that proceeds

equal to

the amount

of compensation

cost attributable

to future

services

used

repurchase

the

open

market

the

average

market

price

for

the

period.

The

difference

between

the

number

potential

dilutive

issued

and

the

purchased

added

incremental

the

actual

number

outstanding

compute

diluted

earnings

per

share.

Unvested

restricted

stock

outstanding

during

the

period

that

result

lower potentially

dilutive shares issued

than shares purchased

under the

treasury stock method

are not included

in the computation

dilutive

earnings

per

since

their

inclusion

would

have an

antidilutive

effect

earnings

per

share.

There

were

antidilutive

shares of common stock during the quarters and six-month periods

ended June 30, 2025 and 2024.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 10 – STOCK-BASED

COMPENSATION

The First Bancorp

Omnibus Incentive

Plan (the “Omnibus

Plan”), which is

effective until

May 24, 2026,

provides for equity-based

and non-equity-based

compensation incentives

(the “awards”).

The Omnibus

Plan authorizes

the issuance

of up

14,169,807

common

stock, subject

to adjustments

for

stock splits,

reorganizations

and

other

similar events.

As of

June 30,

2025,

there

were

1,987,896

authorized shares

of common

stock available

for issuance

under the

Omnibus Plan.

The Corporation’s

Board of

Directors,

based on

the recommendation

of the

Compensation

and Benefits

Committee of

the Board,

has the

power and

authority to

determine

those

eligible

receive

awards

and

establish

the

terms

and

conditions

any

awards,

subject

various

limits

and

vesting

restrictions that apply to individual and aggregate awards.

Restricted Stock

Under the

Omnibus Plan,

the Corporation

may grant

restricted stock

to plan

participants, subject

to forfeiture

upon the

occurrence

of certain

events until

the dates

specified in

the participant’s

award agreement.

While the

restricted stock

is subject

to forfeiture

and

does

not

contain

non-forfeitable

dividend

rights,

participants

may

exercise

full

voting

rights

with

respect

the

restricted

stock

granted

them.

The

fair

value

the

restricted

stock

granted

was

based

the

market

price

the

Corporation’s

common

stock on

the date

of the

respective grant.

The shares

of restricted

stocks granted

to employees

are subject

to the

following

vesting period:

fifty percent

(

%) of

those shares

vest on

the

two-year

anniversary of

the grant

date and

the remaining

% vest

the

three-year

anniversary of

the grant

date. The

shares of

restricted stock

granted to

directors are

generally subject

to vesting

on the

one-year

anniversary of the grant date.

The following table

summarizes the restricted stock

activity under the Omnibus

Plan during the six-month

periods ended June 30,

2025 and 2024:

Six-Month Period Ended June 30,

2025

2024

Number of

Weighted-

Number of

Weighted-

shares of

Average

shares of

Average

restricted

Grant Date

restricted

Grant Date

stock

Fair Value

stock

Fair Value

Unvested shares outstanding at beginning of year

1,007,621

14.39

889,642

12.30

Granted

(1)

447,631

18.35

398,569

17.35

Forfeited

(8,818)

16.27

(3,464)

13.30

Vested

(388,608)

12.67

(253,504)

12.26

Unvested shares outstanding at end of period

1,057,826

16.69

1,031,243

14.26

(1)

For the six-month period ended June 30, 2025,

includes

2,086

shares of restricted stock awarded to independent

directors and

445,545

shares of restricted stock awarded to employees,

which

103,560

shares were

granted to

retirement-eligible employees

and thus

charged to

earnings as

of the

grant date.

For the

six-month period

ended June

30, 2024,

includes

2,280

shares of

restricted stock

awarded to

independent directors

and

396,289

shares of

restricted stock

awarded to

employees,

of which

84,122

shares were

granted to

retirement-eligible

employees and thus charged to earnings as of the grant date.

For the quarter

and six-month period

ended June

30, 2025, the

Corporation recognized

1.4

million and $

4.5

million, respectively,

stock-based

compensation

expense

restricted

stock

awards,

compared

1.3

million

and

3.7

million

for

the

same

periods

in 2024.

As of

June 30,

2025,

there was

8.0

million

of total

unrecognized

compensation

cost related

to unvested

shares of

restricted stock that the Corporation expects to recognize over a weighted-average

period of

1.8

years.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Performance Units

Under the Omnibus Plan, the Corporation may award

performance units to participants, with each unit representing

the value of one

the

Corporation’s

common

stock.

These awards, which are granted to executives, have the right to receive dividend

equivalents. Such dividend equivalents accrue during the performance cycle and are paid in cash on the vesting date based upon

achievement of the performance goals.

Performance units granted vest on the third anniversary of the effective date of the award based on actual achievement of two

performance metrics weighted equally: relative total shareholder return (“Relative TSR”), compared to companies that comprise the

KBW Nasdaq Regional Banking Index, and the achievement of a tangible book value per share (“TBVPS”) goal, which is measured

based upon the growth in the tangible book value during the performance cycle, adjusted for certain allowable non-recurring

transactions. The participant may earn 50% of their target opportunity for threshold level performance and up to 150% of their target

opportunity for maximum level performance, based on the individual achievement of each performance goal during a three-year

performance cycle. Amounts between threshold, target and maximum performance will vest in a proportional amount.

The following

table summarizes

the performance

units activity

under the

Omnibus Plan

during

the six-month

periods ended

June

30, 2025 and 2024:

Six-Month Period Ended June 30,

2025

2024

Number

Weighted-

Number

Weighted-

Average

Performance

Grant Date

Performance

Grant Date

Units

Fair Value

Units

Fair Value

Performance units at beginning of year

549,032

14.37

534,261

12.25

Additions

(1)

160,744

18.66

165,487

18.39

Vested

(2)

(166,669)

13.15

(150,716)

11.26

Performance units at end of period

543,107

16.01

549,032

14.37

(1)

Units granted

during the

six-month periods

ended June

30, 2025

and 2024

are based on

the achievement

of the

Relative TSR

and TBVPS

performance goals

during a

three-year

performance cycle beginning January 1, 2025 and January

1, 2024, respectively, and ending on

December 31, 2027 and December 31, 2026, respectively.

(2)

Units vested

during the

six-month periods

ended June

30, 2025

and 2024

are related

to performance

units granted

in 2022

and 2021,

respectively,

that met

the pre-established

targets and were settled with shares of common stock

reissued from treasury shares.

The

fair

value

the

performance

units

awarded,

that

was

based

the

TBVPS

goal

component,

was

calculated

based

the

market

price

the

Corporation’s

common

stock

the

respective

date

the

grant

and

assuming

attainment

100%

target

opportunity.

As of June

30, 2025,

there have been

no changes in

management’s

assessment of

the probability

that the pre

-established

TBVPS goal will be

achieved;

as such, no

cumulative adjustment to

compensation expense has

been recognized.

The fair value of

the

performance units awarded, that

was based on the Relative

TSR component, was calculated

using a Monte Carlo simulation.

Since the

Relative

TSR component

is considered

a market

condition,

the

fair value

of the

portion

the award

based

on Relative

TSR is

not

revised subsequent to grant date based on actual performance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following table

summarizes the valuation

assumptions used to

calculate the fair

value as of

the grant date

of the Relative

TSR

component of the performance units granted under the Omnibus Plan during the

six-month periods ended June 30, 2025 and 2024:

Six-Month Period Ended June 30,

2025

2024

Risk-free interest rate

(1)

3.92

4.41

Correlation coefficient

74.96

73.80

Expected dividend yield

(2)

Expected volatility

(3)

31.94

34.65

Expected life (in years)

2.79

2.78

(1)

Based on the yield on zero-coupon U.S. Treasury

Separate Trading of Registered Interest and

Principal of Securities as of the grant date for a period equal to the

simulation term.

(2)

Assumes that dividends are reinvested at each ex-dividend date.

(3)

Calculated based on the historical volatility of the Corporation's

stock price with a look-back period equal to the simulation

term using daily stock prices.

For the quarter

and six-month period

ended June

30, 2025, the

Corporation recognized

0.7

million and $

1.3

million, respectively,

of stock-based

compensation expense related

to performance units,

compared to $

0.6

million and $

1.1

million for the

same periods in

As of

June 30, 2025,

there was $

5.2

million of total

unrecognized compensation

cost related to unvested

performance units that

the Corporation expects to recognize over a weighted-average period of

2.1

years.

Shares withheld

During

the first

six

months

2025,

the Corporation

withheld

188,266

shares (first

six

months

2024 –

136,308

shares)

of the

restricted

stock

and

performance

units

that vested

during

such

period to

cover

the participants’

payroll

and

income

tax withholding

liabilities;

these

are

held

treasury

shares.

The

Corporation

paid

cash

any

fractional

salary

stock

which

officer

was entitled.

the consolidated

financial

statements,

the

Corporation

presents

withheld

for

tax purposes

as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 11 – STOCKHOLDERS’

EQUITY

Repurchase Program

July

22,

2024,

the

Corporation

announced

that

its

Board

Directors

approved

repurchase

program

under

which

the

Corporation

may

repurchase

250

million

that

could

include

repurchases

common

stock

and/or

junior

subordinated

debentures. Under

this program,

the Corporation

repurchased

2,778,298

shares of common

stock through

open market

transactions at

an average

price of

18.00

for a

total cost

of approximately

50.0

million during

the first

half of

addition, the

Corporation

redeemed

61.7

million

outstanding

junior

subordinated

debentures.

June

30,

2025,

the

Corporation

has

remaining

authorization of approximately $

88.3

million, which it expects to execute during the remainder of 2025.

From

July

2025

August

2025,

the

Corporation

repurchased

1,038,151

common

stock

for

total

cost

approximately $

21.7

million. As of August 5, 2025, the Corporation has remaining authorization

of approximately $

66.6

million.

Repurchases

under

the

program

may

executed

through

open

market

purchases,

accelerated

repurchases,

privately

negotiated

transactions

or plans,

including

plans complying

with Rule

10b5-1

under

the Exchange

Act, and/or

redemption of

junior

subordinated

debentures, and

will be

conducted

in accordance

with applicable

legal and

regulatory requirements

The Corporation

’s

repurchase

program

subject

various

factors,

including

the

Corporation’s

capital

position,

liquidity,

financial

performance

and

alternative uses

of capital,

stock trading

price, and

general market

conditions. The

repurchase program

does not

obligate it to

acquire

any

specific

number

and

does

not

have

expiration

date.

The

repurchase

program

may

modified,

suspended,

terminated

at any

time at

the Corporation’s

discretion. Any

repurchased shares

of common

stock are

expected to

be held

as treasury

shares.

The

Corporation’s

holding

company

has no

operations

and

depends

on dividends,

distributions

and

other

payments from

its

subsidiaries to fund dividend payments, stock repurchases, and to

fund all payments on its obligations, including debt obligations.

Common Stock

The following

table shows

the changes

in shares

of common

stock outstanding

for the quarters

and six-month

periods ended

June

30, 2025 and 2024:

Total

Number of Shares

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

Common stock outstanding, beginning of period

163,104,181

166,707,047

163,868,877

169,302,812

Common stock repurchased

(1)

(1,589,748)

(2,840,591)

(2,966,564)

(5,983,180)

Common stock reissued under stock-based compensation plan

556

614,300

549,285

Restricted stock forfeited

(6,638)

(1,559)

(8,818)

(3,464)

Common stock outstanding, end of period

161,507,795

163,865,453

161,507,795

163,865,453

(1)

For the quarter

and six-month

period ended

June 30, 2025

includes

6,017

and

188,266

shares, respectively,

of common stock

surrendered to

cover plan participants’

payroll and income

taxes. For

the quarter

and six-month

period ended

June 30,

2024 includes

270

and

136,308

shares, respectively,

of common

stock surrendered

to cover

plan participants’

payroll and

income taxes.

For the

quarter and

six-month period

ended June

30, 2025,

total cash

dividends declared

on shares

of common

stock amounted

29.0

million

0.18

per

share)

and

58.6

million

0.36

per

share),

respectively,

compared

26.6

million

0.16

per

share)

and

53.4

million ($

0.32

per share),

respectively,

for the

same periods

of 2024.

July 21, 2025

, the

Corporation’s

Board of

Directors

declared

quarterly

cash

dividend

0.18

per

common

share.

The

dividend

is payable

September 12, 2025

shareholders

record at the

close of business on

August 28, 2025

. The Corporation

intends to continue

to pay quarterly dividends

on common stock.

However,

the Corporation’s

common stock

dividends, including

the declaration,

timing, and

amount, remain

subject to

consideration

and approval by the Corporation’s

Board of Directors at the relevant times.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Preferred Stock

The Corporation

has

50,000,000

authorized shares of

preferred stock with

a par value

of $

1.00

, subject to

certain terms. This

stock

may

issued

series

and

the

each

series

have

such

rights

and

preferences

are

fixed

the

Corporation’s

Board

Directors

when

authorizing

the

issuance

that

particular

series

and

are

redeemable

the

Corporation’s

option.

preferred stock were outstanding as of June 30, 2025 and December 31, 2024.

Treasury Stock

The following

table shows the

changes in

shares of treasury

stock for

the quarters and

six-month periods

ended June 30,

2025 and

2024:

Total

Number of Shares

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

Treasury stock, beginning of period

60,558,935

56,956,069

59,794,239

54,360,304

Common stock repurchased

1,589,748

2,840,591

2,966,564

5,983,180

Common stock reissued under stock-based compensation plan

(556)

(614,300)

(549,285)

Restricted stock forfeited

6,638

1,559

8,818

3,464

Treasury stock, end of period

62,155,321

59,797,663

62,155,321

59,797,663

FirstBank Statutory Reserve (Legal Surplus)

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without the

prior consent of the Puerto

Rico Commissioner of Financial Institutions.

The Puerto Rico Banking Law

provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over

receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal

surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the

outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal

surplus reserve to an amount of at least 20% of the original capital contributed.

FirstBank’s

legal surplus

reserve, included

as part

retained earnings

in the

Corporation’s

consolidated statements

of financial

condition, amounted

to $

230.2

million as

of each

of June

30, 2025 and December 31, 2024. There were

transfers to the legal surplus reserve during the first half of 2025.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 12 – ACCUMULATED

OTHER COMPREHENSIVE LOSS

The

following

table

presents

the

changes

accumulated

other

comprehensive

loss for

the quarters

and

six-month

periods

ended

June 30, 2025 and 2024:

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Net unrealized holding losses on available-for-sale

debt securities:

Beginning balance

(483,277)

(655,617)

(567,338)

(640,552)

Other comprehensive income (loss)

(2)

41,205

10,560

125,266

(4,505)

Ending balance

(442,072)

(645,057)

(442,072)

(645,057)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

782

1,382

782

1,382

Other comprehensive income

Ending balance

782

1,382

782

1,382

(1)

All amounts presented are net of tax.

(2)

Net unrealized holding gains (losses) on available-for-sale debt securities have no tax effect because securities are either tax-exempt, held by an IBE, or have a full deferred tax asset valuation allowance.

NOTE 13 – EMPLOYEE BENEFIT PLANS

The Corporation

maintains two frozen

qualified noncontributory

defined benefit pension

plans (the “Pension

Plans”), and

a related

complementary

post-retirement

benefit

plan

(the

“Postretirement

Benefit

Plan”)

covering

medical

benefits

and

life

insurance

after

retirement

that

obtained

the

Banco

Santander

Puerto

Rico

(“BSPR”)

acquisition

September

2020.

One

defined

benefit

pension

plan covers

substantially all

of BSPR’s

former

employees who

were active

before January

1, 2007,

while

the other

defined

benefit pension plan covers personnel of an institution previously acquired

by BSPR. Benefits are based on salary and years of service.

The accrual of benefits under the Pension Plans is frozen to all participants.

The following table presents the components of net periodic benefit for the indicated

periods:

Affected Line Item

in the Consolidated

Quarter Ended June 30,

Six-Month Period Ended June 30,

Statements of Income

2025

2024

2025

2024

(In thousands)

Net periodic benefit, pension plans:

Interest cost

Other expenses

930

901

1,858

1,802

Expected return on plan assets

Other expenses

(998)

(1,018)

(1,996)

(2,036)

Net periodic benefit, pension plans

(68)

(117)

(138)

(234)

Net periodic cost, postretirement plan

Other expenses

Net periodic benefit

(62)

(101)

(125)

(202)

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 14 –

INCOME TAXES

The Corporation is subject to Puerto Rico income tax on

its income from all sources. Under the Puerto Rico Internal

Revenue Code,

as amended (the “PR Tax

Code”), the Corporation and its subsidiaries are treated as

separate taxable entities and are not entitled to file

consolidated tax returns. However,

certain subsidiaries that are

organized as limited liability

companies with a partnership

election are

treated

pass-through

entities

for

Puerto

Rico

tax

purposes.

Furthermore,

the

Corporation

conducts

business

through

entities

with

special tax

treatments, including

an IBE

unit of

the Bank

and through

FirstBank Overseas

Corporation,

each of

which are

generally

exempt

from

Puerto

Rico

income

taxation

under

the

International

Banking

Entity

Act

Puerto

Rico

(“IBE

Act”),

and

through

wholly-owned

subsidiary

that

engages

certain

Puerto

Rico

qualified

investing

and

lending

activities

with

certain

tax

advantages

under Act 60 of 2019.

For the

quarter and

six-month period

ended June

30, 2025,

the Corporation

recorded an

income tax

expense of

22.7

million and

45.9

million, respectively,

compared to an

income tax expense of

25.5

million and $

49.5

million, respectively,

for the same periods

in 2024. The

decrease in income

tax expense for

the second quarter

and six-month period

ended June 30,

2025 was driven

by a lower

estimated annual

effective tax rate

due to a

higher proportion of

exempt to taxable

income and a

0.5

million tax contingency

accrual

release during the second quarter of

2025 in connection with the expiration

of the statute of limitation on some

uncertain tax positions.

The

Corporation’s

estimated

annual

effective

tax

rate,

excluding

entities

with

pre-tax

losses

from

which

tax

benefit

cannot

recognized and discrete items, was

22.8

% for the first six months of 2025, compared to

24.1

% for the same period in 2024.

Income

tax

expense

also

includes

USVI

income

taxes,

well

applicable

U.S.

federal

and

state

taxes.

Puerto

Rico

corporation, FirstBank

is treated as

a foreign corporation

for U.S. and

USVI income tax

purposes and is

generally subject to

U.S. and

USVI income

tax only

on its

income from

sources within

the U.S.

and USVI

or income

effectively

connected with

the conduct

of a

trade or business in those jurisdictions.

Such tax paid in the U.S. and USVI

is also creditable against the Corporation’s

Puerto Rico tax

liability,

subject to

certain conditions

and limitations.

For the

quarter and

six-month period

ended June

30, 2025,

FirstBank incurred

current income

tax expense

of approximately

2.8

million and

5.4

million, respectively,

related to

its U.S.

operations, compared

2.9

million and $

5.1

million, respectively,

for the comparable periods in 2024.

As of June

30, 2025, the

Corporation had

a net deferred

tax asset of

134.8

million, net of

a valuation allowance

of $

103.3

million

against the deferred tax asset, compared to a net deferred tax asset of $

136.4

million, net of a valuation allowance of $

119.1

million, as

of December

31, 2024.

The net deferred

tax asset

of the

Corporation’s

banking subsidiary,

FirstBank, amounted

to $

134.8

million as

June

30,

2025,

net

valuation

allowance

82.8

million,

compared

net

deferred

tax

asset

136.4

million,

net

valuation allowance

of $

98.5

million, as

of December

31, 2024.

The decrease

in the

net deferred

tax asset

was mainly

related to

the

usage of

alternative minimum

tax credits.

Meanwhile, the

decrease in the

valuation allowance

was related primarily

to changes in

the

market

value

of available

-for-sale

debt

securities,

which

resulted

in an

equal change

in the

net deferred

tax asset

without

impacting

earnings.

The Corporation

maintains a

full valuation

allowance for

its deferred

tax assets

associated with

capital loss

carryforwards,

net operating loss (“NOL”) carryforwards and unrealized losses of available

-for-sale debt securities.

See Note 20

– “Income Taxes,”

to the audited

consolidated financial statements

included in the

2024 Annual Report

on Form 10-K

for information on the tax

treatment of NOL carryforwards and dividend

received deduction under the PR Tax

Code and the limitation

under Section 382 of the U.S. Internal Revenue Code.

The amount

of unrecognized

tax benefits

may increase

or decrease

in the

future for

various reasons,

including adding

amounts for

current tax

year positions,

expiration of

open income

tax returns

due to the

statute of

limitations, changes

in management’s

judgment

about the level of uncertainty,

the status of examinations, litigation and legislative activity,

and the addition or elimination of uncertain

tax positions.

The statute

of limitations

under the

PR Tax

Code is

four years

after a

tax return

is due

or filed,

whichever is

later; the

statute of

limitations for

U.S. and

USVI income

tax purposes

is three

years after

a tax

return is

due or

filed, whichever

is later.

For

U.S. and

USVI income

tax purposes,

all tax

years subsequent

to 2020

remain open

to examination.

For Puerto

Rico tax

purposes, all

tax years subsequent to 2019 remain open to examination.

On July 17, 2025, the Government of Puerto Rico enacted Act 65-2025 which, among other things, allows domestic LLCs owned

by legal entities to be treated as disregarded entities. As this legislation was enacted after the Corporation’s reporting date of June 30,

2025, no adjustments have been made to the financial statements as of that date. However, management is currently evaluating the

implications of this new law. As of June 30, 2025, the Corporation maintained a full valuation allowance of $16.8 million against its

deferred tax assets related to NOL carryforwards at the holding company level, which based on preliminary analysis, the Corporation

anticipates that it could significantly reduce the need for a valuation allowance.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 15 –

FAIR VALUE

Fair Value

Measurement

ASC Topic

820, “Fair Value

Measurement,” defines

fair value as the

exchange price that

would be received

for an asset or

paid to

transfer

liability

(an

exit

price)

the

principal

most

advantageous

market

for

the

asset

liability

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

fair value

hierarchy for

classifying assets

and

liabilities, which is based on

whether the inputs to

the valuation techniques used

to measure fair value are

observable or unobservable.

One of three levels of inputs may be used to measure fair value:

Level 1

Valuations

Level

assets

and

liabilities

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

luations of

Level 2 assets

and liabilities

are based on

observable inputs

other than Level

1 prices, such

as quoted

prices for similar assets or liabilities, or other inputs that are

observable or can be corroborated by observable market

data for substantially the full term of the assets or liabilities.

Level 3

luations of Level 3 assets and

liabilities are based on unobservable

inputs that are supported by

little or no market

activity and

are significant to

the fair value

of the assets

or liabilities. Level

3 assets and

liabilities include financial

instruments

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

requires

significant management judgment as to the estimation.

See Note 23 –

“Fair Value,”

to the audited consolidated

financial statements included

in the 2024 Annual

Report on Form 10-K

for

a description of the valuation methodologies used to measure financial instruments

at fair value on a recurring basis.

There

were

transfers

assets

and

liabilities

measured

fair

value

between

Level

and

Level

measurements

during

the

quarters and six-month periods ended June 30, 2025 and 2024.

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

the indicated dates:

As of June 30, 2025

As of December 31, 2024

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Available-for-sale debt securities:

U.S. Treasury securities

217,432

59,189

Noncallable U.S. agencies debt securities

548,336

533,296

Callable U.S. agencies debt securities

989,873

1,307,035

MBS

2,735,305

3,781

(1)

2,739,086

2,658,967

4,195

(1)

2,663,162

Puerto Rico government obligation

1,576

1,620

Other investments

500

1,000

Equity securities

4,971

4,886

Derivative assets

298

318

Liabilities:

Derivative liabilities

324

150

(1) Related to private label MBS.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The table

below presents

a reconciliation

of the

beginning and

ending balances

of all

assets measured

at fair

value on

a recurring

basis using significant unobservable inputs (Level 3) for the quarters

and six-month periods ended June 30, 2025 and 2024:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

Level 3 Instruments Only

Securities Available

for Sale

(1)

Securities Available

for Sale

(1)

Securities Available

for Sale

(1)

Securities Available

for Sale

(1)

(In thousands)

Beginning balance

6,633

6,275

6,815

6,200

Total gains (losses):

Included in other comprehensive income (unrealized)

245

175

291

414

Included in earnings (unrealized)

(2)

(60)

Purchases

1,000

Principal repayments and amortization

(3)

(1,024)

(291)

(1,257)

(524)

Ending balance

5,857

7,099

5,857

7,099

___________________

(1)

Amounts mostly related to private label MBS.

(2)

Changes in unrealized gains (losses) included in earnings were

recognized within provision for credit losses – benefit (expense)

and relate to assets still held as of the reporting date.

(3)

For the quarter and six-month period ended June 30,

2025, includes a $

0.5

million repayment of a matured debt security.

The

tables

below

present

quantitative

information

for

significant

assets

measured

fair

value

recurring

basis

using

significant unobservable inputs (Level 3) as of the indicated dates:

June 30, 2025

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

3,781

Discounted cash flows

Discount rate

16.1%

Prepayment rate

1.6%

3.1%

2.5%

Projected cumulative loss rate

0.1%

6.9%

3.6%

Puerto Rico government obligation

1,576

Discounted cash flows

Discount rate

11.5%

Projected cumulative loss rate

24.3%

December 31, 2024

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

4,195

Discounted cash flows

Discount rate

16.6%

Prepayment rate

0.0%

5.7%

3.2%

Projected cumulative loss rate

0.1%

10.1%

4.9%

Puerto Rico government obligation

1,620

Discounted cash flows

Discount rate

11.5%

Projected cumulative loss rate

23.9%

Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label

MBS: The

significant unobservable

inputs in

the valuation

include probability

of default,

the loss

severity

assumption,

and prepayment

rates. Shifts

in those

inputs would

result in different

fair value

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

isolation

would

generally

result

adverse

effect

the

fair

value

the

instruments. The Corporation modeled meaningful and possible

shifts of each input to assess the effect on the fair value estimation.

Puerto Rico Government Obligation:

The significant unobservable input used in the

fair value measurement is the assumed loss rate of

the

underlying

residential

mortgage

loans

that

collateralize

pass-through

MBS

guaranteed

the

PRHFA.

significant

increase

(decrease) in

the assumed

rate would

lead to

a (lower)

higher fair

value estimate.

See Note

2 –

“Debt Securities”

for information

the methodology used to calculate the fair value of this debt security.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Additionally, fair value

is used on a non-recurring basis to evaluate certain assets in accordance with GAAP.

For

the

quarter

and

six-month

period

ended

June

30,

2025,

the

Corporation

recorded

losses

valuation

adjustments

for

assets

recognized at fair value on a non-recurring basis and still held at June 30,

2025, as shown in the following table:

Carrying value as of June 30, 2025

Related to losses

recorded for the

Quarter Ended

June 30, 2025

Related to losses

recorded for the

Six-Month Period Ended

June 30, 2025

Losses recorded for the

Quarter Ended

June 30, 2025

Losses recorded for the

Six-Month Period Ended

June 30, 2025

(In thousands)

Level 3:

Loans receivable

(1)

4,338

8,967

(455)

(684)

OREO

(2)

371

620

(153)

(152)

(1)

Consists mainly of

collateral dependent commercial

and construction

loans. The

Corporation generally measured

losses based

on the fair

value of the

collateral. The

Corporation derived

the fair values from

external appraisals that

took into consideration prices

in observed transactions

involving similar assets

in similar locations but

adjusted for specific characteristics

and

assumptions

the

collateral

(e.g.,

absorption

rates),

which

are

not

market

observable.

There

were

adjustments

applied

appraisals

for

the

quarter

ended

June

30,

2025.

The

adjustment applied on appraisals was of

% for the six-month period ended June 30, 2025.

(2)

The Corporation

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

assets in

similar locations

but adjusted

for specific

characteristics and assumptions of

the properties (e.g., absorption

rates and net operating income

of income producing properties),

which are not market observable.

Losses were related to

market valuation adjustments after the transfer of the loans to the

OREO portfolio. The adjustment applied on appraisals for the quarter

and six-month period ended June 30, 2025 was

% .

For

the

quarter

and

six-month

period

ended

June

30,

2024,

the

Corporation

recorded

losses

valuation

adjustments

for

assets

recognized at fair value on a non-recurring basis and still held at June 30,

2024, as shown in the following table:

Carrying value as of June 30, 2024

Related to losses

recorded for the

Quarter Ended

June 30, 2024

Related to losses

recorded for the

Six-Month Period Ended

June 30, 2024

Losses recorded for the

Quarter Ended

June 30, 2024

Losses recorded for the

Six-Month Period Ended

June 30, 2024

(In thousands)

Level 3:

Loans receivable

(1)

25,930

26,117

(107)

(144)

OREO

(2)

1,044

1,292

(55)

(171)

Level 2:

(1)

Consists mainly of

collateral dependent commercial

and construction

loans. The

Corporation generally measured

losses based

on the fair

value of the

collateral. The

Corporation derived

the fair values from

external appraisals that

took into consideration prices

in observed transactions

involving similar assets

in similar locations but

adjusted for specific characteristics

and

assumptions of the

collateral (e.g., absorption

rates), which are

not market observable.

The adjustments applied

on appraisals were

% for the quarter

and six-month period

ended June

30, 2024.

(2)

The Corporation

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

assets in

similar locations

but adjusted

for specific

characteristics and assumptions of

the properties (e.g., absorption

rates and net operating income

of income producing properties),

which are not market observable.

Losses were related to

market valuation adjustments

after the transfer

of the loans

to the OREO

portfolio. The adjustments

applied ranged from

% to

% for the

quarter and six-month

period ended

June 30,

2024.

See Note 23 –

“Fair Value,”

to the audited

consolidated financial statements

included in the

2024 Annual Report

on Form 10-K

for

qualitative

information

regarding

the

fair

value

measurements

for

Level

financial

instruments

measured

fair

value

nonrecurring basis.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

the

carrying

value,

estimated

fair

value

and

estimated

fair

value

level

the

hierarchy

financial

instruments as of the indicated dates:

Total Carrying Amount

in Statement of

Financial Condition as

of June 30, 2025

Fair Value Estimate as

June 30, 2025

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

736,710

Available-for-sale debt

securities (fair value)

4,496,803

217,432

4,273,514

5,857

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

307,286

Less: ACL on held-to-maturity debt securities

(765)

Held-to-maturity debt securities, net of ACL

306,521

299,846

204,140

95,706

Equity securities (amortized cost)

40,231

(1)

Other equity securities (fair value)

4,971

Loans held for sale (lower of cost or market)

9,857

10,031

Loans held for investment:

Loans held for investment (amortized cost)

12,870,002

Less: ACL for loans and finance leases

(248,578)

Loans held for investment, net of ACL

12,621,424

12,499,610

MSRs (amortized cost)

24,130

42,617

Derivative assets (fair value)

(2)

298

Liabilities:

Deposits (amortized cost)

16,554,038

16,554,177

Long-term advances from the FHLB (amortized cost)

320,000

322,142

Derivative liabilities (fair value)

(2)

324

(1) Includes FHLB stock with a carrying value of $

26.1

million, which is considered restricted.

(2) Includes interest rate swap agreements, forward contracts, and interest rate lock commitments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Total Carrying Amount

in Statement of

Financial Condition as

of December 31, 2024

Fair Value Estimate as

December 31, 2024

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

1,159,415

Available-for-sale debt

securities (fair value)

4,565,302

59,189

4,499,298

6,815

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

317,786

Less: ACL on held-to-maturity debt securities

(802)

Held-to-maturity debt securities, net of ACL

316,984

308,040

212,432

95,608

Equity securities (amortized cost)

47,132

(1)

Other equity securities (fair value)

4,886

Loans held for sale (lower of cost or market)

15,276

Loans held for investment:

Loans held for investment (amortized cost)

12,746,556

Less: ACL for loans and finance leases

(243,942)

Loans held for investment, net of ACL

12,502,614

12,406,405

MSRs (amortized cost)

25,019

43,046

Derivative assets (fair value)

(2)

318

Liabilities:

Deposits (amortized cost)

16,871,298

16,872,963

Long-term advances from the FHLB (amortized cost)

500,000

500,128

Junior subordinated debentures (amortized cost)

61,700

61,752

Derivative liabilities (fair value)

(2)

150

(1) Includes FHLB stock with a carrying value of $

34.0

million, which is considered restricted.

(2) Includes interest rate swap agreements, forward contracts, and interest rate lock commitments.

The short-term nature

of certain assets and

liabilities result in their

carrying value approximating

fair value. These include

cash and

cash

due

from

banks

and

other

short-term

assets,

such

FHLB

stock.

Certain

assets,

the

most

significant

being

premises

and

equipment,

goodwill

and

other

intangible

assets, are

not

considered

financial

instruments

and

are

not

included

above. Accordingly,

this

fair

value

information

is not

intended

to, and

does not,

represent

the Corporation’s

underlying

value.

Many of

these assets

and

liabilities that

are subject

to the

disclosure requirements

are not

actively traded,

requiring management

to estimate

fair values.

These

estimates

necessarily

involve

the

use

assumptions

and

judgment

about

wide

variety

factors,

including

but

not

limited

to,

relevancy of market prices of comparable instruments, expected future

cash flows, and appropriate discount rates.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 16 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

ASC Topic

606, “Revenue from

Contracts with Customers” (“ASC

Topic

606”), revenues are

recognized when

control

promised

goods

services

transferred

customers

and

amount

that

reflects

the

consideration

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

within the

scope of

ASC Topic

606, the

Corporation assesses

the goods

or services

that are

promised within

each contract,

identifies

the

respective

performance

obligations,

and

assesses

whether

each

promised

good

service

distinct.

The

Corporation

then

recognizes

as revenue

the amount

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

Disaggregation of Revenue

The

following

tables

summarize

the

Corporation’s

revenue,

which

includes

net

interest

income

financial

instruments

that

outside of

ASC Topic

606 and

non-interest income,

disaggregated by

type of

service and

business segment

for the

quarters and

six-

month periods ended June 30, 2025 and 2024:

Quarter ended June 30, 2025

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income (loss)

(1)

17,670

145,902

42,056

(27,130)

20,442

16,919

215,859

Service charges and fees on deposit accounts

7,365

1,487

147

757

9,756

Insurance commission income

2,295

189

2,538

Card and processing income

10,375

229

1,245

11,880

Other service charges and fees

1,720

285

131

2,171

Not in scope of ASC Topic

606

(1)

3,485

609

157

345

(10)

4,605

Total non-interest income

3,498

22,364

1,895

862

2,312

30,950

Total Revenue (Loss)

21,168

168,266

43,951

(27,111)

21,304

19,231

246,809

Quarter ended June 30, 2024

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income (loss)

(1)

18,185

135,852

38,519

(27,066)

18,960

15,178

199,628

Service charges and fees on deposit accounts

7,666

1,125

155

779

9,725

Insurance commission income

2,563

193

2,786

Card and processing income

9,848

226

1,418

11,523

Other service charges and fees

1,753

238

613

153

2,798

Not in scope of ASC Topic

606

(1)

3,565

1,304

160

122

5,206

Total non-interest income

3,606

23,134

1,749

122

845

2,582

32,038

Total Revenue (Loss)

21,791

158,986

40,268

(26,944)

19,805

17,760

231,666

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Six-Month Period Ended June 30, 2025

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income (loss)

(1)

35,256

288,917

84,865

(54,789)

41,231

32,776

428,256

Service charges and fees on deposit accounts

14,680

2,928

289

1,499

19,396

Insurance commission income

7,880

370

8,343

Card and processing income

19,825

633

2,844

23,355

Other service charges and fees

3,301

567

270

4,213

Not in scope of ASC Topic

606

(1)

7,046

2,871

550

170

714

11,377

Total non-interest income

7,080

48,557

4,152

170

1,716

5,009

66,684

Total Revenue (Loss)

42,336

337,474

89,017

(54,619)

42,947

37,785

494,940

Six-Month Period Ended June 30, 2024

Mortgage

Banking

Consumer

(Retail)

Banking

Commercial

and Corporate

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Net interest income (loss)

(1)

36,331

268,991

76,095

(51,756)

36,945

29,542

396,148

Service charges and fees on deposit accounts

15,283

2,281

303

1,520

19,387

Insurance commission income

7,797

410

8,293

Card and processing income

19,487

450

109

2,789

22,835

Other service charges and fees

3,570

340

1,234

294

5,537

Not in scope of ASC Topic

606

(1)

6,628

2,716

330

233

9,969

Total non-interest income

6,727

48,853

3,401

233

1,752

5,055

66,021

Total Revenue (Loss)

43,058

317,844

79,496

(51,523)

38,697

34,597

462,169

(1)

Most of the Corporation’s revenue is not within the scope of ASC Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities, as well as other non-interest income from loans,

leases, investment securities and derivative financial instruments.

For the quarters

and six-month periods

ended June 30,

2025 and 2024,

most of the

Corporation’s

revenue within the

scope of ASC

Topic 606 was related

to performance obligations satisfied at a point in time.

See

Note

–

“Revenue

from

Contracts

with

Customers,”

the

audited

consolidated

financial

statements

included

the

2024

Annual Report on Form 10-K for a discussion of major revenue streams under

the scope of ASC Topic 606.

Contract Balances

June

30,

2025

and

December

31,

2024,

the

Corporation

had

contract

assets

recorded

its

consolidated

financial

statements. In addition, the balances of contract liabilities as of those

dates were not significant.

Other

The Corporation

also did

not have

any material contract

acquisition costs

and did

not make

any significant

judgments or

estimates

in recognizing revenue for financial reporting purposes.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 17 – SEGMENT INFORMATION

The Corporation’s

operating segments

are based

primarily on

the Corporation’s

lines of

business for

its operations

in Puerto

Rico,

the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

June

30,

2025,

the

Corporation

had

six

reportable

segments:

Mortgage

Banking;

Consumer

(Retail)

Banking;

Commercial

and

Corporate

Banking;

Treasury and

Investments; United States Operations;

and Virgin

Islands Operations. The Chief

Executive Officer (“CEO”),

who is the

designated

chief

operating

decision

maker

(“CODM”),

ultimate

decision

maker,

evaluates

performance

and

allocates

resources

based

on financial

information

provided

by management.

In determining

the reportable

segments,

the

Corporation

considers

factors

such as

the organizational

structure, nature

of the

products,

distribution

channels, customer

relationship

management,

and economic

characteristics

the

business

lines.

The

Corporation

evaluates

the

performance

the

segments

based

segment

income

loss,

which consists of

net interest income,

the provision for

credit losses, non-interest

income and

non-interest expenses.

Segment income

loss

measured

pre-tax

basis,

consistent

with

the

Corporation’s

consolidated

financial

statements

under

GAAP.

The

total

segment income or loss equals

consolidated pre-tax income or

loss, and no adjustments or

reconciliations are necessary.

The segments

are also

evaluated based

on the

average volume

of their

interest-earning assets

(net of

fair value

adjustments of

investment securities

and the ACL).

The

Mortgage

Banking

segment

consists

the

origination,

sale,

and

servicing

variety

residential

mortgage

loans.

The

Mortgage

Banking

segment

also

acquires

and

sells

mortgages

the

secondary

market.

The

Consumer

(Retail)

Banking

segment

includes the

Corporation’s

consumer lending,

commercial lending

to small

businesses, commercial

transaction banking,

and deposit-

taking activities

primarily conducted

through its

branch network

and loan

centers. The

Commercial and

Corporate Banking

segment

consists of the

Corporation’s

lending and other

services for large

customers represented

by specialized and

middle-market clients and

the government sector.

The Commercial and Corporate Banking segment

consists of the Corporation’s

commercial lending (other than

small

business

commercial

loans)

and

commercial

deposit-taking

activities

(other

than

the

government

sector).

The

Treasury

and

Investments segment

is responsible for

the Corporation’s

investment portfolio

and treasury functions

that are executed

to manage and

enhance

liquidity.

Under

the

Corporation’s

fund

transfer

pricing

(“FTP”)

methodology,

the

Treasury

and

Investments

segment

centrally

manages

funding

providing

funds

the

Mortgage

Banking,

Consumer

(Retail)

Banking,

Commercial

and

Corporate

Banking, United States

Operations, and Virgin

Islands Operations segments

to support their lending

activities and compensating

these

units

for

deposits

gathered.

The

mismatch

between

funds

provided

and

funds

used

managed

the

Treasury

and

Investments

segment.

The

funds

transfer

pricing

charged

credited

are

calculated

using

the

SOFR/swap

curve

with

term

rates,

adjusted

for

funding

spread

that

reflects

the

Corporation’s

cost

funds.

The

methodology,

which

performed

based

matched

maturity

funding,

ensures a

market-based

allocation of

funding costs

and credits,

impacting segment

profitability

by aligning

internal pricing

with external market conditions. The United States Operations segment

consists of all banking activities conducted by FirstBank in the

United States

mainland, including

commercial and

consumer banking

services. The

Virgin

Islands Operations

segment consists of

all

banking activities conducted by the Corporation in the USVI and the

BVI, including commercial and consumer banking services.

Prior period segment results

have been recast to

reflect certain refinements made

to enhance internal reporting

described in Note 25

– “Segment

Information”

to the

audited consolidated

financial statements

included

in the

2024 Annual

Report on

Form 10-K.

Also,

see Note

1 –

“Nature of

Business and

Summary of

Significant Accounting

Policies” to

the audited

consolidated financial

statements

included in the 2024

Annual Report on Form

10-K for the accounting

policies of the segments and

information related to the

adoption

of ASU 2023-07.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following tables present information about the reportable segments for

the indicated periods:

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended June 30, 2025:

Interest income

32,330

105,243

61,419

33,145

38,157

7,896

278,190

Net (charge) credit for transfer of funds

(14,660)

79,150

(15,759)

(57,180)

(2,502)

10,951

Interest expense

(38,491)

(3,604)

(3,095)

(15,213)

(1,928)

(62,331)

Net interest income (loss)

17,670

145,902

42,056

(27,130)

20,442

16,919

215,859

Provision for credit losses - expense (benefit)

351

17,203

701

(3)

2,015

320

20,587

Non-interest income

3,498

22,364

1,895

862

2,312

30,950

Non-interest expenses:

Employees’ compensation and benefits

6,762

35,405

4,992

1,027

7,268

4,604

60,058

Occupancy and equipment

1,496

14,834

1,530

180

1,933

2,324

22,297

Business promotion

266

2,402

216

180

229

202

3,495

Professional fees

1,492

6,622

997

361

1,086

1,051

11,609

Taxes, other than income taxes

446

4,293

576

112

104

181

5,712

FDIC deposit insurance

417

770

673

237

138

2,235

Net (gain) loss on OREO operations

(840)

145

104

(591)

Credit and debit card processing expenses

6,845

214

685

7,747

Other non-interest expenses

(1)

789

6,323

1,366

637

731

929

10,775

Total non-interest expenses

10,828

77,494

10,709

2,497

11,591

10,218

123,337

Segment income (loss)

9,989

73,569

32,541

(29,605)

7,698

8,693

102,885

Average interest-earning assets

2,164,350

4,018,961

3,575,929

5,638,582

2,419,981

457,177

18,274,980

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Quarter ended June 30, 2024:

Interest income

31,594

105,256

62,649

28,912

36,413

7,421

272,245

Net (charge) credit for transfer of funds

(13,409)

69,962

(20,154)

(44,035)

(2,475)

10,111

Interest expense

(39,366)

(3,976)

(11,943)

(14,978)

(2,354)

(72,617)

Net interest income (loss)

18,185

135,852

38,519

(27,066)

18,960

15,178

199,628

Provision for credit losses - (benefit) expense

(9,832)

26,551

(2,084)

(3,524)

434

11,605

Non-interest income

3,606

23,134

1,749

122

845

2,582

32,038

Non-interest expenses:

Employees’ compensation and benefits

6,611

33,889

4,712

848

7,015

4,381

57,456

Occupancy and equipment

1,451

14,583

1,423

178

1,980

2,236

21,851

Business promotion

404

3,017

282

187

276

193

4,359

Professional fees

1,960

6,923

989

371

1,040

1,148

12,431

Taxes, other than income taxes

450

4,069

474

103

140

172

5,408

FDIC deposit insurance

434

809

693

222

158

2,316

Net (gain) loss on OREO operations

(1,503)

(2,205)

(3,609)

Credit and debit card processing expenses

6,557

208

839

7,607

Other non-interest expenses

(1)

672

6,448

1,513

586

666

978

10,863

Total non-interest expenses

10,479

76,295

8,089

2,273

11,344

10,202

118,682

Segment income (loss)

21,144

56,140

34,263

(29,277)

11,985

7,124

101,379

Average interest-earning assets

2,122,474

4,022,781

3,503,782

5,842,575

2,119,230

419,052

18,029,894

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following tables present information about the reportable segments for

the indicated periods:

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Six-Month Period Ended June 30, 2025

Interest income

64,394

210,996

123,291

65,783

75,557

15,234

555,255

Net (charge) credit for transfer of funds

(29,138)

154,247

(31,039)

(111,897)

(3,541)

21,368

Interest expense

(76,326)

(7,387)

(8,675)

(30,785)

(3,826)

(126,999)

Net interest income (loss)

35,256

288,917

84,865

(54,789)

41,231

32,776

428,256

Provision for credit losses - expense (benefit)

1,027

37,223

3,355

(8)

2,864

936

45,397

Non-interest income

7,080

48,557

4,152

170

1,716

5,009

66,684

Non-interest expenses:

Employees’ compensation and benefits

13,734

72,024

10,756

2,167

14,267

9,247

122,195

Occupancy and equipment

3,013

29,963

3,134

353

3,811

4,653

44,927

Business promotion

469

4,722

434

350

502

296

6,773

Professional fees

3,032

12,866

2,039

709

2,034

2,415

23,095

Taxes, other than income taxes

917

8,687

1,181

232

221

352

11,590

FDIC deposit insurance

832

1,548

1,341

474

276

4,471

Net (gain) loss on OREO operations

(1,936)

181

(1,720)

Credit and debit processing expenses

10,847

474

1,531

12,857

Other non-interest expenses

(1)

1,761

13,056

2,778

1,285

1,442

1,849

22,171

Total non-interest expenses

21,822

153,713

22,318

5,096

22,756

20,654

246,359

Segment income (loss)

19,487

146,538

63,344

(59,707)

17,327

16,195

203,184

Average interest-earning assets

2,160,476

4,037,398

3,563,429

5,684,108

2,405,923

441,720

18,293,054

Mortgage

Banking

Consumer

(Retail) Banking

Commercial and

Corporate

Banking

Treasury and

Investments

United States

Operations

Virgin Islands

Operations

Total

(In thousands)

Six-Month Period Ended June 30, 2024

Interest income

63,151

209,900

124,799

56,970

71,178

14,752

540,750

Net (charge) credit for transfer of funds

(26,820)

136,520

(40,692)

(83,665)

(4,713)

19,370

Interest expense

(77,429)

(8,012)

(25,061)

(29,520)

(4,580)

(144,602)

Net interest income (loss)

36,331

268,991

76,095

(51,756)

36,945

29,542

396,148

Provision for credit losses - (benefit) expense

(10,098)

42,462

(5,010)

(9)

(3,442)

(131)

23,772

Non-interest income

6,727

48,853

3,401

233

1,752

5,055

66,021

Non-interest expenses:

Employees’ compensation and benefits

13,362

68,876

9,630

1,840

14,288

8,966

116,962

Occupancy and equipment

2,874

28,871

2,784

378

3,904

4,421

43,232

Business promotion

636

5,789

516

403

511

346

8,201

Professional fees

4,290

13,880

1,928

688

2,127

2,194

25,107

Taxes, other than income taxes

869

7,959

911

198

268

332

10,537

FDIC deposit insurance

1,008

1,880

1,610

533

387

5,418

Net (gain) loss on OREO operations

(3,026)

(2,159)

122

(5,061)

Credit and debit processing expenses

11,368

402

1,583

13,358

Other non-interest expenses

(1)

1,489

13,049

3,018

1,190

1,295

1,810

21,851

Total non-interest expenses

21,502

151,672

18,640

4,697

22,933

20,161

239,605

Segment income (loss)

31,654

123,710

65,866

(56,211)

19,206

14,567

198,792

Average interest-earning assets

2,127,479

4,006,806

3,501,142

5,871,437

2,103,523

416,140

18,026,527

(1) Consists of communication expenses and the expense categories described

in Note 19 - “Other Non-Interest Expenses,” to the audited consolidated

financial statements included in the 2024 Annual Report on Form 10-K.

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

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Average assets:

Total average earning assets for segments

18,274,980

18,029,894

18,293,054

18,026,527

Average non-earning assets

(1)

766,226

854,537

780,918

844,838

Total consolidated average assets

19,041,206

18,884,431

19,073,972

18,871,365

(1)

Includes, among other things, non-interest-earning cash, premises

and equipment, net deferred tax asset, ROU assets, and accrued interest receivable

on loans and investments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 18 – SUPPLEMENTAL

STATEMENTS

OF CASH FLOWS INFORMATION

Supplemental statements of cash flows information is as follows for

the indicated periods:

Six-Month Period Ended June 30,

2025

2024

(In thousands)

Cash paid for:

Interest

129,773

134,995

Income tax

42,334

49,236

Operating cash flow from operating leases

8,845

8,693

Non-cash investing and financing activities:

Additions to OREO

2,775

4,599

Additions to auto and other repossessed assets

31,074

29,590

Capitalization of servicing assets

1,279

1,107

Loan securitizations

84,537

58,911

Loans held for investment transferred to held for sale

118

Payable related to unsettled purchases of investment securities

5,007

Right-of-use assets obtained in exchange for operating lease liabilities,

net of lease terminations

366

5,112

Payable related to unsettled common stock repurchases

760

Redemption of investments in FBP Statutory Trusts

1,850

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 19 – REGULATORY

MATTERS, COMMITMENTS

AND CONTINGENCIES

Regulatory Matters

The

Corporation

and

FirstBank

are

each

subject

various

regulatory

capital

requirements

imposed

the

U.S.

federal

banking

agencies. Failure

to meet

minimum capital

requirements can

result in

certain mandatory

and possibly

additional discretionary

actions

by regulators

that, if

undertaken, could

have a

direct material

adverse effect

on the

Corporation’s

financial statements

and

activities.

Under

capital

adequacy

guidelines

and

the

regulatory

framework

for

prompt

corrective

action,

the

Corporation

must

meet

specific

capital

guidelines

that

involve

quantitative

measures

the Corporation’s

and

FirstBank’s

assets,

liabilities,

and

certain

off-balance

sheet items

as calculated

under regulatory

accounting practices.

The Corporation’s

capital amounts

and classification

are also

subject

to qualitative judgments and

adjustment by the regulators with respect

to minimum capital requirements, components,

risk weightings,

and

other

factors.

June

30,

2025

and

December

31,

2024,

the

Corporation

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

for

capital

adequacy

purposes and

FirstBank exceeded

the minimum

regulatory

capital ratios

be considered

well-

capitalized

institution

under

the

regulatory

framework

for

prompt

corrective

action.

June

30,

2025,

management

does

not

believe that any condition has changed or event has occurred that would have

changed the institution’s status.

The Corporation and FirstBank

compute risk-weighted assets

using the standardized

approach required by the

U.S. Basel III capital

rules (“Basel III rules”).

The

Basel

III

rules

require

the

Corporation

maintain

additional

capital

conservation

buffer

2.5

certain

regulatory

capital

ratios

avoid

limitations

both

(i)

capital

distributions

(

e.g.

repurchases

capital

instruments,

dividends

and

interest

payments on capital instruments) and (ii) discretionary bonus payments

to executive officers and heads of major business lines.

The regulatory capital position of the Corporation and FirstBank as of

June 30, 2025 and December 31, 2024 were as follows:

Regulatory Requirements

Actual

For Capital Adequacy Purposes

To be Well

-Capitalized

Thresholds

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of June 30, 2025

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,384,848

17.87

1,067,881

8.0

N/A

FirstBank

2,329,536

17.46

1,067,522

8.0

1,334,402

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,217,438

16.61

600,683

4.5

N/A

FirstBank

2,062,181

15.45

600,481

4.5

867,361

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,217,438

16.61

800,911

6.0

N/A

FirstBank

2,162,181

16.20

800,641

6.0

1,067,522

8.0

Leverage ratio

First BanCorp.

2,217,438

11.41

777,428

4.0

N/A

FirstBank

2,162,181

11.13

777,234

4.0

971,543

5.0

As of December 31, 2024

(1)

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,404,581

18.02

1,067,380

8.0

N/A

FirstBank

2,369,441

17.76

1,067,033

8.0

1,333,791

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,177,748

16.32

600,401

4.5

N/A

FirstBank

2,102,512

15.76

600,206

4.5

866,964

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,177,748

16.32

800,535

6.0

N/A

FirstBank

2,202,512

16.51

800,275

6.0

1,067,033

8.0

Leverage ratio

First BanCorp.

2,177,748

11.07

786,937

4.0

N/A

FirstBank

2,202,512

11.20

786,712

4.0

983,390

5.0

(1)

As of December 31, 2024, capital

ratios reflect the delay in the full

effect of CECL.

The Corporation elected the option provided by

the interim final rule issued by

the federal banking agencies on March 31,

2020, in response to the impact of

COVID-19,

to temporarily delay the effects of CECL on regulatory capital during a five-year transition period which ended on January 1, 2025.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Commitments

The Corporation enters

into financial instruments

with off-balance sheet

risk in the normal

course of business to

meet the financing

needs

its

customers.

These

financial

instruments

may

include

commitments

extend

credit

and

standby

letters

credit.

Commitments to extend credit are agreements

to lend to a customer as long

as there is no violation of any conditions

established in the

contract. Commitments

generally have fixed

expiration dates or

other termination clauses.

Since certain commitments

are expected

expire without

being drawn

upon, the

total commitment

amount does

not necessarily

represent future

cash requirements.

For most

the

commercial

lines

credit,

the

Corporation

has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

the

case of credit cards and personal lines of credit, the Corporation can

cancel the unused credit facility at any time and without cause.

of June

30, 2025,

commitments to

extend credit

amounted to

approximately $

2.2

billion, of

which $

0.8

billion relates

to retail

credit

card

loans.

addition,

commercial

and

financial

standby

letters

credit

June

30,

2025

amounted

approximately

61.4

million.

Contingencies

June

30,

2025,

First

BanCorp.

and

its

subsidiaries

were

defendants

various

legal

proceedings,

claims

and

other

loss

contingencies

arising

the

ordinary

course

business.

least

quarterly

basis,

the

Corporation

assesses

its

liabilities

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

information

available,

advice

from

legal

counsel,

and

available

insurance

coverage.

For

legal

proceedings,

claims

and

other

loss

contingencies

where

both

probable

that

the

Corporation

will

incur

loss

and

the

amount

can

reasonably

estimated,

the

Corporation

establishes

accrual

for

the

loss.

Once

established,

the

accrual

adjusted

appropriate

reflect

any

relevant

developments. For legal proceedings,

claims and other loss contingencies where

a loss is not probable or the amount

of the loss cannot

be estimated, no accrual is established.

Any estimate involves significant judgment,

given the complexity of the facts, the

novelty of the legal theories, the varying

stages of

the

proceedings

(including

the

fact

that

some

them

are

currently

preliminary

stages),

the

existence

some

the

current

proceedings

multiple

defendants

whose

liability

has

yet

determined,

the

numerous

unresolved

issues

the

proceedings, and

the inherent

uncertainty of

the various

potential outcomes

of such

proceedings. Accordingly,

it may

take months

years after the filing of

a case or commencement of

a proceeding or an investigation

before an estimate of the

reasonably possible loss

can

made

and

the

Corporation’s

estimate

will change

from

time

time,

and

actual

losses may

or less

than

the

current

estimate.

While

the

final

outcome

legal

proceedings,

claims,

and

other

loss

contingencies

inherently

uncertain,

based

information

currently

available,

management

believes

that

the

final

disposition

the

Corporation’s

legal

proceedings,

claims

and

other

loss

contingencies,

the

extent

not

previously

provided

for,

will

not

have

material

adverse

effect

the

Corporation’s

consolidated

financial position as a whole.

If management believes that, based on available information,

it is at least reasonably possible that a material loss (or material

loss in

excess

any

accrual)

will

incurred

connection

with

any

legal

contingencies,

including

tax

contingencies,

the

Corporation

discloses an

estimate of

the possible

loss or

range of

loss, either

individually or

in the

aggregate, as

appropriate, if

such an

estimate

can

made,

discloses

that

estimate

cannot

made.

Based

the

Corporation’s

assessment

June

30,

2025,

such

disclosures were necessary.

In 2023,

the FDIC

issued a

final rule

to impose

a special

assessment to

recover

certain estimated

losses to

the Deposit

Insurance

Fund (“DIF”)

arising from

the closures

of Silicon

Valley

Bank and

Signature Bank.

The estimated

losses will

be recovered

through

quarterly

special assessments

collected from

certain insured

depository

institutions, including

the Bank,

and collection

began

during

the quarter

ended June

30, 2024.

As of

June 30,

2025,

the Corporation’s

total estimated

FDIC special

assessment

amounted

to $

7.4

million, of which $

3.9

million has been paid. The Corporation

continues to monitor the FDIC’s

estimated loss to the DIF,

which could

affect the amount of its accrued liability.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 20 – FIRST BANCORP.

(HOLDING COMPANY

ONLY) FINANCIAL

INFORMATION

The following condensed

financial information presents

the financial position

of First BanCorp.

at the holding

company level only

as of

June 30,

2025 and

December 31,

2024, and

the results

of its

operations

for the

quarters and

six-month

periods ended

June 30,

2025 and 2024:

Statements of Financial Condition

As of June 30,

As of December 31,

2025

2024

(In thousands)

Assets

Cash and due from banks

27,923

13,295

Equity securities

1,725

1,275

Investment in First Bank Puerto Rico, at equity

1,790,198

1,694,000

Investment in First Bank Insurance Agency,

at equity

28,213

24,121

Investment in FBP Statutory Trust I

(1)

1,289

Investment in FBP Statutory Trust II

(1)

561

Dividends receivable

1,220

619

Other assets

576

459

Total assets

1,849,855

1,735,619

Liabilities and Stockholders’ Equity

Liabilities:

Long-term borrowings

(1)

61,700

Accounts payable and other liabilities

4,400

4,683

Total liabilities

4,400

66,383

Stockholders’ equity

1,845,455

1,669,236

Total liabilities and stockholders’

equity

1,849,855

1,735,619

(1)

During the first half of 2025,

the Corporation redeemed the

remaining $

61.7

million of the outstanding TruPS

issued by FBP Statutory Trusts

I and II (or $

59.8

million after excluding the

Corporation’s interest in the Trusts

of approximately $

1.9

million), as further explained in Note 6 – “Non-Consolidated

Variable Interest

Entities (“VIEs”) and Servicing Assets.”

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Statements of Income

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

(In thousands)

Income

Interest income on money market investments

187

150

Dividend income from banking subsidiaries

72,438

81,232

189,895

162,149

Other income

100

201

Total income

72,538

81,419

190,118

162,500

Expense

Interest expense on long-term borrowings

175

3,336

1,156

6,686

Other non-interest expenses

463

941

902

Total expense

638

3,799

2,097

7,588

Income before income taxes and equity in undistributed

earnings of subsidiaries

71,900

77,620

188,021

154,912

Income tax expense

Equity in undistributed earnings of subsidiaries

(distributions in excess of earnings)

8,280

(1,782)

(30,781)

(5,615)

Net income

80,180

75,838

157,239

149,296

Other comprehensive income (loss), net of tax

41,205

10,560

125,266

(4,505)

Comprehensive income

121,385

86,398

282,505

144,791

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

FINANCIAL

CONDITION

AND

RESULTS

OPERATIONS (“MD&A”)

The

following

MD&A

relates

the

accompanying

unaudited

consolidated

financial

statements

First

BanCorp.

(the

“Corporation,” “we,” “us,”

“our,” or “First

BanCorp.”) and should be

read in conjunction with

such financial statements and

the notes

thereto,

and our

Annual Report

on Form

10-K for

the fiscal

year ended

December 31,

2024 (the

“2024 Annual

Report on

Form 10-

K”). This section

also presents certain

financial measures that

are not based

on generally accepted

accounting principles in

the United

States

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-

GAAP

financial

measures

are

presented,

reconciliations

non-GAAP

financial

measures

the

most

comparable

GAAP

financial

measures, and references to non-GAAP financial measures reconciliations

presented in other sections.

EXECUTIVE SUMMARY

First BanCorp. is

a diversified financial

holding company headquartered

in San Juan, Puerto

Rico, offering a

full range of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Recent Developments

Economy and Market Update

the

second

quarter

2025,

the

Corporation

reported

net

income

$80.2

million,

resulting

return

average

assets

1.69%. This performance was driven

by record net interest income,

solid loan production, stable credit

trends, and disciplined expense

management. Total

loans increased

by 6% on

a linked-quarter annualized

basis, driven

by strong commercial

loan production

in both

Puerto

Rico

and

Florida.

While

total

core

deposits

declined

due

fluctuations

few

large

commercial

accounts,

retail

deposit

accounts remained

fairly stable.

Asset quality

continued to

improve, highlighted

by an 8

basis points

(“bps”) reduction

in net

charge-

offs, reflecting the benefits of prior-year credit policy adjustments

and improvement in consumer loan vintages.

Looking

ahead,

the

Corporation

continues

see

encouraging

business

activity

and

positive

macroeconomic

factors,

including

stable

unemployment

rates

for

June

2025

which

amounted

4.1%

and

5.5%

for

the

U.S

and

Puerto

Rico

regions,

respectively.

Despite

the

recent

economic

activity,

progress

made

inflation

and

optimist

sentiment,

the

Federal

Reserve

(the

“FED”)

has

maintained the

federal funds

rate target

at 4.25%

to 4.50%,

primarily due

to trade

and tariffs

negotiations and

its ultimate

impact on

inflation. Notwithstanding,

the Corporation should continue

to benefit from stable

credit trends and approximately

$1.3 billion in cash

flows from

its investment

portfolio during

the second

half of

2025, which

will be

reinvested into

loans or

higher yielding

securities.

Additionally,

the Corporation

will continue

to benefit

from this

economic

backdrop

and should

continue to

experience growth

in its

commercial, construction, and residential mortgage loan portfolios for

the year.

Capital Deployment Actions

In the second quarter of

2025, the Corporation delivered

approximately $68.3 million in

the form of capital deployment actions

that

included $29.0

million in common

stock dividends

declared, $28.2

million in repurchases

of common

stock, and the

remaining $11.1

million redemption of outstanding trust-preferred securities (“TruPS”).

From July

1, 2025

to August

5, 2025,

the Corporation

repurchased

approximately

1.0 million

shares of

common

stock for

a total

cost

approximately

$21.7

million.

the

aggregate,

August

2025,

the

Corporation

has

remaining

authorization

approximately $66.6 million.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

accounting

principles

the

Corporation

and

the

methods

applying

these

principles

conform

GAAP.

preparing

the

consolidated

financial

statements,

management

required

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses

during

the

reporting

periods.

Note

the Notes

Consolidated

Financial

Statements

included

our

2024

Annual

Report

Form

10-K,

supplemented

this

Quarterly

Report

Form

10-Q,

including

this

MD&A,

describes

the

significant

accounting policies we used in our consolidated financial statements.

Not all significant

accounting policies require

management to make

difficult, subjective

or complex judgments.

Critical accounting

estimates

are

those

estimates

made

accordance

with

GAAP

that

involve

significant

level

uncertainty

and

have

had

are

reasonably

likely

have

material

impact

the

Corporation’s

financial

condition

and

results

operations.

The

Corporation’s

critical accounting

estimates that

are particularly

susceptible

to significant

changes include,

but are

not limited

to, the

following:

(i)

the allowance for credit losses (“ACL”);

(ii) valuation of financial instruments;

and (iii) income taxes. For more

information regarding

valuation

of financial

instruments and

income tax

policies, assumptions,

and judgments,

see “Critical

Accounting

Estimates” in

Part

II,

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results

Operations

(“MD&A”),”

the

2024

Annual

Report

Form

10-K.

The

“Risk

Management

–

Credit

Risk

Management”

section

this

MD&A

details

the

policies,

assumptions, and

judgments related

to the

ACL. Actual

results could

differ

from estimates

and assumptions

if different

outcomes or

conditions prevail.

Overview of Results of Operations

The

Corporation’s

results

operations

depend

primarily

its

net

interest

income,

which

the

difference

between

the

interest

income

earned

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

affected

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

interest-earning

assets,

and

interest-bearing

liabilities; and (iii) the repricing characteristics of these assets and liabilities.

For

the

quarter

and

six-month

period

ended

June

30,

2025,

the

Corporation

had

net

income

$80.2

million

($0.50

per

diluted

common

share)

and

$157.2

million

($0.97

per

diluted

common

share),

respectively,

compared

$75.8

million

($0.46

per

diluted

common share) and $149.3 million ($0.90 per diluted

common share), respectively,

for the comparable periods in 2024. Other relevant

selected financial indicators for the periods presented are included below:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.69

1.61

1.66

1.59

Return on Average

Common Equity

(3)

17.79

20.80

17.85

20.17

Efficiency Ratio

(4)

49.97

51.23

49.78

51.84

(1)

These financial ratios are used by management to monitor the Corporation’s

financial performance and whether it is using its assets

efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets

and is calculated by dividing net income on an annualized

basis by its average total assets.

(3)

Measures the Corporation’s

performance based on its

average common stockholders’ equity and

is calculated by dividing net

income on an annualized

basis by its average total

common

stockholders’ equity.

(4)

Measures how much the Corporation incurred to generate a

dollar of revenue and is calculated by dividing non-interest expenses

by total revenue.

The key drivers of the Corporation’s

GAAP financial results for the quarter

ended June 30, 2025, compared to the

second quarter of

2024, include the following:

●

Net interest

income

for the

quarter ended

June 30,

2025 increased

by $16.3

million to

$215.9 million,

compared to

$199.6

million

for

the

second

quarter

2024.

Net

interest

margin

for

the

second

quarter

2025

increased

bps

4.56%,

driven by a decrease

in the cost of funds

and a change in asset mix

associated with the deployment

of cash flows from lower-

yielding

investment

securities

loans

and

other

higher-yielding

interest-earning

assets.

See

“Results

Operations

–

Net

Interest Income”

below for additional information.

●

The provision for credit

losses on loans, finance

leases, unfunded loan commitments

and debt securities for the

quarter ended

June

30,

2025 was

$20.6

million,

compared

to $11.6

million

for

the second

quarter of

2024.

The increase

in the

provision

expense was driven

by an increase

in the provision

for the residential

mortgage loan

portfolio due to

the net benefit

recorded

during

the

second

quarter

2024

associated

with

updated

historical

loss

experience,

partially

offset

decrease

the

provision for the

consumer loan and

finance lease portfolios

driven by

improvements in macroeconomic

variables, lower net

charge-offs,

and reductions in the unsecured loan portfolio volumes.

Net

charge-offs

totaled

$19.1

million

for

the

quarter

ended

June

30,

2025,

annualized

0.60%

average

loans,

compared

$21.0

million,

annualized

0.69%

average

loans,

for

the

second

quarter

2024.

The

decrease

net

charge-offs for the second quarter of 2025

was driven by a decrease in consumer loans and finance leases net charge

-offs. See

“Results

Operations

–

Provision

for

Credit

Losses”

and

“Risk

Management”

below

for

analyses

the

ACL

and

non-

performing assets and related ratios.

●

Non-interest expenses

for the quarter

ended June

30, 2025

increased by $4.6

million to $123.3

million, mainly

due to a

$2.3

million

realized

gain

the

sale

commercial

real

estate

OREO

property

the

Puerto

Rico

region

during

the

second

quarter

2024

and

increase

employees’

compensation

and

benefits

expenses.

See

“Results

Operations

–

Non-

Interest Expenses” below for additional information.

●

Income tax expense decreased to

$22.7 million for the second quarter of

2025, compared to $25.5 million

for the same period

in 2024

driven by

a lower

effective

tax rate

due

to a

higher proportion

of exempt

to taxable

income.

See “Income

Taxes”

below and Note 14 – “Income Taxes

,” to the unaudited consolidated financial statements herein for additional

information.

●

As of

June 30,

2025, total

assets were

approximately

$18.9 billion,

a decrease

of $395.4

million

from December

31, 2024,

primarily

to a

decrease

cash and

cash

equivalents

resulting

from

the decrease

total

deposits,

the

repayment

long-term

borrowings,

and capital

deployment

actions, partially

offset

by the

increase

in the

fair value

of available

-for-sale

debt securities due to changes in market interest rates.

●

As of

June 30,

2025, total

liabilities were

$17.1 billion,

a decrease

of $571.6

million from

December 31,

2024, driven

by a

$317.3 million decrease in total

deposits, of which $153.8 million

was in government deposits; and

a $241.7 million decrease

in borrowings.

See “Risk

Management –

Liquidity

Risk” below

for additional

information

about the

Corporation’s

funding

sources and strategy.

●

The

Corporation’s

primary

sources

funding

are

consumer

and

commercial

core

deposits,

which

exclude

government

deposits and

brokered certificates

of deposit

(“CDs”). As

of June

30, 2025,

these core

deposits, amounting

to $12.7

billion,

funded 66.97% of

total assets. Excluding

fully collateralized government

deposits, estimated uninsured

deposits amounted to

$4.5 billion as

of June 30,

The Corporation

had approximately $2.3

billion in cash

and cash equivalents

and free high-

quality

liquid

securities.

addition,

June

30,

2025,

the

Corporation

had

approximately

$2.7

billion

available

for

funding under the FED’s

Discount Window and

$1.0 billion available for additional

borrowing capacity on the Federal Home

Loan Bank

(“FHLB”) lines

of credit

based on

collateral pledged

at these

entities. In

the aggregate,

as of

June 30,

2025, the

Corporation had

$6.0 billion,

or 133%

of estimated

uninsured deposits

(excluding fully

collateralized government

deposits),

available

meet

liquidity

needs.

See

“Risk

Management

–

Liquidity

Risk”

below

for

additional

information

about

the

Corporation’s funding

sources and strategy.

●

June

30,

2025,

the

Corporation’s

total

stockholders’

equity

was

$1.8

billion,

increase

$176.2

million

from

December 31,

The increase

was driven

by net income

generated in

the first half

of 2025 and

a $125.3 million

increase

the

fair

value

available-for-sale

debt

securities

recorded

part

accumulated

other

comprehensive

loss

the

consolidated statements

of financial

condition, partially

offset by

common stock

dividends declared

in the

first half

of 2025

totaling $58.6 million or

$0.36 per common share,

and $50.0 million in common

stock repurchases.

The Corporation’s

CET1

capital, tier

1 capital,

total capital,

and leverage

ratios were

16.61%, 16.61%,

17.87%, and

11.41%,

respectively,

as of

June

30, 2025, compared to CET1 capital, tier 1 capital, total capital, and

leverage ratios of 16.32%, 16.32%, 18.02%, and 11.07%,

respectively, as of

December 31, 2024.

See “Risk Management – Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments,

increased

$153.7

million

to $1.4

billion

for

the

quarter

ended

June 30,

2025,

as compared

the

second

quarter of

2024, mainly

in commercial

and construction

loans in

the Puerto

Rico region.

See “Results

of Operations

– Loan

Production”

below for additional information.

●

Total

non-performing assets

were $128.0

million as

of June

30, 2025,

an increase

of $9.7

million from

December 31,

2024,

mainly due

to the inflows

to nonaccrual

status of a

$12.6 million

commercial mortgage

loan in the

Florida region

during the

first quarter of 2025 and

a $4.3 million construction loan

in the Puerto Rico region

during the second quarter of

2025, both in

the

hospitality

industry.

See

“Risk

Management

–

Nonaccrual

Loans

and

Non-Performing

Assets”

below

for

additional

information.

●

Adversely

classified

commercial

and

construction

loans

increased

$6.0

million

$93.3

million

June

30,

2025,

compared

December

31,

2024,

driven

the

downgrade

four

commercial

loans

totaling

$24.1

million,

including

the

aforementioned

$12.6

million

inflow

nonaccrual

status

the

Florida

region,

partially

offset

the

upgrade

two

commercial mortgage loans totaling $17.0 million.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation has included in this Quarterly Report on Form 10-Q

the following financial measures that are not recognized under

GAAP,

which are referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin, Excluding

Valuations

and on a Tax

-Equivalent Basis

Net interest

income, interest

rate spread,

and net

interest margin

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

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

increased

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

the banking

industry

present

net

interest

income,

interest

rate

spread,

and

net

interest

margin

fully

tax-

equivalent basis. This adjustment

puts all earning assets, most

notably tax-exempt securities and

tax-exempt loans, on a common

basis

that facilitates comparison of results to the results of peers.

See “Results of Operations – Net Interest Income” below,

for the table that reconciles net interest income in accordance with GAAP

the

non-GAAP

financial

measure

net

interest

income,

excluding

valuations,

and

tax-equivalent

basis

for

the

indicated

periods. The table also reconciles

net interest spread and

net interest margin on

a GAAP basis to these items

excluding valuations, and

on a tax-equivalent basis.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less goodwill

and other

intangible assets.

Similarly,

tangible assets

are total

assets less

goodwill and

other intangible

assets. Tangible

common

equity

ratio

tangible

common

equity

divided

tangible

assets.

Tangible

book

value

per

common

tangible

common

equity divided

by the

number of

common shares

outstanding.

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

compare

the

capital

adequacy

banking

organizations

with

significant

amounts

goodwill

other

intangible

assets,

typically

stemming

from

the use

the

purchase

method

accounting

for

mergers

and

acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful

to investors.

Neither tangible

common equity

nor tangible

assets,

or the related

measures, should be

considered in isolation

or as a substitute

for stockholders’

equity,

total assets, or any

other measure

calculated in accordance

with GAAP.

Moreover,

the manner in which

the Corporation calculates its

tangible common

equity, tangible

assets, and any other related measures may differ from

that of other companies reporting measures with similar names.

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income and Adjusted Non-Interest Expenses

supplement the

Corporation’s

financial statements

presented in

accordance with

GAAP,

the Corporation

uses, and believes

that

investors benefit from disclosure of, non

-GAAP financial measures that reflect

adjustments to net income and non-interest

expenses to

exclude

items that

management believes

are not

reflective of

core operating

performance (“Special

Items”). The

financial results

for

the

quarter

and

six-month

period

ended

June

30,

2025

did

not

include

any

significant

Special

Items.

The

financial

results

for

the

quarter and six-month period ended June 30, 2024 included the

following Special Item:

FDIC Special Assessment Expense

Charges

of $0.2

million ($0.

million

after-tax,

calculated based

on the

statutory tax

rate of

37.5%) and

$1.1 million

($0.7

million after-tax,

calculated based

on the

statutory tax

rate of

37.5%) were

recorded for

the second

quarter of

2024 and

six-

month period

ended June 30,

2024, respectively,

to increase the

special assessment imposed

by the FDIC

in connection

with

losses to the

Deposit Insurance

Fund associated

with protecting

uninsured deposits

following the

failures of

certain financial

institutions during

the first

half of

estimated FDIC

special assessment

of $7.4

million

was the

revised

estimated

loss reflected

in the

FDIC invoice

for the

first quarterly

collection period

with a

payment date

of June

28, 2024.

The FDIC

deposit

special

assessment

reflected

the

consolidated

statements

income

part

“FDIC

deposit

insurance”

expenses.

Adjusted

Net

Income

–

The

following

table

shows

for

the

quarter

and

six-month

period

ended

June

30,

2025,

the

reported

net

income,

and reconciles

for the

quarter and

six-month period

ended June

30, 2024,

net income

to adjusted

net income,

a non-GAAP

financial measure that excludes the Special Item identified above.

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Net income, as reported (GAAP)

80,180

75,838

157,239

149,296

Adjustment:

FDIC special assessment expense

152

1,099

Income tax impact of adjustments

(1)

(57)

(412)

Adjusted net income (Non-GAAP)

80,180

75,933

157,239

149,983

(1)

See “Adjusted Net Income and Adjusted Non-Interest Expenses”

above for the individual tax impact related to the above adjustment,

which was based on the Puerto Rico statutory tax

rate of 37.5%.

RESULTS

OF OPERATIONS

Net Interest Income

Net interest

income is

the excess of

interest earned

by First

BanCorp. on

its interest-earning

assets over

the interest

incurred on its

interest-bearing

liabilities.

First

BanCorp.’s

net

interest

income

subject

interest

rate

risk

due

the

repricing

and

maturity

mismatch

the

Corporation’s

assets

and

liabilities.

addition,

variable

sources

interest

income,

such

loan

fees,

periodic

dividends, and

collection of

interest on

nonaccrual loans,

can fluctuate

from period

to period.

Net interest

income for

the quarter

and

six-month period

ended June

30, 2025

was $215.9

million and

$428.3 million,

respectively,

compared to

$199.6 million

and $396.1

million

for

the

comparable

periods

2024,

respectively.

tax-equivalent

basis

and

excluding

the

changes

the

fair

value

derivative instruments,

net interest

income for

the quarter

and six-month

period ended

June 30,

2025 was

$223.0 million

and $441.6

million, respectively,

compared to $204.5 million and $405.8 million for the comparable periods in 2024, respectively.

The

following

tables

include a

detailed

analysis

of net

interest income

for

the indicated

periods.

Part I

presents

average volumes

(based

the

average

daily

balance)

and

rates

adjusted

tax-equivalent

basis

and

Part

presents,

also

adjusted

tax-

equivalent basis,

the extent

to which

changes in

interest rates

and changes

in the

volume of

interest-related assets

and liabilities

have

affected

the Corporation’s

net interest

income. For

each category

of interest-earning

assets and

interest-bearing

liabilities, the

tables

provide

information

changes

(i)

volume

(changes

volume

multiplied

prior

period

rates),

and

(ii)

rate

(changes

rate

multiplied by

prior period

volumes). The

Corporation has

allocated rate-volume

variances (changes

in rate

multiplied by

changes in

volume) to either the changes in volume or the changes in rate based upon the

effect of each factor on the combined totals.

Net interest

income on

an adjusted

tax-equivalent

basis and

excluding

the changes

in the

fair value

of derivative

instruments is

non-GAAP

financial

measure.

For

the

definition

this

non-GAAP

financial

measure,

refer

the

discussion

“Non-GAAP

Financial Measures and Reconciliations” above.

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Quarter ended June 30,

2025

2024

2025

2024

2025

2024

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

1,070,545

667,564

11,897

9,060

4.46

5.44

Government obligations

(2)

1,839,445

2,619,778

7,519

8,947

1.64

1.37

MBS

3,289,215

3,359,598

17,979

14,339

2.19

1.71

FHLB stock

26,114

34,032

645

818

9.91

9.64

Other investments

20,525

17,637

174

244

3.40

5.55

Total investments

(3)

6,245,844

6,698,609

38,214

33,408

2.45

2.00

Residential mortgage loans

2,854,624

2,807,639

41,674

40,686

5.86

5.81

Construction loans

245,906

245,219

5,839

4,955

9.52

8.10

C&I and commercial mortgage loans

5,892,848

5,528,607

100,761

100,919

6.86

7.32

Finance leases

903,286

873,908

17,693

17,255

7.86

7.92

Consumer loans

2,846,145

2,817,443

81,156

79,888

11.44

11.37

Total loans

(4)(5)

12,742,809

12,272,816

247,123

243,703

7.78

7.96

Total interest-earning assets

18,988,653

18,971,425

285,337

277,111

6.03

5.86

Interest-bearing liabilities:

Time deposits

3,190,402

3,002,159

26,747

26,588

3.36

3.55

Brokered CDs

487,787

676,421

5,491

8,590

4.52

5.09

Other interest-bearing deposits

7,662,793

7,528,378

26,400

28,493

1.38

1.52

Advances from the FHLB

320,000

500,000

3,518

5,610

4.41

4.50

Other borrowings

9,429

161,700

175

3,336

7.44

8.27

Total interest-bearing liabilities

11,670,411

11,868,658

62,331

72,617

2.14

2.45

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

223,006

204,494

Interest rate spread

3.89

3.41

Net interest margin

4.71

4.32

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Six-Month Period Ended June 30,

2025

2024

2025

2024

2025

2024

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

1,090,704

600,655

24,102

16,314

4.46

5.45

Government obligations

(2)

1,905,022

2,651,974

14,489

18,000

1.53

1.36

MBS

3,299,035

3,405,445

35,476

29,577

2.17

1.74

FHLB stock

29,370

34,334

1,435

1,672

9.85

9.77

Other investments

20,253

17,094

421

310

4.19

3.64

Total investments

(3)

6,344,384

6,709,502

75,923

65,873

2.41

1.97

Residential mortgage loans

2,848,306

2,808,972

83,158

81,159

5.89

5.79

Construction loans

239,138

232,036

11,435

9,492

9.64

8.20

C&I and commercial mortgage loans

5,850,126

5,516,695

200,520

199,993

6.91

7.27

Finance leases

902,531

868,796

35,547

34,382

7.94

Consumer loans

2,847,858

2,813,829

162,054

159,528

11.48

11.37

Total loans

(4)(5)

12,687,959

12,240,328

492,714

484,554

7.83

7.94

Total interest-earning assets

19,032,343

18,949,830

568,637

550,427

6.03

5.83

Interest-bearing liabilities:

Time deposits

3,119,981

2,947,257

52,215

50,998

3.37

3.47

Brokered CDs

485,792

713,091

10,952

18,270

4.55

5.14

Other interest-bearing deposits

7,678,261

7,531,361

53,968

57,428

1.42

1.53

Advances from the FHLB

393,923

500,000

8,708

11,220

4.46

4.50

Other borrowings

31,538

161,700

1,156

6,686

7.39

8.29

Total interest-bearing liabilities

11,709,495

11,853,409

126,999

144,602

2.19

2.45

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

441,638

405,825

Interest rate spread

3.84

3.38

Net interest margin

4.68

4.29

(1)

On an adjusted

tax-equivalent basis. The

Corporation estimated the

adjusted tax-equivalent

yield by dividing

the interest rate

spread on exempt

assets by 1

less the Puerto

Rico statutory

tax rate of 37.5%

and adding to it

the cost of interest-bearing

liabilities. The tax-equivalent

adjustment recognizes the

income tax savings

when comparing taxable

and tax-exempt assets.

Management

believes

that it

is a

standard

practice in

the

banking

industry

to present

net interest

income, interest

rate spread

and net

interest

margin

on a

fully tax-equivalent

basis.

Therefore, management believes

these measures provide

useful information

to investors by

allowing them to

make peer comparisons.

The Corporation excludes

changes in the

fair value

of derivatives from interest income because the changes

in valuation do not affect interest received. See “Non-GAAP

Financial Measures and Reconciliations” above.

(2)

Government obligations include debt issued by government-sponsored

agencies.

(3)

Unrealized gains and losses on available-for-sale debt securities

are excluded from the average volumes.

(4)

Average loan balances include

the average of nonaccrual loans.

(5)

Interest income on

loans includes $3.7

million and $3.1

million for the

quarters ended June

30, 2025 and

2024, respectively,

and $9.1 million

and $6.3 million

for the six-month

periods

ended June 30, 2025 and 2024,

respectively, of income from prepayment

penalties and late fees related to

the Corporation’s loan

portfolio. The results for the six-month period

ended June

30, 2025 include $0.7 million in

interest income related to prepayment

penalties associated with the payoff

of a $73.8 million commercial mortgage

loan, and higher income from late

fees

in the consumer loans and finance leases portfolios.

Part II

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025 Compared to 2024

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

5,017

(2,180)

2,837

12,185

(4,397)

7,788

Government obligations

(2,933)

1,505

(1,428)

(5,401)

1,890

(3,511)

MBS

(348)

3,988

3,640

(1,049)

6,948

5,899

FHLB stock

(192)

(173)

(243)

(237)

Other investments

(102)

(70)

111

Total investments

1,576

3,230

4,806

5,554

4,496

10,050

Residential mortgage loans

684

304

988

1,145

854

1,999

Construction loans

870

884

298

1,645

1,943

C&I and commercial mortgage loans

6,456

(6,614)

(158)

11,820

(11,293)

527

Finance leases

578

(140)

438

1,337

(172)

1,165

Consumer loans

(710)

1,978

1,268

(844)

3,370

2,526

Total loans

7,022

(3,602)

3,420

13,756

(5,596)

8,160

Total interest income

8,598

(372)

8,226

19,310

(1,100)

18,210

Interest expense on interest-bearing liabilities:

Time deposits

1,627

(1,468)

159

2,954

(1,737)

1,217

Brokered CDs

(2,202)

(897)

(3,099)

(5,331)

(1,987)

(7,318)

Other interest-bearing deposits

970

(3,063)

(2,093)

2,162

(5,622)

(3,460)

Advances from the FHLB

(1,981)

(111)

(2,092)

(2,359)

(153)

(2,512)

Other borrowings

(2,843)

(318)

(3,161)

(4,867)

(663)

(5,530)

Total interest expense

(4,429)

(5,857)

(10,286)

(7,441)

(10,162)

(17,603)

Change in net interest income

13,027

5,485

18,512

26,751

9,062

35,813

Portions of the Corporation’s

interest-earning assets, mostly investments

in obligations of some U.S.

government agencies and U.S.

GSEs, generate

interest that

is exempt

from income

tax, principally

in Puerto

Rico. Also,

interest and

gains on

sales of

investments

held by

the Corporation’s

international banking

entities (“IBEs”)

are tax-exempt

under Puerto

Rico tax

law (see

Note 14

– “Income

Taxes”

to the

unaudited consolidated

financial statements

included herein

for additional

information).

Management believes

that the

presentation of interest income

on an adjusted tax-equivalent

basis facilitates the comparison

of all interest data related

to these assets.

The

Corporation

estimated

the

tax

equivalent

yield

dividing

the

interest

rate

spread

exempt

assets

less

the

Puerto

Rico

statutory

tax

rate

(37.5%)

and

adding

the

average

cost

interest-bearing

liabilities.

The

computation

considers

the

interest

expense disallowance required by Puerto Rico tax law.

Management

believes

that

the

presentation

net

interest

income,

excluding

the

effects

the

changes

the

fair

value

the

derivative

instruments

(“valuations”),

provides

additional

information

about

the

Corporation’s

net

interest

income

and

facilitates

comparability and analysis from

period to period. The changes

in the fair value of

the derivative instruments have

no effect on interest

earned on interest-earning assets.

The following

table reconciles

net interest

income in

accordance with

GAAP to

net interest

income, excluding

valuations, and

net

interest

income

adjusted

tax-equivalent

basis

for

the

indicated

periods.

The

table

also

reconciles

net

interest

spread

and

net

interest margin on a GAAP basis to these items excluding valuations, and

on an adjusted tax-equivalent basis:

Quarter Ended

Six-Month Period Ended

June 30,

2025

2024

2025

2024

(Dollars in thousands)

Interest income - GAAP

278,190

272,245

555,255

540,750

Unrealized loss (gain) on derivative instruments

(2)

Interest income excluding valuations - non-GAAP

278,193

272,245

555,261

540,748

Tax-equivalent adjustment

7,144

4,866

13,376

9,679

Interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

285,337

277,111

568,637

550,427

Interest expense - GAAP

62,331

72,617

126,999

144,602

Net interest income - GAAP

215,859

199,628

428,256

396,148

Net interest income excluding valuations - non-GAAP

215,862

199,628

428,262

396,146

Net interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

223,006

204,494

441,638

405,825

Average Balances

Loans and leases

12,742,809

12,272,816

12,687,959

12,240,328

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

cash balances

6,245,844

6,698,609

6,344,384

6,709,502

Average interest-earning assets

18,988,653

18,971,425

19,032,343

18,949,830

Average interest-bearing liabilities

11,670,411

11,868,658

11,709,495

11,853,409

Average assets

(1)

19,041,206

18,884,431

19,073,972

18,871,365

Average non-interest-bearing deposits

5,402,655

5,351,308

5,414,181

5,329,920

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.88%

5.76%

5.88%

5.72%

Average rate on interest-bearing liabilities - GAAP

2.14%

2.45%

2.19%

2.45%

Net interest spread - GAAP

3.74%

3.31%

3.69%

3.27%

Net interest margin - GAAP

4.56%

4.22%

4.54%

4.19%

Average yield on interest-earning assets excluding valuations

non-GAAP

5.88%

5.76%

5.88%

5.72%

Average rate on interest-bearing liabilities

2.14%

2.45%

2.19%

2.45%

Net interest spread excluding valuations

non-GAAP

3.74%

3.31%

3.69%

3.27%

Net interest margin excluding valuations - non-GAAP

4.56%

4.22%

4.54%

4.19%

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

basis and excluding

valuations - non-GAAP

6.03%

5.86%

6.03%

5.83%

Average rate on interest-bearing liabilities

2.14%

2.45%

2.19%

2.45%

Net interest spread on a tax-equivalent basis

and excluding valuations - non-GAAP

3.89%

3.41%

3.84%

3.38%

Net interest margin on a tax-equivalent basis and excluding

valuations - non-GAAP

4.71%

4.32%

4.68%

4.29%

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

and debt securities, as well as unrealized gains and losses on available-for-sale

debt securities.

Net interest income

amounted to $215.9

million for the

quarter ended June

30, 2025, an

increase of $16.3

million, when

compared

to $199.6 million for the same period in 2024. The $16.3 million increase in net

interest income consisted of:

●

A $10.3 million decrease in interest expense on interest-bearing liabilities consisting

of:

●

A $5.3 million decrease

in interest expense on borrowings,

driven by a $152.3 million

decrease in the average balance of

junior

subordinated

debentures

due

redemptions

during

the

second

half

2024

and

first

half

2025,

and

$180.0

million in FHLB advances that matured and were repaid in March 2025.

●

A $5.0 million decrease in interest expense on interest-bearing deposits, consisting

of:

$3.1

million

decrease

interest

expense

brokered

CDs,

due

$2.2

million

decrease

associated

with

$188.6 million decrease in

the average balance,

and a $0.9 million decrease

mainly associated with new

issuances at

lower interest rates than maturing brokered CDs.

A $2.1

million decrease

in interest

expense on

interest-bearing checking

and saving

accounts, due

to a $3.1

million

decrease driven by

the effect of

lower interest rates

when compared

to the same period

in 2024, partially

offset by

$1.0 million

increase associated

with a $134.4

million increase in

the average balance.

The average

cost of interest-

bearing checking

and saving

accounts in

the second

quarter of

2025 decreased

14 bps

to 1.38%

when compared

the same

period

in 2024,

mostly driven

by government

deposits in

the

Puerto

Rico region.

Excluding

government

deposits, the average cost

of interest-bearing checking and savings

accounts for the quarter ended

June 30, 2025 was

0.72%, compared to 0.75% for the same period in 2024.

Partially offset by:

$0.2

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

driven

$1.6

million

increase associated with

a $188.2 million increase

in the average balance,

which was almost offset

by a $1.4 million

decrease related

to lower rates

paid on new

issuances and renewals.

The average cost

of time deposits

in the second

quarter of

2025, excluding

brokered CDs,

decreased 19

bps to

3.36% when

compared to

the same

period in

2024.

Excluding

government

deposits,

the

average

cost

time

deposits

for

the

second

quarter

2025

was

3.37%,

compared to 3.47% for the same period in 2024.

●

A $3.3 million

net increase in

investment securities and

interest-bearing cash balances,

mainly due to

a $2.8 million

increase

in interest income from interest-bearing

cash balances, driven by a $403.0 million

net increase in the average balances,

which

consisted primarily

of deposits

maintained

at the

FED, which

more than

compensated for

the reduction

in the

federal funds

rate.

●

A $2.7 million increase in interest income on loans, driven by:

A $1.7

million

increase

in interest

income

on consumer

loans and

finance

leases, due

to higher

yields,

and higher

income from late fees, mainly in the auto loans portfolio.

$1.0

million

increase

interest

income

residential

mortgage

loans,

mostly

associated

with

$47.0

million

increase in the average balance.

Net interest

income amounted

to $428.3

million for

the six-month

period ended

June 30,

2025, an

increase of

$32.2 million

when

compared to $396.1 million for same period in 2024. The $32.2 million

increase in net interest income was primarily due to:

●

A $17.6 million decrease in interest expense on interest-bearing liabilities, consisting

of:

●

A $9.6 million decrease in interest expense on interest-bearing deposits, consisting

of:

A $7.3 million decrease in interest

expense on brokered CDs due to

a $5.3

million decrease associated with a $227.3

million decrease

in the

average balance,

and a $2.0

million decrease

mainly associated

with new

issuances at lower

interest rates than maturing brokered CDs.

A $3.5

million decrease

in interest

expense on

interest-bearing checking

and saving

accounts, due

to a $5.7

million

decrease

mainly

the

overall

lower

interest

rate

environment,

partially

offset

$2.2

million

increase

associated with

a $146.9

million increase

in the

average balance.

The average

cost of interest-bearing

checking and

saving accounts

decreased by

11 bps

to 1.42%

for the

first six

months of

2025 as

compared to

1.53% for

the same

period

in 2024,

mostly

driven by

government

deposits

the Puerto

Rico

region.

Excluding

government

deposits,

the

average

cost

interest-bearing

checking

and

savings

accounts

for

the

first

six

months

2025

was

0.74%,

compared to 0.75% for the same period in 2024.

Partially offset by:

$1.2

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

driven

$2.9

million

increase associated with

a $172.7 million

increase in the

average balance, partially

offset by a

$1.7 million decrease

related to lower

rates paid on new

issuances and renewals.

The average cost

of time deposits for

the first six months

of 2025,

excluding brokered

CDs, decreased

bps to

3.37% as

compared

to 3.47%

for the

same period

in 2024,

mostly driven by government time deposits in the Puerto Rico region.

●

$8.0

million

decrease

interest

expense

borrowings,

driven

the

aforementioned

redemption

junior

subordinated debentures during the second half of

2024 and first half of 2025, and $180.0 million in FHLB advances

that

matured and were repaid in March 2025.

●

A $7.7

million net

increase in investment

securities and

interest-bearing cash

balances mainly

due to a

$7.8 million

increase

in interest income from interest-bearing

cash balances, driven by a $490.0 million

net increase in the average balances,

which

consisted

primarily

cash

balances

deposited

the

FED,

which

than

compensated

for

the

reduction

the

federal

funds rate.

●

A $6.9 million increase in interest income on loans, consisting of:

A $3.7

million

increase

in interest

income

on consumer

loans and

finance

leases, mainly

due

to higher

yields and

higher income from late fees, mainly in the auto loans portfolio.

$2.0

million

increase

interest

income

residential

mortgage

loans,

mostly

associated

with

$39.3

million

increase in the average balance.

$1.2

million

increase

interest

income

commercial

and

construction

loans,

driven

$11.6

million

increase

associated

with

$340.5

million

increase

the

average

balance,

partially

offset

$10.4

million

net

decrease

due

the

effect

lower

interest

rates

the

downward

repricing

variable-rate

loans,

which

was

compensated

part

$1.2

million

interest

income

recognized

during

the

first

half of

2025

result

the

payoff

of $73.8

million

commercial mortgage

loan, of

which $0.7

million

related to

prepayment

penalties and

the

remainder to the acceleration of unamortized net deferred fees.

As of June 30, 2025, the

interest rate on approximately 52% of

the Corporation’s

commercial and construction loans was

tied to

variable rates,

with 33%

based upon

SOFR of

3 months

or less,

11%

based upon

the Prime

rate index,

and 8%

based on other indexes.

For the six-month period

ended June 30, 2025, the

average one-month SOFR decreased

101 bps,

the

average

three-month

SOFR

decreased

104

bps,

and

the

average

Prime

rate

decreased

100

bps,

compared

the

average rates for such indexes for the six-month period ended June 30, 2024.

Net interest margin

for the second

quarter of 2025

increased

34 bps to

4.56%, compared to

4.22% for the

same period in

2024, and

by 35

bps to

4.54% for

the first

six months

of 2025,

compared to

4.19% for

the same

period in

increase in

the net

interest

margin

mostly reflects

a decrease

in the

cost of

funds and

a change

in asset

mix associated

with the

deployment of

cash flows

from

lower-yielding

investment

securities

higher-yielding

interest-earning

assets.

These

factors

were

partially

offset

the

downward

repricing of variable-rate commercial loans and a lower federal funds rate on

cash deposited at the FED.

Provision for Credit Losses

The provision

for credit

losses consists of

provisions for

credit losses on

loans and

finance leases,

unfunded loan

commitments, as

well as the debt securities portfolio. The principal changes in the provision

for credit losses by main categories follow:

Provision for credit losses for

loans and finance leases

The

provision for

credit losses

for

loans and

finance leases

was $20.4

million for

the second

quarter of

2025, compared

to $11.9

million for the second quarter of 2024. The variances by major portfolio

category were as follows:

●

Provision for credit losses for the

residential mortgage loan portfolio was

an expense of $0.8 million for

the second quarter of

2025, compared

to a net

benefit of

$10.6 million

for the

second quarter

of 2024.

The net

benefit recorded

during the

second

quarter

2024

was

driven

updated

historical

loss

experience

used

for

determining

the

ACL

estimate

resulting

downward revision of estimated loss severities and lower required reserve

levels.

●

Provision for credit

losses for the

commercial and construction

loan portfolios was

an expense of

$1.8 million for

the second

quarter of

2025, compared

to a

net benefit

of $4.2

million for

the second

quarter of

expense recorded

during the

second quarter of

2025 was mainly

due to C&I

loan growth. The

net benefit recorded

during the second

quarter of 2024

was

driven by

an improvement

on the

economic outlook

of certain

macroeconomic variables,

particularly in

variables associated

with

commercial

real

estate

property

performance,

and

$1.2

million

recoveries

two

commercial

loans

the

Florida

region.

●

Provision for credit

losses for the

consumer loan and

finance lease portfolios

was an expense

of $17.8 million

for the second

quarter of 2025,

compared to an

expense of $26.7

million for the

second quarter

of 2024. The

decrease in

provision expense

was

driven

improvements

macroeconomic

variables,

mainly

the

projection

the

unemployment

rate;

lower

net

charge-offs;

reductions

the

unsecured

loan

portfolio

volumes;

and

the

provision

recorded

during

the

second

quarter

2024

due

updates

the historical

loss experience

used for

determining

the

ACL estimate,

which

resulted

an upward

revision of estimated loss severities and higher required reserve levels in the

auto loans and finance leases portfolios.

The provision

for credit

losses for

loans and

finance leases

was $45.2

million for

the first

half of

2025, compared

to $24.8

million

for the same period in 2024. The variances by major portfolio category were

as follows:

●

Provision

for

credit losses

for

the commercial

and

construction

loan

portfolios

was an

expense

of $6.4

million

for

the first

half of 2025,

compared to a

net benefit $6.7

million for the same

period in 2024.

The increase in provision

expense recorded

during

the

first six

months

2025

was mainly

due

updated

financial

information

of certain

commercial

borrowers

and

C&I loan

growth. The

net benefit

recorded during

the first

six months

of 2024

includes a

$5.0 million

recovery associated

with a C&I loan in the Puerto Rico region and the aforementioned

$1.2 million in recoveries in the Florida region.

●

Provision for credit losses for the residential mortgage

loan portfolio was an expense of $1.8 million for

the first half of 2025,

compared to a

net benefit of

$11.1 million

for the same

period in 2024.

The net benefit recorded

during the first

half of 2024

was driven by the aforementioned downward revision of estimated loss severities

●

Provision for credit losses

for the consumer loan

and finance lease portfolios

was an expense of $37.0

million for the first six

months

of 2025,

compared

to an

expense

of $42.6

million for

the same

period

in 2024.

The decrease

in provision

expense

was mainly

due to reductions

in the

unsecured loan

portfolio volumes,

the aforementioned

improvements in

macroeconomic

variables,

lower charge-offs,

and the aforementioned

provision recorded

during the second

quarter of 2024

due to updates

the historical

loss experience,

partially offset

by a

$7.1 million

decrease in

recoveries associated

with the

bulk sales

of fully

charged-off loans that took place in the

first quarter of each year.

Provision for credit losses for

unfunded loan commitments and debt securities

The

provision

for

credit losses

for

unfunded

commercial

and

construction

loan

commitments and

standby

letters of

credit for

the

second quarter

and first half

of 2025 was

an expense of

$0.3 million and

$0.2 million,

respectively,

compared to

a net benefit

of $0.4

million and $0.1 million, respectively,

for the same periods in 2024.

The provision

for credit

losses for

held-to-maturity and

available-for-sale debt

securities was

a net

benefit of

$81 thousand

for the

second quarter of 2025, compared to an expense of $92 thousand for

the same period in 2024.

The provision for

credit losses for held-to-maturity

and available-for-sale debt

securities for the

first half of 2025

was a net benefit

of $45 thousand, compared to a net benefit of $0.9 million for the

same period in 2024. The net benefit recorded during the first half of

2024 was mostly driven by improvements in the underlying updated

financial information of a Puerto Rico municipal bond issuer.

Non-Interest Income

Non-interest

income amounted

to $30.9

million for

the second

quarter of

2025, compared

to $32.0

million for

the same

period in

2024.

The $1.1 million decrease in non-interest income was driven by lower

realized gains from purchased income tax credits reported

as part of other non-interest income.

Non-interest

income for

the six-month

period ended

June 30,

2025 amounted

to $66.7

million, compared

to $66.0

million for

the

same

period

2024.

The

$0.7

million

increase

non-interest

income

was

primarily

due

$0.5

million

increase

card

and

processing income due to higher transactional volumes.

Non-Interest Expenses

Non-interest

expenses for

the quarter

ended June

30, 2025

amounted

to $123.3

million, compared

to $118.7

million for

the same

period in

efficiency ratio

for the

second quarter of

2025 was

49.97%, compared

to 51.23% for

the second

quarter of

2024.

Non-interest expenses for

the second quarter of

2024 include the $0.2

million additional FDIC special

assessment expense. See

“Non-

GAAP Financial Measures

and Reconciliations”

above for additional

information. On

a non-GAAP basis,

excluding the

effect of

this

Special Item, adjusted non-interest expenses increased by $4.8 million

primarily due to:

●

$3.0

million

decrease

net

gains

OREO

operations,

driven

$2.3

million

realized

gain

the

sale

commercial real

estate OREO

property in

the Puerto

Rico region

during the

second quarter

of 2024

and a

decrease in

net

realized gains on sales of residential OREO properties in the Puerto Rico

region.

●

A $2.6 million increase in employees’ compensation

and benefits expenses, primarily driven by an increase

of $1.1 million

in salary

expense mainly

due to

annual salary

merit increases

that became

effective

in the

third quarter

of 2024

and $0.9

million in bonus incentives.

Partially offset by:

●

A $0.9 million

decrease in business

promotion expenses,

primarily due to

the rescheduling of

certain marketing initiatives

to the second half of 2025.

●

A $0.8

million

decrease

in professional

service

fees,

mainly

due

a $0.8

million

decrease

consulting

fees

driven by

higher information

technology infrastructure

enhancements during

the second quarter

of 2024

and a $0.5

million decrease

in collections, appraisals and other credit-related fees, partially offset

by a $0.6

million increase in outsourcing fees.

Non-interest

expenses for

the six-month

period ended

June 30,

2025 amounted

to $246.4

million, compared

to $239.6

million for

the same period in

The efficiency ratio

for the first six months

of 2025 was 49.78%, compared

to 51.84% for the same period

Non-interest expenses

for the six-month

period ended June

30, 2024 include the

$1.1 million FDIC special

assessment expense.

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

above

for

additional

information.

non-GAAP

basis,

excluding

the

effect of this Special Item, adjusted non-interest expenses

increased by $7.9 million primarily due to:

●

$5.2

million

increase

employees’

compensation

and

benefits

expenses,

driven

$3.0

million

increase

bonus

incentives,

which

includes

$1.0

million

increase

stock-based

compensation

expense,

which

$0.4

million

was

associated

with

retirement-eligible

employees;

and

$1.2

million

increase

salary

expense

mainly

due

the

aforementioned annual salary merit increases.

●

A $3.3 million

decrease in

net gains on

OREO operations,

driven by

the aforementioned

$2.3 million

realized gain on

the

sale

commercial

real

estate

OREO

property

the

Puerto

Rico

region

during

the

second

quarter

2024

and

decrease in net realized gains on sales of residential OREO properties in

the Puerto Rico region.

●

$1.7

million

increase

occupancy

and

equipment

expenses,

primarily

reflecting

increases

software

maintenance

charges.

Partially offset by:

●

A $2.0

million

decrease

in professional

service

fees,

mainly

due

a $1.9

million

decrease

consulting

fees

driven by

higher information technology infrastructure

enhancements during the first six

months of 2024 and a $1.3

million decrease

in collections, appraisals and other credit-related fees, partially offset

by a $1.1 million increase in outsourcing fees.

Income Taxes

For the

quarter and

six-month period

ended June

30, 2025,

the Corporation

recorded an

income tax

expense of

$22.7 million

and

$45.9 million, respectively,

compared to an

income tax expense of

$25.5 million and

$49.5 million, respectively,

for the same period

in 2024. The

decrease in income

tax expense for

the second quarter

and six-month period

ended June 30,

2025 was driven

by a lower

estimated annual

effective tax rate

due to a

higher proportion of

exempt to taxable

income and a

$0.5 million tax

contingency accrual

release during the second quarter of 2025 in connection with the expiration

of the statute of limitation on some uncertain tax positions.

The

Corporation’s

estimated

annual

effective

tax

rate,

excluding

entities

with

pre-tax

losses

from

which

tax

benefit

cannot

recognized and

discrete items, was

22.8%

for the first

six months

of 2025,

compared to 24.1%

for the same

period in 2024.

See Note

14 – “Income Taxes

”

to the unaudited consolidated financial statements herein for additional

information.

As of June

30, 2025, the Corporation

had a net deferred

tax asset of $134.8

million, net of a

valuation allowance of

$103.3 million,

compared to

a net deferred

tax asset of

$136.4 million,

net of a

valuation allowance of

$119.1 million,

as of December

31, 2024. The

decrease in

the net

deferred tax

asset was mainly

related to

the usage

of alternative

minimum tax

credits. Meanwhile,

the decrease

the valuation allowance

was primarily related to

changes in the market

value of available-for-sale

debt securities, which resulted

in an

equal change

in the net

deferred tax asset

without impacting

earnings as they

are fully

reserved as the

Corporation does

not expect

realize such benefits.

On July 17, 2025, the

Government of Puerto Rico enacted

Act 65-2025. See Note 14

– “Income Taxes”

for additional details on the

potential impact to the Corporation.

Assets

The

Corporation’s

total

assets

were

$18.9

billion

June

30,

2025,

decrease

$395.4

million

from

December

31,

2024,

primarily related

to a

decrease in

cash and

cash equivalents

resulting from

the decrease

in total

deposits, the

repayment of

long-term

borrowings, and capital deployment

actions, partially offset

by the increase in the

fair value of available-for-sale

debt securities due to

changes in market interest rates.

Loans Receivable, including Loans Held for Sale

As of June 30, 2025,

the Corporation’s

total loan portfolio before

the ACL amounted to $12.9

billion, an increase of

$118.0 million

compared

December

31,

2024,

which

$103.4

million

was

commercial

and

construction

loans.

the

Florida

region,

commercial and construction loans increased

by $135.9 million mainly due to the

origination of nine commercial

loans, each in excess

$10

million,

totaling

$143.4

million,

which

$70.3

million

were

purchases

loan

participations.

the

Virgin

Islands

region,

commercial

and

construction loans

increased

by $45.6

million, in

part

due

to a

$27.7 million

disbursement

of a

government

line of

credit. Meanwhile, in

the Puerto Rico region,

commercial and construction

loans decreased by

$78.1 million driven

by the payoff of

$73.8 million

commercial mortgage

loan in the

hospitality industry

and a $53.2

million reduction

in the balance

of floor plan

lines of

credit,

partially offset by the origination of a $50.0 million C&I term loan.

As of

June

30,

2025,

the

Corporation’s

loans

held-for-investment

portfolio

was comprised

commercial

and

construction

loans

(48%),

consumer

loans

and

finance

leases

(30%),

and

residential

real

estate

loans

(22%).

the

total

gross

loan

portfolio

held

for

investment of $12.9 billion as of June 30, 2025, the Corporation had

credit risk concentration of approximately 77% in the Puerto Rico

region, 19% in the United States region (mainly in the

state of Florida), and 4% in the Virgin

Islands region, as shown in the following

table:

As of June 30, 2025

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,190,283

153,611

515,264

2,859,158

Construction loans

191,610

12,875

40,865

245,350

Commercial mortgage loans

1,700,173

74,058

728,244

2,502,475

C&I loans

2,204,658

162,342

1,149,008

3,516,008

Total commercial loans

4,096,441

249,275

1,918,117

6,263,833

Consumer loans and finance leases

3,673,788

67,354

5,869

3,747,011

Total loans held for investment,

gross

9,960,512

470,240

2,439,250

12,870,002

Loans held for sale

9,857

Total loans, gross

9,970,369

470,240

2,439,250

12,879,859

As of December 31, 2024

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,166,980

156,225

505,226

2,828,431

Construction loans

181,607

2,820

43,969

228,396

Commercial mortgage loans

1,800,445

67,449

698,090

2,565,984

C&I loans

2,192,468

133,407

1,040,163

3,366,038

Total commercial loans

4,174,520

203,676

1,782,222

6,160,418

Consumer loans and finance leases

3,680,628

69,577

7,502

3,757,707

Total loans held for investment,

gross

10,022,128

429,478

2,294,950

12,746,556

Loans held for sale

14,558

434

284

15,276

Total loans, gross

10,036,686

429,912

2,295,234

12,761,832

See “Risk Management –

Exposure to Puerto Rico Government”

and “Risk Management –

Exposure to USVI Government”

below

for information on the Corporation’s

credit exposure to PR and USVI government entities.

As of June 30, 2025, the

Corporation’s total

commercial mortgage loan exposure amounted

to $2.5 billion, or 19% of

the total loan

portfolio. In

terms of

geography,

$1.7 billion

of the

exposure was

in the

Puerto Rico

region, $0.7

billion of

the exposure

was in

the

Florida region,

and $0.1

billion of

the exposure

was in the

Virgin

Islands region.

The $1.7

billion exposure

in the

Puerto Rico

region

was comprised mainly of 41%

in the retail industry,

26% in office real estate,

and 19% in the hotel industry.

The $0.7 billion exposure

in the Florida region was comprised mainly of 35% in the retail industry,

21% in the hotel industry,

and 7% in office real estate. Of the

Corporation’s

total commercial

mortgage loan

exposure of

$2.5 billion,

$336.1 million

matures within

the next

12 months

and has

weighted-average interest

rate of

approximately 5.98%.

Commercial mortgage

loan exposure

in the

office real

estate industry,

which

matures within the next 12 months, amounted to $108.7 million and has

a weighted-average interest rate of approximately 5.70%.

As of

June 30,

2025 and

December 31,

2024, the

Corporation’s

total exposure

to shared

national credit

(“SNC”) loans

(including

unused commitments)

amounted to

$1.2 billion

and $1.3

billion, respectively.

As of

June 30,

2025, approximately

$350.7 million

the

SNC

exposure

the

portfolio

the

Puerto

Rico

region

and

$893.6

million

the

portfolio

the

Florida

region.

Loan Production

First BanCorp.

relies primarily

on its

retail network

of branches

to originate

residential and

consumer loans.

The Corporation

may

supplement

its residential

mortgage originations

with wholesale

servicing released

mortgage loan

purchases from

mortgage bankers.

The

Corporation

manages

its

construction

and

commercial

loan

originations

through

centralized

units

and

most

its

originations

come

from

existing

customers,

well

through

referrals

and

direct

solicitations.

Auto

loans

and

finance

leases

originations

rely

primarily on relationships with auto dealers and dedicated sales professionals who

serve selected locations to facilitate originations.

The

following

table

provides

breakdown

First

BanCorp.’s

loan

production,

including

purchases,

refinancings,

renewals

and

draws from existing revolving and non-revolving commitments by geographic

segment,

for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2025

2024

2025

2024

(In thousands)

Puerto Rico:

Residential mortgage

98,166

92,624

199,586

160,267

Construction

25,284

38,459

51,998

74,110

Commercial mortgage

96,640

83,852

100,924

101,754

C&I

481,886

337,347

846,074

742,566

Consumer

383,223

404,645

752,659

798,551

Total loan production

1,085,199

956,927

1,951,241

1,877,248

Virgin Islands:

Residential mortgage

2,810

696

3,533

2,122

Construction

2,297

162

10,098

162

Commercial mortgage

742

298

9,192

423

C&I

33,921

12,351

58,386

23,460

Consumer

6,320

8,897

14,078

16,793

Total loan production

46,090

22,404

95,287

42,960

Florida:

Residential mortgage

25,783

28,884

37,470

47,985

Construction

7,692

9,609

22,483

20,655

Commercial mortgage

31,168

20,304

78,789

77,933

C&I

216,657

219,086

403,570

391,253

Consumer

1,335

2,970

1,668

3,427

Total loan production

282,635

280,853

543,980

541,253

Total:

Residential mortgage

126,759

122,204

240,589

210,374

Construction

35,273

48,230

84,579

94,927

Commercial mortgage

128,550

104,454

188,905

180,110

C&I

732,464

568,784

1,308,030

1,157,279

Consumer

390,878

416,512

768,405

818,771

Total loan production

1,413,924

1,260,184

2,590,508

2,461,461

Commercial and

construction loan

originations (excluding

government loans)

for the

quarter and

six-month period

ended June

30,

2025

amounted

$859.6

million

and

$1.5

billion,

respectively,

compared

$705.9

million

and

$1.4

billion,

respectively,

for

the

same periods

in 2024.

The increase

for the

quarter and

six-month period

ended June

30, 2025

was mainly

in the

Puerto Rico

region.

The growth in

the Puerto Rico region

for the first six

months

of 2025 includes

the effect of

the origination of

three C&I relationships,

each in excess of $25 million, with

an aggregate balance of $108.5 million

and higher utilization of C&I lines of

credit, partially offset

by an $81.9 million decrease in the floor plan portfolio.

Government

loan

originations

for

the

quarter

and

six-month

period

ended

June

30,

2025

amounted

$36.7

million

and

$65.6

million, respectively,

compared to $15.6

million and $51.4

million, respectively,

for the comparable

periods in 2024.

The increase for

the first six

months of 2025

was mainly related

to the higher

utilization of a

line of credit

in the Virgin

Islands region, partially

offset

by a decrease

related to the

origination of

a $13.6 million

loan to a

municipality in

the Puerto

Rico region

during the

first six months

of 2024.

Originations of auto

loans (including finance

leases) for the quarter

and six-month period

ended June 30,

2025 amounted to

$229.3

million and

$457.0 million,

respectively,

compared to

$233.9 million

and $462.0

million, respectively,

for the

comparable periods

Other

consumer loan

originations,

other than

credit cards,

for the

quarter and

six-month period

ended June

30, 2025

amounted

$53.5

million

and

$101.1

million,

respectively,

compared

$64.6

million

and

$124.5

million,

respectively,

for

the

comparable

periods in

Most of

the decreases

in auto

loan originations

and other

consumer loan

originations for

the second quarter

and first

six

months

2025,

compared

with

the

same

periods

2024,

were

the

Puerto

Rico

region.

The

utilization

activity

the

outstanding

credit card

portfolio

for

the quarter

and

six-month

period

ended June

30, 2025

amounted

$108.0

million

and

$210.2

million, respectively,

compared to $118.0 million and $232.3 million, respectively,

for the comparable periods in 2024.

Investment Activities

part

its

liquidity,

revenue

diversification,

and

interest

rate

risk

management

strategies,

First

BanCorp.

maintains

debt

securities portfolio classified as available for sale or held to maturity.

Substantially

all

the

Corporation’s

available-for-sale

debt

securities

portfolio

was

invested

U.S.

government

and

agencies

debentures

and

fixed-rate

GSEs’

MBS.

The

Corporation’s

total

available-for-sale

debt

securities

portfolio

June

30,

2025

amounted to $4.5 billion,

a $68.5 million decrease

from December 31, 2024.

The decrease was driven

by $375.4 million in

maturities,

mainly U.S.

agencies debentures

and U.S. Treasury

securities;

and $225.4

million in principal

repayments of

U.S. agencies MBS

and

debentures;

partially

offset

approximately

$409.4

million

purchases,

which

$212.6

million

were

U.S.

agencies

MBS,

including $195.5 million

of residential MBS, and

$196.8 million were U.S.

Treasury securities; and

the $125.3 million

increase in fair

value attributable

to changes in

market interest

rates. As of

June 30,

2025, the Corporation

had a net

unrealized loss

on available-for-

sale

debt

securities

$434.3

million.

This

net

unrealized

loss

primarily

attributable

instruments

books

carrying

lower

interest rate than market rates. The Corporation

expects that this unrealized loss will reverse over time and

it is likely that it will not be

required to sell the securities

before their anticipated recovery.

The Corporation expects the portfolio

will continue to decrease and

the

accumulated other comprehensive loss will decrease accordingly,

excluding the impact of market interest rates.

As of

June 30,

2025,

cash inflows

of approximately

$1.8

billion are

expected to

be received

during

the next

twelve months

from

maturities and

expected prepayments of

the available-for-sale

debt securities portfolio

which has an

average yield of

1.70%, of which

$1.3

billion

are

expected

received

during

the

remainder

2025.

These

inflows

are

expected

redeployed

fund

loan

growth,

reinvested

into

higher-yielding

securities,

used

repay

maturing

brokered

CDs.

See

Note

–

“Debt

Securities”

for

information and details about the Corporation’s

available-for-sale debt securities portfolio.

Held-to-maturity

debt

securities

include

fixed-rate

GSEs’

MBS

with

carrying

value

$214.4

million

(fair

value

$204.1

million) as of

June 30, 2025, compared

to $225.3 million

as of December 31,

The decrease in

GSEs’ MBS was driven

by $11.0

million

in principal

repayments. Held-to-maturity

debt

securities also

include

$92.8 million

as of

June 30,

2025,

compared to

$92.4

million

December

31,

2024,

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

securities,

but

which

were

underwritten

loans

with

features

that

are

typically

found

commercial

loans. As

of June

30, 2025,

approximately 57%

of the

Corporation’s

municipal bonds

consisted of

obligations issued

by three

of the

largest municipalities in Puerto Rico.

See

“Risk Management

–

Exposure

to Puerto

Rico

Government”

below

for

information

and

details

about

the Corporation’s

total

direct exposure

to the

Puerto Rico

government, including

municipalities,

and “Risk

Management

– Credit

Risk Management”

below

and Note 2 – “Debt Securities” for the ACL of the exposure to Puerto

Rico municipal bonds.

The

carrying

values

debt

securities

June

30,

2025

and

December

31,

2024

contractual

maturity

(excluding

MBS)

and

weighted-average yield, are shown below:

June 30, 2025

December 31, 2024

Weighted-

Average Yield

Carrying

Amount

Weighted-

Average Yield

Carrying

Amount

(Dollars in thousands)

Available-for-sale

debt securities, at fair value

U.S government and agencies obligations:

Due within one year

1.29

1,231,281

0.79

1,127,041

Due after one year through five years

1.01

517,357

0.96

764,679

Due after ten years

4.68

7,003

4.73

7,800

1.22

1,755,641

(1)

0.87

1,899,520

Puerto Rico government obligation:

Due after ten years

1,576

1,620

MBS:

Residential

1.95

2,539,728

1.79

2,481,253

Commercial

2.38

199,358

2.12

181,909

Total MBS

1.99

2,739,086

1.82

2,663,162

Other:

Due within one year

2.35

500

2.32

1,000

Total available-for-sale

debt securities, at fair value

1.70

4,496,803

1.45

4,565,302

Held-to-maturity debt securities, at amortized cost

Puerto Rico municipal bonds:

Due within one year

4.86

2,380

5.07

2,214

Due after one year through five years

7.18

62,962

7.33

61,289

Due after five years through ten years

5.06

11,741

5.79

13,184

Due after ten years

7.78

15,755

8.07

15,755

6.96

92,838

7.18

92,442

ACL on held-to-maturity debt securities

(765)

(802)

MBS:

Residential

3.87

121,074

3.86

129,319

Commercial

2.06

93,374

3.88

96,025

Total MBS

3.08

214,448

3.87

225,344

Total held-to-maturity

debt securities, at amortized cost

4.25

306,521

4.83

316,984

Total debt securities

1.85

4,803,324

1.65

4,882,286

(1)

Includes approximately $989.9 million in callable

debt securities with an average yield of 0.78%,

of which approximately 65% were purchased

at a discount and 2% at a premium. See “Risk

Management” below

for further

analysis of

the effects

of changing

interest rates

on the

Corporation’s

net interest

income and

the Corporation’s

interest risk

management strategies.

Also,

refer to Note 2 - “Debt Securities” for additional information regarding

the Corporation’s debt securities portfolio.

RISK MANAGEMENT

General

Risks

are

inherent

virtually

all

aspects

the

Corporation’s

business

activities

and

operations.

Consequently,

effective

risk

management

fundamental

the

success

the

Corporation.

The

primary

goals

risk

management

are

ensure

that

the

Corporation’s

risk-taking activities are

consistent with the

Corporation’s

objectives and risk

tolerance, and that

there is an appropriate

balance between risks and rewards to maximize stockholder value.

The

Corporation

has

place

risk

management

framework

monitor,

evaluate

and

manage

the

principal

risks

assumed

conducting its activities. First BanCorp.’s

business is subject to eleven

broad categories of risks: (i) liquidity

risk; (ii) interest rate risk;

(iii) market risk; (iv)

credit risk; (v) operational

risk; (vi) legal and

regulatory risk; (vii)

reputational risk; (viii) model

risk; (ix) capital

risk; (x)

strategic risk;

and (xi)

information technology

risk. First

BanCorp. has

adopted policies

and procedures

designed to

identify

and manage the risks to which the Corporation is exposed.

The

Corporation’s

risk

management

policies

are

described

below,

well

Part

II,

Item

“Management’s

Discussion

and

Analysis of Financial Condition and Results of Operations,” in the 2024

Annual Report on Form 10-K.

Liquidity Risk and Capital Adequacy

Liquidity

risk

involves

the

ongoing

ability

accommodate

liability

maturities

and

deposit

withdrawals,

fund

asset growth

and

business operations,

and meet

contractual obligations

through unconstrained

access to funding

at reasonable

market rates. Liquidity

management

involves

forecasting

funding

requirements

and

maintaining

sufficient

capacity

meet

liquidity

needs

and

accommodate

fluctuations

asset

and

liability

levels

due

changes

the

Corporation’s

business

operations

unanticipated

events.

The Corporation

manages liquidity

at two

levels. The

first is

the liquidity

of the

parent company,

or First

Bancorp., which

is the

holding

company

that

owns

the

banking

and

non-banking

subsidiaries.

The

second

the

liquidity

the

banking

subsidiary,

FirstBank.

The

Asset

and

Liability

Committee

the

Corporation’s

Board

Directors

responsible

for

overseeing

management’s

establishment

the

Corporation’s

liquidity

policy,

well

approving

operating

and

contingency

procedures

and

monitoring

liquidity

ongoing

basis.

The

Management’s

Investment

and

Asset

Liability

Committee

(“MIALCO”),

which

reports

the

Board’s

Asset

and

Liability

Committee,

uses

measures

liquidity

developed

management

that

involve

the

use

several

assumptions

review

the

Corporation’s

liquidity

position

monthly

basis.

The

MIALCO

oversees

liquidity

management,

interest rate risk, market risk, and other related matters.

The MIALCO is composed of

senior management officers, including

the Chief Executive Officer,

the Chief Financial Officer,

the

Chief Risk

Officer,

the Treasurer,

the Chief

Consumer Officer

and Corporate

Chief of

Staff, the

Corporate

Strategic and

Business

Development

Director,

the

Treasury

and

Investments

Risk

Manager,

the

Financial

Planning

and

Asset

and

Liability

Management

(“ALM”)

Director,

and

the

Chief

Operating

Officer.

The

Treasury

and

Investments

Division

responsible

for

planning

and

executing the Corporation’s

funding activities and

strategy, monitoring

liquidity availability daily,

and reviewing liquidity

measures

weekly

basis.

The

Investments

Accounting

and

Operations

area

the

Corporate

Controller’s

Department

responsible

for

calculating the

liquidity measurements

used by

the Treasury

and Investment

Division to

review the

Corporation’s

liquidity position

on a weekly basis. The Financial Planning and ALM Division is responsible

for operating the liquidity and interest rate risk models.

ensure

adequate liquidity

through the

full range

of potential

operating

environments and

market conditions,

the Corporation

conducts

its

liquidity

management

and

business

activities

manner

that

intended

preserve

and

enhance

funding

stability,

flexibility,

and

diversity.

Key

components

this

operating

strategy

include

strong

focus

the

continued

development

customer-based

funding, the

maintenance

of direct

relationships with

wholesale

market funding

providers, and

the maintenance

the ability to liquidate certain assets when, and if, requirements warrant.

The

Corporation

develops

and

maintains

contingency

funding

plans.

These

plans

evaluate

the

Corporation’s

liquidity

position

under various

operating circumstances

and are

designed to

help ensure

that the

Corporation will

be able

to operate

through periods

of stress when

access to normal

sources of funds

is constrained. The

plans project funding

requirements during

a potential period

stress, specify and quantify sources of liquidity,

outline actions and procedures for effectively managing

liquidity through a period of

stress, and

define roles

and responsibilities

for the

Corporation’s

employees. Under

the contingency

funding plans,

the Corporation

stresses the

balance sheet

and the

liquidity position

to critical levels

that mimic

difficulties in

generating funds

or even maintaining

the current

funding position

of the

Corporation and

the Bank

and are

designed to

help ensure

the ability

of the

Corporation and

the

Bank to honor

their respective commitments.

The Corporation has

established liquidity

triggers that the

MIALCO monitors in

order

to maintain the

ordinary funding of

the banking business.

The MIALCO has

developed contingency funding

plans for the

following

three

scenarios:

credit rating

downgrade,

economic

cycle

downturn

event,

and

concentration

event.

The

Board’s

Asset and

Liability Committee reviews and approves these plans on an annual basis.

Liquidity Risk Management

The Corporation manages

its liquidity in

a proactive manner and

in an effort

to maintain a sound

liquidity position. It uses

multiple

measures

to monitor

its liquidity

position,

including

core

liquidity,

basic

liquidity,

and time-based

reserve

measures. Cash

and

cash

equivalents amounted

to $736.7

million as

of June

30, 2025,

compared to

$1.2 billion

as of

December 31,

When

adding

$1.6

billion

free

high-quality

liquid

securities

that

could

liquidated

pledged

within

one

day

(which

includes

assets

such

as U.S.

government

and GSEs

obligations),

the total

core

liquidity amounted

to $2.3

billion

as of

June 30,

2025,

or 12.17%

total assets,

compared to $2.4 billion, or 12.54%

of total assets as of December 31, 2024.

In addition

to the aforementioned

$2.3 billion in

cash and free

high quality

liquid assets, the

Corporation had $1.0

billion available

for credit

with the

FHLB based

on the value

of loan

collateral pledged

with the

FHLB. As

such, the

basic liquidity

ratio (which

adds

such available secured

lines of credit to

the core liquidity) was

approximately 17.58%

of total assets as of

June 30, 2025, compared

17.27% of total assets as of December 31, 2024.

Further,

the

Corporation

also

maintains

borrowing

capacity

the

FED

Discount

Window

and

had

approximately

$2.7

billion

available

for

funding

under

the

FED’s

Borrower-in-Custody

(“BIC”)

Program

June

30,

2025,

compared

$2.6

billion

December 31,

2024 as

an additional

source of

liquidity.

Total

loans pledged

to the

FED BIC

Program amounted

to $3.4

billion as

each of June 30, 2025 and

December 31, 2024. The Corporation

does not rely on uncommitted inter-bank

lines of credit (federal funds

lines) to

fund its

operations. In

the aggregate,

as of June

30, 2025,

the Corporation

had $6.0

billion available

to meet

liquidity needs,

133%

estimated

uninsured

deposits,

excluding

fully

collateralized

government

deposits,

compared

$5.9

billion

124%,

respectively, as of

December 31, 2024.

Liquidity

the Bank

level

is highly

dependent

bank deposits,

which

fund

87.9%

of the

Bank’s

assets (or

85.1%

excluding

brokered CDs).

In addition,

as further

discussed below,

the Corporation

maintains a

diversified base

of readily

available wholesale

funding

sources,

including

advances

from

the

FHLB

through

pledged

borrowing

capacity,

securities

sold

under

agreements

repurchase, and access to brokered CDs. Funding

through wholesale funding may continue to increase

the overall cost of funding for

the Corporation and adversely affect the net interest margin.

Commitments to extend credit and standby

letters of credit

provider

financial

services,

the

Corporation

routinely

enters

into

commitments

with

off-balance

sheet

risk

meet

the

financial

needs

its

customers.

These

financial

instruments

may

include

loan

commitments

and

standby

letters

credit.

These

commitments

are

subject

the

same

credit

policies

and

approval

processes

used

for

on-balance

sheet

instruments.

These

instruments involve, to varying degrees,

elements of credit and interest rate risk

in excess of the amount recognized in the

statements

of financial condition. As of June 30, 2025,

the Corporation’s commitments to

extend credit amounted to approximately

$2.2 billion.

Commitments to

extend credit

are agreements

to lend

to a

customer as

long as

there is

no violation

of any

condition established

the contract.

Since certain

commitments

are expected

to expire

without being

drawn upon,

the total

commitment

amount does

not

necessarily

represent

future

cash

requirements.

For

most

the

commercial

lines

credit,

the

Corporation

has

the

option

reevaluate

the

agreement

prior

additional

disbursements.

There

have

been

significant

unexpected

draws

existing

commitments.

In the

case

of credit

cards

and personal

lines of

credit,

the Corporation

can cancel

the

unused credit

facility

any

time and without cause.

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

credit as of the indicated dates:

June 30, 2025

December 31, 2024

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

235,263

283,302

Unused credit card lines

778,494

787,849

Unused personal lines of credit

36,636

37,140

Commercial lines of credit

1,150,257

1,053,938

Letters of credit:

Commercial letters of credit

40,045

41,738

Standby letters of credit

21,389

24,635

The

Corporation

engages

the ordinary

course

of business

other

financial

transactions

that

are not

recorded

on the

balance

sheet

may

recorded

the

balance

sheet

amounts

that

are

different

from

the

full

contract

notional

amount

the

transaction

and, thus,

affect

the Corporation’s

liquidity position.

These transactions

are designed

to (i)

meet the

financial needs

customers, (ii) manage the

Corporation’s credit,

market and liquidity risks, (iii)

diversify the Corporation’s

funding sources, and (iv)

optimize capital.

In addition to the

aforementioned off-balance

sheet debt obligations

and unfunded commitments

to extend credit,

the Corporation

has obligations

and commitments

to make

future payments

under contracts,

amounting to

approximately $4.2

billion as

of June

30,

2025.

Our

material

cash

requirements

comprise

primarily

contractual

obligations

make

future

payments

time

deposits,

long-term

borrowings,

and operating

lease obligations.

also have

other contractual

cash obligations

to certain

binding agreements

we have

entered into

for services

including outsourcing

of technology

services, security,

advertising and

other

services

which

are

not

material

our

liquidity

needs.

currently

anticipate

that

our

available

funds,

credit

facilities,

and

cash

flows from

operations will

be sufficient

to meet

our operational

cash needs

and support

loan growth

and capital

plan execution

for

the foreseeable future.

Off-balance sheet

transactions are continuously

monitored to consider

their potential impact

to our liquidity

position and changes

are applied to the balance between sources and uses of funds, as deemed appropriate,

to maintain a sound liquidity position.

Sources of Funding

The Corporation

utilizes different

sources of

funding to

help ensure

that adequate

levels of

liquidity are

available when

needed.

Diversification

funding

sources

great

importance

protect

the

Corporation’s

liquidity

from

market

disruptions.

The

principal

sources

short-term

funding

are

deposits,

including

brokered

CDs.

Additional

funding

provided

securities

sold

under agreements

to repurchase and

lines of credit

with the FHLB.

In addition,

the Corporation also

maintains as additional

sources

borrowing capacity at the FED’s BIC Program

as discussed above.

The Asset and Liability Committee reviews credit availability

on a regular basis. The Corporation may

also sell mortgage loans as

a supplementary source of funding and obtain long-term funding

through the issuance of notes and long-term brokered CDs.

While

liquidity

ongoing

challenge

for

all

financial

institutions,

management

believes

that

the

Corporation’s

available

borrowing capacity and

efforts to grow

core deposits will be

adequate to provide

the necessary funding

for the Corporation’s

business

plans in the next 12 months and beyond.

Retail

and

commercial

core

deposits

–

The

Corporation’s

deposit

products

include

regular

saving

accounts,

demand

deposit

accounts,

money

market

accounts,

and

retail

CDs.

June

30,

2025

and

December

31,

2024,

the

Corporation’s

core

deposits,

which

exclude

government

deposits

and

brokered

CDs,

totaled

$12.7

billion

and

$12.9

billion,

respectively.

The

$211.9

million

decrease in

such deposits

consisted of

decreases of

$147.0 million

in the

Puerto Rico

region and

$95.4 million

in the

Florida region,

partially

offset

$30.5

million

increase

the

Virgin

Islands

region.

This

decrease

includes

$204.0

million

decrease

non-

interest-bearing deposits,

partially offset by a $183.3 million increase in time deposits.

Government

deposits

(fully

collateralized)

–

June

30,

2025,

the

Corporation

had

$2.9

billion

Puerto

Rico

public

sector

deposits

($2.7

billion

transactional

accounts

and

$159.7

million

time

deposits),

compared

$3.1

billion

December

31,

2024.

Government

deposits

are

insured

the

FDIC

the

applicable

limits

and

the

uninsured

portions

are

fully

collateralized.

Approximately 21% of

the public sector deposits

as of June 30,

2025 were from municipalities

and municipal agencies

in Puerto Rico

and

79%

were

from

public

corporations,

the

central

government

and

its

agencies,

and

U.S.

federal

government

agencies

Puerto

Rico.

In addition, as

of June 30,

2025, the Corporation

had $0.5 billion of

government deposits in

the Virgin

Islands region, as compared

to $0.4 billion as of December 31, 2024.

The

uninsured

portions of

government

deposits were

collateralized

by securities

and

loans with

an amortized

cost of

$3.4

billion

and

$3.7

billion

June

30,

2025

and

December

31,

2024,

respectively,

and

estimated

market

value

$3.1

billion

and

$3.3

billion

June

30,

2025

and

December

31,

2024,

respectively.

addition

securities

and

loans,

June

30,

2025

and

December 31,

2024, the

Corporation used

$225.0 million

and $175.0

million, respectively,

in letters

of credit

issued by

the FHLB

pledges for a portion of public deposits in the Virgin

Islands.

Estimate of Uninsured

Deposits –

As of June 30, 2025 and December 31,

2024, the estimated amounts of uninsured deposits

totaled

$7.6

billion

and

$8.1

billion,

respectively,

generally

representing

the

portion

deposits

that

exceed

the

FDIC

insurance

limit

$250,000 and

amounts in any

other uninsured

deposit account. As

of June 30,

2025 and December

31, 2024, the

uninsured portion

fully

collateralized

government

deposits

amounted

$3.1

billion

and

$3.3

billion,

respectively.

Excluding

fully

collateralized

government deposits,

the estimated amounts of uninsured deposits

amounted to $4.5 billion, which

represents

28.10% of total deposits

(excluding brokered CDs), as of June 30, 2025, compared to $4.8

billion, or 29.36%, as of December 31, 2024.

The

amount of

uninsured

deposits

is calculated

based on

the

same

methodologies

and assumptions

used for

our bank

regulatory

reporting requirements adjusted for cash held by wholly-owned subsidiaries

at the Bank.

The following table presents by contractual maturities the amount of U.S. time deposits in

excess of FDIC insurance limits (over

$250,000) and other time deposits that are otherwise uninsured as of June 30, 2025:

(In thousands)

3 months or

less

3 months to

6 months

6 months to

1 year

Over 1 year

Total

U.S. time deposits in excess of FDIC insurance limits

465,093

152,440

383,689

135,388

1,136,610

Other uninsured time deposits

16,980

16,521

17,678

3,608

54,787

Brokered

CDs

–

Total

brokered

CDs

increased

$48.4

million

$526.5

million

June

30,

2025,

primarily

the

Florida

region.

The increase

reflects $132.2

million of

new issuances

with original

average maturities

of approximately

1 year

and an

all-in

cost of

4.34%, partially

offset by

maturing brokered

CDs amounting

to $83.8

million with

an all-in

cost of

5.08% that

were paid

off

during the first half of 2025.

The average remaining term to maturity of the brokered CDs outstanding

as of June 30, 2025 was approximately 1.2 years.

The future use

of brokered

CDs will depend

on multiple factors

including excess

liquidity at each

of the regions,

future cash needs

and

any

tax implications.

Also,

depending

lending or

other

investment

opportunities available,

cash

inflows from

repayments

investment securities

may be used

as well

to repay brokered

CDs. Brokered

CDs are insured

by the FDIC

up to regulatory

limits and

can be obtained faster than regular retail deposits.

The following

table presents the

remaining contractual

maturities and

weighted-average interest

rates of brokered

CDs as of

June

30, 2025:

Total

Weighted-average

interest rate %

(In thousands)

Three months or less

67,141

4.56

Over three months to six months

105,178

4.43

Over six months to one year

180,792

4.27

Over one year to two years

100,290

4.11

Over two years to three years

30,313

4.03

Over three years to four years

27,372

4.44

Over five years

15,461

4.61

Total

526,547

4.31

Refer to

“Net Interest

Income” above

for information

about average

balances of

interest-bearing deposits

and the

average interest

rate paid on such deposits for the quarters and six-month periods ended

June 30, 2025 and 2024.

Securities

sold

under

agreements

repurchase

–

From

time

time,

the

Corporation

enters

into

repurchase

agreements

additional source of funding. As of each of June 30, 2025 and December

31, 2024, there were no outstanding repurchase agreements.

When

the

Corporation

enters

into

repurchase

agreements,

as is

the

case

with

derivative

contracts,

the

Corporation

required

pledge

cash

qualifying

securities

meet

margin

requirements.

the

extent

that

the

value

securities

previously

pledged

collateral

declines

due

changes

interest

rates,

liquidity

crisis

any

other

factor,

the

Corporation

required

deposit

additional

cash

securities

meet

its

margin

requirements,

thereby

adversely

affecting

its

liquidity.

Given

the

quality

the

collateral

pledged,

the

Corporation

has

not

experienced

margin

calls

from

counterparties

arising

from

credit-quality-related

write-

downs in valuations.

Advances

from

the

FHLB

–

The

Bank

member

the

FHLB

system

and

obtains

advances

fund

its

operations

under

collateral

agreement

with

the

FHLB

that

requires

the

Bank

maintain

qualifying

mortgages

and/or

investments

collateral

for

advances

taken. As

of June

30,

2025 and

December 31,

2024,

the outstanding

balance of

long-term

fixed-rate

FHLB advances

was

$320.0 million

and $500.0

million, respectively

Of the

$320.0 million

in FHLB

advances as

of June

30, 2025,

$220.0 million

were

pledged with

investment securities

and $100.0

million were

pledged with

mortgage loans.

As of

June 30,

2025, the

Corporation had

$1.0 billion available for additional credit on FHLB lines of credit based

on collateral pledged at the FHLB of New York.

The following

table presents the

remaining contractual

maturities and

weighted-average interest

rates of

advances from

the FHLB

as of June 30, 2025:

Total

Weighted-average

interest rate %

(In thousands)

Three months or less

30,000

4.83

Over six months to one year

90,000

4.49

Over two years to three years

200,000

4.25

Total

(1)

320,000

4.37

(1) Average remaining term to maturity

of 1.71 years.

100

Trust-Preferred

Securities –

In 2004,

FBP Statutory

Trusts I

and II,

wholly-owned by

the Corporation

and not

consolidated in

the

Corporation’s

financial

statements,

sold

institutional

investors

variable-rate

TruPS

and

used

the

proceeds

these

issuances,

together

with the

proceeds

of the

purchases

by the

Corporation

of variable

rate common

securities,

to purchase

junior

subordinated

deferrable debentures.

During

the

first

half

2025,

the

Corporation

redeemed

the

remaining

$61.7

million

outstanding

TruPS

December

31,

2024,

which

had

been

reported

part

“Long-term

borrowings”

the

Corporation’s

consolidated

financial

statements,

contractual

call

price

100%.

Following

the

redemption

these

TruPS,

FBP

Statutory

Trusts

and

were

liquidated

the

Corporation.

See Note 6 – “Non-Consolidated Variable

Interest Entities (“VIEs”) and Servicing Assets” and Note 20 – “First Bancorp

(Holding Company Only) Financial Information” for additional informatio

FED Discount Window

– The Corporation participates in

the BIC Program of the FED.

Through the BIC Program, a

broad range of

loans may be

pledged as collateral

for borrowings through

the FED Discount Window.

As previously mentioned,

as of June 30,

2025,

the

Corporation

had

approximately

$2.7

billion

fully

available

for

funding

under

the

FED’s

Discount

Window

based

collateral

pledged at the FED.

Effect of Credit Ratings on Access to Liquidity

The

Corporation’s

liquidity

contingent

upon

its

ability

obtain

deposits

and

other

external

sources

funding

finance

its

operations.

The Corporation’s

current

credit ratings

and any

downgrade

in credit

ratings can

hinder the

Corporation’s

access to

new

forms

external

funding

and/or

cause

external

funding

expensive,

which

could,

turn,

adversely

affect

its

results

operations. Also, changes in credit ratings may further affect

the fair value of unsecured derivatives whose value takes into account

the

Corporation’s own credit risk.

The Corporation

does not

have any

outstanding debt

or derivative

agreements that

would be

affected by

credit rating

downgrades.

Furthermore, given the Corporation’s

non-reliance on corporate debt or other

instruments directly linked in terms

of pricing or volume

to credit

ratings, the

liquidity of

the Corporation

has not been

affected in

any material

way by downgrades.

The Corporation’s

ability

to access new non-deposit sources of funding, however,

could be adversely affected by credit downgrades.

the

date

hereof,

the

Corporation’s

credit

long-term

issuer

rated

BB+

S&P

and

Fitch.

the

date

hereof,

FirstBank’s

credit ratings

as a long

-term issuer

are BB+ by

S&P and

Fitch, one notch

below the

minimum BBB- level

required to

considered investment grade.

The Corporation’s

credit ratings are dependent

on a number of

factors, both quantitative

and qualitative,

and are

subject to

change at

any time.

The disclosure

of credit

ratings is

not a

recommendation to

buy,

sell or

hold the

Corporation’s

securities. Each rating should be evaluated independently of any

other rating.

101

Cash Flows

Cash and cash

equivalents were $736.7

million as of

June 30, 2025,

a decrease of

$422.7 million when

compared to December

31,

2024.

The following

discussion highlights

the major

activities and

transactions that

affected the

Corporation’s

cash flows

during the

first six months of 2025 and 2024:

Cash Flows from Operating Activities

First BanCorp.’s

operating assets and

liabilities vary significantly

in the normal course

of business due to

the amount and timing

cash flows.

Management believes

that cash

flows from

operations, available

cash balances,

and the

Corporation’s

ability to

generate

cash through

short and long-term

borrowings will be

sufficient to

fund the Corporation’s

operating liquidity

needs for the

foreseeable

future.

For

the

first

six

months

2025

and

2024,

net

cash

provided

operating

activities

was

$203.7

million

and

$189.4

million,

respectively.

Net cash

generated from

operating activities

was higher

than reported

net income

largely as

a result

of adjustments

for

non-cash items such

as depreciation and

amortization, deferred income

tax expense and the

provision for credit

losses, as well as

cash

generated from sales and repayments of loans held for sale.

Cash Flows from Investing Activities

The Corporation’s

investing activities primarily

relate to originating

loans to be

held for investment,

as well as

purchasing, selling,

and repaying

available-for-sale and

held-to-maturity debt

securities. For the

six-month period ended

June 30, 2025,

net cash provided

investing

activities

was

$25.3

million,

primarily

due

maturities

U.S.

agencies

debentures

and

U.S.

Treasury

securities

and

principal

repayments

of U.S.

agencies

MBS and

debentures,

proceeds

from

sales of

repossessed

assets,

and

proceeds

from

the bulk

sale

fully

charged-off

consumer

loans and

finance

leases, partially

offset

purchases of

U.S.

agencies

MBS and

U.S.

Treasury

securities and net disbursements on loans held for investment during

the first half of 2025.

For

the

six-month

period

ended

June

30,

2024,

net

cash

provided

investing

activities

was

$11.3

million,

primarily

due

repayments of U.S. agencies MBS and

debentures; proceeds from sales of

repossessed assets; and proceeds from

sales of loans, driven

by the

bulk sale

of fully

charged-off consumer

loans during

the first

half of

2024; partially

offset by

net disbursements

on loans

held

for investment and purchases of Community Reinvestment Act qualified

debt securities during the second quarter of 2024.

Cash Flows from Financing Activities

The Corporation’s

financing activities

primarily

include the

receipt of

deposits and

the issuance

of brokered

CDs, the

issuance of

and

payments

long-term

borrowings,

the

issuance

equity

instruments,

return

capital, and

activities

its

short-term

funding. For the

six-month period ended June

30, 2025, net cash

used in financing

activities was $651.7 million,

mainly reflecting the

repayments

long-term

borrowings,

consisting

$180.0

million

FHLB

advances

and

the

redemption

junior

subordinated

debentures;

decrease

total

deposits;

and

capital

returned

stockholders.

See

Note

–

“Non-Consolidated

Variable

Interest

Entities (“VIEs”) and Servicing Assets” and Note 20 – “First Bancorp.

(Holding Company Only) Financial Information” for additional

information on the redemption of junior subordinated debentures.

For the

six-month period

ended June

30, 2024,

net cash

used in

financing activities

was $277.6

million, mainly

reflecting capital

returned to stockholders and a decrease in total deposits.

102

Capital

June

30,

2025,

the

Corporation’s

stockholders’

equity

was

$1.8

billion,

increase

$176.2

million

from

December

31,

2024.

The

increase

was

driven

net

income

generated

the

first

half

2025

and

$125.3

million

increase

the

fair

value

available-for-sale debt securities due to changes in market

interest rates recognized as part of accumulated other comprehensive

loss in

the

consolidated

statements

financial

condition,

partially

offset

common

stock

dividends

declared

the

first

half

2025

totaling $58.6 million or $0.36 per common share, and $50.0 million in

common stock repurchases.

July

21,

2025,

the

Corporation’s

Board

Directors

declared

quarterly

cash

dividend

$0.18

per

common

share.

The

dividend

is payable

on September

12, 2025

to shareholders

of record

at the

close of

business on

August

28, 2025.

The Corporation

intends to

continue to pay

quarterly dividends

on common stock.

However, the

Corporation’s

common stock dividends,

including the

declaration, timing,

and amount, remain

subject to consideration

and approval by

the Corporation’s

Board of Directors

at the relevant

times.

July

22,

2024,

the

Corporation

announced

that

its

Board

Directors

approved

repurchase

program,

under

which

the

Corporation

may repurchase

to $250

million that

could include

repurchases

of common

stock or

junior subordinated

debentures,

which it

expects to

execute during

the remainder

of 2025.

Under this

program, during

first half

of 2025

the Corporation

repurchased

approximately 2.8

million shares of

common stock

for a total

cost of $50.0

million and

redeemed $61.7

million of outstanding

junior

subordinated debentures.

As of June

30, 2025, the

Corporation has remaining

authorization of approximately

$88.3 million.

For more

information, see Part II, Item 2, “Unregistered Sales of

Equity Securities and Use of Proceeds,” and

Note 11 – “Stockholders’ Equity

”,

of this Quarterly Report on Form 10-Q.

From July

1, 2025

to August

5, 2025,

the Corporation

repurchased

approximately

1.0 million

shares of

common

stock for

a total

cost

approximately

$21.7

million.

Therefore,

the

Corporation

has

remaining

authorization

approximately

$66.6

million

August 5, 2025.

The tangible common

equity ratio and

tangible book value

per common share

are non-GAAP financial

measures generally used

the

financial

community

evaluate

capital

adequacy.

Tangible

common

equity

total

common

equity

less

goodwill

and

other

intangible assets. Tangible

assets are total assets less

the previously mentioned

intangible assets. See “Non-GAAP

Financial Measures

and Reconciliations” above for additional information.

The

following

table

reconciliation

the

Corporation’s

tangible

common

equity

and

tangible

assets,

non-GAAP

financial

measures, to total equity and total assets, respectively,

as of the indicated dates:

June 30, 2025

December 31, 2024

(In thousands, except ratios and per share information)

Total common equity

GAAP

1,845,455

1,669,236

Goodwill

(38,611)

Other intangible assets

(4,535)

(6,967)

Tangible common

equity - non-GAAP

1,802,309

1,623,658

Total assets - GAAP

18,897,529

19,292,921

Goodwill

(38,611)

Other intangible assets

(4,535)

(6,967)

Tangible assets - non

-GAAP

18,854,383

19,247,343

Common shares outstanding

161,508

163,869

Tangible common

equity ratio - non-GAAP

9.56%

8.44%

Tangible book value

per common share - non-GAAP

11.16

9.91

See Note 19 – “Regulatory

Matters, Commitments and Contingencies”

to the unaudited consolidated

financial statements herein for

the regulatory capital positions of the Corporation and FirstBank as of

June 30, 2025 and December 31, 2024, respectively.

103

The

Puerto

Rico

Banking

Law

1933,

amended

(the

“Puerto

Rico

Banking

Law”),

requires

that

minimum

10%

FirstBank’s

net income

for

the year

be transferred

to a

legal surplus

reserve

until such

surplus

equals the

total of

paid-in-capital

common and preferred

stock. Amounts transferred

to the legal surplus

reserve from retained

earnings are not available

for distribution

to the Corporation without the

prior consent of the Puerto

Rico Commissioner of Financial Institutions.

The Puerto Rico Banking

Law

provides that,

when the

expenditures of

a Puerto

Rico commercial

bank are

greater than

receipts, the

excess of

the expenditures

over

receipts

must

charged

against

the

undistributed

profits

the

bank,

and

the

balance,

any,

must

charged

against

the

legal

surplus

reserve,

reduction

thereof.

the

legal

surplus

reserve

not

sufficient

cover

such

balance

whole

part,

the

outstanding

amount

must

be charged

against

the

capital

account

and

the

Bank

cannot

pay

dividends

until

can

replenish

the

legal

surplus reserve

to an

amount of

at least

20% of

the original

capital contributed.

FirstBank’s

legal surplus

reserve, included

as part

retained earnings

in the

Corporation’s

consolidated statements

of financial

condition, amounted

to $230.2

million as

of each

of June

30, 2025 and December 31, 2024. There were no transfers to the legal

surplus reserve during the first half of 2025.

Interest Rate Risk Management

First

BanCorp.

manages

its

asset/liability

position

limit

the

effects

changes

interest

rates

net

interest

income

and

maintain stability

of profitability

under varying

interest rate

scenarios. The

MIALCO oversees

interest rate

risk and

monitors, among

other things,

current and expected

conditions in global

financial markets, competition

and prevailing rates

in the local

deposit market,

liquidity,

loan

originations

pipeline,

securities

market

values,

recent

proposed

changes

the

investment

portfolio,

alternative

funding sources

and related costs,

hedging and the

possible purchase of

derivatives such as

swaps and caps,

and any tax

or regulatory

issues which may be

pertinent to these areas.

The MIALCO approves funding

decisions in light of

the Corporation’s

overall strategies

and objectives.

least

quarterly

basis,

the

Corporation

performs

consolidated

net

interest

income

simulation

analysis

estimate

the

potential change

in future

earnings from

projected changes

in interest

rates. These

simulations are

carried out

over a

one-to-five-year

time horizon.

The rate

scenarios considered

in these

simulations reflect

gradual upward

or downward

interest rate

movements in

the

yield

curve,

for

gradual

(ramp)

parallel

shifts

the

yield

curve

200

and

300

bps

during

twelve-month

period,

immediate

upward or downward

changes in interest

rate movements of 200

bps, for interest

rate shock scenarios.

The Corporation carries

out the

simulations in two ways:

(1)

Using a static balance sheet, as the Corporation had on the simulation date,

and

(2)

Using a dynamic balance sheet based on recent patterns and current

strategies.

The balance

sheet is

divided into

groups of

assets and

liabilities by

maturity or

repricing structure

and their

corresponding interest

yields and

costs. As interest

rates rise or

fall, these

simulations incorporate

expected future

lending rates,

current and

expected future

funding sources

and costs,

the possible

exercise of

options, changes

in prepayment

rates, deposit

decay and

other factors,

which may

be important in projecting net interest income.

The

Corporation

uses a

simulation

model

project

future movements

the

Corporation’s

balance

sheet

and

income

statement.

The starting

point of

the projections

corresponds to

the actual

values on

the balance

sheet on

the simulation

date. These

simulations

are

highly

complex

and

are

based

many

assumptions

that

are

intended

reflect

the

general

behavior

the

balance

sheet

components over

the modeled

periods. It

is unlikely

that actual

events will

match these

assumptions in

all cases.

For this

reason, the

results of

these forward-looking

computations are

only approximations

of the

sensitivity of

net interest

income to

changes in

market

interest rates. Several

benchmark and market

rate curves were

used in the

modeling process, primarily

SOFR curve, Prime

Rate, U.S.

Treasury yield curve, FHLB rates, and brokered

CDs rates.

June

30,

2025,

the

Corporation

forecasted

the

12-month

net

interest

income

assuming

June

30,

2025

interest

rate

curves

remain

constant.

Then,

net

interest

income

was

estimated

under

rising

and

falling

rates

scenarios.

For

the

rising

rate

scenario,

gradual (ramp)

and immediate

(shock) parallel

upward shift

of the

yield curve

is assumed

during the

first twelve

months (the

“+300

ramp”, “+200

ramp” and

“+200 shock”

scenarios). Conversely,

for the

falling rate

scenario, a

gradual (ramp)

and immediate

(shock)

parallel downward shift

of the yield

curve is assumed during

the first twelve months

(the “-300 ramp”,

“-200 ramp” and “-200

shock”

scenarios).

The SOFR

curve for

June 30,

2025,

as compared

with December

31, 2024,

reflects a

decrease of

12 bps

on average

in the

short-

term sector of

the curve, or between

one to twelve months;

a decrease of 62

bps in the medium-term

sector of the curve,

or between 2

to 5

years; and

a decrease

of 36

bps in

the long-term

sector of

the curve,

or over

5-year maturities.

A similar

change in

market rates

was observed in

the Constant Maturity

Treasury yield

curve with a decrease

of 6 bps

on average

in the short-term

sector of the curve,

a decrease of 57 bps in the medium-term sector of the curve, and a decrease

of 14 bps in the long-term sector of the curve.

104

The following table presents the results of the static simulations as of June 30, 2025

and December 31, 2024. Consistent with prior

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

Net Interest Income Risk

(% Change Projected for the next 12 months)

June 30, 2025

December 31, 2024

Gradual Change in Interest Rates:

300 bps ramp

3.16

3.05

200 bps ramp

2.12

2.04

300 bps ramp

-4.72

-4.79

200 bps ramp

-3.10

-3.15

Immediate Change in Interest Rates:

200 bps shock

4.21

3.51

200 bps shock

-7.92

-7.17

The Corporation

continues to

manage its

balance sheet

structure to

control and

limit the

overall interest

rate risk

by managing

its

asset

composition

while

maintaining

sound

liquidity

position.

See

“Risk

Management

–

Liquidity

Risk

Management”

above

for

liquidity ratios.

As of

June 30,

2025 and

December 31,

2024, the

net interest

income simulations

show that

the Corporation

continues to

have an

asset sensitive position for the next twelve months under a static balance sheet

simulation.

Under

gradual

rising

interest

rate

scenarios,

the

net

interest

income

simulation

reflects

increased

rate

sensitivity

compared

December

31,

2024.

Conversely,

under

gradual

falling

interest

rate

scenarios,

the

simulation

shows

decrease

sensitivity.

There

was a

lower sensitivity

in the

liabilities side

primarily driven

by lower

deposit betas

primarily in

retail and

commercial non

maturity

deposits partially

offset by

higher betas

on market

linked deposits

such as

public funds.

On the

assets side,

sensitivity also

declined,

largely due to a lower interest-bearing cash position

despite earlier scheduled maturities of U.S. agencies debentures.

Under

the

static

simulation,

the

Corporation

assumes

that

maturing

instruments

are

replaced

with

similar

instruments

the

repricing rate upon maturity.

The Corporation’s results may vary

significantly from the ones presented above under alternative balance

sheet compositions,

such as a

dynamic balance

sheet scenario which,

for example, would

assume that cash

flows from the

investment

securities portfolio and loan repayments could be redeployed into higher

yielding alternatives.

105

Credit Risk Management

First BanCorp.

is subject

credit

risk

mainly

with

respect

its portfolio

of loans

receivable

and

off-balance-sheet

instruments,

principally

loan

commitments.

Loans

receivable

represents

loans

that

First

BanCorp.

holds

for

investment

and,

therefore,

First

BanCorp. is at risk for

the term of the loan.

Loan commitments represent commitments

to extend credit, subject

to specific conditions,

for specific amounts

and maturities. These commitments

may expose the Corporation

to credit risk and

are subject to the

same review

and

approval

process

for

loans

made

the

Bank.

See

“Risk

Management

–

Liquidity

Risk”

above

for

further

details.

The

Corporation

manages

its

credit

risk

through

its

credit

policy,

underwriting,

monitoring

loan

concentrations

and

credit

quality,

counterparty

credit

risk,

economic

and

market

conditions,

and

legislative

regulatory

mandates.

The

Corporation

also

performs

independent

loan

review

and

quality

control

procedures,

statistical

analysis,

comprehensive

financial

analysis,

established

management committees,

and employs

proactive collection

and loss

mitigation efforts.

Furthermore, personnel

performing structured

loan

workout

functions

are

responsible

for

mitigating

defaults

and

minimizing

losses

upon

default

within

each

region

and

for

each

business segment.

In the

case of

the C&I,

commercial

mortgage and

construction loan

portfolios,

the Special

Asset Group

(“SAG”)

focuses on

strategies for

the accelerated

reduction of

non-performing assets

through note

sales, short

sales, loss

mitigation programs,

and sales of OREO. In addition to the management of

the resolution process for problem loans, the SAG oversees collection

efforts for

all loans

to prevent

migration to

the nonaccrual

and/or

adversely classified

status.

The

SAG utilizes

relationship

officers,

collection

specialists and attorneys.

The

Corporation

may

also

have

risk

default

the

securities

portfolio.

The

securities

held

the

Corporation

are

principally

fixed-rate U.S. agencies

MBS and U.S. Treasury

and agencies securities. Thus,

a substantial portion

of these instruments is

backed by

mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.

Management, consisting of the Corporation’s

Chief Risk Officer,

Commercial Credit Risk Officer,

Retail Credit Risk Officer,

Chief

Credit Officer,

and other senior executives,

has the primary responsibility

for setting strategies to achieve

the Corporation’s

credit risk

goals and objectives. Management has documented these goals and objectives

in the Corporation’s Credit Policy.

Allowance for Credit Losses and Non-Performing Assets

Allowance for Credit Losses for Loans and

Finance Leases

The ACL

for loans

and finance

leases represents

the estimate

of the

level of

reserves appropriate

to absorb

expected credit

losses

over the estimated life of

the loans. The amount of the allowance

is determined using relevant available

information, from internal and

external sources, relating

to past events, current

conditions, and reasonable

and supportable forecasts.

Historical credit loss experience

significant

input

for

the

estimation

expected

credit

losses,

well

adjustments

historical

loss

information

made

for

differences in current loan-specific

risk characteristics, such as differences

in underwriting standards, portfolio mix,

delinquency level,

term.

Additionally,

the

Corporation’s

assessment

involves

evaluating

key

factors,

which

include

credit

and

macroeconomic

indicators,

such as

changes in

unemployment

rates, property

values, and

other relevant

factors to

account for

current and

forecasted

market conditions

that are

likely to

cause estimated

credit losses

over the

life of the

loans to differ

from historical

credit losses.

Such

factors

are

subject

regular

review

and

may

change

reflect

updated

performance

trends

and

expectations.

The

process includes

judgments

and

quantitative

elements

that

may

subject

significant

change.

Further,

the

Corporation

periodically

considers

the

need for qualitative

reserves to the

ACL. Qualitative adjustments

may be related

to and include,

but are not limited

to, factors such

the

following:

(i)

management’s

assessment

economic

forecasts

used

the

model

and

how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks

such

credit

concentrations, collateral

specific risks, nature

and size of

the portfolio and

external factors that

may ultimately

impact credit quality

;

and

(iii)

other

limitations associated

with factors

such as

changes

in underwriting

and loan

resolution

strategies,

among

others.

The

ACL for loans and

finance leases is reviewed

at least on a quarterly

basis as part of

the Corporation’s

continued evaluation of its

asset

quality.

The Corporation

generally applies probability

weights to the

baseline and alternative

downside economic

scenarios to estimate

the

ACL with

the

baseline

scenario

carrying

the highest

weight.

The

scenarios

that are

chosen each

quarter

and

the

weighting

given

each

scenario

for

the

different

loan

portfolio