FIRST BANCORP /PR/ [FBP] Filings

10-Q 1 fbp-20240630.htm 10-Q fbp-20240630

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, 2024

[ ]

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:

163,865,756

shares outstanding as of August 2, 2024.

FIRST BANCORP.

INDEX PAGE

PART

I. FINANCIAL INFORMATION

PAGE

Item 1.

Financial Statements:

Consolidated Statements of Financial

Condition (Unaudited) as of

June 30, 2024 and December

31, 2023

Consolidated Statements

of Income

(Unaudited) –

Quarters and

Six-Month Periods

ended June

30, 2024 and 2023

Consolidated

Statements

Comprehensive

Income

(Unaudited)

–

Quarters

and

Six-Month

Periods ended June 30, 2024 and 2023

Consolidated

Statements of

Cash Flows

(Unaudited)

– Quarters

and

Six-Month Periods

ended

June 30, 2024 and 2023

Consolidated

Statements of

Changes

in Stockholders’

Equity (Unaudited)

– Quarters

and Six-

Month Periods ended June 30, 2024 and 2023

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

132

Item 4.

Controls and Procedures

132

PART

II. OTHER INFORMATION

Item 1.

Legal Proceedings

133

Item 1A.

Risk Factors

133

Item 2.

Item 5.

Unregistered Sales of Equity Securities and Use of Proceeds

Other Information

134

Item 6.

Exhibits

135

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 by

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, 2023 (the

“2023 Annual Report on Form 10-K”), Part II, Item 1A., “Risk

Factors,” in the Corporation’s Quarterly

Report on Form 10-Q for the quarter ended March 31, 2024, and the following:

●

the

effect

the

current

global

interest

rate

environment

and

inflation

levels

changes

interest

rates

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;

●

the effects

of changes in the interest rate environment, including any adverse

change in the Corporation’s ability

to attract and

retain

clients

and

gain

acceptance

from

current

and

prospective

customers

for

new

products

and

services,

including

those

related to the offering of digital banking and financial services;

●

volatility in the

financial services industry,

including failures or

rumored failures of

other depository institutions,

and actions

taken

governmental

agencies

stabilize

the

financial

system,

which

could

result

in,

among

other

things,

bank

deposit

runoffs, liquidity constraints, and increased regulatory

requirements and costs;

●

the

effect

continued

changes

the

fiscal

and

monetary

policies

and

regulations

the

United

States

(“U.S.”)

federal

government,

the Puerto

Rico government

and other governments,

including those

determined by

the Board

of the Governors

the

Federal

Reserve

System

(the

“Federal

Reserve

Board”),

the

Federal

Reserve

Bank

New

York

(the

“FED”),

the

Federal Deposit Insurance

Corporation (the “FDIC”),

government-sponsored housing agencies

and regulators in

Puerto Rico,

the U.S.,

and the

U.S. Virgin

Islands (the

“USVI”) and

British Virgin

Islands (the

“BVI”), 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,

housing absorption rates, real estate

markets, and U.S.

capital markets, which may affect

funding sources, loan portfolio performance

and credit quality,

market prices of investment

securities,

and

demand

for

the Corporation’s

products

and services,

and which

may

reduce

the

Corporation’s

revenues and

earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

in Puerto

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

relief;

●

the 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-

sponsored

cyberthreats,

and

the

occurrence

and

response

any

incidents

that

occur,

which

may

result

misuse

misappropriation

confidential

proprietary

information,

disruption,

damage

our

systems

those

third-party

service providers on which we rely,

increased costs and losses and/or adverse effects

to our reputation;

●

general

competitive

factors

and

other

market

risks

well

the

implementation

existent

planned

strategic

growth

opportunities,

including

risks,

uncertainties,

and

other

factors

events

any

business

acquisitions,

dispositions,

strategic

partnerships,

strategic

operational

investments,

including

systems

conversions,

and

any

anticipated

efficiencies

other expected results related thereto;

●

uncertainty as

to the

implementation of

the debt

restructuring plan

of Puerto

Rico (“Plan

of Adjustment”

or “PoA”)

and the

fiscal

plan

for

Puerto

Rico

as certified

June 5,

2024

(the “2024

Fiscal Plan”)

the oversight

board

established

by the

Puerto Rico

Oversight, Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions to

it, on

our clients

and

loan portfolios, and any potential impact from future economic or political

developments and tax regulations in Puerto Rico;

●

the

impact

changes

accounting

standards,

determinations

and

assumptions

applying

those

standards,

and

forecasts of economic variables considered for the determination of the

allowance for credit losses (“ACL”);

●

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

●

the ability of FirstBank to generate sufficient cash flow to pay dividends

to the Corporation;

●

environmental, social, and governance matters, including our climate-related

initiatives and commitments;

●

the impacts

of natural

or man-made

disasters, the

emergence or

continuation of

widespread health

emergencies, geopolitical

conflicts (including

sanctions, war or

armed conflict, such

as the ongoing

conflict in Ukraine,

the conflict between

Israel and

Hamas, and

the possible

expansion of

such conflicts

in surrounding

areas and

potential geopolitical

consequences),

terrorist

attacks,

other

catastrophic external

events,

including

impacts of

such

events on

general economic

conditions

and

on the

Corporation’s assumptions regarding

forecasts of economic variables;

●

the

risk

that

additional

portions

the

unrealized

losses in

the

Corporation’s

debt

securities portfolio

are

determined

credit-related, resulting

in additional

charges to

the provision

for credit

losses on

the Corporation’s

debt securities

portfolio,

and

the

potential

for

additional

credit

losses

that

could

emerge

from

the

downgrade

the

U.S.’s

Long-Term

Foreign-

Currency Issuer Default Rating to ‘AA+’ from ‘AAA’

in August 2023 and subsequent negative ratings outlooks;

●

the

impacts

applicable

legislative,

tax,

regulatory

changes

legislative,

tax,

regulatory

priorities,

potential

government

shutdowns, and

political impasses,

including

uncertainties regarding

the U.S.

debt ceiling

and federal

budget,

well

the

2024

U.S.

and

Puerto

Rico

general

election,

the

Corporation’s

financial

condition

performance;

●

the

risk

possible

failure

circumvention

the

Corporation’s

internal

controls

and

procedures

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the risk that the FDIC may

further increase the deposit insurance

premium and/or require further special assessments,

causing

an additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill, and other intangible assets;

●

the risk

that the

impact

of the

occurrence

of any

these uncertainties

on the

Corporation’s

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

Board of Directors (the “Board”) from declaring dividends; and

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

quality,

liquidity

plans,

maintenance

capital

levels,

and

compliance

with

applicable

laws,

regulations

and

requirements.

The

Corporation

does

not

undertake

to,

and

specifically

disclaims

any

obligation

update

any

“forward-looking

statements”

reflect

occurrences

unanticipated

events

circumstances

after

the

date

such

statements,

except

required

the

federal

securities laws.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

June 30, 2024

December 31, 2023

(In thousands, except for share information)

ASSETS

Cash and due from banks

581,843

661,925

Money market investments:

Time deposits with other financial institutions

500

300

Other short-term investments

3,939

939

Total money market investments

4,439

1,239

Available-for-sale debt securities, at fair value (amortized cost of $

5,595,164

as of June 30, 2024 and

5,863,294

as of December 31, 2023; ACL of $

549

as of June 30, 2024 and $

511

as of December 31, 2023)

4,957,311

5,229,984

Held-to-maturity debt securities, at amortized cost, net of ACL

of $

1,267

as of June 30, 2024 and $

2,197

as of December 31, 2023 (fair value of $

333,690

as of June 30, 2024 and $

346,132

as of December 31, 2023)

343,168

351,981

Equity securities

51,037

49,675

Total investment securities

5,351,516

5,631,640

Loans, net of ACL of $

254,532

as of June 30, 2024 and $

261,843

as of December 31, 2023

12,130,976

11,923,640

Mortgage loans held for sale, at lower of cost or market

10,392

7,368

Total loans, net

12,141,368

11,931,008

Accrued interest receivable on loans and investments

77,895

77,716

Premises and equipment, net

138,554

142,016

Other real estate owned (“OREO”)

21,682

32,669

Deferred tax asset, net

142,725

150,127

Goodwill

38,611

Other intangible assets

9,700

13,383

Other assets

373,041

229,215

Total assets

18,881,374

18,909,549

LIABILITIES

Non-interest-bearing deposits

5,406,054

5,404,121

Interest-bearing deposits

11,122,902

11,151,864

Total deposits

16,528,956

16,555,985

Long-term advances from the FHLB

500,000

Other long-term borrowings

161,700

Accounts payable and other liabilities

199,258

194,255

Total liabilities

17,389,914

17,411,940

Commitments and contingencies (See Note 21)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value,

2,000,000,000

shares authorized;

223,663,116

shares issued;

163,865,453

shares outstanding as of June 30, 2024 and

169,302,812

as of December 31, 2023

22,366

Additional paid-in capital

961,254

965,707

Retained earnings, includes legal surplus reserve of

199,576

as of each of June 30, 2024 and December 31, 2023

1,941,980

1,846,112

Treasury stock (at cost),

59,797,663

shares as of June 30, 2024 and

54,360,304

shares as of December 31, 2023

(790,465)

(697,406)

Accumulated other comprehensive loss, net of tax of

8,581

as of each of June 30, 2024 and December 31, 2023

(643,675)

(639,170)

Total stockholders’ equity

1,491,460

1,497,609

Total liabilities and stockholders’ equity

18,881,374

18,909,549

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands, except per share information)

Interest and dividend income:

Loans

239,927

218,066

477,056

428,702

Investment securities

23,258

26,258

47,380

53,368

Money market investments and interest-bearing cash accounts

9,060

7,880

16,314

12,530

Total interest and dividend income

272,245

252,204

540,750

494,600

Interest expense:

Deposits

63,671

41,604

126,696

71,489

Short-term securities sold under agreements to repurchase

1,328

2,397

Advances from the FHLB:

Short-term

435

4,776

Long-term

5,610

5,613

11,220

8,448

Other long-term borrowings

3,336

3,409

6,686

6,790

Total interest expense

72,617

52,389

144,602

93,900

Net interest income

199,628

199,815

396,148

400,700

Provision for credit losses - expense (benefit):

Loans and finance leases

11,930

20,770

24,847

37,026

Unfunded loan commitments

(417)

721

(136)

616

Debt securities

739

(939)

Provision for credit losses - expense

11,605

22,230

23,772

37,732

Net interest income after provision for credit losses

188,023

177,585

372,376

362,968

Non-interest income:

Service charges and fees on deposit accounts

9,725

9,287

19,387

18,828

Mortgage banking activities

3,419

2,860

6,301

5,672

Gain on early extinguishment of debt

1,605

Insurance commission income

2,786

2,747

8,293

7,594

Card and processing income

11,523

11,135

22,835

22,053

Other non-interest income

4,585

8,637

9,205

13,037

Total non-interest income

32,038

36,271

66,021

68,789

Non-interest expenses:

Employees’ compensation and benefits

57,456

54,314

116,962

110,736

Occupancy and equipment

21,851

21,097

43,232

42,283

Business promotion

4,359

4,167

8,201

8,142

Professional service fees

12,431

11,596

25,107

23,569

Taxes, other than income taxes

5,408

5,124

10,537

10,236

FDIC deposit insurance

2,316

2,143

5,418

4,276

Net gain on OREO operations

(3,609)

(1,984)

(5,061)

(3,980)

Credit and debit card processing expenses

7,607

6,540

13,358

11,858

Communications

2,261

1,992

4,358

4,208

Other non-interest expenses

8,602

7,928

17,493

16,857

Total non-interest expenses

118,682

112,917

239,605

228,185

Income before income taxes

101,379

100,939

198,792

203,572

Income tax expense

25,541

30,284

49,496

62,219

Net income

75,838

70,655

149,296

141,353

Net income attributable to common stockholders

75,838

70,655

149,296

141,353

Net income per common share:

Basic

0.46

0.39

0.90

0.79

Diluted

0.46

0.39

0.90

0.78

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands)

Net income

75,838

70,655

149,296

141,353

Other comprehensive income (loss), net of tax:

Available-for-sale debt securities:

Net unrealized holding gains (losses) on debt securities

(1)

10,560

(54,837)

(4,505)

32,391

Other comprehensive income (loss) for the period

10,560

(54,837)

(4,505)

32,391

Total comprehensive income

86,398

15,818

144,791

173,744

(1)

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

valuation allowance.

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Six-Month Period Ended June 30,

2024

2023

(In thousands)

Cash flows from operating activities:

Net income

149,296

141,353

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

9,313

10,071

Amortization of intangible assets

3,683

4,026

Provision for credit losses

23,772

37,732

Deferred income tax expense

7,402

2,419

Stock-based compensation

4,847

3,997

Gain on early extinguishment of debt

(1,605)

Unrealized gain on derivative instruments

(353)

(291)

Net gain on disposals or sales, and impairments of premises

and equipment and other assets

(69)

(235)

Net gain on sales of loans and loans held-for-sale valuation adjustments

(1,599)

(989)

Net amortization of discounts, premiums, and deferred loan fees

and costs

323

686

Originations and purchases of loans held for sale

(76,592)

(88,696)

Sales and repayments of loans held for sale

74,222

85,398

Amortization of broker placement fees

299

128

Net amortization of premiums and discounts on investment securities

2,181

2,117

(Increase) decrease in accrued interest receivable

(142)

1,849

Increase in accrued interest payable

9,351

9,369

Increase in other assets

(2,889)

(5,566)

Decrease in other liabilities

(13,656)

(35,307)

Net cash provided by operating activities

189,389

166,456

Cash flows from investing activities:

Net disbursements on loans held for investment

(307,677)

(226,714)

Proceeds from sales of loans held for investment

10,162

3,183

Proceeds from sales of repossessed assets

37,499

26,360

Purchases of available-for-sale debt securities

(28,037)

(961)

Proceeds from principal repayments and maturities of available-for-sale

debt securities

293,931

217,745

Proceeds from principal repayments of held-to-maturity debt securities

10,726

13,832

Additions to premises and equipment

(5,857)

(16,211)

Proceeds from sales of premises and equipment and other assets

1,317

578

Net (purchases) redemptions of other investment securities

(1,388)

7,219

Proceeds from the settlement of insurance claims - investing activities

670

Net cash provided by investing activities

11,346

25,031

Cash flows from financing activities:

Net (decrease) increase in deposits

(122,546)

675,911

Net repayments of short-term borrowings

(476,199)

Repayments of long-term borrowings

(19,795)

Proceeds from long-term borrowings

300,000

Repurchase of outstanding common stock

(101,599)

(53,217)

Dividends paid on common stock

(53,472)

(51,158)

Net cash (used in) provided by financing activities

(277,617)

375,542

Net (decrease) increase in cash and cash equivalents

(76,882)

567,029

Cash and cash equivalents at beginning of year

663,164

480,505

Cash and cash equivalents at end of period

586,282

1,047,534

Cash and cash equivalents include:

Cash and due from banks

581,843

1,046,534

Money market investments

4,439

1,000

586,282

1,047,534

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

(Unaudited)

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands, except per share information)

Common Stock

22,366

Additional Paid-In Capital:

Balance at beginning of period

959,319

959,912

965,707

970,722

Stock-based compensation expense

1,922

4,847

3,997

Common stock reissued under stock-based compensation plan

(11)

(9,347)

(13,139)

Restricted stock forfeited

395

649

Balance at end of period

961,254

962,229

961,254

962,229

Retained Earnings:

Balance at beginning of period

1,892,714

1,688,176

1,846,112

1,644,209

Impact of adoption of Accounting Standards Update (“ASU”) 2022-02

(1,357)

Net income

75,838

70,655

149,296

141,353

Dividends on common stock ($

0.16

per share and $

0.14

per share for the quarters ended

June 30, 2024 and 2023, respectively; $

0.32

per share and $

0.28

per share for the

six-month periods ended June 30, 2024 and 2023, respectively)

(26,572)

(25,334)

(53,428)

(50,708)

Balance at end of period

1,941,980

1,733,497

1,941,980

1,733,497

Treasury Stock (at cost):

Balance at beginning of period

(740,447)

(547,311)

(697,406)

(506,979)

Common stock repurchases (See Note 13)

(50,005)

(102,359)

(53,217)

Common stock reissued under stock-based compensation plan

9,347

13,139

Restricted stock forfeited

(24)

(395)

(47)

(649)

Balance at end of period

(790,465)

(547,706)

(790,465)

(547,706)

Accumulated Other Comprehensive Loss, net

of tax:

Balance at beginning of period

(654,235)

(717,550)

(639,170)

(804,778)

Other comprehensive income (loss), net of tax

10,560

(54,837)

(4,505)

32,391

Balance at end of period

(643,675)

(772,387)

(643,675)

(772,387)

Total stockholders’ equity

1,491,460

1,397,999

1,491,460

1,397,999

The accompanying notes are an integral part of these statements.

FIRST BANCORP.

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Basis of Presentation and Significant Accounting Policies

Note 2 –

Debt Securities

Note 3 –

Loans Held for Investment

Note 4

–

Allowance for Credit Losses for Loans and Finance Leases

Note 5 –

Other Real Estate Owned (“OREO”)

Note 6 –

Goodwill and Other Intangibles

Note 7 –

Non-Consolidated Variable Interest Entities (“VIEs”) and Servicing Assets

Note 8 –

Deposits

Note 9 –

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

Note 10 –

Other Long-Term Borrowings

Note 11 –

Earnings per Common Share

Note 12 –

Stock-Based Compensation

Note 13 –

Stockholders’ Equity

Note 14 –

Accumulated Other Comprehensive Loss

Note 15 –

Employee Benefit Plans

Note 16 –

Income Taxes

Note 17

–

Fair Value

Note 18

–

Revenue from Contracts with Customers

Note 19 –

Segment Information

Note 20 –

Supplemental Statement of Cash Flows Information

Note 21 –

Regulatory Matters, Commitments, and Contingencies

Note 22 –

First BanCorp. (Holding Company Only) Financial Information

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS

(Unaudited)

NOTE 1 – BASIS

OF PRESENTATION AND

SIGNIFICANT

ACCOUNTING

POLICIES

The

Consolidated

Financial

Statements

(unaudited)

for

the

quarter

and

six-month

period

ended

June

30,

2024

(the

“unaudited

consolidated financial

statements”) of

First BanCorp.

(the “Corporation”)

have been

prepared in

conformity with

the accounting

policies

stated

the

Corporation’s

Audited

Consolidated

Financial

Statements

for

the

fiscal

year

ended

December

31,

2023

(the

“audited

consolidated financial

statements”) included

in the

2023 Annual

Report on

Form 10-K,

as updated

by the

information contained

in this

report.

Certain

information

and

note

disclosures

normally

included

the

financial

statements

prepared

accordance

with

generally

accepted accounting principles in the United States of America

(“GAAP”) have been condensed or omitted from these statements pursuant

the

rules

and

regulations

the

SEC

and,

accordingly,

these

financial

statements

should

read

conjunction

with

the

audited

consolidated financial statements, which are included in the 2023 Annual Report on Form 10-K. All adjustments (consisting only of normal

recurring adjustments) that are, in the opinion of management,

necessary for a fair presentation of the statement of

financial position, results

of operations and cash flows

for the interim periods have

been reflected. All significant

intercompany accounts and transactions

have been

eliminated in consolidation. The Corporation evaluates subsequent events through

the date of filing with the SEC.

The results

of operations

for the

quarter and

six-month period

ended June

30, 2024

are not

necessarily indicative

of the

results to

expected

for the

entire year.

Adoption of New Accounting Requirements

The Corporation was not impacted by the adoption

of the following ASU during 2024:

●

ASU

2023-02,

“Investments

Equity

Method

and

Joint

Ventures

(Topic

323):

Accounting

for

Investments

Tax

Credit

Structures Using the Proportional Amortization Method”

●

ASU 2023-01, “Leases (Topic 842):

Common Control Arrangements”

●

ASU 2022-03,

“Fair Value

Measurements (Topic

820): Fair

Value Measurement

of Equity

Securities Subject

to Contractual

Sale Restrictions”

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

The Corporation does not expect to be impacted by the following ASUs

issued during 2024 that are not yet effective

or have not yet been

adopted:

●

ASU 2024-02, “Codification Improvements – Amendments to

Remove References to the Concepts Statements”

●

ASU 2024-01, “Compensation – Stock Compensation (Topic 718):

Stock Application of Profits Interest and Similar Awards”

For

other

issued

accounting

standards

not

yet

effective

not

yet

adopted,

see

Note

–

“Nature

Business

and

Summary

Significant Accounting Policies”, to the audited consolidated financial

statements included in the 2023 Annual Report on Form 10-K.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 2 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

available-for-sale

debt securities by contractual maturities as of June 30, 2024 and December

31, 2023 were as follows:

June 30, 2024

Amortized cost

(1)

Gross Unrealized

ACL

Fair Value

(2)

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

100,370

2,156

98,214

0.70

After 1 to 5 years

19,901

1,042

18,859

0.65

U.S. government-sponsored entities' (“GSEs”) obligations:

Due within one year

782,777

16,859

765,918

0.91

After 1 to 5 years

1,564,870

111,755

1,453,166

0.82

After 5 to 10 years

8,850

750

8,100

2.64

After 10 years

8,228

8,243

5.69

Puerto Rico government obligation:

After 10 years

(3)

3,084

1,166

386

1,532

United States and Puerto Rico government obligations

2,488,080

133,728

386

2,354,032

0.86

Mortgage-backed securities (“MBS”):

Residential MBS:

Freddie Mac (“FHLMC”) certificates:

Due within one year

4.31

After 1 to 5 years

16,204

754

15,450

2.06

After 5 to 10 years

138,723

12,739

125,984

1.55

After 10 years

948,539

172,740

775,805

1.41

1,103,470

186,233

917,243

1.44

Ginnie Mae (“GNMA”) certificates:

Due within one year

841

833

3.29

After 1 to 5 years

11,837

648

11,189

0.93

After 5 to 10 years

31,168

2,783

28,387

1.77

After 10 years

191,483

101

25,966

165,618

2.65

235,329

103

29,405

206,027

2.45

Fannie Mae (“FNMA”) certificates:

After 1 to 5 years

26,921

1,236

25,685

2.11

After 5 to 10 years

272,851

23,789

249,062

1.74

After 10 years

988,450

165,091

823,361

1.36

1,288,222

190,116

1,098,108

1.45

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

After 10 years

259,830

54,810

205,020

1.52

Private label:

After 5 to 10 years

1,322

317

1,000

8.93

After 10 years

5,359

1,634

158

3,567

7.34

6,681

1,951

163

4,567

7.65

Total Residential MBS

2,893,532

111

462,515

163

2,430,965

1.55

Commercial MBS:

After 1 to 5 years

44,240

7,121

37,128

2.18

After 5 to 10 years

22,121

2,795

19,326

2.16

After 10 years

146,191

31,331

114,860

1.98

Total Commercial MBS

212,552

41,247

171,314

2.04

Total MBS

3,106,084

120

503,762

163

2,602,279

1.58

Other:

Due within one year

500

2.35

After 1 to 5 years

500

2.35

1,000

2.35

Total available-for-sale debt securities

5,595,164

186

637,490

549

4,957,311

1.26

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

10.0

million as of June 30, 2024 reported as part of accrued interest receivable on loans and investment securities in the consolidated

statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

465.5

million (amortized cost - $

538.5

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.7

billion (amortized cost - $

3.1

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (the “PRHFA”) that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico

government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

December 31, 2023

Amortized cost

(1)

Gross Unrealized

ACL

Fair value

(2)

Weighted-

Gains

Losses

average yield%

(Dollars in thousands)

U.S. Treasury securities:

Due within one year

80,314

2,144

78,170

0.66

After 1 to 5 years

60,239

3,016

57,223

0.75

U.S. GSEs’ obligations:

Due within one year

542,847

15,832

527,015

0.77

After 1 to 5 years

1,899,620

135,347

1,764,322

0.86

After 5 to 10 years

8,850

687

8,163

2.64

After 10 years

8,891

8,897

5.49

Puerto Rico government obligation:

After 10 years

(3)

3,156

1,346

395

1,415

United States and Puerto Rico government obligations

2,603,917

158,374

395

2,445,205

0.85

MBS:

Residential MBS:

FHLMC certificates:

After 1 to 5 years

19,561

868

18,693

2.06

After 5 to 10 years

153,308

12,721

140,587

1.55

After 10 years

991,060

161,197

829,878

1.41

1,163,929

174,786

989,158

1.44

GNMA certificates:

Due within one year

254

251

3.27

After 1 to 5 years

16,882

872

16,010

1.19

After 5 to 10 years

27,916

2,247

25,677

1.62

After 10 years

206,254

22,786

183,555

2.57

251,306

25,908

225,493

2.38

FNMA certificates:

After 1 to 5 years

32,489

1,423

31,066

2.11

After 5 to 10 years

293,492

23,146

270,346

1.70

After 10 years

1,047,298

156,344

891,037

1.37

1,373,279

180,913

1,192,449

1.46

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

After 10 years

273,539

52,263

221,276

1.54

Private label:

After 10 years

7,086

2,185

116

4,785

7.66

Total Residential MBS

3,069,139

193

436,055

116

2,633,161

1.55

Commercial MBS:

After 1 to 5 years

45,022

6,898

38,124

2.17

After 5 to 10 years

22,386

2,685

19,701

2.16

After 10 years

122,830

29,037

93,793

1.36

Total Commercial MBS

190,238

38,620

151,618

1.64

Total MBS

3,259,377

193

474,675

116

2,784,779

1.55

Total available-for-sale debt securities

5,863,294

250

633,049

511

5,229,984

1.24

(1)

Excludes accrued interest receivable on available-for-sale debt securities that totaled $

10.6

million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

477.9

million (amortized cost - $

527.2

million) that was pledged at the FHLB as collateral for borrowings and letters of credit as well as $

2.8

billion (amortized cost - $

3.2

billion) pledged as collateral for the

uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and is in nonaccrual

status based on the delinquency status of the underlying second mortgage loans collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

During

the

second

quarter

2024,

the

Corporation

purchased

approximately

28.0

million

Community

Reinvestment

Act

qualified investments, which were classified as available-for-sale debt securities.

Maturities

available-for-sale

debt

securities

are

based

the

period

final

contractual

maturity.

Expected

maturities

might

differ

from

contractual

maturities

because

they

may

subject

prepayments

and/or

call

options.

The

weighted-average

yield

available-for-sale

debt

securities

based

amortized

cost

and,

therefore,

does

not

give

effect

changes

fair

value.

The

net

unrealized loss

on available-for-sale

debt securities

is presented

as part

of accumulated

other comprehensive

loss in

the consolidated

statements of financial condition.

The

following

tables

present

the

fair

value

and

gross

unrealized

losses

the

Corporation’s

available-for-sale

debt

securities,

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

of June 30, 2024 and December 31, 2023. The tables also include debt securities for

which an ACL was recorded.

As of June 30, 2024

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

875

2,338,381

132,562

2,339,256

132,562

Puerto Rico government obligation

1,532

1,166

(1)

1,532

1,166

MBS:

Residential MBS:

FHLMC

1,191

915,156

186,218

916,347

186,233

GNMA

11,188

123

188,231

29,282

199,419

29,405

FNMA

8,135

1,088,394

190,017

1,096,529

190,116

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

202,963

54,810

202,963

54,810

Private label

4,567

1,951

(1)

4,567

1,951

Commercial MBS

28,715

428

136,652

40,819

165,367

41,247

50,104

665

4,875,876

636,825

4,925,980

637,490

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of June 30, 2024, the PRHFA

bond and private label MBS had an ACL of $

0.4

million and

0.2

million, respectively.

As of December 31, 2023

Less than 12 months

12 months or more

Total

Unrealized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

U.S. Treasury and U.S. GSEs’

obligations

2,544

2,428,784

157,026

2,431,328

157,028

Puerto Rico government obligation

1,415

1,346

(1)

1,415

1,346

MBS:

Residential MBS:

FHLMC

988,092

174,786

988,101

174,786

GNMA

12,257

100

202,390

25,808

214,647

25,908

FNMA

1,183,275

180,913

1,183,275

180,913

CMOs issued or guaranteed by the FHLMC,

FNMA, and GNMA

221,276

52,263

221,276

52,263

Private label

4,785

2,185

(1)

4,785

2,185

Commercial MBS

11,370

140,248

38,602

151,618

38,620

26,180

120

5,170,265

632,929

5,196,445

633,049

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2023, the

PRHFA bond and private label MBS

had an ACL of $

0.4

million

and $

0.1

million, respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

the U.S.

Treasury,

including

notes and

MBS, accounted

for

substantially

all

the

total

available-for-sale

portfolio

June

30,

2024,

and

the

Corporation

expects

credit

losses

these

securities,

given

the

explicit

and

implicit

guarantees

provided

the

U.S.

federal

government.

Because

the

decline

fair

value

attributable

changes

interest

rates,

and

not

credit

quality,

and

because,

June

30,

2024,

the

Corporation

did

not

have

the

intent to

sell these

U.S. government

and agencies

debt securities

and determined

that it

was likely

that it

will not

be required

to sell

these

securities

before

their

anticipated

recovery,

the

Corporation

does

not

consider

impairments

these

securities

credit

related. The Corporation’s

credit loss assessment was

concentrated mainly on

private label MBS and

on Puerto Rico government

debt

securities, for which credit losses are evaluated on a quarterly basis.

Private label MBS

held as part

of the Corporation’s

available for sale

portfolio consist of

trust certificates issued

by an unaffiliated

party

backed

fixed-rate,

single-family

residential

mortgage

loans

the

U.S.

mainland

with

original

FICO

scores

over

700

and

moderate

loan-to-value

ratios (under

%), as

well

as moderate

delinquency

levels.

The interest

rate

these

private label

MBS is

variable, tied

to 3-month

CME Term

Secured Overnight

Financing Rate

(“SOFR”) plus

a tenor

spread adjustment

0.26161

% and

the

original

spread

limited

the

weighted-average

coupon

the

underlying

collateral.

The

Corporation

determined

the

ACL

for

private

label

MBS

based

risk-adjusted

discounted

cash

flow

methodology

that

considers

the

structure

and

terms

the

instruments.

The

Corporation

utilized

probability

of default

(“PDs”)

and

loss-given

default

(“LGDs”)

that

considered,

among

other

things, historical

payment performance,

loan-to-value attributes,

and relevant

current and

forward-looking

macroeconomic variables,

such as

regional unemployment

rates and

the housing

price index.

Under this

approach, expected

cash flows

(interest and

principal)

were discounted

at the U.S.

Treasury yield

curve as of

the reporting

date. See

Note 17 –

“Fair Value

”

for the significant

assumptions

used in the valuation of the private label MBS as of June 30, 2024 and December

31 2023.

For the residential

pass-through MBS issued by

the PRHFA

held as part of

the Corporation’s

available-for-sale portfolio

backed by

second

mortgage

residential

loans

Puerto

Rico,

the

ACL

was

determined

based

discounted

cash

flow

methodology

that

considered the structure and

terms of the debt security.

The expected cash flows were

discounted at the U.S. Treasury

yield curve plus

a spread as of

the reporting date and

compared to the

amortized cost. The

Corporation utilized PDs and

LGDs that considered,

among

other

things,

historical

payment

performance,

loan-to-value

attributes,

and

relevant

current

and

forward-looking

macroeconomic

variables, such as

regional unemployment

rates, the housing

price index,

and expected recovery

from the PRHFA

guarantee. PRHFA,

not the

Puerto Rico

government, provides

a guarantee

in the event

of default

and subsequent

foreclosure of

the properties underlying

the

second

mortgage

loans.

the

event

that

the

second

mortgage

loans

default

and

the

collateral

insufficient

satisfy

the

outstanding

balance

this

residential

pass-through

MBS,

PRHFA’s

ability

honor

such

guarantee

will

depend

on,

among

other

factors,

its

financial

condition

the

time

such

obligation

becomes

due

and

payable.

Deterioration

the

Puerto

Rico

economy

fiscal health of the PRHFA

could impact the value of this security,

resulting in additional losses to the Corporation.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following

tables present

a roll-forward

of the ACL

on available-for-sale

debt securities by

major security

type for

the quarters

and six-month periods ended June 30, 2024 and 2023:

Quarter Ended June 30,

2024

2023

Private label

MBS

Puerto Rico

Government

Obligation

Total

Private label

MBS

Puerto Rico

Government

Obligation

Total

(In thousands)

Beginning balance

116

326

442

366

449

Provision for credit losses – expense (benefit)

(16)

Net recoveries

ACL on available-for-sale debt securities

163

386

549

350

433

Six-Month Period Ended June 30,

2024

2023

Private label

MBS

Puerto Rico

Government

Obligations

Total

Private label

MBS

Puerto Rico

Government

Obligations

Total

(In thousands)

Beginning balance

116

395

511

375

458

Provision for credit losses - benefit

(9)

(25)

Net recoveries

ACL on available-for-sale debt securities

163

386

549

350

433

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Held-to-Maturity Debt Securities

The

amortized

cost,

gross

unrecognized

gains

and

losses,

estimated

fair

value,

ACL,

weighted-average

yield

and

contractual

maturities of held-to-maturity debt securities as of June 30, 2024

and December 31, 2023 were as follows:

June 30, 2024

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

3,178

3,160

9.30

After 1 to 5 years

51,424

972

620

51,776

468

7.72

After 5 to 10 years

36,253

3,393

201

39,445

451

7.03

After 10 years

16,595

350

16,945

311

8.78

Total Puerto Rico municipal bonds

107,450

4,715

839

111,326

1,267

7.70

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

14,243

578

13,665

3.03

After 10 years

17,879

1,146

16,733

4.35

32,122

1,724

30,398

3.76

GNMA certificates:

After 10 years

15,047

951

14,096

3.30

FNMA certificates:

After 10 years

64,591

3,927

60,664

4.19

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

After 10 years

26,855

1,640

25,215

3.49

Total Residential MBS

138,615

8,242

130,373

3.86

Commercial MBS:

After 1 to 5 years

9,352

301

9,051

3.48

After 10 years

89,018

6,078

82,940

3.15

Total Commercial MBS

98,370

6,379

91,991

3.18

Total MBS

236,985

14,621

222,364

3.58

Total held-to-maturity debt securities

344,435

4,715

15,460

333,690

1,267

4.86

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

4.8

million as of June 30, 2024 reported as part of accrued interest receivable on loans and investment securities in the consolidated

statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

189.7

million (fair value - $

184.4

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

December 31, 2023

Amortized cost

(1) (2)

Gross Unrecognized

Fair value

Weighted-

Gains

Losses

ACL

average yield%

(Dollars in thousands)

Puerto Rico municipal bonds:

Due within one year

3,165

3,135

9.30

After 1 to 5 years

51,230

994

710

51,514

1,266

7.78

After 5 to 10 years

36,050

3,540

210

39,380

604

7.13

After 10 years

16,595

269

16,864

277

8.87

Total Puerto Rico municipal bonds

107,040

4,811

958

110,893

2,197

7.78

MBS:

Residential MBS:

FHLMC certificates:

After 5 to 10 years

16,469

556

15,913

3.03

After 10 years

18,324

714

17,610

4.32

34,793

1,270

33,523

3.71

GNMA certificates:

After 10 years

16,265

789

15,476

3.32

FNMA certificates:

After 10 years

67,271

2,486

64,785

4.18

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

After 10 years

28,139

1,274

26,865

3.49

Total Residential MBS

146,468

5,819

140,649

3.84

Commercial MBS:

After 1 to 5 years

9,444

297

9,147

3.48

After 10 years

91,226

5,783

85,443

3.15

Total Commercial MBS

100,670

6,080

94,590

3.18

Total MBS

247,138

11,899

235,239

3.57

Total held-to-maturity debt securities

354,178

4,811

12,857

346,132

2,197

4.84

(1)

Excludes accrued interest receivable on held-to-maturity debt securities that totaled $

4.8

million as of December 31, 2023 reported as part of accrued interest receivable on loans and investment securities in the

consolidated statements of financial condition, and excluded from the estimate of credit losses.

(2)

Includes $

126.6

million (fair value - $

125.9

million) that serves as collateral for the uninsured portion of government deposits. The secured parties are not permitted to sell or repledge the collateral.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

the

Corporation’s

held-to-maturity

debt

securities’

fair

value

and

gross

unrecognized

losses,

aggregated by

category and

length of

time that

individual securities

had been

in a

continuous unrecognized

loss position,

as of

June

30, 2024 and December 31, 2023, including debt securities for which

an ACL was recorded:

As of June 30, 2024

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

26,147

839

26,147

839

MBS:

Residential MBS:

FHLMC certificates

30,398

1,724

30,398

1,724

GNMA certificates

14,096

951

14,096

951

FNMA certificates

60,664

3,927

60,664

3,927

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

25,215

1,640

25,215

1,640

Commercial MBS

91,991

6,379

91,991

6,379

Total held-to-maturity debt securities

248,511

15,460

248,511

15,460

As of December 31, 2023

Less than 12 months

12 months or more

Total

Unrecognized

Fair Value

Losses

Fair Value

Losses

Fair Value

Losses

(In thousands)

Puerto Rico municipal bonds

34,682

958

34,682

958

MBS:

Residential MBS:

FHLMC certificates

33,523

1,270

33,523

1,270

GNMA certificates

15,476

789

15,476

789

FNMA certificates

64,785

2,486

64,785

2,486

CMOs issued or guaranteed by FHLMC,

FNMA, and GNMA

26,865

1,274

26,865

1,274

Commercial MBS

94,590

6,080

94,590

6,080

Total held-to-maturity debt securities

269,921

12,857

269,921

12,857

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

Corporation

classifies

the

held-to-maturity

debt

securities

portfolio

into

the

following

major

security

types:

MBS

issued

guaranteed by

GSEs and

underlying collateral

and Puerto

Rico municipal

bonds. The

Corporation does

not recognize

an ACL

for MBS

issued or guaranteed by GSEs since they are highly rated by major rating agencies and have a long history of no credit losses. In the case of

Puerto Rico municipal

bonds, the Corporation

determines the ACL

based on the product

of a cumulative

PD and LGD, and

the amortized

cost

basis

the

bonds

over

their

remaining

expected

life

described

Note

–

“Nature

Business

and

Summary

Significant

Accounting Policies,” to the audited financial statements included in the

2023 Annual Report on Form 10-K.

The Corporation

performs periodic

credit quality

reviews on

these issuers.

All of

the Puerto

Rico municipal

bonds were

current as

scheduled contractual

payments as

of June

30, 2024.

The ACL

of Puerto

Rico municipal

bonds decreased

to $

1.3

million as

of June

30,

2024, from $

2.2

million as of December 31, 2023, mostly related to updated financial information

of a bond issuer received during the first

quarter

of 2024.

The following tables present

the activity in the

ACL for held-to-maturity

debt securities by major

security type for the

quarters and

six-month periods ended June 30, 2024 and 2023:

Puerto Rico Municipal Bonds

Quarter Ended June 30,

2024

2023

(In thousands)

Beginning balance

1,235

7,646

Provision for credit losses – expense

755

ACL on held-to-maturity debt securities

1,267

8,401

Puerto Rico Municipal Bonds

Six-Month Period Ended June 30,

2024

2023

(In thousands)

Beginning Balance

2,197

8,286

Provision for credit losses - (benefit) expense

(930)

115

ACL on held-to-maturity debt securities

1,267

8,401

During the

second quarter

of 2019,

the oversight

board established

by PROMESA

announced

the designation

of Puerto

Rico’s

municipalities

covered

instrumentalities

under

PROMESA.

Municipalities

may

affected

the

negative

economic

and

other

effects

resulting

from

expense,

revenue,

cash

management

measures

taken

the

Puerto

Rico

government

address

its

fiscal

situation, or measures included

in its fiscal plan or

fiscal plans of other

government entities. Given the inherent

uncertainties about the

fiscal situation of the Puerto

Rico central government and

the measures taken, or to

be taken, by other government

entities in response

economic

and

fiscal

challenges,

the

Corporation

cannot be

certain

whether

future charges

the ACL

these

securities will

required.

From

time

time,

the

Corporation

has

held-to-maturity

securities

with

original

maturity

three

months

less

that

are

considered

cash

and

cash

equivalents

and

are

classified

money

market

investments

the

consolidated

statements

financial

condition. As

June

30,

2024

and

December

31,

2023,

the

Corporation

had

outstanding

held-to-maturity

securities

that

were

classified as cash and cash equivalents.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Credit Quality Indicators:

The held-to-maturity debt securities

portfolio consisted of GSEs’

MBS and financing arrangements

with Puerto Rico municipalities

issued in

bond form.

As previously

mentioned, the

Corporation expects

no credit

losses on

GSEs’ MBS.

The Puerto

Rico municipal

bonds

are

accounted

for

securities

but

are

underwritten

loans

with

features

that

are

typically

found

commercial

loans.

Accordingly, the

Corporation monitors the credit quality of these municipal bonds through the use of

internal credit-risk ratings, which

are generally updated

on a quarterly basis.

The Corporation considers

a municipal bond

as a criticized asset

if its risk rating

is Special

Mention,

Substandard,

Doubtful,

Loss.

Puerto

Rico

municipal

bonds

that

not

meet

the

criteria

for

classification

criticized

assets are considered to be Pass-rated

securities. For the definitions of

the internal-credit ratings, see Note 3

– “Debt Securities,” to the

audited consolidated financial statements included in the 2023 Annual

Report on Form 10-K.

The

Corporation

periodically

reviews

its Puerto

Rico

municipal

bonds

evaluate

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

Corporation

has

Loan

Review

Group

that

reports

directly

the

Corporation’s

Risk

Management

Committee

and

administratively

the

Chief

Risk

Officer.

The

Loan

Review

Group

performs

annual

comprehensive

credit

process

reviews

the

Bank’s

commercial

loan

portfolios,

including

the

above-mentioned

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities.

The objective

these

loan

reviews is

assess accuracy

of the

Bank’s

determination

and

maintenance

loan

risk

rating

and

its

adherence

lending

policies,

practices

and

procedures.

The

monitoring

performed

this

group

contributes

the

assessment

compliance

with

credit

policies

and

underwriting

standards,

the

determination

the

current

level

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

a sound credit process. The Loan Review Group reports the results of the credit

process reviews to the Risk Management Committee.

As of June 30, 2024 and December 31, 2023, all Puerto Rico municipal bonds classified

as held-to-maturity were classified as Pass.

held-to-maturity debt

securities were

on nonaccrual

status, 90

days past

due and

still accruing,

or past

due as

of June

30, 2024

and

December

31,

2023.

security

considered

past

due

once

days

contractually

past

due

under

the

terms

the

agreement.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 3 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about

the

loan

portfolio held

for

investment by

portfolio segment

and

disaggregated by

geographic locations

as of the indicated

dates:

As of June 30,

As of December 31,

2024

2023

(In thousands)

Puerto Rico and Virgin Islands region:

Residential mortgage loans, mainly secured by first mortgages

2,324,302

2,356,006

Construction loans

163,774

115,401

Commercial mortgage loans

1,760,760

1,790,637

Commercial and Industrial (“C&I”) loans

2,311,945

2,249,408

Consumer loans

3,703,929

3,651,770

Loans held for investment

10,264,710

10,163,222

Florida region:

Residential mortgage loans, mainly secured by first mortgages

485,364

465,720

Construction loans

22,183

99,376

Commercial mortgage loans

662,549

526,446

C&I loans

942,632

924,824

Consumer loans

8,070

5,895

Loans held for investment

2,120,798

2,022,261

Total:

Residential mortgage loans, mainly secured by first mortgages

2,809,666

2,821,726

Construction loans

185,957

214,777

Commercial mortgage loans

2,423,309

2,317,083

C&I loans

(1)

3,254,577

3,174,232

Consumer loans

3,711,999

3,657,665

Loans held for investment

(2)

12,385,508

12,185,483

ACL on loans and finance leases

(254,532)

(261,843)

Loans held for investment, net

12,130,976

11,923,640

(1)

As of June 30, 2024 and December 31, 2023, includes $

785.5

million and $

787.5

million, respectively, of commercial loans that were secured by real estate and for

which the primary source of repayment at origination was

not dependent upon such real estate.

(2)

Includes accretable fair value net purchase discounts of $

22.9

million and $

24.7

million as of June 30, 2024 and December 31, 2023, respectively.

Various

loans

were

assigned

collateral

for

borrowings,

government

deposits,

time

deposits

accounts,

and

unused

commitments.

The

carrying

value

loans

pledged

collateral

amounted

5.4

billion

and

4.6

billion

June

30,

2024

and

December

31, 2023,

respectively.

As of

June 30,

2024 and

December

31, 2023,

loans pledged

as collateral

include $

1.9

billion

and

1.8

billion,

respectively,

that

were

pledged

the

FHLB

collateral

for

borrowings

and

letters

credit;

3.2

billion

pledged

collateral to secure

borrowing capacity

at the FED

Discount Window,

compared to

2.5

billion as of

December 31,

2023; and $

165.4

million pledged

to secure

as collateral

for the uninsured

portion of

government deposits,

compared to

166.9

million as of

December

31, 2023

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The Corporation’s

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL,

portfolio classes as of June 30, 2024 and December 31, 2023 are as follows:

As of June 30,2024

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

70,479

2,753

22,911

96,143

Conventional residential mortgage loans

(2) (6)

2,644,019

29,506

8,602

31,396

2,713,523

1,453

Commercial loans:

Construction loans

181,215

4,742

185,957

971

Commercial mortgage loans

(2) (6)

2,409,272

1,047

1,189

11,736

2,423,309

6,795

C&I loans

3,217,351

1,157

1,112

7,296

27,661

3,254,577

1,580

Consumer loans:

Auto loans

1,895,003

60,591

11,760

14,669

1,982,023

368

Finance leases

861,235

14,271

2,229

2,577

880,312

137

Personal loans

367,140

6,183

2,643

1,999

377,965

Credit cards

304,688

5,275

3,181

7,175

320,319

Other consumer loans

144,352

3,840

1,795

1,393

151,380

Total loans held for investment

12,094,754

92,364

55,044

47,173

96,173

12,385,508

11,304

(1)

It is the Corporation’s policy to report delinquent Federal Housing Authority (“FHA”)/U.S. Department of Veterans

Affairs (“VA”) government-guaranteed residential mortgage loans as past-due loans 90 days and still

accruing as opposed to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15-month delinquency mark, taking into consideration the FHA interest curtailment

process. These balances include $

11.0

million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of June 30,2024.

(2)

Includes purchased credit deteriorated (“PCD”) loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of

account” both at the time of adoption of the current expected credit loss (“CECL”) methodology on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from

nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or

more, amounting to $

7.4

million as of June 30, 2024 ($

6.5

million conventional residential mortgage loans and $

0.9

million commercial mortgage loans), is presented in the loans past due 90 days or more and still

accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

6.8

million as of June 30,2024. Under the GNMA program, the Corporation has the option but not the obligation to

repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting

liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.1

million as of June 30,2024, primarily residential mortgage loans.

(5)

There were

nonaccrual loans with no ACL in the Florida region as of June 30,2024.

(6)

According to the Corporation’s delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)

required by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of June 30, 2024 amounted to $

7.8

million, $

67.7

million, and $

1.2

million,

respectively.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of December 31, 2023

Days Past Due and Accruing

Current

30-59

60-89

90+

(1)(2)(3)

Nonaccrual

(4)

Total loans held

for investment

Nonaccrual

Loans with no

ACL

(5)

(In thousands)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

68,332

2,592

29,312

100,236

Conventional residential mortgage loans

(2) (6)

2,644,344

33,878

11,029

32,239

2,721,490

1,742

Commercial loans:

Construction loans

210,911

2,297

1,569

214,777

972

Commercial mortgage loans

(2) (6)

2,303,753

1,108

12,205

2,317,083

2,536

C&I loans

3,148,254

1,130

1,143

8,455

15,250

3,174,232

1,687

Consumer loans:

Auto loans

1,846,652

60,283

13,753

15,568

1,936,256

Finance leases

837,881

13,786

1,861

3,287

856,815

Personal loans

370,746

5,873

2,815

1,841

381,275

Credit cards

313,360

5,012

3,589

7,251

329,212

Other consumer loans

147,278

3,084

1,997

1,748

154,107

Total loans held for investment

11,891,511

89,185

61,628

59,452

83,707

12,185,483

6,953

(1)

It is the Corporation’s policy to report delinquent FHA/VA

government-guaranteed residential mortgage loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans. The Corporation continues

accruing interest on these loans until they have passed the 15-month delinquency mark, taking into consideration the FHA interest curtailment process. These balances include $

15.4

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent as of December 31, 2023.

(2)

Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans as “units of account” both at the time of adoption of

CECL on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and

amount of cash flows expected to be collected on the loan pools. The portion of such loans contractually past due 90 days or more, amounting to $

8.3

million as of December 31, 2023 ($

7.4

million conventional

residential mortgage loans, and $

0.9

million commercial mortgage loans), is presented in the loans past due 90 days or more and still accruing category in the table above.

(3)

Include rebooked loans, which were previously pooled into GNMA securities, amounting to $

7.9

million as of December 31, 2023. Under the GNMA program, the Corporation has the option but not the obligation to

repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes, these loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability.

(4)

Nonaccrual loans in the Florida region amounted to $

8.0

million as of December 31, 2023, primarily nonaccrual residential mortgage loans and C&I loans.

(5)

There were

nonaccrual

loans with no ACL in the Florida region as of December 31, 2023.

(6)

According to the Corporation’s delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C)

required by the Federal

Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2023 amounted to $

8.2

million, $

69.9

million, and $

1.1

million,

respectively.

When

loan

is placed

nonaccrual

status,

any

accrued

but uncollected

interest

income

is reversed

and

charged

against interest

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

against interest

income

totaled $

0.7

million and

1.5

million for

the quarter

and six-month

period ended

June 30,

2024, respectively,

compared $

0.5

million

and

1.1

million

for

the

same

periods

2023,

respectively.

For

the

quarter

and

six-month

period

ended

June

30,

2024,

the

cash

interest income recognized on nonaccrual

loans amounted to $

0.3

million and $

0.9

million, respectively,

compared to $

0.5

million and

1.0

million for the same periods in 2023, respectively.

As of

June

30,

2024,

the recorded

investment

residential

mortgage

loans collateralized

residential

real

estate property

that

were in

the process

of foreclosure

amounted to

35.1

million, including

12.8

million of

FHA/VA

government-guaranteed

mortgage

loans, and

5.2

million of

PCD loans

acquired prior

to the

adoption, on

January 1,

2020, of

CECL. The

Corporation commences

the

foreclosure

process

residential

real

estate

loans

when

borrower

becomes

120

days

delinquent.

Foreclosure

procedures

and

timelines

vary

depending

whether

the

property

located

judicial

non-judicial

state.

Occasionally,

foreclosures

may

delayed due to, among other reasons, mandatory mediations, bankruptcy,

court delays, and title issues.

Credit Quality Indicators:

The Corporation

categorizes loans

into risk

categories based

on relevant

information

about the

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

economic

trends,

among

other

factors.

The

Corporation

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction

loans

individually

classify

the

loans’

credit

risk.

mentioned

above,

the

Corporation

periodically

reviews

its

commercial

and

construction

loans

evaluate

they

are

properly

classified.

The

frequency

these

reviews

will

depend

the

amount of

the aggregate

outstanding debt,

and the

risk rating

classification of

the obligor.

In addition,

during the

renewal and

annual

review process of

applicable credit facilities, the

Corporation evaluates the

corresponding loan grades.

The Corporation uses

the same

definition

for

risk

ratings

those

described

for

Puerto

Rico

municipal

bonds

accounted

for

held-to-maturity

debt

securities,

discussed in Note

3 – “Debt Securities,”

to the audited

consolidated financial statements

included in the 2023

Annual Report on Form

10-K.

For residential mortgage and consumer loans, the Corporation evaluates credit

quality based on its interest accrual status.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Based on

the most

recent analysis

performed, the

amortized cost

of commercial

and construction

loans by portfolio

classes and

origination

year based

on the

internal credit

-risk category

as of

June 30,

2024, the

gross charge

-offs for

the six-month

period ended

June 30,

2024 by

portfolio classes

and by

origination year,

and the

amortized cost

of commercial

and construction

loans by

portfolio

classes based on the internal credit-risk category as of December 31,

2023, were as follows:

As of June 30,2024

Puerto Rico and Virgin Islands Regions

Term Loans

As of

December 31,

2023

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

12,154

88,978

41,129

9,748

3,655

155,664

113,170

Criticized:

Special Mention

Substandard

2,881

3,300

1,929

8,110

2,231

Doubtful

Loss

Total construction loans

12,154

91,859

44,429

9,748

5,584

163,774

115,401

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

99,566

172,589

375,881

140,689

313,516

473,812

5,640

1,581,693

1,618,404

Criticized:

Special Mention

3,758

4,284

30,168

110,922

149,132

146,626

Substandard

118

29,817

29,935

25,607

Doubtful

Loss

Total commercial mortgage loans

99,566

176,347

380,283

140,689

343,684

614,551

5,640

1,760,760

1,790,637

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

87,957

417,655

288,105

141,237

150,596

336,955

804,023

2,226,528

2,173,939

Criticized:

Special Mention

2,466

538

643

33,981

37,628

40,376

Substandard

196

13,984

562

28,662

4,384

47,789

35,093

Doubtful

Loss

Total C&I loans

88,153

420,122

288,105

155,759

151,158

366,260

842,388

2,311,945

2,249,408

Charge-offs on C&I loans

304

180

484

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of June 30,2024

Term Loans

As of

December 31,

2023

Florida Region

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized Cost

Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

813

2,978

766

17,626

22,183

99,376

Criticized:

Special Mention

Substandard

Doubtful

Loss

Total construction loans

813

2,978

766

17,626

22,183

99,376

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

47,220

28,888

227,461

105,696

39,272

178,650

22,070

649,257

525,453

Criticized:

Special Mention

12,299

Substandard

993

Doubtful

Loss

Total commercial mortgage loans

47,220

28,888

239,760

105,696

40,265

178,650

22,070

662,549

526,446

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

124,032

147,761

226,861

159,672

39,165

79,980

153,687

931,158

879,195

Criticized:

Special Mention

11,474

42,046

Substandard

3,583

Doubtful

Loss

Total C&I loans

124,032

147,761

226,861

159,672

39,165

91,454

153,687

942,632

924,824

Charge-offs on C&I loans

259

307

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of June 30,2024

Term Loans

As of

December 31,

2023

Total

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

CONSTRUCTION

Risk Ratings:

Pass

12,967

91,956

41,129

10,514

3,655

17,626

177,847

212,546

Criticized:

Special Mention

Substandard

2,881

3,300

1,929

8,110

2,231

Doubtful

Loss

Total construction loans

12,967

94,837

44,429

10,514

5,584

17,626

185,957

214,777

Charge-offs on construction loans

COMMERCIAL MORTGAGE

Risk Ratings:

Pass

146,786

201,477

603,342

246,385

352,788

652,462

27,710

2,230,950

2,143,857

Criticized:

Special Mention

3,758

16,583

30,168

110,922

161,431

146,626

Substandard

118

993

29,817

30,928

26,600

Doubtful

Loss

Total commercial mortgage loans

146,786

205,235

620,043

246,385

383,949

793,201

27,710

2,423,309

2,317,083

Charge-offs on commercial mortgage loans

C&I

Risk Ratings:

Pass

211,989

565,416

514,966

300,909

189,761

416,935

957,710

3,157,686

3,053,134

Criticized:

Special Mention

2,466

538

12,117

33,981

49,102

82,422

Substandard

196

13,984

562

28,662

4,384

47,789

38,676

Doubtful

Loss

Total C&I loans

212,185

567,883

514,966

315,431

190,323

457,714

996,075

3,254,577

3,174,232

Charge-offs on C&I loans

304

439

791

(1) Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

based on

accrual

status as

of June

30,

2024,

the gross

charge-offs

for the

six-month

period ended

June 30,

2024 by

origination year,

and

the

amortized cost of residential mortgage loans by portfolio classes based on accrual

status as of December 31, 2023:

As of June 30,2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

472

892

1,165

515

92,407

95,451

99,293

Non-Performing

Total FHA/VA

government-guaranteed loans

472

892

1,165

515

92,407

95,451

99,293

Conventional residential mortgage loans

Accrual Status:

Performing

79,507

169,119

158,182

65,952

28,397

1,704,353

2,205,510

2,231,701

Non-Performing

23,273

23,341

25,012

Total conventional residential mortgage loans

79,507

169,119

158,250

65,952

28,397

1,727,626

2,228,851

2,256,713

Total

Accrual Status:

Performing

79,507

169,591

159,074

67,117

28,912

1,796,760

2,300,961

2,330,994

Non-Performing

23,273

23,341

25,012

Total residential mortgage loans

79,507

169,591

159,142

67,117

28,912

1,820,033

2,324,302

2,356,006

Charge-offs on residential mortgage loans

998

1,007

(1)

Excludes accrued interest receivable.

As of June 30,2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

692

943

Non-Performing

Total FHA/VA

government-guaranteed loans

692

943

Conventional residential mortgage loans

Accrual Status:

Performing

45,841

88,172

75,703

43,001

28,195

195,705

476,617

457,550

Non-Performing

248

7,807

8,055

7,227

Total conventional residential mortgage loans

45,841

88,172

75,951

43,001

28,195

203,512

484,672

464,777

Total

Accrual Status:

Performing

45,841

88,172

75,703

43,001

28,195

196,397

477,309

458,493

Non-Performing

248

7,807

8,055

7,227

Total residential mortgage loans

45,841

88,172

75,951

43,001

28,195

204,204

485,364

465,720

Charge-offs on residential mortgage loans

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of June 30,2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

FHA/VA government-guaranteed loans

Accrual Status:

Performing

472

892

1,165

515

93,099

96,143

100,236

Non-Performing

Total FHA/VA

government-guaranteed loans

472

892

1,165

515

93,099

96,143

100,236

Conventional residential mortgage loans

Accrual Status:

Performing

125,348

257,291

233,885

108,953

56,592

1,900,058

2,682,127

2,689,251

Non-Performing

316

31,080

31,396

32,239

Total conventional residential mortgage loans

125,348

257,291

234,201

108,953

56,592

1,931,138

2,713,523

2,721,490

Total

Accrual Status:

Performing

125,348

257,763

234,777

110,118

57,107

1,993,157

2,778,270

2,789,487

Non-Performing

316

31,080

31,396

32,239

Total residential mortgage loans

125,348

257,763

235,093

110,118

57,107

2,024,237

2,809,666

2,821,726

Charge-offs on residential mortgage loans

998

1,007

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables present

the

amortized

cost

consumer

loans

portfolio

classes

and

by origination

year

based on

accrual

status as of

June 30, 2024,

the gross charge

-offs for

the six-month period

ended June 30,

2024 by portfolio

classes and by

origination

year, and the amortized cost of consumer loans

by portfolio classes based on accrual status as of December 31,2023:

As of June 30, 2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Puerto Rico and Virgin Islands Regions:

Auto loans

Accrual Status:

Performing

324,653

568,467

465,596

326,080

145,856

136,207

1,966,859

1,919,583

Non-Performing

272

3,506

3,353

2,835

1,280

3,419

14,665

15,556

Total auto loans

324,925

571,973

468,949

328,915

147,136

139,626

1,981,524

1,935,139

Charge-offs on auto loans

105

4,897

5,248

2,891

922

1,964

16,027

Finance leases

Accrual Status:

Performing

130,114

290,290

221,226

132,985

54,545

48,575

877,735

853,528

Non-Performing

500

713

441

168

755

2,577

3,287

Total finance leases

130,114

290,790

221,939

133,426

54,713

49,330

880,312

856,815

Charge-offs on finance leases

1,053

1,841

742

217

672

4,526

Personal loans

Accrual Status:

Performing

73,338

143,064

94,185

23,833

11,961

27,005

373,386

379,161

Non-Performing

681

798

219

1,999

1,841

Total personal loans

73,379

143,745

94,983

24,052

12,002

27,224

375,385

381,002

Charge-offs on personal loans

3,668

5,253

1,099

388

1,078

11,517

Credit cards

Accrual Status:

Performing

320,319

329,212

Non-Performing

Total credit cards

320,319

329,212

Charge-offs on credit cards

12,426

Other consumer loans

Accrual Status:

Performing

39,101

55,374

23,186

7,070

4,479

5,821

9,997

145,028

147,913

Non-Performing

558

312

170

140

1,361

1,689

Total other consumer loans

39,152

55,932

23,498

7,163

4,516

5,991

10,137

146,389

149,602

Charge-offs on other consumer loans

5,039

2,820

683

170

258

325

9,393

Total

Accrual Status:

Performing

567,206

1,057,195

804,193

489,968

216,841

217,608

330,316

3,683,327

3,629,397

Non-Performing

364

5,245

5,176

3,588

1,526

4,563

140

20,602

22,373

Total consumer loans

567,570

1,062,440

809,369

493,556

218,367

222,171

330,456

3,703,929

3,651,770

Charge-offs on total consumer loans

235

14,657

15,162

5,415

1,697

3,972

12,751

53,889

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of June 30, 2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Florida Region:

Auto loans

Accrual Status:

Performing

495

1,105

Non-Performing

Total auto loans

499

1,117

Charge-offs on auto loans

Finance leases

Accrual Status:

Performing

Non-Performing

Total finance leases

Charge-offs on finance leases

Personal loans

Accrual Status:

Performing

2,460

2,580

273

Non-Performing

Total personal loans

2,460

2,580

273

Charge-offs on personal loans

Credit cards

Accrual Status:

Performing

Non-Performing

Total credit cards

Charge-offs on credit cards

Other consumer loans

Accrual Status:

Performing

547

219

321

2,067

1,706

4,959

4,446

Non-Performing

Total other consumer loans

547

219

321

2,084

1,721

4,991

4,505

Charge-offs on other consumer loans

Total

Accrual Status:

Performing

3,007

102

290

321

2,562

1,706

8,034

5,824

Non-Performing

Total consumer loans

3,007

102

290

321

2,583

1,721

8,070

5,895

Charge-offs on total consumer loans

(1)

Excludes accrued interest receivable.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

As of June 30, 2024

As of

December 31,

2023

Term Loans

Amortized Cost Basis by Origination Year

(1)

2024

2023

2022

2021

2020

Prior

Revolving

Loans

Amortized

Cost Basis

Total

(In thousands)

Total:

Auto loans

Accrual Status:

Performing

324,653

568,467

465,596

326,080

145,856

136,702

1,967,354

1,920,688

Non-Performing

272

3,506

3,353

2,835

1,280

3,423

14,669

15,568

Total auto loans

324,925

571,973

468,949

328,915

147,136

140,125

1,982,023

1,936,256

Charge-offs on auto loans

105

4,897

5,248

2,891

922

2,030

16,093

Finance leases

Accrual Status:

Performing

130,114

290,290

221,226

132,985

54,545

48,575

877,735

853,528

Non-Performing

500

713

441

168

755

2,577

3,287

Total finance leases

130,114

290,790

221,939

133,426

54,713

49,330

880,312

856,815

Charge-offs on finance leases

1,053

1,841

742

217

672

4,526

Personal loans

Accrual Status:

Performing

75,798

143,113

94,185

23,904

11,961

27,005

375,966

379,434

Non-Performing

681

798

219

1,999

1,841

Total personal loans

75,839

143,794

94,983

24,123

12,002

27,224

377,965

381,275

Charge-offs on personal loans

3,668

5,253

1,099

388

1,078

11,517

Credit cards

Accrual Status:

Performing

320,319

329,212

Non-Performing

Total credit cards

320,319

329,212

Charge-offs on credit cards

12,426

Other consumer loans

Accrual Status:

Performing

39,648

55,427

23,232

7,289

4,800

7,888

11,703

149,987

152,359

Non-Performing

558

312

187

155

1,393

1,748

Total other consumer loans

39,699

55,985

23,544

7,382

4,837

8,075

11,858

151,380

154,107

Charge-offs on other consumer loans

5,039

2,820

683

170

258

325

9,393

Total

Accrual Status:

Performing

570,213

1,057,297

804,239

490,258

217,162

220,170

332,022

3,691,361

3,635,221

Non-Performing

364

5,245

5,176

3,588

1,526

4,584

155

20,638

22,444

Total consumer loans

570,577

1,062,542

809,415

493,846

218,688

224,754

332,177

3,711,999

3,657,665

Charge-offs on total consumer loans

235

14,657

15,162

5,415

1,697

4,038

12,751

53,955

(1)

Excludes accrued interest receivable.

As of June 30, 2024 and December 31, 2023, the balance of revolving loans

converted to term loans was

t material.

Accrued

interest

receivable

loans

totaled

63.1

million

June

30,

2024

62.3

million

December

31,

2023),

was

reported as part

of accrued interest receivable

on loans and

investment securities in

the consolidated statements

of financial condition,

and is excluded from the estimate of credit losses.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

information

about

collateral

dependent

loans

that

were

individually

evaluated

for

purposes

determining the ACL as of June 30, 2024 and December 31, 2023

As of June 30, 2024

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

24,449

1,103

24,449

1,103

Commercial loans:

Construction loans

3,300

259

956

4,256

259

Commercial mortgage loans

43,708

C&I loans

22,549

2,642

6,618

29,167

2,642

Consumer loans:

Personal loans

Other consumer loans

123

50,449

4,015

51,282

101,731

4,015

As of December 31, 2023

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Amortized Cost

Allowance

Amortized Cost

Allowance

(In thousands)

Residential mortgage loans:

Conventional residential mortgage loans

25,355

1,732

25,355

1,732

Commercial loans:

Construction loans

956

Commercial mortgage loans

4,454

135

40,683

45,137

135

C&I loans

9,390

1,563

6,780

16,170

1,563

Consumer loans:

Personal loans

Other consumer loans

123

39,350

3,443

48,419

87,769

3,443

The

underlying

collateral

for

residential

mortgage

and

consumer

collateral

dependent

loans consisted

single-family

residential

properties,

and for

commercial and

construction loans

consisted primarily

of office

buildings, multifamily

residential properties,

and

retail

establishments.

The

weighted-average

loan-to-value

coverage

for

collateral

dependent

loans

June

30,

2024

was

compared to

% as of

December 31,

2023, mainly

related to

a $

16.5

million nonaccrual

commercial relationship

in the Puerto

Rico

region in the food retail industry,

with a loan-to-value over

100

%, classified as collateral dependent.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Purchases and Sales of Loans

the

ordinary

course

business,

the

Corporation

enters

into

securitization

transactions

and

whole

loan

sales

with

GNMA

and

GSEs, such

as FNMA

and FHLMC.

During the

first six

months of

2024, loans

pooled into

GNMA MBS

amounted to

approximately

59.9

million, compared to

66.4

million, for the

first six months

of 2023, for

which the Corporation

recognized a net

gain on sale

2.3

million and

1.4

million, respectively.

Also, during

the first

six months

of 2024

and 2023,

the Corporation

sold approximately

15.1

million

and

22.8

million,

respectively,

performing

residential

mortgage

loans

FNMA,

for

which

the

Corporation

recognized a net

gain on sale of

0.3

million and $

0.6

million, respectively.

The Corporation’s

continuing involvement with

the loans

that it

sells consists

primarily of

servicing the

loans. In

addition, the

Corporation agrees

to repurchase

loans if

it breaches

any of

the

representations

and

warranties

included

the

sale

agreement.

These

representations

and

warranties

are

consistent

with

the

GSEs’

selling and servicing guidelines (

i.e.

, ensuring that the mortgage was properly underwritten according to established

guidelines).

For loans

pooled into

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or after

January 1, 2003,

when certain delinquency

criteria are met. This

option gives the

Corporation the unilateral

ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

have

regained

effective

control

over

the

loans,

required

recognize

the

loans

and

corresponding

repurchase

liability

regardless of

its intent

to repurchase

the loans.

As of

June 30,

2024 and

December 31,

2023, rebooked

GNMA delinquent

loans that

were included in the residential mortgage loan portfolio amounted

to $

6.8

million and $

7.9

million, respectively.

During the first

six months of 2024

and 2023, the Corporation

repurchased, pursuant to

the aforementioned repurchase

option, $

0.9

million

and

1.9

million,

respectively,

loans

previously

pooled

into

GNMA

MBS.

The

principal

balance

these

loans

fully

guaranteed,

and the

risk of

loss related

to the

repurchased loans

is generally

limited to

the difference

between the

delinquent interest

payment advanced

to GNMA, which

is computed at

the loan’s

interest rate,

and the interest

payments reimbursed

by FHA, which

are

computed

at a

pre-determined

debenture

rate.

Repurchases

of GNMA

loans allow

the

Corporation,

among

other

things, to

maintain

acceptable

delinquency

rates

outstanding

GNMA

pools

and

remain

seller

and

servicer

good

standing

with

GNMA.

Historically, losses

on these repurchases of

GNMA delinquent loans have

been immaterial and no provision has

been made at the time

of sale.

Loan sales to FNMA and FHLMC are without recourse in relation

to the future performance of the loans.

The Corporation’s risk of

loss

with

respect

these

loans

also

minimal

these

repurchased

loans

are

generally

performing

loans

with

documentation

deficiencies.

During the

first six

months of 2024,

the Corporation

purchased commercial

loan participations

in the

Florida region

totaling $

79.1

million, which consisted

of approximately $

13.7

million in the commercial

mortgage portfolio and $

65.4

million in the C&I portfolio.

In addition, during the first six

months of 2023, the Corporation

purchased C&I loan participations in

the Florida region totaling $

28.0

million.

During

the

first

six

months

2024,

the

Corporation

recognized

9.5

million

recovery

associated

with

the

bulk

sale

fully

charged-off

consumer

loans,

net

0.5

million

repurchase

liability.

There

were

significant

sales

loans

during

the

first

six

months of 2023, other than those sales of conforming residential mortgage

loans mentioned above.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Loan Portfolio Concentration

The Corporation’s

primary

lending area

is Puerto

Rico. The

Corporation’s

banking subsidiary,

FirstBank, also

lends in

the USVI

and the BVI markets and

in the United States (principally

in the state of Florida).

Of the total gross loans held

for investment portfolio

of $

12.4

billion as of

June 30, 2024,

credit risk concentration

was approximately

% in Puerto

Rico,

% in the

U.S., and

% in the

USVI and the BVI.

June

30,

2024,

the

Corporation

had

206.2

million

outstanding

loans

extended

the

Puerto

Rico

government,

its

municipalities

and

public

corporations,

compared

187.7

million

December

31,

2023.

June

30,

2024,

approximately

129.4

million

consisted

loans

extended

municipalities

Puerto

Rico

that

are

general

obligations

supported

assigned

property

tax

revenues,

and $

25.7

million

loans which

are supported

by one

specific sources

of municipal

revenues. The

vast

majority

revenues

of the

municipalities

included

the

Corporation’s

loan

portfolio

are

independent

budgetary

subsidies

provided

the

Puerto

Rico

central

government.

These

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required

satisfy

the

payment

all

their

respective

general

obligation

bonds

and

notes.

addition

loans

extended

to municipalities,

the Corporation’s

exposure

to the

Puerto

Rico government

as of

June 30,

2024 included

8.8

million

loans granted

to an

affiliate of

the Puerto

Rico Electric

Power Authority

(“PREPA”)

and $

42.3

million in

loans to

agencies or

public

corporations of the Puerto Rico government.

In addition, as of

June 30, 2024, the Corporation

had $

74.9

million in exposure to

residential mortgage loans that

are guaranteed by

the PRHFA,

a government

instrumentality that

has been designated

as a covered

entity under PROMESA,

compared to

77.7

million

December

31,

2023.

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees serve to cover shortfalls in collateral in the event of a borrower default.

The Corporation also

has credit exposure

to USVI government entities.

As of June 30,

2024, the Corporation

had

105.0

million in

loans to

USVI government

public corporations,

compared to

90.5

million as

of December

31, 2023.

As of

June 30,

2024, all

loans

were currently performing and up to date on principal and interest payments.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Loss Mitigation Program for Borrowers Experiencing

Financial Difficulty

The Corporation provides assistance to

its customers through a loss mitigation

program. Depending upon the

nature of a borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

well

other

restructurings

individual

C&I,

commercial

mortgage,

construction,

and

residential

mortgage

loans.

The

Corporation

may

also

modify

contractual

terms to comply with regulations regarding the treatment of certain bankruptcy

filings and discharge situations.

The

loan

modifications

granted

borrowers

experiencing

financial

difficulty

that

are

associated

with

payment

delays

typically

include the following:

Forbearance plans –

Payments of either interest

and/or principal are

deferred for a pre-established

period of time, generally

not

exceeding

six

months

any

given

year.

The

deferred

interest

and/or

principal

repaid

either

lump

sum

payment

maturity date or by extending the loan’s

maturity date by the number of forbearance months granted.

Payment

plans

–

Borrowers

are

allowed

pay

the

regular

monthly

payment

plus

the

pre-established

delinquent

amounts

during a period generally not exceeding

six months.

At the end of the payment plan, the

borrower is required to resume making

its regularly scheduled loan payments.

Trial modifications

– These types of loan

modifications are granted for

residential mortgage loans. Borrower

continue making

reduced monthly payments during

the trial period, which is

generally of up to six

months. The reduced payments

that are made

by the

borrower during

the trial

period will

result in

a payment

delay with

respect to

the original

contractual terms

of the

loan

since

the

loan

has

not

yet

been

contractually

modified.

After

successful

completion

the

trial

period,

the

mortgage

loan

contractually modified.

Modifications

the

form

reduction

interest

rate,

term

extension,

other-than-insignificant

payment

delay,

any

combination

these

types

loan

modifications

that

have

occurred

the

current

reporting

period

for

borrower

experiencing

financial

difficulty

are

disclosed

the

tables

below.

Many

factors

are

considered

when

evaluating

whether

there

other-than-

insignificant

payment

delay,

such as

the significance

of the

restructured

payment

amount relative

to the

unpaid

principal balance

collateral value of the loan or the relative significance of the delay to

the original loan terms.

The

below

disclosures

relate

loan

modifications

granted

borrowers

experiencing

financial

difficulty

which

there

was

change

the

timing

and/or

amount

contractual

cash

flows

the

form

any

the

aforementioned

types

modifications,

including

restructurings

that

resulted

more-than-insignificant

payment

delay.

These

disclosures

exclude

2.3

million

and

3.8

million in restructured residential

mortgage loans that are

government-guaranteed (e.g.,

FHA/VA

loans) and were modified

during the

quarter

and

six-month

period

ended

June

30,

2024,

respectively,

compared

1.6

million

and

2.5

million,

respectively,

for

the

comparable periods in 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following

tables present

the amortized

cost basis

as of

June 30,

2024 and

2023 of

loans modified

to borrowers

experiencing

financial

difficulty

during

the

quarters

and

six-month

periods

ended

June

30,

2024

and

2023,

portfolio

classes

and

type

modification granted, and

the percentage of these

modified loans relative

to the total period-end

amortized cost basis of

receivables in

the portfolio class:

Quarter Ended June 30, 2024

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction and

Term

Extension

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

407

435

0.02%

Construction loans

Commercial mortgage loans

115,981

4.79%

C&I loans

Consumer loans:

Auto loans

134

933

(1)

1,148

0.06%

Personal loans

0.02%

Credit cards

890

(2)

890

0.28%

Other consumer loans

165

132

(1)

317

0.21%

Total modifications

407

890

116,305

305

953

118,860

Quarter Ended June 30, 2023

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction and

Term

Extension

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

210

283

0.01%

Construction loans

Commercial mortgage loans

30,170

1.30%

C&I loans

187

0.01%

Consumer loans:

Auto loans

678

(1)

829

0.04%

Personal loans

112

0.03%

Credit cards

486

(2)

486

0.15%

Other consumer loans

146

(1)

196

0.13%

Total modifications

210

486

529

30,350

688

32,263

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Six-Month Period Ended June 30, 2024

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction and

Term

Extension

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

869

974

0.03%

Construction loans

Commercial mortgage loans

115,981

4.79%

C&I loans

0.00%

Consumer loans:

Auto loans

300

171

1,926

(1)

2,397

0.12%

Personal loans

102

115

0.03%

Credit cards

1,406

(2)

1,406

0.44%

Other consumer loans

303

139

(1)

480

0.32%

Total modifications

869

1,418

116,622

492

1,964

121,365

Six-Month Period Ended June 30, 2023

Payment Delay Only

Forbearance

Payment Plan

Trial

Modification

Interest Rate

Reduction

Term

Extension

Combination

of Interest

Rate

Reduction and

Term

Extension

Other

Total

Percentage of

Total by

Portfolio

Classes

(In thousands)

Conventional residential mortgage loans

542

503

1,139

0.04%

Construction loans

Commercial mortgage loans

30,170

1.30%

C&I loans

187

0.01%

Consumer loans:

Auto loans

167

103

1,155

(1)

1,425

0.08%

Personal loans

151

0.04%

Credit cards

732

(2)

732

0.23%

Other consumer loans

273

(1)

404

0.27%

Total modifications

542

732

1,198

30,549

1,187

34,208

(1)

Modification consists of court mandated reduction to 0% interest rate for remaining loan term to borrowers in bankruptcy proceedings unless dismissal occurs.

(2)

Modification consists of reduction in interest rate and revocation of revolving line privileges.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

following

tables

present

portfolio

classes

the

financial

effects

the

modifications

granted

borrowers

experiencing

financial difficulty,

other than those associated to

payment delay,

during the quarters and

six-month periods ended

June 30, 2024 and

2023. The financial

effects of the

modifications associated to

payment delay were

discussed above and,

as such, were

excluded from

the tables below:

Quarter Ended June 30, 2024

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

236

0.50

256

Construction loans

Commercial mortgage loans

C&I loans

Consumer loans:

Auto loans

3.29

Personal loans

2.99

Credit cards

17.55

Other consumer loans

3.34

Quarter Ended June 30, 2023

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

239

Construction loans

Commercial mortgage loans

0.25

C&I loans

Consumer loans:

Auto loans

3.96

Personal loans

5.41

Credit cards

16.26

Other consumer loans

1.87

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Six-Month Period Ended June 30, 2024

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

236

3.50

Construction loans

Commercial mortgage loans

C&I loans

13.00

Consumer loans:

Auto loans

2.57

Personal loans

3.44

Credit cards

17.11

Other consumer loans

3.31

Six-Month Period Ended June 30, 2023

Combination of Interest Rate Reduction and Term

Extension

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

Weighted-Average

Interest Rate Reduction

(%)

Weighted-Average Term

Extension (in months)

(In thousands)

Conventional residential mortgage loans

118

2.40

157

Construction loans

Commercial mortgage loans

0.25

C&I loans

Consumer loans:

Auto loans

3.64

Personal loans

5.11

Credit cards

16.15

Other consumer loans

1.92

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The following tables present by portfolio classes the performance of loans modified

during the last twelve months ended June 30,

2024 and during the six-month period ended June 30, 2023 that were granted

to borrowers experiencing financial difficulty:

Last Twelve Months Ended June 30, 2024

30-59

60-89

90+

Total

Delinquency

Current

Total

(In thousands)

Conventional residential mortgage loans

1,424

Construction loans

Commercial mortgage loans

118,190

C&I loans

186

Consumer loans:

Auto loans

145

223

3,323

3,546

Personal loans

256

284

Credit cards

163

259

1,749

2,008

Other consumer loans

103

567

670

Total modifications

298

149

166

613

125,695

126,308

Six-Month Period Ended June 30, 2023

30-59

60-89

90+

Total

Delinquency

Current

Total

(In thousands)

Conventional residential mortgage loans

1,139

Construction loans

Commercial mortgage loans

30,170

C&I loans

187

Consumer loans:

Auto loans

1,415

1,425

Personal loans

151

Credit cards

652

732

Other consumer loans

382

404

Total modifications

112

34,096

34,208

There were

0.2

million and

0.3

million of

loans modified

to borrowers

experiencing financial

difficulty which

had a

payment default

during

the quarter

and six-month

period ended

June 30,

2024, respectively,

and had

been modified

within the

last twelve

months preceding

the payment

default.

loans modified to borrowers experiencing financial difficulty

had a payment default during the quarter

and six-month period ended June

30, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 4 – ALLOWANCE

FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following tables present the activity in the ACL on loans and finance leases by portfolio

segment for the indicated periods:

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Quarter Ended June 30, 2024

(In thousands)

ACL:

Beginning balance

56,689

6,186

32,661

34,490

133,566

263,592

Provision for credit losses - (benefit) expense

(10,593)

(554)

(2,976)

(668)

26,721

11,930

Charge-offs

(491)

(332)

(25,591)

(26,414)

Recoveries

446

393

958

3,613

5,424

Ending balance

46,051

5,646

30,078

34,448

138,309

254,532

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Quarter Ended June 30, 2023

(In thousands)

ACL:

Beginning balance

64,403

3,231

36,460

31,235

130,238

265,567

Provision for credit losses - (benefit) expense

(3,500)

1,202

5,999

2,997

14,072

20,770

Charge-offs

(1,146)

(38)

(88)

(6,350)

(16,462)

(24,084)

Recoveries

757

409

132

3,451

4,805

Ending balance

60,514

4,804

42,427

28,014

131,299

267,058

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Six-Month Period Ended June 30, 2024

(In thousands)

ACL:

Beginning balance

57,397

5,605

32,631

33,190

133,020

261,843

Provision for credit losses - (benefit) expense

(11,057)

(2,986)

(4,028)

42,901

24,847

Charge-offs

(1,007)

(791)

(53,955)

(55,753)

Recoveries

718

433

6,077

16,343

(1)

23,595

Ending balance

46,051

5,646

30,078

34,448

138,309

254,532

(1) Includes recoveries totaling $

9.5

million associated with the bulk sale of fully charged-off consumer loans.

Residential Mortgage

Loans

Construction

Loans

Commercial

Mortgage

C&I

Loans

Consumer Loans

Total

Six-Month Period Ended June 30, 2023

(In thousands)

ACL:

Beginning balance

62,760

2,308

35,064

32,906

127,426

260,464

Impact of adoption of ASU 2022-02

(1)

2,056

2,116

Provision for credit losses - (benefit) expense

(3,427)

2,062

7,245

1,347

29,799

37,026

Charge-offs

(2,129)

(38)

(106)

(6,468)

(33,260)

(42,001)

Recoveries

1,254

472

224

222

7,281

9,453

Ending balance

60,514

4,804

42,427

28,014

131,299

267,058

(1) Recognized as a result of the adoption of ASU 2022-02, for which the Corporation elected to discontinue the use of a discounted cash flow methodology for restructured accruing loans, which had a corresponding

decrease, net of applicable taxes, in beginning retained earnings as of January 1, 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The

Corporation

estimates

the

ACL

following

the

methodologies

described

Note

–

“Nature

Business

and

Summary

Significant Accounting

Policies” to

the audited

consolidated financial

statements included

in the

2023 Annual

Report on

Form 10-K,

as updated by the information contained in this report, for each portfolio segment

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

categories

depend

variety

factors

including

recent

economic

events,

leading

national and

regional economic indicators,

and industry

trends. As of

June 30,

2024 and December

31, 2023, the

Corporation applied

the

baseline

scenario

for

the

commercial

mortgage

and

construction

loan

portfolios

since

expects

favorable

economic

outlook

of certain

macroeconomic

variables

associated

with

commercial

real

estate property

performance,

particularly

the Puerto

Rico region.

At least every other

year, the

Corporation reviews the

credit models used

in determining the

ACL. Such exercise

consists primarily

updating

the

model

with

recent

historical

losses

and

determining

other

changes

are

required

for

purposes

estimating

credit

losses.

During

the

second

quarter

of 2024,

the

Corporation

completed

the

aforementioned

review

for

the residential

mortgage,

auto

loan,

and finance

lease

portfolios,

primarily

for

the Puerto

Rico

region.

The residential

mortgage

loan

portfolio,

which

has

recently

experienced a

historically low level

of credit

losses, as a

result of

high collateral

values in the

Puerto Rico region,

resulted in a

lower

required reserve

level. For the

auto loan

and finance

lease portfolios historical

loss trends were

updated and

resulted in an

increase in

the required reserve levels as the loss experience in such portfolios have been

trending higher towards historical loss experience.

As of June 30, 2024, the ACL for loans and finance

leases was $

254.5

million, a decrease of $

7.3

million, from $

261.8

million as of

December

31,

2023.

The

ACL

for

residential

mortgage

loans

decreased

11.3

million,

mainly

driven

updated

historical

loss

experience

used for

determining the

ACL estimate

resulting

in a

downward

revision

of estimated

loss severities

and

lower

required

reserve

levels,

partially

offset

newly

originated

loans

that

have

longer

life.

The

ACL

for

commercial

and

construction

loans

decreased by $

1.3

million, mainly due to an improvement on the economic outlook of

certain macroeconomic variables, particularly in

variables associated with commercial real estate property performance,

partially offset by increased

volume.

Meanwhile,

the

ACL

for

consumer

loans

increased

5.3

million

mainly

driven

increases

delinquency

levels,

mainly

credit cards;

increases in

portfolio volumes

in the

auto loan

portfolio;

and, to

a lesser

extent, updated

historical loss

experience used

for determining the

ACL estimate resulting

in an upward revision

of estimated loss

severities and higher

required reserve levels

in the

auto loan and finance lease portfolios.

Net charge-offs were

21.0

million and $

32.2

million for the second quarter

and first six months of 2024,

respectively, compared

19.3

million and $

32.5

million, respectively,

for the same periods in 2023. The $

1.7

million increase in net charge-offs for

the second

quarter of

2024 was mainly

driven by

an increase in

consumer loans

and finance

leases charge-offs

across all major

portfolio classes,

partially offset by

a $

6.2

million charge-off

recorded on a C&I participated

loan in the Florida region

in the power generation industry

during the second

quarter of 2023.

The $

0.3

million decrease in

net charge-offs

for the first

six months of

2024 was mainly

driven by

the

9.5

million

recovery

associated

with

the

bulk

sale of

fully

charged-off

consumer

loans and

5.0

million

recovery

associated

with a

C&I loan

in the

Puerto Rico

region recorded

during the

first six

months of

2024, and

the aforementioned

6.2

million charge-

off recorded

on a

C&I participated

loan in

the Florida

region during

the second

quarter of

2023. This

increase was

partially offset

the aforementioned increase 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, 2024 and December 31, 2023:

As of June 30, 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

2,809,666

185,957

2,423,309

3,254,577

3,711,999

12,385,508

Allowance for credit losses

46,051

5,646

30,078

34,448

138,309

254,532

Allowance for credit losses to

amortized cost

1.64

3.04

1.24

1.06

3.73

2.06

As of December 31, 2023

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

2,821,726

214,777

2,317,083

3,174,232

3,657,665

12,185,483

Allowance for credit losses

57,397

5,605

32,631

33,190

133,020

261,843

Allowance for credit losses to

amortized cost

2.03

2.61

1.41

1.05

3.64

2.15

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,

2024

and

December 31,

2023. The

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

2023 Annual Report

on Form 10-K.

As of June 30,

2024, the ACL

for off-balance

sheet credit exposures

amounted to

4.5

million, compared to $

4.6

million as of December 31, 2023.

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, 2024 and 2023:

Quarter Ended

Six-Month Period Ended

June 30,

2024

2023

2024

2023

(In thousands)

Beginning Balance

4,919

4,168

4,638

4,273

Provision for credit losses - (benefit) expense

(417)

721

(136)

616

Ending balance

4,502

4,889

4,502

4,889

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, 2024

December 31, 2023

(In thousands)

OREO balances, carrying value:

Residential

(1)

15,468

20,261

Construction

1,658

1,601

Commercial

(2)

4,556

10,807

Total

21,682

32,669

(1)

Excludes $

11.3

million and $

16.6

million as of June

30, 2024 and December

31, 2023, respectively,

of foreclosures that met

the conditions of ASC

Subtopic 310-40 “Reclassification

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.

(2)

Decrease was mainly associated with the sale of a $

5.3

million commercial real estate OREO property in Puerto Rico during the

second quarter of 2024 at a gain of $

2.3

million.

See Note 17 – “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,

2024 and 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 6 – GOODWILL AND OTHER INTANGIBLES

Goodwill

as of

each

June 30,

2024

and

December

31,

2023

amounted

38.6

million.

The Corporation’s policy is to assess

goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events

or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth

quarter of 2023, management performed a qualitative analysis of the carrying amount of each relevant reporting units’ goodwill and

concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. This assessment

involved identifying the inputs and assumptions that most affect fair value, including evaluating significant and relevant events

impacting each reporting entity, and evaluating such factors to determine if a positive assertion can be made that it is more-likely-

than-not that the fair value of the reporting units exceeded their carrying amount. As of December 31, 2023, the Corporation

concluded that it is more-likely-than-not that the fair value of the reporting units exceeded their carrying value. The Corporation

determined that there have been no significant events since the last annual assessment that could indicate potential goodwill

impairment on reporting units for which the goodwill is allocated. As a result, no impairment charges for goodwill were recorded

during the first six months of 2024.

There

were

changes

the

carrying

amount

goodwill

during

the

quarters

and

six-month

periods

ended

June

30,

2024

and

2023.

Other Intangible Assets

The

following

table

presents

the

gross

amount

and

accumulated

amortization

the

Corporation’s

intangible

assets

subject

amortization as of the indicated dates:

As of

June 30, 2024

December 31, 2023

(Dollars in thousands)

Core deposit intangible:

Gross amount

87,544

Accumulated amortization

(77,844)

(74,161)

Net carrying amount

9,700

13,383

Remaining amortization period (in years)

5.5

6.0

During

the

quarter

and

six-month

period

ended

June

30,

2024,

the

Corporation

recognized

1.9

million

and

3.7

million,

respectively,

in amortization

expense

on its

other intangibles

subject to

amortization,

compared to

2.0

million

and $

4.0

million for

the same periods in 2023, respectively

The Corporation amortizes core deposit intangibles based on the projected useful lives of the related deposits. Core deposit

intangibles are analyzed annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that

may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that

would indicate a possible impairment to the core deposit intangibles as of June 30, 2024.

The estimated

aggregate annual

amortization expense

related to the

intangible assets

subject to amortization

for future periods

was

as follows as of June 30, 2024

(In thousands)

2024

2,733

2025

3,509

2026

872

2027

872

2028

872

2029 and after

842

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 7 – NON-CONSOLIDATED

VARIABLE

INTEREST ENTITIES (“VIEs”) AND SERVICING

ASSETS

The Corporation

transfers residential

mortgage loans

in sale

or securitization

transactions in

which it

has continuing

involvement,

including

servicing

responsibilities

and

guarantee

arrangements.

All

such

transfers

have

been

accounted

for

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”)

In April 2004,

FBP Statutory Trust

I, a financing

trust that is wholly

owned by the

Corporation, sold to

institutional investors $

100

million of its variable

-rate TRuPs. FBP Statutory

Trust I used

the proceeds of the

issuance, together with the

proceeds of the purchase

the

Corporation

3.1

million

FBP

Statutory

Trust

variable-rate

common

securities, to

purchase

103.1

million

aggregate

principal

amount

the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

September

2004,

FBP

Statutory

Trust

II,

financing

trust that

is wholly

owned by

the Corporation,

sold to

institutional investors

125

million of

its variable-rate

TRuPs. FBP

Statutory Trust

II used

the proceeds of

the issuance,

together with

the proceeds of

the purchase by

the Corporation

of $

3.9

million of

FBP Statutory

Trust

II variable-rate

common securities,

to purchase

128.9

million aggregate

principal amount

of the

Corporation’s

Junior

Subordinated

Deferrable

Debentures.

The

debentures,

net

issuance

costs,

are

presented

the

Corporation’s

consolidated statements of financial

condition as other long-term borrowings.

These TRuPs are variable-rate

instruments indexed to

month CME Term SOFR

plus a

tenor spread

adjustment of

0.26161

% and the

original spread

2.75

% for the

FBP Statutory

Trust I

and

2.50

% for

the FBP

Statutory Trust

II.

The Junior Subordinated Deferrable Debentures mature on June 17, 2034, and September

20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be

shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).

each

June

30,

2024

and

December 31, 2023, these Junior Subordinated Deferrable Debentures amounted

to $

161.7

million.

Under the indentures of these instruments,

the Corporation has the right, from

time to time, and without causing

an event of default,

to defer

payments of

interest on

the Junior

Subordinated Deferrable

Debentures by

extending the

interest payment

period at

any time

and from

time to

time during

the term

of the

subordinated debentures

for up

to twenty

consecutive quarterly

periods. As

of June

30,

2024,

the Corporation was current on all interest payments due on its subordinated debt.

July

22,

2024,

the

Corporation

announced

part

its

capital

actions

the

approval

new

repurchase

program

250

million

that could

include the

repurchase

of junior

subordinated

debentures.

See Note

13 –

“Stockholders’

Equity” to

the unaudited

consolidated financial statements herein for additional details of capital actions.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Private Label MBS

During

2004

and

2005,

an unaffiliated

party,

referred

to in

this subsection

as the

seller,

established

series of

statutory

trusts

effect

the

securitization

mortgage

loans

and

the

sale

trust

certificates

(“private

label

MBS”).

The

seller

initially

provided

the

servicing for

a fee, which

is senior to

the obligations to

pay private label

MBS holders. The

seller then entered

into a sales

agreement

through

which

it sold

and

issued

the

private

label

MBS in

favor

the

Corporation’s

banking

subsidiary,

FirstBank.

Currently,

the

Bank is

the sole

owner of

these private

label MBS;

the servicing

of the

underlying

residential mortgages

that generate

the principal

and interest

cash flows is

performed by

another third

party,

which receives

a servicing

fee. These

private label

MBS are variable

-rate

securities indexed

3-month CME Term SOFR

plus a

tenor

spread

adjustment

0.26161

% and

the original

spread

limited to

the

weighted-average

coupon

the

underlying

collateral.

The

principal

payments

from

the

underlying

loans

are

remitted

paying

agent

(servicer),

who

then

remits

interest

the

Bank.

Interest

income

shared

certain

extent

with

the

FDIC,

which

has

interest only strip (“IO”) tied to the

cash flows of the underlying loans

and is entitled to receive the excess

of the interest income less a

servicing

fee

over

the

variable

rate

income

that

the

Bank

earns

the

securities.

The

FDIC

became

the

owner

the

upon

its

intervention of the seller,

a failed financial institution.

No recourse agreement exists, and

the Bank, as the sole

holder of the securities,

absorbs all risks

from losses on

non-accruing loans

and repossessed collateral.

As of June

30, 2024,

the amortized cost

and fair

value

of these private

label MBS amounted to

6.7

million and $

4.6

million, respectively,

with a weighted-average yield

7.65

%, which is

included as part

of the Corporation’s

available-for-sale debt

securities portfolio.

As described

in Note 2

– “Debt Securities,”

the ACL

on these private label MBS amounted to $

0.2

million as of June 30, 2024.

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,

2024,

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,

2024

2023

2024

2023

(In thousands)

Balance at beginning of period

26,355

28,431

26,941

29,037

Capitalization of servicing assets

647

706

1,107

1,238

Amortization

(1,038)

(1,102)

(2,075)

(2,230)

Temporary impairment

recoveries

Other

(1)

(12)

(2)

(21)

(16)

Balance at end of period

25,952

28,034

25,952

28,034

(1)

Mainly represents adjustments related to the repurchase

of loans serviced for others.

Impairment

charges

are

recognized

through

valuation

allowance

for

each

individual

stratum

servicing

assets.

The

valuation

allowance

is adjusted

to reflect

the amount,

if any,

by which

the cost

basis of

the servicing

asset for

a given

stratum of

loans being

serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing

asset for a given stratum is not recognized.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Changes in the impairment allowance were as follows for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands)

Balance at beginning of period

Temporary impairment

recoveries

(1)

(5)

Balance at end of period

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,

2024

2023

2024

2023

(In thousands)

Servicing fees

2,605

2,660

5,178

5,378

Late charges and prepayment penalties

181

211

370

410

Other

)

(12)

(2)

(21)

(16)

Servicing income, gross

2,774

2,869

5,527

5,772

Amortization and impairment of servicing assets

(1,038)

(1,101)

(2,075)

(2,225)

Servicing income, net

1,736

1,768

3,452

3,547

(1)

Mainly represents adjustments related to the repurchase of loans serviced

for others.

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, 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

Six-Month Period Ended June 30, 2023

Constant prepayment rate:

Government-guaranteed mortgage loans

6.7

11.6

4.8

Conventional conforming mortgage loans

7.4

16.0

3.8

Conventional non-conforming mortgage loans

5.9

9.0

2.1

Discount rate:

Government-guaranteed mortgage loans

11.5

Conventional conforming mortgage loans

9.5

Conventional non-conforming mortgage loans

12.9

14.0

11.5

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

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, 2024

December 31, 2023

(In thousands)

Carrying amount of servicing assets

25,952

26,941

Fair value

44,590

45,244

Weighted-average

expected life (in years)

7.69

7.79

Constant prepayment rate (weighted-average annual

rate)

6.30

6.27

Decrease in fair value due to 10% adverse change

881

886

Decrease in fair value due to 20% adverse change

1,720

1,731

Discount rate (weighted-average annual rate)

10.70

10.68

Decrease in fair value due to 10% adverse change

1,890

1,927

Decrease in fair value due to 20% adverse change

3,641

3,712

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 8 – DEPOSITS

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

June 30, 2024

December 31, 2023

(In thousands)

Type of account:

Non-interest-bearing deposit accounts

5,406,054

5,404,121

Interest-bearing checking accounts

3,831,677

3,937,945

Interest-bearing saving accounts

3,629,326

3,596,855

Time deposits

3,037,120

2,833,730

Brokered certificates of deposits ("CDs")

624,779

783,334

Total

16,528,956

16,555,985

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

including brokered CDs, as of June 30, 2024:

Total

(In thousands)

Three months or less

966,977

Over three months to six months

829,519

Over six months to one year

1,102,165

Over one year to two years

474,119

Over two years to three years

70,269

Over three years to four years

126,118

Over four years to five years

70,897

Over five years

21,835

Total

3,661,899

Total

Puerto Rico and

U.S. time deposits

with balances of

more than $250,000

amounted to $

1.6

billion and $

1.4

billion as of

June

30,

2024

and

December

31,

2023,

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,

2024 and

December 31,

2023, unamortized

broker placement

fees amounted

to $

1.2

million and

1.0

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 9 – 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, 2024

December 31, 2023

(In thousands)

Long-term

Fixed

-rate advances from the FHLB

(1)

500,000

(1)

Weighted-average interest rate of

4.45

% as of each of June 30, 2024 and December 31, 2023, respectively.

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

June 30, 2024

(In thousands)

Over six months to one year

180,000

Over one to five years

320,000

Total

(1)

500,000

(1) Average remaining term to maturity of

1.99

years.

NOTE 10 – OTHER LONG-TERM BORROWINGS

Junior Subordinated Debentures

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

(In thousands)

June 30, 2024

December 31, 2023

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

(1) (3)

43,143

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

(2) (3)

118,557

161,700

(1)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.75

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of June 30, 2024 and December 31, 2023 (

8.35

% as of June 30,2024 and

8.39

% as of December 31, 2023).

(2)

Amount represents junior subordinated interest-bearing debentures

due in 2034 with a floating interest rate of

2.50

% over

3-month CME Term SOFR

plus a

0.26161

% tenor spread

adjustment as of June 30, 2024 and December 31, 2023 (

8.11

% as of June 30, 2024 and

8.13

% as of December 31, 2023).

(3)

See Note 7 - “Non-Consolidated Variable

Interest Entities (“VIEs”) and Servicing Assets,”

for additional information on these debentures.

See

Note

–

“Stockholders’

Equity”

the

unaudited

consolidated

financial

statements

herein

for

additional

details

capital

actions

that

include

the

approval

new

repurchase

program

250

million

that

could

include

repurchase

common

stock

junior subordinated debentures.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 11 – EARNINGS PER COMMON

The

calculations

earnings

per

common

for

the

quarters

and

six-month

periods

ended

June

30,

2024

and

2023

are

follows:

Quarter Ended

Six-Month Period Ended

June 30,

2024

2023

2024

2023

(In thousands, except per share information)

Net income attributable to common stockholders

75,838

70,655

149,296

141,353

Weighted-Average

Average common

shares outstanding

164,945

178,926

166,043

179,567

Average potential

dilutive common shares

598

351

627

686

Average common

shares outstanding - assuming dilution

165,543

179,277

166,670

180,253

Earnings per common share:

Basic

0.46

0.39

0.90

0.79

Diluted

0.46

0.39

0.90

0.78

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, 2024 and 2023.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 12 – 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,

2024,

there

were

2,593,029

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 Corporation

issued

398,569

shares during

the six-month

period ended

June 30,

2024

connection with restricted stock awards, which were reissued from

treasury shares.

The following table

summarizes the restricted stock

activity under the Omnibus

Plan during the six-month

periods ended June 30,

2024 and 2023:

Six-Month Period Ended June 30,

2024

2023

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

889,642

12.30

938,491

9.14

Granted (1)

398,569

17.35

495,891

11.99

Forfeited

(3,464)

13.30

(57,491)

11.29

Vested

(253,504)

12.26

(481,536)

5.93

Unvested shares outstanding at end of period

1,031,243

14.26

895,355

12.31

(1)

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,

which

84,122

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, 2023,

includes

3,502

of restricted stock awarded

to independent directors

and

492,389

shares of restricted

stock awarded to

employees, of which

33,718

shares were granted

to retirement-eligible employees

and thus charged to earnings as of the grant date.

For the quarter

and six-month period

ended June 30,

2024, the Corporation

recognized $

1.3

million and $

3.7

million, respectively,

of stock-based compensation expense related to restricted

stock awards, compared to $

1.4

million and $

3.0

million for the same period

in 2023.

As of June

30, 2024, there

was $

7.0

million of

total unrecognized

compensation cost

related to

unvested shares

of restricted

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

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, do not contain non-forfeitable rights to

dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock.

Performance units granted during the six-month periods ended June 30, 2024 and 2023 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, 2024 and 2023:

Six-Month Period Ended June 30,

2024

2023

Number

Weighted-

Number

Weighted-

Average

Performance

Grant Date

Performance

Grant Date

Units

Fair Value

Units

Fair Value

Performance units at beginning of year

534,261

12.25

791,923

7.36

Additions

(1)

165,487

18.39

216,876

12.24

Vested

(2)

(150,716)

11.26

(474,538)

4.08

Performance units at end of period

549,032

14.37

534,261

12.25

(1)

Units granted during the six-month periods ended June 30, 2024 and 2023 are based on the achievement of the Relative TSR and TBVPS performance goals during a three-year performance cycle beginning January 1,

2024 and January 1, 2023, respectively, and ending on December 31, 2026 and December 31, 2025, respectively.

(2)

Units vested during the six-month periods ended June 30, 2024 and 2023 are related to performance units granted in 2021 and 2020, respectively, that met the pre-established target and were settled with shares of

common stock reissued from treasury shares.

The fair value of the performance units awarded during the six-month periods ended June 30, 2024 and 2023, that was based on the

TBVPS goal component, was calculated based on the market price of the Corporation’s common stock on the respective date of the

grant and assuming attainment of 100% of target opportunity. As of June 30, 2024, 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 of 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 of

the Relative

TSR component

of the

performance units granted under the Omnibus Plan during the six-month

periods ended June 30, 2024 and 2023:

Six-Month Period Ended June 30,

2024

2023

Risk-free interest rate

(1)

4.41

3.98

Correlation coefficient

73.80

77.16

Expected dividend yield

(2)

Expected volatility

(3)

34.65

41.37

Expected life (in years)

2.78

2.79

(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,

2024, the Corporation

recognized $

0.6

million and $

1.1

million, respectively,

of stock-based

compensation expense related

to performance units,

compared to $

0.5

million and $

1.0

million for the

same periods in

2023. As of

June 30, 2024,

there was $

4.9

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

of 2024,

the Corporation

withheld

136,308

shares (first

six

months

2023 –

287,835

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 shares

withheld

for

tax purposes

as common

stock repurchases.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 13 –

STOCKHOLDERS’

EQUITY

Stock Repurchase Programs

July

24,

2023,

the

Corporation

announced

that

its Board

approved

a stock

repurchase

program,

under

which

the Corporation

may repurchase up

to $

225

million of its outstanding

common stock, which commenced

in the fourth quarter

of 2023. During the

first

half of 2024,

the Corporation repurchased

5,846,872

shares of common

stock through open

market transactions at

an average price

17.10

for a

total cost

of approximately

100.0

million under

this stock

repurchase program,

of which

2,840,321

shares of

common

stock

average

price

17.60

for

total

cost

approximately

50.0

million

were

repurchased

during

the

second

quarter

2024. As

of June 30,

2024, the

Corporation has

remaining authorization

to repurchase

approximately $

50.0

million of common

stock

under this program.

Furthermore, on July

22, 2024, the

Corporation announced that

its Board of

Directors approved a new

repurchase

program,

under which

the Corporation

may

repurchase

up to

additional

250

million

that

could

include

repurchases

common

stock or junior subordinated debentures,

which it expects to execute through the end of the fourth quarter of 2025.

Repurchases

under

these

programs

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

are subject

to various

factors, including

the Corporation’s

capital position,

liquidity,

financial performance

and

alternative uses

of capital, stock

trading price, and

general market conditions.

The Corporation’s

repurchase programs

do not obligate

it to acquire any

specific number of shares

and do not have

an expiration date. The

repurchase programs

may be modified, suspended,

terminated

any

time

the

Corporation’s

discretion.

The

Corporation’s

holding

company

has

operations

and

depends

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments,

stock

repurchases,

and

fund

all

payments on its obligations, including debt obligations.

Common Stock

The following

table shows

the change

in shares

of common

stock outstanding

for the

quarters and

six-month periods

ended June

30, 2024 and 2023:

Total

Number of Shares

Quarter Ended

Six-Month Period Ended

June 30,

2024

2023

2024

2023

Common stock outstanding, beginning balance

166,707,047

179,788,698

169,302,812

182,709,059

Common stock repurchased

(1)

(2,840,591)

(5,983,180)

(3,865,375)

Common stock reissued under stock-based compensation plan

556

549,285

970,429

Restricted stock forfeited

(1,559)

(32,076)

(3,464)

(57,491)

Common stock outstanding, ending balance

163,865,453

179,756,622

163,865,453

179,756,622

(1)

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 six-month period ended June 30, 2023 includes

287,835

shares of common stock surrendered to cover plan participants' payroll

and income taxes.

For the

quarter and

six-month period

ended June

30, 2024,

total cash

dividends declared

on shares

of common

stock amounted

26.6

million

0.16

per

share)

and

53.4

million

0.32

per

share),

respectively,

compared

25.3

million

0.14

per

share)

and

50.7

million ($

0.28

per share),

respectively,

for the

same periods

of 2023.

July 22, 2024

, the

Corporation’s

Board of

Directors

declared

quarterly

cash

dividend

0.16

per

common

share.

The

dividend

is payable

September 13, 2024

shareholders

record at the

close of business on

August 29, 2024

. The Corporation

intends to continue

to pay quarterly dividends

on common stock.

However,

the Corporation’s

common stock

dividends, including

the declaration,

timing, and

amount, remain

subject to

consideration

and approval by the Corporation’s

Board Directors at the relevant times.

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, 2024 and December 31, 2023.

Treasury Stock

The following table shows the change in shares of treasury stock for the quarters and six-month

periods ended June 30, 2024 and

2023:

Total

Number of Shares

Quarter Ended

Six-Month Period Ended

June 30,

2024

2023

2024

2023

Treasury stock, beginning balance

56,956,069

43,874,418

54,360,304

40,954,057

Common stock repurchased

2,840,591

5,983,180

3,865,375

Common stock reissued under stock-based compensation plan

(556)

(549,285)

(970,429)

Restricted stock forfeited

1,559

32,076

3,464

57,491

Treasury stock, ending balance

59,797,663

43,906,494

59,797,663

43,906,494

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 $

199.6

million as

of each

of June

30, 2024 and December 31, 2023. There were

transfers to the legal surplus reserve during the first half of 2024.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 14 – ACCUMULATED

OTHER COMPREHENSIVE LOSS

The

following

table

presents the

changes

accumulated

other

comprehensive

loss for

the quarters

and

six-month

periods

ended

June 30, 2024 and 2023:

Changes in Accumulated Other Comprehensive

Loss by Component

(1)

Quarter ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands)

Unrealized net holding losses on available-for-sale

debt securities:

Beginning balance

(655,617)

(718,744)

(640,552)

(805,972)

Other comprehensive income (loss)

(2)

10,560

(54,837)

(4,505)

32,391

Ending balance

(645,057)

(773,581)

(645,057)

(773,581)

Adjustment of pension and postretirement

benefit plans:

Beginning balance

1,382

1,194

1,382

1,194

Other comprehensive income (loss)

Ending balance

1,382

1,194

1,382

1,194

(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 15 – 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) cost for

the indicated periods:

Affected Line Item

in the Consolidated

Quarter Ended June 30,

Six-Month Period Ended June 30,

Statements of Income

2024

2023

2024

2023

(In thousands)

Net periodic (benefit) cost, pension plans:

Interest cost

Other expenses

901

950

1,802

1,900

Expected return on plan assets

Other expenses

(1,018)

(885)

(2,036)

(1,771)

Net periodic (benefit) cost, pension plans

(117)

(234)

129

Net periodic cost, postretirement plan

Other expenses

Net periodic (benefit) cost

(101)

(202)

141

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 16 –

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 as

pass-through entities

for Puerto

Rico tax

purposes. Furthermore,

the Corporation

conducts business

through certain

entities

that

have

special

tax

treatments,

including

doing

business

through

IBE

unit

the

Bank

and

through

FirstBank

Overseas

Corporation,

each

which

are

generally

exempt

from

Puerto

Rico

income

taxation

under

the

International

Banking

Entity

Act

Puerto Rico

(“IBE Act”),

and through

a wholly-owned

subsidiary that

engages in

certain Puerto

Rico qualified

investing and

lending

activities that have certain tax advantages under Act 60 of 2019.

For the second quarter

of 2024, the Corporation

recorded an income tax

expense of $

25.5

million, compared to $

30.3

million in the

second quarter of

2023. For the first

six months of

2024, the Corporation

recorded an income

tax expense of

49.5

million, compared

to $

62.2

million for the

same period in

2023. The decrease

in income

tax expense for

the second quarter

and first six

months of

2024

was mainly

driven by

a lower

effective tax

rate as

a result of

the Corporation

engaging in

certain business

activities with

preferential

tax treatment under

the PR Tax

Code during the

fourth quarter of

2023 which resulted

in a lower effective

tax rate for

the second half

of 2023

and for

the year

2024. The

Corporation has

maintained an

effective

tax rate

lower than

the Puerto

Rico maximum

statutory

rate of

37.5

%. The

Corporation’s

estimated annual

effective

tax rate,

excluding entities

with pre-tax

losses from

which a

tax benefit

cannot be recognized and discrete items, was

24.1

% for the first six months of 2024, compared to

30.1

% for the same period in 2023.

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, 2024,

FirstBank incurred

current income

tax expense

of approximately

2.9

million and

5.1

million, respectively,

related to

its U.S.

operations, compared

1.5

million and $

4.0

million, respectively,

for the comparable periods in 2023.

As of June

30, 2024, the

Corporation had

a net deferred

tax asset of

142.7

million, net of

a valuation allowance

of $

141.1

million

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

150.1

million, net of a valuation allowance of $

139.2

million, as

of December

31, 2023.

The net deferred

tax asset

of the

Corporation’s

banking subsidiary,

FirstBank, amounted

to $

142.7

million as

June

30,

2024,

net

valuation

allowance

113.2

million,

compared

net

deferred

tax

asset

150.1

million,

net

valuation allowance

of $

111.4

million, as

of December

31, 2023.

The decrease

in the

net deferred

tax asset was

mainly related

to the

usage of alternative minimum tax

credits and the decrease in

the ACL. Meanwhile, the increase

in the valuation allowance was

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

full

valuation

allowance

for

its

deferred

tax

assets

associated

with

capital loss carryforwards, NOL carryforwards and unrealized losses of available

-for-sale debt securities.

See Note 22

– “Income Taxes,”

to the audited

consolidated financial statements

included in the

2023 Annual Report

on Form 10-K

for information

on the

tax treatment

of net

operating loss

(“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

Corporation

accounts

for

uncertain

tax

positions

under

the

provisions

ASC

Topic

740,

Income

Taxes.

The

Corporation’s

policy

report

interest

and

penalties

unrecognized

tax

positions

income

tax

expense.

June

30,

2024,

the

Corporation had

0.2

million of

accrued interest

and penalties

related to

uncertain tax

positions in

the amount

of $

0.8

million that

acquired

from

BSPR,

which,

recognized,

would

decrease

the

effective

income

tax

rate

future

periods.

The

amount

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

elimination

of uncertain

tax

positions.

The

statute

limitations

under

the

Tax

Code

four

years

after

tax

return

due

filed,

whichever

later;

the

statute

limitations for

U.S. and USVI

income tax

purposes is three

years after

a tax return

is due or

filed, whichever

is later.

The completion

of an audit by

the taxing authorities or

the expiration of the statute

of limitations for a

given audit period could

result in an adjustment

the

Corporation’s

liability

for

income

taxes.

Any

such

adjustment

could

material

the

results

operations

for

any

given

quarterly or annual

period based, in

part, upon the

results of operations

for the given period.

For U.S. and

USVI income tax

purposes,

all tax

years subsequent

to 2019

remain open

to examination.

For Puerto

Rico tax

purposes, all

tax years

subsequent to

2018 remain

open to examination.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 17 –

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 25 – “Fair Value,”

to the audited consolidated financial

statements included in the 2023

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, 2024 and 2023.

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

June 30,2024 and December 31, 2023:

As of June 30, 2024

As of December 31, 2023

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

(In thousands)

Assets:

Debt securities available for sale:

U.S. Treasury securities

117,073

135,393

Noncallable U.S. agencies debt securities

495,689

433,437

Callable U.S. agencies debt securities

1,739,738

1,874,960

MBS

2,597,712

4,567

(1)

2,602,279

2,779,994

4,785

(1)

2,784,779

Puerto Rico government obligation

1,532

1,415

Other investments

1,000

Equity securities

4,867

4,893

Derivative assets

316

341

Liabilities:

Derivative liabilities

152

317

(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, 2024 and 2023:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

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

6,275

7,605

6,200

8,495

Total gains (losses):

Included in other comprehensive income (loss) (unrealized)

175

(19)

414

(181)

Included in earnings (unrealized)

(2)

(60)

Purchases

1,000

Principal repayments and amortization

(3)

(291)

(245)

(524)

(982)

Ending balance

7,099

7,357

7,099

7,357

___________________

(1)

Amounts mostly related to private label MBS.

(2)

Changes in unrealized (losses) gains included in earnings were

recognized within provision for credit losses – expense

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

(3)

For the six-month period ended June 30, 2023 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 June 30,2024 and December

31, 2023:

June 30, 2024

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

4,567

Discounted cash flows

Discount rate

16.8%

Prepayment rate

0.0%

5.6%

3.4%

Projected cumulative loss rate

0.2%

9.4%

4.1%

Puerto Rico government obligation

1,532

Discounted cash flows

Discount rate

12.9%

Projected cumulative loss rate

25.9%

December 31, 2023

Fair Value

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

(Dollars in thousands)

Available-for-sale

debt securities:

Private label MBS

4,785

Discounted cash flows

Discount rate

16.1%

Prepayment rate

0.0%

6.9%

3.7%

Projected cumulative loss rate

0.1%

10.9%

4.2%

Puerto Rico government obligation

1,415

Discounted cash flows

Discount rate

14.1%

Projected cumulative loss rate

25.8%

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 these debt securities.

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,

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)

(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 haircuts 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 haircuts applied ranged from

% to

% for the quarter and six-month period ended June 30,

2024.

For

the

quarter

and

six-month

period

ended

June

30,

2023,

the

Corporation

recorded

losses

valuation

adjustments

for

assets

recognized at fair value on a non-recurring basis and still held at June 30, 2023, as shown

in the following table:

Carrying value as of June 30, 2023

Related to (losses) gains

recorded for the Quarter

Ended June 30, 2023

Related to (losses) gains

recorded for the Six-

Month Period Ended

June 30, 2023

(Losses) gains recorded

for the Quarter Ended

June 30, 2023

(Losses) gains recorded

for the Six-Month Period

Ended June 30, 2023

(In thousands)

Level 3:

Loans receivable

(1)

8,011

8,920

(6,515)

(6,744)

OREO

(2)

1,471

2,038

Level 2:

Loans held for sale

(3)

14,295

(73)

(1)

Consists mainly of

collateral dependent

commercial and construction

loans. The

Corporation generally

measured losses

based on the

fair value of

the collateral.

The Corporation derived

the fair values from

external appraisals that

took into consideration

prices in observed

transactions involving similar

assets in similar

locations but adjusted

for specific characteristics

and

assumptions of

the collateral

(e.g., absorption

rates), which

are not

market observable.

The haircuts

applied on

appraisals ranged

from

% to

% for

the quarter

and six-month

period

ended June 30, 2023.

(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 haircuts

applied ranged from

% to

% for the quarter ended June 30, 2023, and

% to

% for the

six-month period ended June 30, 2023.

(3)

The Corporation derived the fair value of these loans based

on published secondary market prices of MBS with similar characteristics.

See Note 25 –

“Fair Value,”

to the audited

consolidated financial statements

included in the

2023 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 June 30,2024 and December 31, 2023:

Total Carrying Amount

in Statement of

Financial Condition as

of June 30, 2024

Fair Value Estimate as

June 30, 2024

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments (amortized

cost)

586,282

Available-for-sale debt

securities (fair value)

4,957,311

117,073

4,833,139

7,099

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

344,435

Less: ACL on held-to-maturity debt securities

(1,267)

Held-to-maturity debt securities, net of ACL

343,168

333,690

222,364

111,326

Equity securities (amortized cost)

46,170

(1)

Other equity securities (fair value)

4,867

Loans held for sale (lower of cost or market)

10,392

10,450

Loans held for investment:

Loans held for investment (amortized cost)

12,385,508

Less: ACL for loans and finance leases

(254,532)

Loans held for investment, net of ACL

12,130,976

12,058,472

MSRs (amortized cost)

25,952

44,590

Derivative assets (fair value)

(2)

316

Liabilities:

Deposits (amortized cost)

16,528,956

16,521,923

Advances from the FHLB (amortized cost):

Long-term

500,000

495,838

Other long-term borrowings (amortized cost)

161,700

159,696

Derivative liabilities (fair value)

(2)

152

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

34.0

million, which is considered restricted.

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

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

2023

Fair Value Estimate as

December 31, 2023

Level 1

Level 2

Level 3

(In thousands)

Assets:

Cash and due from banks and money market investments

(amortized cost)

663,164

Available-for-sale debt

securities (fair value)

5,229,984

135,393

5,088,391

6,200

Held-to-maturity debt securities:

Held-to-maturity debt securities (amortized cost)

354,178

Less: ACL on held-to-maturity debt securities

(2,197)

Held-to-maturity debt securities, net of ACL

351,981

346,132

235,239

110,893

Equity securities (amortized cost)

44,782

(1)

Other equity securities (fair value)

4,893

Loans held for sale (lower of cost or market)

7,368

7,476

Loans held for investment:

Loans held for investment (amortized cost)

12,185,483

Less: ACL for loans and finance leases

(261,843)

Loans held for investment, net of ACL

11,923,640

11,762,855

MSRs (amortized cost)

26,941

45,244

Derivative assets (fair value)

(2)

341

Liabilities:

Deposits (amortized cost)

16,555,985

16,565,435

Advances from the FHLB (amortized cost)

Long-term

500,000

500,522

Other long-term borrowings (amortized cost)

161,700

159,999

Derivative liabilities (fair value)

(2)

317

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

34.6

million, which is considered restricted.

(2) Includes interest rate swap agreements, interest rate caps, 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 18 – 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, 2024 and 2023:

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)

14,332

151,269

14,927

(4,851)

18,884

5,067

199,628

Service charges and fees on deposit accounts

5,254

3,536

155

780

9,725

Insurance commission income

2,563

193

2,786

Card and processing income

10,472

1,002

11,523

Other service charges and fees

973

1,018

613

153

2,798

Not in scope of ASC Topic

606

(1)

3,620

1,201

244

5,206

Total non-interest income

3,661

20,463

4,816

834

2,166

32,038

Total Revenue (Loss)

17,993

171,732

19,743

(4,753)

19,718

7,233

231,666

Quarter ended June 30, 2023

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)

21,360

142,597

12,933

(2,789)

19,690

6,024

199,815

Service charges and fees on deposit accounts

5,087

3,326

172

702

9,287

Insurance commission income

2,464

204

2,747

Card and processing income

10,152

906

11,135

Other service charges and fees

1,508

1,094

660

207

3,502

Not in scope of ASC Topic

606

(1)

3,029

1,010

3,697

1,680

195

(11)

9,600

Total non-interest

income

3,062

20,221

8,145

1,680

1,155

2,008

36,271

Total Revenue (Loss)

24,422

162,818

21,078

(1,109)

20,845

8,032

236,086

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

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)

30,155

300,216

29,855

(11,383)

37,132

10,173

396,148

Service charges and fees on deposit accounts

10,535

7,028

303

1,521

19,387

Insurance commission income

7,797

410

8,293

Card and processing income

20,710

109

1,974

22,835

Other service charges and fees

2,016

1,894

1,234

294

5,537

Not in scope of ASC Topic

606

(1)

6,581

2,811

353

181

9,969

Total non-interest income

6,680

43,869

9,317

181

1,735

4,239

66,021

Total Revenue (Loss)

36,835

344,085

39,172

(11,202)

38,867

14,412

462,169

Six-Month Period Ended June 30, 2023

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)

43,148

280,341

27,873

(3,447)

40,620

12,165

400,700

Service charges and fees on deposit accounts

10,573

6,480

337

1,438

18,828

Insurance commission income

7,104

107

383

7,594

Card and processing income

20,053

1,870

22,053

Other service charges and fees

194

2,660

1,948

1,243

551

6,596

Not in scope of ASC Topic

606

(1)

5,942

1,865

3,842

1,840

235

(6)

13,718

Total non-interest income

6,136

42,255

12,320

1,840

2,002

4,236

68,789

Total Revenue (Loss)

49,284

322,596

40,193

(1,607)

42,622

16,401

469,489

(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,

2024 and 2023,

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

2023

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

the scope of ASC Topic 606.

Contract Balances

As of

June 30,

2024

and

December 31,

2023,

there

were

contract

assets recorded

on the

Corporation’s

consolidated

financial

statements. Moreover, the balances of contract

liabilities as of such 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 19 – SEGMENT INFORMATION

Based

upon

the

Corporation’s

organizational

structure

and

the

information

provided

the

Chief

Executive

Officer

and

management, the

operating segments

are based

primarily on

the Corporation’s

lines of

business for

its operations

in Puerto

Rico, the

Corporation’s

principal

market,

and

geographic

areas

for

its

operations

outside

Puerto

Rico.

June

30,

2024,

the

Corporation

had

six

reportable

segments:

Mortgage

Banking;

Consumer

(Retail)

Banking;

Commercial

and

Corporate

Banking;

Treasury and

Investments; United States

Operations; and Virgin

Islands Operations. Management

determined the reportable

segments

based

the

internal

structure

used

evaluate

performance

and

assess

where

allocate

resources.

Other

factors,

such

the

Corporation’s

organizational

chart,

nature

the

products,

distribution

channels,

and

the

economic

characteristics

the

products,

were also considered in the determination of the reportable segments.

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

markets.

The

Consumer

(Retail)

Banking

segment

consists

the Corporation’s

consumer

lending

and deposit

-taking

activities

conducted

mainly

through

its branch

network

and loan

centers. The Commercial and

Corporate Banking segment

consists of the Corporation’s

lending and other services

for large customers

represented

by specialized

and middle-market

clients and

the public

sector.

The Commercial

and Corporate

Banking segment

offers

commercial loans,

including commercial

real estate

and construction

loans, and

floor plan financings,

as well

as other

products, such

as cash

management and

business management

services. The

Treasury

and Investments

segment is

responsible for

the Corporation’s

investment

portfolio

and

treasury

functions

that

are

executed

manage

and

enhance

liquidity.

This

segment

lends

funds

the

Commercial

and

Corporate

Banking,

the

Mortgage

Banking,

the

Consumer

(Retail)

Banking,

and

the

United

States

Operations

segments

finance

their

lending

activities

and

borrows

from

those

segments.

The

Consumer

(Retail)

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

Treasury

and Investments

and the

Consumer (Retail)

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

interest income

or expense

and the Corporation’s

actual

net

interest income

from

centralized

management

of funding

costs is

reported

in the

Treasury

and Investments

segment.

The

United States

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

United States

mainland,

including

commercial and consumer banking

services. The Virgin

Islands Operations segment consists of all

banking activities conducted by the

Corporation in the USVI and the BVI, including commercial and consumer

banking services.

The

accounting

policies

the

segments

are

the

same

those

referred

Note

–

“Nature

Business

and

Summary

Significant Accounting Policies,” to the audited consolidated financial

statements included in the 2023 Annual Report on Form 10-K.

The

Corporation

evaluates

the

performance

the

segments

based

net

interest

income,

the

provision

for

credit

losses,

non-

interest

income

and

direct

non-interest

expenses.

The

segments

are

also

evaluated

based

the

average

volume

their

interest-

earning assets less the ACL.

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, 2024:

Interest income

31,446

95,139

72,914

28,912

36,413

7,421

272,245

Net (charge) credit for transfer of funds

(17,114)

99,472

(57,987)

(21,820)

(2,551)

Interest expense

(43,342)

(11,943)

(14,978)

(2,354)

(72,617)

Net interest income (loss)

14,332

151,269

14,927

(4,851)

18,884

5,067

199,628

Provision for credit losses - (benefit) expense

(9,794)

26,076

(1,647)

(3,524)

434

11,605

Non-interest income

3,661

20,463

4,816

834

2,166

32,038

Direct non-interest expenses

6,300

44,688

8,355

984

9,092

7,022

76,441

Segment income (loss)

21,487

100,968

13,035

(5,797)

14,150

(223)

143,620

Average earning assets

2,116,306

3,487,340

4,045,222

5,842,575

2,119,230

419,052

18,029,725

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, 2023:

Interest income

31,605

86,989

65,356

29,528

32,098

6,628

252,204

Net (charge) credit for transfer of funds

(10,245)

86,144

(52,423)

(22,739)

(737)

Interest expense

(30,536)

(9,578)

(11,671)

(604)

(52,389)

Net interest income (loss)

21,360

142,597

12,933

(2,789)

19,690

6,024

199,815

Provision for credit losses - (benefit) expense

(3,829)

13,669

7,675

(16)

4,017

714

22,230

Non-interest income

3,062

20,221

8,145

1,680

1,155

2,008

36,271

Direct non-interest expenses

5,533

41,814

9,340

923

8,502

6,731

72,843

Segment income (loss)

22,718

107,335

4,063

(2,016)

8,326

587

141,013

Average earning assets

2,144,340

3,241,768

3,770,463

6,364,024

2,038,621

371,685

17,930,901

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

62,889

189,934

145,026

56,970

71,178

14,753

540,750

Net (charge) credit for transfer of funds

(32,734)

195,723

(115,171)

(43,292)

(4,526)

Interest expense

(85,441)

(25,061)

(29,520)

(4,580)

(144,602)

Net interest income (loss)

30,155

300,216

29,855

(11,383)

37,132

10,173

396,148

Provision for credit losses - (benefit) expense

(10,054)

41,494

(4,086)

(9)

(3,442)

(131)

23,772

Non-interest income

6,680

43,869

9,317

181

1,735

4,239

66,021

Direct non-interest expenses

13,005

87,333

18,694

2,055

18,202

13,613

152,902

Segment income (loss)

33,884

215,258

24,564

(13,248)

24,107

930

285,495

Average earnings assets

2,121,386

3,480,169

4,033,698

5,871,444

2,103,523

416,135

18,026,355

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, 2023

Interest income

63,512

170,163

127,699

56,994

63,212

13,020

494,600

Net (charge) credit for transfer of funds

(20,364)

163,879

(99,826)

(42,278)

(1,411)

Interest expense

(53,701)

(18,163)

(21,181)

(855)

(93,900)

Net interest income (loss)

43,148

280,341

27,873

(3,447)

40,620

12,165

400,700

Provision for credit losses - (benefit) expense

(4,335)

28,893

5,139

(25)

8,672

(612)

37,732

Non-interest income

6,136

42,255

12,320

1,840

2,002

4,236

68,789

Direct non-interest expenses

10,620

83,441

18,705

1,870

16,806

13,556

144,998

Segment income (loss)

42,999

210,262

16,349

(3,452)

17,144

3,457

286,759

Average earnings assets

2,157,626

3,208,146

3,742,205

6,290,669

2,053,154

369,026

17,820,826

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

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,

2024

2023

2024

2023

(In thousands)

Net income:

Total income for segments

143,620

141,013

285,495

286,759

Other operating expenses

(1)

42,241

40,074

86,703

83,187

Income before income taxes

101,379

100,939

198,792

203,572

Income tax expense

25,541

30,284

49,496

62,219

Total consolidated net income

75,838

70,655

149,296

141,353

Average assets:

Total average earning assets for segments

18,029,725

17,930,901

18,026,355

17,820,826

Average non-earning assets

854,706

857,677

845,010

852,680

Total consolidated average assets

18,884,431

18,788,578

18,871,365

18,673,506

(1)

Expenses pertaining to corporate administrative functions that support

the operating segment, but are not specifically attributable to

or managed by any segment, are not included in the reported

financial results of the operating segments. The unallocated

corporate expenses include certain general and administrative expenses

and related depreciation and amortization expenses.

NOTE 20 – SUPPLEMENTAL

STATEMENT

OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the

indicated periods:

Six-Month Period Ended June 30,

2024

2023

(In thousands)

Cash paid for:

Interest

134,995

84,530

Income tax

49,236

82,215

Operating cash flow from operating leases

8,693

8,630

Non-cash investing and financing activities:

Additions to OREO

4,599

10,738

Additions to auto and other repossessed assets

29,590

29,720

Capitalization of servicing assets

1,107

1,238

Loan securitizations

58,911

65,092

Loans held for investment transferred to held for sale

118

2,962

Loans held for sale transferred to held for investment

1,714

Payable related to unsettled purchases of investment securities

4,502

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

net of lease terminations

5,112

2,263

Payable related to unsettled common stock repurchases

760

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

NOTE 21 – 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,

2024

and

December

31,

2023,

the

Corporation

and

FirstBank

exceeded

the

minimum

regulatory

capital

ratios

for

capital

adequacy

purposes and

FirstBank exceeded

the minimum

regulatory

capital ratios

be considered

a well-

capitalized

institution

under

the

regulatory

framework

for

prompt

corrective

action.

June

30,

2024,

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.

As part

of its

response to

the impact

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

provided

the

option

temporarily

delay

the

effects

CECL

regulatory

capital

for

two

years,

followed

three-year

transition

period.

The

interim

final

rule

provides

that,

the

election

qualified

banking

organization,

the

day

one

impact

retained earnings plus

% of the change in

the ACL (as defined

in the final rule) from

January 1, 2020 to

December 31, 2021 will

delayed

for

two

years

and

phased-in

per

year

beginning

January

2022

over

three-year

period,

resulting

total

transition

period

five

years.

Accordingly,

June

30,

2024,

the

capital

measures

the

Corporation

and

the

Bank

included

48.6

million associated

with the

CECL day

one impact

to retained

earnings plus

% of

the increase

in the

ACL (as

defined in

the

interim

final

rule)

from

January

2020

December

31,

2021,

and

16.2

million

remains

excluded

phased-in

January

2025.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

The regulatory

capital position

of the

Corporation

and FirstBank

as of

June 30,

2024 and

December 31,

2023,

which reflects

the

delay in the full effect of CECL on regulatory capital, were

as follows:

Regulatory Requirements

Actual

For Capital Adequacy Purposes

To be Well

-Capitalized

Thresholds

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in thousands)

As of June 30, 2024

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,394,971

18.21

1,052,081

8.0

N/A

FirstBank

2,364,456

17.98

1,051,871

8.0

1,314,838

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,073,346

15.77

591,795

4.5

N/A

FirstBank

2,099,713

15.97

591,677

4.5

854,645

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,073,346

15.77

789,061

6.0

N/A

FirstBank

2,199,713

16.73

788,903

6.0

1,051,871

8.0

Leverage ratio

First BanCorp.

2,073,346

10.63

779,944

4.0

N/A

FirstBank

2,199,713

11.29

779,653

4.0

974,566

5.0

As of December 31, 2023

Total Capital (to Risk-Weighted

Assets)

First BanCorp.

2,403,319

18.57

1,035,589

8.0

N/A

FirstBank

2,376,003

18.36

1,035,406

8.0

1,294,257

10.0

CET1 Capital (to Risk-Weighted Assets)

First BanCorp.

2,084,432

16.10

528,519

4.5

N/A

FirstBank

2,113,995

16.33

582,416

4.5

841,267

6.5

Tier I Capital (to Risk-Weighted

Assets)

First BanCorp.

2,084,432

16.10

776,692

6.0

N/A

FirstBank

2,213,995

17.11

776,554

6.0

1,035,406

8.0

Leverage ratio

First BanCorp.

2,084,432

10.78

773,615

4.0

N/A

FirstBank

2,213,995

11.45

773,345

4.0

966,682

5.0

Commitments

The Corporation enters

into financial instruments

with off-balance sheet

risk in the normal

course of business to

meet the financing

needs

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, 2024,

commitments to

extend credit

amounted to

approximately $

2.1

billion, of

which $

0.9

billion relates

to retail

credit

card

loans.

addition,

commercial

and

financial

standby

letters

credit

June

30,

2024

amounted

approximately

80.5

million.

Contingencies

June

30,

2024,

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. For

legal proceedings,

claims and

other loss

contingencies where

it is

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.

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Any estimate

involves significant

judgment, given

the varying

stages of

the proceedings

(including the

fact that

some of

them are

currently in

preliminary stages),

the existence

in some

of the

current proceedings

of multiple

defendants whose

share of

liability has

yet

determined,

the

numerous

unresolved

issues

the

proceedings,

and

the

inherent

uncertainty

the

various

potential

outcomes of such

proceedings. Accordingly,

the Corporation’s

estimate will change

from time to time,

and actual losses

may be more

or less than the current estimate.

While

the

final

outcome

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,

the

Corporation

discloses

estimate

the

possible loss or

range of loss,

either individually or

in the aggregate,

as appropriate, if

such an estimate can

be made, or

discloses that

an estimate cannot be made. Based on the Corporation’s

assessment as of June 30, 2024, no 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.

connection

with

updates

made

the

FDIC

the

initial

estimated

losses

the

DIF,

the

Corporation

recorded

charges

0.2

million

and

1.1

million

during

the

quarter

and

six-month

period

ended

June

30,

2024,

respectively,

in the

consolidated statements

of income

as part

of “FDIC

deposit

insurance”

expenses,

which increased

the estimated

FDIC special

assessment

7.4

million.

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 22 – 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,

2024 and

December 31,

2023, and

the results

of its

operations

for the

quarters and

six-month periods

ended June

30,

2024 and 2023:

Statements of Financial Condition

As of June 30,

As of December 31,

2024

2023

(In thousands)

Assets

Cash and due from banks

10,516

11,452

Other investment securities

1,275

825

Investment in First Bank Puerto Rico, at equity

1,617,826

1,627,172

Investment in First Bank Insurance Agency,

at equity

22,378

18,376

Investment in FBP Statutory Trust I

1,289

Investment in FBP Statutory Trust II

3,561

Dividends receivable

1,405

713

Other assets

590

476

Total assets

1,658,840

1,663,864

Liabilities and Stockholders’ Equity

Liabilities:

Long-term borrowings

161,700

Accounts payable and other liabilities

5,680

4,555

Total liabilities

167,380

166,255

Stockholders’ equity

1,491,460

1,497,609

Total liabilities and stockholders’

equity

1,658,840

1,663,864

FIRST BANCORP.

NOTES TO CONSOLIDATED

FINANCIAL

STATEMENTS – (Continued)

Statements of Income

Quarter Ended

Six-Month Period Ended

June 30,

2024

2023

2024

2023

(In thousands)

Income

Interest income on money market investments

150

110

Dividend income from banking subsidiaries

81,232

78,932

162,149

157,802

Dividend income from nonbanking subsidiaries

12,000

Gain on early extinguishment of debt

1,605

Other income

100

101

201

203

Total income

81,419

92,695

162,500

171,720

Expense

Interest expense on long-term borrowings

3,336

3,409

6,686

6,790

Other non-interest expenses

463

462

902

872

Total expense

3,799

3,871

7,588

7,662

Income before income taxes and equity in undistributed

earnings of subsidiaries

77,620

88,824

154,912

164,058

Income tax expense

Equity in undistributed earnings of subsidiaries

(distributions in excess of earnings)

(1,782)

(18,169)

(5,615)

(22,704)

Net income

75,838

70,655

149,296

141,353

Other comprehensive income (loss), net of tax

10,560

(54,837)

(4,505)

32,391

Comprehensive income

86,398

15,818

144,791

173,744

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,

2023 (the

“2023 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 U.S. economy

grew faster than

expected for

the second quarter

of 2024

with a growth

in Gross Domestic

Product (“GDP”)

2.8% driven

by solid

gains in

consumer spending

and business

investment. Inflation

continues to

show progress

towards the

Federal

Reserve

(the

“FED”) inflation

target

of 2%.

The Commerce

Department’s

Bureau

of Economic

Analysis

reported

on July

26,

2024

that the

Personal Consumption

Expenditure (“PCE”)

price index

for the

month of

June 2024,

edged up

just 0.1%

from the

month,

putting

the

year-over-year

increase

2.5%,

after

rise

2.6%

May.

The

FED

voted

leave

the

federal

funds

rate

unchanged

in its

July 2024

meeting, but

market expectations

are for

the FED

to start

cutting rates

in the

second half

of 2024

as the

inflation rate seems to be moving steadily towards the FED’s

2% target.

As it

relates to

Puerto Rico,

our main

operating market,

the economy

continues to

benefit from

a high

level of

federal support

for

reconstruction

activities.

The

labor

market

remains

strong

with

unemployment

reaching

5.8%

for

the

month

May

2024

and

passenger activity through June 2024 up 10% year-to-date

when compared to 2023.

The Corporation

closed the first

half of

the year with

another quarter

of solid

operating performance

across most

franchise metrics

and remain

highly encouraged

by its

loan growth

prospects throughout

the rest

of the

year.

Assuming current

interest rates,

the net

interest margin

reached its inflection

point in the

first quarter of

2024 and, as

such, the Corporation

expects the net

interest margin

continue

increase

for

the

remainder

the

year.

The

Corporation

believes

should

continue

benefit

from

sizable

repricing

opportunities,

such

as the

ability to

redeploy

cash

inflows from

repayments

into loans

or into

higher

yielding

securities, which

will

fully materialize in the first quarter of 2025, coupled with the expected

gradual easing in deposit costs.

Moreover, loans

continued to grow in

the second quarter of 2024

driven by growth across

all business segments.

Even though asset

quality

remained

stable,

the

Corporation

continues

see

early

delinquency

and

charge-off

trends

within

the

consumer

loans

and

finance leases portfolio returning to historical levels.

Return of Capital to Shareholders

the

second

quarter

2024,

the

Corporation

returned

approximately

$76.3

million,

over

100%

second

quarter

2024

earnings,

its

shareholders

through

$50.0

million

repurchases

common

stock

and

the

payment

$26.3

million

common

stock

dividends.

June

30,

2024,

the

Corporation

has

remaining

authorization

repurchase

approximately

$50.0

million

common stock.

Furthermore, on

July 22,

2024, the

Corporation announced

that its

Board of

Directors approved

a new

repurchase program,

under

which

the

Corporation

may

repurchase

additional

$250

million

that

could

include

repurchases

common

stock

junior

subordinated

debentures,

which

expects

execute

through

the

end

the

fourth

quarter

2025.

The

repayment

its

junior

subordinated

debentures

will represent

an immediate

earnings per

share accretion

opportunity

and

will result

a simplified

capital

structure.

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

2023

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

2023

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

of 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.

The Corporation

’s

results of

operations also

depend on

the

provision

for

credit

losses,

non-interest

expenses

(such

personnel,

occupancy,

professional

service

fees,

the

FDIC

insurance

premium,

and

other

costs),

non-interest

income

(mainly

service

charges

and

fees

deposits,

cards

and

processing

income,

and

insurance income), gains (losses) on mortgage banking activities, and income

taxes.

For

the

quarter

and

six-month

period

ended

June

30,

2024,

the

Corporation

had

net

income

$75.8

million

($0.46

per

diluted

common

share)

and

$149.3

million

($0.90

per

diluted

common

share),

respectively,

compared

$70.7

million

($0.39

per

diluted

common share) and $141.4 million ($0.78 per diluted

common share), respectively,

for the comparable periods in 2023. Other relevant

selected financial indicators for the periods presented are included below:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

1.61

1.51

1.59

1.53

Return on Average

Common Equity

(3)

20.80

19.66

20.17

20.31

Efficiency Ratio

(4)

51.23

47.83

51.84

48.60

(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, 2024, compared to the

second quarter of

2023, include the following:

●

Net

interest

income

for

the

quarter

ended

June

30,

2024

remained

relatively

flat

$199.6

million,

compared

$199.8

million for

the second

quarter of

2023, mainly

driven by

an increase

in interest

expense due

to higher

rates paid

on interest-

bearing deposits

given the

higher interest

rate environment

and change

in deposit

mix, almost

entirely offset

by a

change in

asset mix resulting

from the deployment

of cash flows

from lower-yielding

investment securities to

fund loan growth

as well

as the

effect of

the higher

interest rate

environment on

commercial and

consumer loans

yields. See “Results

of 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,

2024 was

$11.6

million,

compared to

$22.0 million

for the

second quarter

of 2023.

The decrease

in the

provision

expense was driven by a reduction in the provision

for the commercial and construction loan portfolio

due to an improvement

on the economic outlook

of certain macroeconomic

variables, particularly in variables

associated with commercial

real estate

property

performance,

and

reduction

the

provision

for

the

residential

mortgage

loan

portfolio

associated

with

updated

historical

loss

experience,

partially

offset

increases

delinquency

levels

the

consumer

loans

and

finance

leases

portfolio.

Net charge-offs

totaled $21.0 million

for the quarter

ended June 30,

2024, or 0.69%

of average loans

on an annualized

basis,

compared

$19.3

million,

annualized

0.67%

average

loans,

for

the

second

quarter

2023.

The

increase

net

charge-offs was

mainly due to

an increase

in consumer loans

and finance

leases net charge-offs,

partially offset

by the effect

during the

second quarter

of 2023

of a

$6.2 million

charge-off

recorded on

a C&I

participated loan

in the

Florida region

the power generation

industry. See

“Results of Operations

– Provision for

Credit Losses” and

“Risk Management” below

for

analyses of the ACL and non-performing assets and related ratios.

●

The

Corporation

recorded

non-interest

income

$32.0

million

for

the

quarter

ended

June

30,

2024,

compared

$36.3

million

for

the second

quarter of

2023.

Non-interest

income for

the

second quarter

of 2023

included

the following

Special

Items: a

$3.6 million

gain recognized

from a

legal settlement

and a

$1.6 million

gain on

the repurchase

of $21.4

million in

junior subordinated debentures. See “Results of Operations – Non-Interest

Income”

below for additional information.

●

Non-interest

expenses

for

the

quarter

ended

June

30,

2024

increased

$5.8

million

$118.7

million

reflecting,

among

other things, a

$3.1 million increase in

employees’ compensation and

benefits expenses mainly

driven by annual

salary merit

increases,

$1.1

million

increase

credit

and

debit

card

processing

fees

due

higher

transactional

volumes,

and

$1.1

million increase

in charges

for legal and

operational reserves, partially

offset by

a $1.6 million

increase in net

gains on other

real estate owned (“OREO”)

operations, mainly driven

by a $2.3 million

realized gain on the

sale of a commercial

real estate

OREO

property

the

Puerto

Rico

region.

See

“Results

Operations

–

Non-Interest

Expenses”

below

for

additional

information.

●

Income tax expense decreased to

$25.5 million for the second quarter of

2024, compared to $30.3 million for

the same period

in 2023,

driven by a lower estimated

effective tax rate.

The Corporation’s

estimated effective tax

rate, excluding entities with

pre-tax losses

from which

a tax

benefit cannot

be recognized

and discrete

items, decreased

to 24.1%

for the

first half

2024,

compared

30.1%

for

the

same

period

2023,

due

the

Corporation

engaging

certain

business

activities

with

preferential

tax treatment

under the

PR Tax

Code during

the fourth

quarter of

2023 which

resulted

in a

lower effective

tax

rate

for

the year

2023.

See

“Income Taxes”

below

and

Note 16

– “Income

Taxes,”

to the

unaudited

consolidated

financial

statements herein for additional information.

●

June

30,

2024,

total

assets were

approximately

$18.9

billion,

decrease

$28.2

million

from

December

31,

2023,

primarily related to

repayments of investment

securities and a decrease

in cash and cash

equivalents in part due

to a decrease

in total deposits,

partially offset by an increase in total loans.

●

As of June 30, 2024, total liabilities were $17.4 billion,

a decrease of $22.0 million from December 31, 2023, which

reflects a

$27.0 million decrease in

total deposits. See “Risk Management

– Liquidity Risk” below

for additional information about

the

Corporation’s funding

sources and strategy.

●

The Bank’s

primary sources of funding

are consumer and commercial

core deposits, which exclude

government deposits and

brokered CDs. As of June 30, 2024

these core deposits, amounting to $12.7

billion, funded 67.30% of total assets.

Excluding

fully

collateralized

government

deposits,

estimated

uninsured

deposits

amounted

$4.5

billion

June

30,

2024.

addition to

approximately $1.9

billion in

cash and

free high-quality

liquid assets,

the Bank

maintains borrowing

capacity at

the FHLB

and the

FED’s

Discount Window.

As of

June 30,

2024, the

Corporation had

approximately $2.5

billion available

for

funding

under

the

FED’s

Discount

Window

and

968.1

million

available

for

additional

borrowing

capacity

FHLB

lines of

credit based

on collateral

pledged

at these

entities. On

a combined

basis, as

of June

30, 2024,

the Corporation

had

$6.0 billion,

or 132%

of estimated

uninsured deposits,

available to

meet liquidity

needs. See

“Risk Management

– Liquidity

Risk” below for additional information about the Corporation’s

funding sources and strategy.

●

As of June 30,

2024, the Corporation’s

total stockholders’ equity

was $1.5 billion, a

decrease of $6.1 million

from December

31,

2023.

The

decrease

was

driven

$100.0

million

common

stock

repurchases

under

the

2023

stock

repurchase

program,

common stock dividends

declared in the

first half of

2024 totaling $53.4

million or $0.32

per common share,

and a

$4.5

million

decrease

the

fair

value

available-for-sale

debt

securities

recorded

part

accumulated

other

comprehensive

loss

the

consolidated

statements

financial

condition.

These

variances

were

partially

offset

the

net

income

generated

in the

first half

of 2024.

The Corporation’s

CET1 capital,

tier 1

capital, total

capital, and

leverage ratios

were 15.77%, 15.77%, 18.21%,

and 10.63%, respectively,

as of June 30, 2024,

compared to CET1 capital, tier

1 capital, total

capital,

and

leverage

ratios

16.10%,

18.57%,

and

10.78%,

respectively,

December

31,

2023.

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

$51.0

million

$1.3

billion

for

the

quarter

ended

June

30,

2024,

compared

the

second

quarter of

2023, driven

by a

higher volume

of commercial

and construction

loan originations

in the

Puerto Rico

region.

See

“Results of Operations – Loan Production”

below for additional information.

●

Total

non-performing assets

were $126.9

million as of

June 30,

2024, an

increase of $1.0

million, from

December 31,

2023,

driven by

a $12.5

million increase

in total

nonaccrual loans

held for

investment mainly

due to

the inflow

of a

$16.5 million

commercial relationship

in the food

retail industry

in the

Puerto Rico region,

partially offset

by an

$11.0

million decrease in

the OREO portfolio balance

in the Puerto Rico region,

mainly attributable to the

sale of a $5.3 million

commercial real estate

OREO property

and sales of

residential OREO

properties.

See “Risk

Management –

Nonaccrual Loans

and Non-Performing

Assets” below for additional information.

●

Adversely

classified

commercial

and

construction

loans

increased

$19.3

million

$86.8

million

June

30,

2024,

compared

December

31,

2023,

also

driven

the

aforementioned

inflow

nonaccrual

status

$16.5

million

commercial

relationship

the

Puerto

Rico

region

and

the

downgrade

$5.1

million

commercial

mortgage

loan

the

Puerto Rico region.

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

intangibles. Similarly,

tangible

assets are

total assets

less goodwill

and

other

intangibles.

Tangible

common

equity ratio is tangible common

equity divided by tangible assets. Tangible

book value per common share is

tangible assets divided by

the number

of common

shares outstanding.

Management and

many stock

analysts use

the tangible

common equity

ratio and

tangible

book

value

per

common

conjunction

with

traditional

bank

capital

ratios

compare

the

capital

adequacy

banking

organizations with significant

amounts of goodwill or

other intangible assets, typically

stemming from the use

of the purchase method

of accounting for

mergers and acquisitions.

Accordingly,

the Corporation believes

that disclosures of these

financial measures may

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,

Adjusted Non-Interest 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

net

income,

non-interest

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 quarters and six-month periods ended

June 30, 2024 and 2023 included the following Special Items:

Quarter and Six-Month Period Ended June 30, 2024

Charges

of $0.2

million ($0.

million

after-tax,

calculated based

on the

statutory tax

rate of

37.5%)

and $1.1

million ($0.

million

after-tax,

calculated

based

the

statutory

tax

rate

37.5%)

were

recorded

the

quarter

and

six-month

period

ended

June

30,

2024,

respectively,

increase

the

initial

estimated

FDIC

special

assessment

resulting

from

the

FDIC’s

updates

the

loss

estimate

connection

with

losses

the

Deposit

Insurance

Fund

associated

with

protecting

uninsured

deposits

following

the

failures

certain

financial

institutions

during

the

first

half

2023.

The

aforementioned

charges

increased

the

estimated

FDIC

special

assessment

for

total

$7.4

million,

which

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 special

assessment is reflected in the consolidated statements of income as part

of “FDIC deposit insurance” expenses.

Quarter and Six-Month Period Ended June 30, 2023

$3.6

million

($2.3

million

after-tax,

calculated

based

the

statutory

tax

rate

37.5%)

gain

recognized

from

legal

settlement reflected in the consolidated statements of income as part of other non

-interest income.

$1.6

million

gain

the

repurchase

$21.4

million

junior

subordinated

debentures

reflected

the

consolidated

statements

income

“Gain

early

extinguishment

debt.”

The

junior

subordinated

debentures

are

reflected

the

consolidated statements

of financial condition

as “Other long-term

borrowings.” The

purchase price

equated to

92.5% of the

$21.4

million

par

value

the

trust

preferred

securities.

The

7.5%

discount

resulted

the

gain

$1.6

million.

The gain,

realized at the holding company level, had no effect on

the income tax expense in 2023.

Adjusted Net

Income

– The

following table

reconciles for

the quarters

and six-month

periods ended

June 30,

2024 and

2023, net

income to adjusted net income, a non-GAAP financial measure that excludes

the Special Items identified above.

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands)

Net income, as reported (GAAP)

75,838

70,655

149,296

141,353

Adjustments:

FDIC special assessment expense

152

1,099

Gain recognized from a legal settlement

(3,600)

Gain on early extinguishment of debt

(1,605)

Income tax impact of adjustments

(1)

(57)

1,350

(412)

1,350

Adjusted net income (Non-GAAP)

75,933

66,800

149,983

137,498

(1)

See “Adjusted Net Income, Adjusted Non-Interest Income, and

Adjusted Non-Interest Expenses” above for the individual tax

impact related to the above adjustments, which were based

on the Puerto Rico statutory tax rate of 37.5%, as applicable.

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 in

nonaccrual loans,

can fluctuate

from period

to period.

Net interest

income for

the quarter

and

six-month period

ended June

30, 2024

was $199.6

million and

$396.1 million,

respectively,

compared to

$199.8 million

and $400.7

million

for

the

comparable

periods

2023,

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,

2024 was

$204.5 million

and $405.8

million, respectively,

compared to $205.4 million and $412.6 million for the comparable periods in 2023, 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,

2024

2023

2024

2023

2024

2023

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

667,564

617,356

9,060

7,880

5.44

5.12

Government obligations

(2)

2,619,778

2,909,204

8,947

10,973

1.37

1.51

MBS

3,359,598

3,757,425

14,339

17,087

1.71

1.82

FHLB stock

34,032

36,265

818

780

9.64

8.63

Other investments

17,637

13,739

244

5.55

1.69

Total investments

(3)

6,698,609

7,333,989

33,408

36,778

2.00

2.01

Residential mortgage loans

2,807,639

2,808,465

40,686

39,864

5.81

5.69

Construction loans

245,219

149,783

4,955

2,903

8.10

7.77

C&I and commercial mortgage loans

5,528,607

5,191,040

100,919

89,290

7.32

6.90

Finance leases

873,908

769,316

17,255

14,714

7.92

7.67

Consumer loans

2,817,443

2,672,912

79,888

74,192

11.37

11.13

Total loans

(4)(5)

12,272,816

11,591,516

243,703

220,963

7.96

7.65

Total interest-earning assets

18,971,425

18,925,505

277,111

257,741

5.86

5.46

Interest-bearing liabilities:

Time deposits

3,002,159

2,511,504

26,588

15,667

3.55

2.50

Brokered certificates of deposit (“CDs”)

676,421

333,557

8,590

3,761

5.09

4.52

Other interest-bearing deposits

7,528,378

7,517,995

28,493

22,176

1.52

1.18

Securities sold under agreements to repurchase

101,397

1,328

5.25

Advances from the FHLB

500,000

534,231

5,610

6,048

4.50

4.54

Other borrowings

161,700

177,701

3,336

3,409

8.27

7.69

Total interest-bearing liabilities

11,868,658

11,176,385

72,617

52,389

2.45

1.88

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

204,494

205,352

Interest rate spread

3.41

3.58

Net interest margin

4.32

4.35

Part I

Average volume

Interest income

(1)

/ expense

Average rate

(1)

Six-Month Period Ended June 30,

2024

2023

2024

2023

2024

2023

(Dollars in thousands)

Interest-earning assets:

Money market and other short-term investments

600,655

511,392

16,314

12,530

5.45

4.94

Government obligations

(2)

2,651,974

2,909,587

18,000

21,738

1.36

1.51

MBS

3,405,445

3,810,491

29,577

36,483

1.74

1.93

FHLB stock

34,334

38,539

1,672

1,201

9.77

6.28

Other investments

17,094

13,441

310

197

3.64

2.96

Total investments

(3)

6,709,502

7,283,450

65,873

72,149

1.97

2.00

Residential mortgage loans

2,808,972

2,821,779

81,159

79,658

5.79

5.69

Construction loans

232,036

147,923

9,492

5,579

8.20

7.61

C&I and commercial mortgage loans

5,516,695

5,179,448

199,993

175,175

7.27

6.82

Finance leases

868,796

752,501

34,382

28,523

7.94

7.64

Consumer loans

2,813,829

2,654,008

159,528

145,406

11.37

11.05

Total loans

(4)(5)

12,240,328

11,555,659

484,554

434,341

7.94

7.58

Total interest-earning assets

18,949,830

18,839,109

550,427

506,490

5.83

5.42

Interest-bearing liabilities:

Time deposits

2,947,257

2,427,399

50,998

26,449

3.47

2.20

Brokered CDs

713,091

250,588

18,270

5,348

5.14

4.30

Other interest-bearing deposits

7,531,361

7,531,374

57,428

39,692

1.53

1.06

Securities sold under agreements to repurchase

96,229

2,397

5.02

Advances from the FHLB

500,000

581,436

11,220

13,224

4.50

4.59

Other borrowings

161,700

180,715

6,686

6,790

8.29

7.58

Total interest-bearing liabilities

11,853,409

11,067,741

144,602

93,900

2.45

1.71

Net interest income on a tax-equivalent basis and excluding

valuations - non-GAAP

405,825

412,590

Interest rate spread

3.38

3.71

Net interest margin

4.29

4.42

(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 $3.1

million and

$2.9 million

for the

quarters ended

June 30,

2024 and

2023, respectively,

and $6.3

million and

$6.0 million

for the

six-month periods

ended June 30, 2024 and 2023, respectively,

of income from prepayment penalties and late fees related to the Corporation’s

loan portfolio.

Part II

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024 Compared to 2023

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

(In thousands)

Interest income on interest-earning assets:

Money market and other short-term investments

664

516

1,180

2,333

1,451

3,784

Government obligations

(1,039)

(987)

(2,026)

(1,841)

(1,897)

(3,738)

MBS

(1,739)

(1,009)

(2,748)

(3,690)

(3,216)

(6,906)

FHLB stock

(51)

(168)

639

471

Other investments

165

186

113

Total investments

(2,144)

(1,226)

(3,370)

(3,306)

(2,970)

(6,276)

Residential mortgage loans

(12)

834

822

(366)

1,867

1,501

Construction loans

1,923

129

2,052

3,394

519

3,913

C&I and commercial mortgage loans

5,990

5,639

11,629

11,813

13,005

24,818

Finance leases

2,053

488

2,541

4,547

1,312

5,859

Consumer loans

4,074

1,622

5,696

8,944

5,178

14,122

Total loans

14,028

8,712

22,740

28,332

21,881

50,213

Total interest income

11,884

7,486

19,370

25,026

18,911

43,937

Interest expense on interest-bearing liabilities:

Time deposits

3,469

7,452

10,921

6,576

17,973

24,549

Brokered CDs

4,301

528

4,829

11,609

1,313

12,922

Other interest-bearing deposits

6,286

6,317

17,736

Securities sold under agreements to repurchase

(1,328)

(2,397)

Advances from the FHLB

(384)

(54)

(438)

(1,823)

(181)

(2,004)

Other borrowings

(319)

246

(73)

(750)

646

(104)

Total interest expense

5,770

14,458

20,228

13,215

37,487

50,702

Change in net interest income

6,114

(6,972)

(858)

11,811

(18,576)

(6,765)

Portions of the Corporation’s

interest-earning assets, mostly investments

in obligations of some U.S.

government agencies and U.S.

government-sponsored

entities (“GSEs”),

generate interest

that is

exempt from

income tax,

principally in

Puerto Rico.

Also, interest

and gains

on sales of

investments held by

the Corporation’s

international banking

entities (“IBEs”) are

tax-exempt under

Puerto Rico

tax

law

(see

Note

–

“Income

Taxes”

the

unaudited

consolidated

financial

statements

herein

for

additional

information).

Management

believes

that

the

presentation

interest

income

adjusted

tax-equivalent

basis

facilitates

the

comparison

all

interest data

related to

these assets. The

Corporation estimated

the tax

equivalent yield

by dividing

the interest

rate spread

on 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,

2024

2023

2024

2023

(Dollars in thousands)

Interest income - GAAP

272,245

252,204

540,750

494,600

Unrealized (gain) loss on derivative instruments

(3)

(2)

Interest income excluding valuations - non-GAAP

272,245

252,201

540,748

494,603

Tax-equivalent adjustment

4,866

5,540

9,679

11,887

Interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

277,111

257,741

550,427

506,490

Interest expense - GAAP

72,617

52,389

144,602

93,900

Net interest income - GAAP

199,628

199,815

396,148

400,700

Net interest income excluding valuations - non-GAAP

199,628

199,812

396,146

400,703

Net interest income on a tax-equivalent basis

and excluding valuations - non-GAAP

204,494

205,352

405,825

412,590

Average Balances

Loans and leases

12,272,816

11,591,516

12,240,328

11,555,659

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

cash balances

6,698,609

7,333,989

6,709,502

7,283,450

Average Interest-Earning Assets

18,971,425

18,925,505

18,949,830

18,839,109

Average Interest-Bearing Liabilities

11,868,658

11,176,385

11,853,409

11,067,741

Average Assets

(1)

18,884,431

18,788,578

18,871,365

18,673,506

Average Non-Interest-Bearing Deposits

5,351,308

5,968,892

5,329,920

5,983,896

Average Yield/Rate

Average yield on interest-earning assets - GAAP

5.76%

5.35%

5.72%

5.29%

Average rate on interest-bearing liabilities - GAAP

2.45%

1.88%

2.45%

1.71%

Net interest spread - GAAP

3.31%

3.47%

3.27%

3.58%

Net interest margin - GAAP

4.22%

4.23%

4.19%

4.29%

Average yield on interest-earning assets excluding valuations

- non-GAAP

5.76%

5.35%

5.72%

5.29%

Average rate on interest-bearing liabilities

2.45%

1.88%

2.45%

1.71%

Net interest spread excluding valuations

- non-GAAP

3.31%

3.47%

3.27%

3.58%

Net interest margin excluding valuations - non-GAAP

4.22%

4.23%

4.19%

4.29%

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

basis and excluding

valuations - non-GAAP

5.86%

5.46%

5.83%

5.42%

Average rate on interest-bearing liabilities

2.45%

1.88%

2.45%

1.71%

Net interest spread on a tax-equivalent basis

and excluding valuations - non-GAAP

3.41%

3.58%

3.38%

3.71%

Net interest margin on a tax-equivalent basis and excluding

valuations - non-GAAP

4.32%

4.35%

4.29%

4.42%

(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 $199.6

million for the quarter

ended June 30,

2024,

a decrease of $0.2

million, when compared

$199.8 million for same period in 2023. The $0.2 million decrease in

net interest income was primarily due to:

●

A $20.2 million increase in interest expense on interest-bearing liabilities, consisting

of:

$10.9

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

which

$7.4

million

was

related to higher rates

paid on new issuances

and renewals, mainly on

non-government deposits, given

the overall higher

interest rate environment

and $3.5

million was driven

by a $490.7

million increase

in the average

balance.

The average

cost of time deposits in the second quarter

of 2024, excluding brokered CDs, increased 105

basis points (“bps”) to 3.55%

when compared to the same period in 2023.

A $6.3

million increase

in interest

expense on

interest-bearing

checking and

saving accounts,

also driven

by the

higher

interest rate environment

and primarily reflected on

public sector deposits. The

average cost of interest-bearing

checking

and

saving

accounts

increased

bps

1.52%

the

second

quarter

2024

compared

1.18%

the

same

period in

2023. Excluding

public sector

deposits, the

average cost

of interest-bearing

checking and

saving accounts

for

the second quarter of 2024 was 0.75%, compared to 0.70% for the same period

a year ago.

A $4.8

million increase

in interest expense

on brokered

CDs, mainly

driven by

a $342.9

million increase

in the

average

balance.

Partially offset by:

$1.8

million

decrease

interest

expense

borrowings,

mainly

due

$1.3

million

decrease

short-term

repurchase agreements, since they were not used as a funding source in

the second quarter of 2024.

●

A $1.8 million decrease in interest

income from total investments,

consisting of a $3.0 million net decrease

in interest income

from investment securities, of which

$3.5 million was associated with

a $687.3 million decrease in the

average balance of the

debt

securities

portfolio,

partially

offset

$1.2

million

increase

interest

income

from

interest-bearing

cash

balances,

which

consisted

primarily

cash

balances

deposited

the

FED,

which

$0.6

million

was

driven

$50.2

million

increase in the average balance, and $0.6

million was due to the effect of higher market interest rates.

Partially offset by:

●

A $21.8

million increase in interest income on loans including:

A $12.8

million

increase

interest income

commercial

and

construction

loans,

driven

an $8.3

million

increase

associated

with

$433.0

million

increase

the

average

balance,

and

$4.5

million

increase

the

effect

higher market interest rates on the upward repricing of variable-rate

loans and on new loan originations.

As of June 30, 2024, the

interest rate on approximately 54%

of the Corporation’s

commercial and construction loans was

tied to

variable rates,

with 32%

based upon

SOFR of

3 months

or less,

13% based

upon the

Prime rate

index, and

based

other

indexes.

For

the

second

quarter

2024,

the

average

one-month

SOFR

increased

bps,

the

average

three-month SOFR increased 23 bps, and the average Prime rate increased

34 bps, compared to the average rates for such

indexes during the second quarter of 2023.

$8.2

million

increase

interest

income

consumer

loans and

finance

leases,

primarily

associated

with

$249.1

million increase in the average balance

of this portfolio,

mainly auto loans and finance leases,

under a higher interest rate

environment.

Net interest

income

amounted

to $396.1

million

for the

six-month period

ended June

30, 2024,

a decrease

of $4.6

million, when

compared to $400.7 million for same period in 2023. The $4.6 million

decrease in net interest income was primarily due to:

●

A $50.7 million increase in interest expense on interest-bearing liabilities, consisting

of:

$24.6

million

increase

interest

expense

time

deposits,

excluding

brokered

CDs,

which

$18.0

million

was

related to higher

rates paid in

the first half

of 2024 on

new issuances and

renewals,

mainly on non-government

deposits,

also associated with the higher

interest rate environment,

and $6.6 million was driven

by a $519.9 million increase

in the

average balance. The

average cost of time

deposits for the

first half of 2024,

excluding brokered CDs,

increased 127 bps

to 3.47% when compared to the same period in 2023.

A $17.7 million

increase in interest expense

on interest-bearing checking

and saving accounts,

also related to

the overall

higher interest

rate environment. The

average cost of

interest-bearing checking

and saving accounts

increased by

47 bps

to 1.53%

for the

first half

of 2024

as compared

to 1.06%

for 2023,

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

first half of 2024 was 0.75%, compared to 0.65% for 2023.

A $12.9

million

increase

interest expense

on brokered

CDs, driven

an increase

$462.5

million

the

average

balance.

Partially offset by:

$4.5

million

decrease

interest

expense

borrowings,

mainly

due

$2.4

million

decrease

short-term

repurchase agreements since

they were not used

as a funding source

in the first half of

2024, and a $2.0

million decrease

on advances from the FHLB, mainly associated with a decrease of $81.4

million in the average balance.

●

A $2.2 million decrease in interest

income from total investments,

consisting of a $6.0 million net decrease

in interest income

on investment

securities, of

which $7.0

million was

driven by

a $662.7

million decrease

in the

average balance

of the

debt

securities portfolio

partially offset

by a

$3.8 million

increase in

interest income

from interest-bearing

cash balances,

which

consisted primarily

of cash

balances deposited

at the

FED, of

which $2.3

million was

driven by

a $89.3

million increase

the average balance, and $1.5 million was due to the effect

of higher market interest rates.

Partially offset by:

●

A $48.3 million increase in interest income on loans including:

A $26.8

million

increase

interest income

commercial

and

construction

loans,

driven

$16.3

million

increase

associated with a

$421.4 million increase

in the average

balance of this

portfolio, and a

$10.5 million increase

related to

the effect of higher market interest rates on the upward repricing of variable

-rate loans and on new loan originations.

A $20.0 million increase

in interest income on consumer

loans and finance leases, primarily

due to an increase of

$276.1

million

the

average

balance

this

portfolio,

mainly

auto

loans

and

finance

leases,

under

higher

interest

rate

environment.

Net

interest

margin

for

the

second

quarter

2024

remained

relatively

flat

4.22%,

compared

4.23%

for

the

same

period

2023.

For the

six-month

period ended

June 30,

2024, net

interest margin

decreased by

10 bps

to 4.19%,

compared to

4.29% for

the

same period in 2023.

The decrease in the

net interest margin

was driven by the

higher cost of funds

associated with the higher

interest

rate environment

combined

with a

change

in deposit

mix reflecting

a continued

migration

from non

-interest-bearing

and

other

low-

cost deposits to

higher-cost deposits.

These variances

were partially

offset by

a change

in asset mix

resulting from

the deployment

cash flows

from lower-yielding

investment securities

to fund

loan growth

as well

as the effect

of the higher

interest rate

environment

on commercial and consumer loans yields.

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 $11.9

million for

the second

quarter of

2024, compared

to $20.8

million for the second quarter of 2023. The variances by major portfolio

category were as follows:

●

Provision for credit losses for the

residential mortgage loan portfolio was

a net benefit of $10.6 million

for the second quarter

of 2024, compared

to a net benefit

of $3.5 million for

the second quarter of

2023. The net benefit

recorded during the second

quarter of 2024 was mainly

driven by updated historical

loss experience used for determining

the ACL estimate resulting in a

downward revision

of estimated loss

severities and lower

required reserve

levels. See Note

3 – “Loans

Held for Investment”

the

unaudited

consolidated

financial

statements

herein

for

additional

information

the

review

the

credit

models

completed by the Corporation during the second quarter of 2024.

●

Provision for credit

losses for the commercial

and construction loan portfolio

was a net benefit of

$4.2 million for the

second

quarter of 2024, compared

to an expense of

$10.2 million for the

second quarter of 2023.

The net benefit recorded

during the

second quarter of

2024 was mainly

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 in

recoveries of

two

commercial loans

in the

Florida region.

Meanwhile, the

net expense

recorded during

the second

quarter of

2023 was

mainly

due to a deterioration in the forecasted commercial real estate (“CRE”) price

index and the increase in size of this portfolio.

●

Provision for credit losses for the

consumer loans and finance leases portfolio

was an expense of $26.7 million

for the second

quarter of

2024, compared

to an expense

of $14.1

million for

the second

quarter of

2023. The

increase in

provision expense

was

mainly

driven

increases

delinquency

levels

and,

lesser

extent,

updated

historical

loss

experience

used

for

determining the

ACL estimate

resulting in

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 $24.8

million for

the first

half of

2024, compared

to $37.0

million

for the same period of 2023. The variances by major portfolio category were

as follows:

●

Provision for

credit losses

for the

residential mortgage

loan portfolio

was a

net benefit

of $11.1

million for

the first

half of

2024, compared

to a net

benefit of

$3.4 million

for the

same period

of 2023.

The increase

in net

benefit recorded

during the

first

half

2024

was

mainly

driven

the

aforementioned

updated

historical

loss

experience,

partially

offset

newly

originated loans that have a longer life.

●

Provision for

credit losses

for the

commercial and

construction loan

portfolios was

a net

benefit of

$7.0 million

for the

first

half of 2024,

compared to

an expense of

$10.7 million

for the same

period of 2023.

The net benefit

recorded during

the first

six months of 2024 was mainly driven

by recoveries of $5.0 million associated

with a C&I loan in the Puerto Rico

region and

the

aforementioned

$1.2

million

recoveries

the

Florida

region,

partially

offset

increased

volume.

Meanwhile,

the

expense recorded

during the

first six months

of 2023

was mainly

due to

a deterioration

in the

forecasted CRE

price index,

$6.2 million charge

associated with a

nonaccrual C&I participated

loan in the

Florida region and,

to a lesser

extent, portfolio

growth.

●

Provision

for

credit losses

for

the consumer

loan

and

finance leases

portfolio

was an

expense

of $42.9

million

for

the first

half of

2024, compared

to an

expense of

$29.7 million

for the

same period

of 2023.

The increase

in provision

expense was

mainly

driven

increases

delinquency

levels,

the

aforementioned

updated

historical

loss

experience,

and

increases

portfolio volumes,

partially offset

by a

$9.5 million

recovery associated

with the

aforementioned

bulk sale

of fully

charged-

off loans recorded during the first six months of 2024.

Provision for credit losses for

unfunded loan commitments

The provision

for

credit losses

for

unfunded

commercial

and

construction

loan

commitments and

standby

letters of

credit

for

the

second quarter

and the

first half

of 2024

was a

net benefit

of $0.4

million and

$0.1 million,

respectively,

compared to

an expense

$0.7 million and $0.6 million, respectively,

for the same periods in 2023.

Provision for credit losses for

held-to-maturity and available-for-sale debt securities

The provision

for credit

losses for

held-to-maturity

debt securities

was an

expense of

$32 thousand

and a

net benefit

$0.9 million

for the

second quarter

and first

half of

2024, respectively,

compared to

an expense

of $0.8

million and

$0.1 million,

respectively,

for

the same periods

in 2023. 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.

Meanwhile, the

provision recorded

during the

second quarter

and the first half of 2023 was mostly driven by higher exposure risk associated

with the rising interest rate environment.

The provision

for credit losses

for available-for-sale

debt securities for

the second

quarter and

first half of

2024 was an

expense of

$60

thousand

and

net

benefit

thousand,

respectively,

compared

net

benefit

$16

thousand

and

$25

thousand,

respectively, for the

same periods in 2023.

Non-Interest Income

Non-interest

income amounted

to $32.0

million for

the second

quarter of

2024, compared

to $36.3

million for

the same

period in

2023.

Non-interest income for the second

quarter of 2023 included

the following Special Items: the

$3.6 million gain recognized

from

legal

settlement,

included

as part

“other

non-interest

income,”

and

the

$1.6

million

gain

the

repurchase

$21.4

million

junior subordinated

debentures, included

as part of

“gain on early

extinguishment of

debt.” See “Non-GAAP

Financial Measures

and

Reconciliations” above for additional information.

On a non-GAAP basis, excluding the effect of

these Special Items, adjusted non-interest income increased by $0.9 million primarily

due to a

$0.6 million

increase in revenues

from mortgage banking

activities, driven by

an increase in

the net realized

gain on sales

residential mortgage

loans in the

secondary market

due to higher

margins.

During the

second quarters

of 2024

and 2023,

net realized

gains of $1.

million and $0.9

million, respectively,

were recognized

as a result

of GNMA securitization

transactions and

whole loan

sales to U.S. GSEs amounting to $43.5 million and $51.8 million, respectively.

Non-interest

income for

the six-month

period ended

June 30,

2024 amounted

to $66.0

million, compared

to $68.8

million for

the

same period

in 2023.

On a

non-GAAP basis,

excluding the

effect of

the aforementioned

Special Items,

adjusted non-interest

income

increased by $2.4 million primarily due to:

●

$0.7

million

increase

card

and

processing

income,

mainly

merchant-related

fees

due

higher

transactional

volumes.

●

A $0.7 million increase in insurance commission income,

mainly related to higher contingent commissions.

●

A $0.6

million

increase

revenues

from

mortgage

banking

activities,

driven

increase

the

net

realized

gain

sales of residential mortgage

loans in the secondary

market due to higher

margins. During the first

six months of 2024

and

2023, net realized gains of $2.6 million and $2.0

million, respectively,

were recognized as a result of GNMA securitization

transactions and whole loan sales to U.S. GSEs amounting to $75.0 million and

$89.2 million, respectively.

●

A $0.6

million increase

in service

charges and

fees on

deposits accounts,

in part

due to

an increase

in the number

of cash

management transactions of commercial clients.

Non-Interest Expenses

Non-interest

expenses for

the quarter

ended June

30, 2024

amounted

to $118.7

million, compared

to $11

2.9 million

for the

same

period in

2023. The

efficiency ratio

for the second

quarter of

2024 was

51.23%, compared

to 47.83% for

the second

quarter of

2023.

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 $5.6 million

primarily due to:

●

$3.1

million

increase

in employees’

compensation

and benefits

expenses,

driven by

annual

salary merit

increases

and

medical insurance premium costs.

●

$1.1 million increase in credit and debit card processing fees, driven by

higher transactional volumes.

●

$0.8

million

increase

professional

service

fees,

due

increases

$0.5

million

consulting

fees

driven

information technology infrastructure enhancements and $0.4 million

in outsourced technology service fees.

●

A $0.8

million increase

in occupancy

and equipment

expenses, mainly

due to

increases in

maintenance charges,

partially

offset by a decrease in depreciation charges.

●

$0.7

million

increase

other

non-interest

expenses,

mainly

due

$1.1

million

increase

charges

for

legal

and

operational reserves, partially offset by a $0.2 million

decrease in net periodic cost of pension plans.

●

A $0.3 million increase in taxes, other than income taxes, primarily related

to higher municipal license taxes.

●

A $0.3 million increase in communication expenses.

Partially offset by:

●

$1.6 million

increase 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,

which

than

offset

the

decrease

net

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

Non-interest

expenses for

the six-month

period ended

June 30,

2024 amounted

to $239.6

million, compared

to $228.2

million for

the same period in 2023. The efficiency ratio for the first six months

of 2024 was 51.84%, compared to 48.60% for the first six months

2023.

Non-interest

expenses

for

the

six-month

period

ended

June

30,

2024

include

the

$1.1

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 $10.3 million primarily due to:

●

$6.2

million

increase

in employees’

compensation

and benefits

expenses,

driven by

annual

salary merit

increases

and

increases

stock-based

compensation

expense

retirement-eligible

employees,

medical

insurance

premium

costs,

and

higher matching contributions to the employees’ retirement plan.

●

$1.5

million

increase

professional

service

fees,

due

increases

$1.4

million

consulting

fees

driven

information

technology

infrastructure

enhancements

and

$0.4

million

collections,

appraisals,

and

other

credit-related

fees, partially offset by a decrease of $0.3

million in outsourced technology service fees.

●

$1.5 million increase in credit and debit card processing fees, driven by

higher transactional volumes.

●

$0.9

million

increase

occupancy

and

equipment

expenses,

mainly

increase

maintenance

charges,

partially offset by a decrease in depreciation charges.

●

$0.6

million

increase

other

non-interest

expenses,

mainly

due

$1.0

million

increase

charges

for

legal

and

operational reserves, partially offset by a $0.3 million

decrease in net periodic cost of pension plans.

●

A $0.3 million increase in taxes, other than income taxes, primarily related

to higher municipal license taxes.

Partially offset by:

●

$1.1 million

increase 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,

which

than

offset

the

decrease

net

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

region.

Income Taxes

For the second quarter of 2024, the Corporation recorded an income

tax expense of $25.5 million, compared to $30.3 million for the

same period in

2023. For the

first six months of

2024, the Corporation

recorded an income

tax expense of

$49.5 million, compared

$62.2 million for the same period in 2023. The

decrease in income tax expense for the second quarter

and first six months of 2024 was

mainly driven

by a

lower effective

tax rate

as a

result of

the Corporation

engaging in

certain business

activities with

preferential

tax

treatment under

the PR Tax

Code during

the fourth quarter

of 2023

which resulted

in a lower

effective tax

rate for

the second

half of

2023 and for the year 2024.

The Corporation’s

annual estimated

effective

tax rate

for the

first six

months of

2024, excluding

entities from

which a

tax benefit

cannot be recognized

and discrete items, was

24.1%, compared to

30.1% for the same

period in 2023.

Based on current strategies,

the

Corporation

expects

that

the

effective

tax

rate

for

the

year

2024

will

around

24%.

The

estimated

effective

tax

rate

the

Corporation is impacted

by,

among other things,

the composition and

source of its

taxable income.

See Note 16

– “Income Taxes,

”

the unaudited consolidated financial statements herein for additional

information.

As of June

30, 2024, the

Corporation had

a net deferred

tax asset of

$142.7 million, net

of a valuation

allowance of $141.1

million

against the deferred tax asset, compared to a net deferred tax asset of $150.1

million, net of a valuation allowance of $139.2 million, as

of December

31, 2023.

The decrease

in the

net deferred

tax asset

was mainly

related to

the usage

of alternative

minimum tax

credits

and the decrease

in the ACL. Meanwhile,

the increase 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.

Assets

The

Corporation’s

total

assets

were

$18.9

billion

June

30,

2024,

decrease

$28.2

million

from

December

31,

2023,

primarily related

to repayments of

investment securities and

a decrease in

cash and cash

equivalents,

partially offset

by an increase

total loans.

Loans Receivable, including Loans Held for Sale

As of June 30, 2024,

the Corporation’s

total loan portfolio before

the ACL amounted to $12.4

billion, an increase of

$203.0 million

compared

December

31,

2023.

terms

geography,

the

growth

consisted

increases

$98.5

million

the

Florida

region,

$97.7

million in

the Puerto

Rico region,

and $6.8

million in

the Virgin

Islands region.

On a

portfolio

basis, the

growth consisted

increases

$157.7

million

commercial

and

construction

loans

and

$54.3

million

consumer

loans,

primarily

auto

loans

and

finance leases, partially offset by a $9.0 million decrease

in residential mortgage loans.

As of

June

30,

2024,

the

Corporation’s

loans

held-for-investment

portfolio

was comprised

commercial

and

construction

loans

(48%),

consumer

and

finance

leases

(29%),

and

residential

real

estate

loans

(23%).

the

total

gross

loan

portfolio

held

for

investment of $12.4 billion as of June 30, 2024, the Corporation had

credit risk concentration of approximately 80% in the Puerto Rico

region, 17% in the United States region (mainly

in the state of Florida), and 3% in the Virgin

Islands region, as shown in the following

table:

As of June 30, 2024

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,163,245

161,057

485,364

2,809,666

Construction loans

160,093

3,681

22,183

185,957

Commercial mortgage loans

1,697,939

62,821

662,549

2,423,309

C&I loans

2,176,489

135,456

942,632

3,254,577

Total commercial loans

4,034,521

201,958

1,627,364

5,863,843

Consumer loans and finance leases

3,635,389

68,540

8,070

3,711,999

Total loans held for investment,

gross

9,833,155

431,555

2,120,798

12,385,508

Loans held for sale

10,392

Total loans, gross

9,843,547

431,555

2,120,798

12,395,900

As of December 31, 2023

Puerto Rico

Virgin Islands

United States

Total

(In thousands)

Residential mortgage loans

2,187,875

168,131

465,720

2,821,726

Construction loans

111,664

3,737

99,376

214,777

Commercial mortgage loans

1,725,325

65,312

526,446

2,317,083

C&I loans

2,130,368

119,040

924,824

3,174,232

Total commercial loans

3,967,357

188,089

1,550,646

5,706,092

Consumer loans and finance leases

3,583,272

68,498

5,895

3,657,665

Total loans held for investment,

gross

9,738,504

424,718

2,022,261

12,185,483

Loans held for sale

7,368

Total loans, gross

9,745,872

424,718

2,022,261

12,192,851

Residential Real Estate Loans

As of

June 30,

2024,

the Corporation’s

total residential

mortgage

loan portfolio,

including

loans held

for sale,

decreased by

$9.0

million, as compared

to the balance as

of December 31, 2023.

The decline in the

residential mortgage loan portfolio

reflects decreases

of $21.6 million in the Puerto Rico region and $7.0

million in the Virgin

Islands region, partially offset by an increase of

$19.6 million

in the Florida

region. The decline

was driven by

repayments, which more

than offset the

volume of new

loan originations kept

on the

balance sheet.

Approximately 50%

of the

$160.3 million

residential mortgage

loan originations

in the

Puerto Rico

region during

the

first six

months of

2024 consisted

of conforming

loans, compared

to 58%

of the

$150.0 million

originated for

the first

six months

2023.

As of June 30,

2024, the majority

of the Corporation’s

outstanding balance of

residential mortgage loans

in the Puerto Rico and

the

Virgin

Islands regions consisted

of fixed-rate loans

that traditionally carry

higher yields than

residential mortgage

loans in the Florida

region.

the

Florida

region,

approximately

37%

the

residential

mortgage

loan

portfolio

consisted

hybrid

adjustable-rate

mortgages. In

accordance with

the Corporation’s

underwriting guidelines,

residential mortgage

loans are

primarily fully

documented

loans, and the Corporation does not originate negative amortization loans.

Commercial and Construction Loans

As of

June 30,

2024, the

Corporation’s

commercial and

construction loans

portfolio increased

by $157.7

million, as

compared to

the balance as

of December 31,

2023.

The growth included

an increase of

$76.7 million in

the Florida region,

reflecting, among other

things,

the

effect

the

origination

various

commercial

and

construction

relationships,

each

excess

$10

million,

which

$52.3

million

are

three

commercial

mortgage

relationships

and

$40.0

million

are

two

C&I

relationships,

and

higher utilization

of C&I

lines of

credit, including

a $14.1

million line

of credit

utilization.

These variances

were partially

offset

payoffs

and paydowns of three C&I relationships totaling $47.7 million.

The Puerto

Rico region

also grew

by $67.1

million, when

compared

to the

balance

as of

December 31,

2023.

This increase

was

driven by a $48.4

million increase in construction

loans;

a $33.7 million increase

in floor plan loans;

higher utilization of C&I

lines of

credit, including two lines of

credit with utilization over $10 million

totaling $33.3 million; and

the origination of a $13.6

million C&I

loan

municipality

Puerto

Rico

that

supported

by assigned

property

tax

revenues.

These

variances

were

partially

offset

multiple payoffs and paydowns, including payoffs

of four commercial and construction relationships totaling $52.7 million.

the

Virgin

Islands

region,

commercial

and

construction

loans

increased

$13.9

million,

compared

the

balance

December 31, 2023, mainly associated with loans to government entities.

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, 2024, the

Corporation’s total

commercial mortgage loan exposure amounted

to $2.4 billion, or 20% of

the total loan

portfolio. In

terms of

geography,

$1.7 billion

of the

exposure was

in the

Puerto Rico

region, $0.6

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 42%

in the retail industry,

26% in office real estate,

and 20% in the hotel industry.

The $0.6 billion exposure

in the Florida region was comprised mainly of 33% in the retail industry,

23% in the hotel industry,

and 8% in office real estate. Of the

Corporation’s

total commercial

mortgage loan

exposure of

$2.4 billion,

$573.8 million

matures within

the next

12 months

and has

weighted-average interest

rate of

approximately 6.74%.

Commercial mortgage

loan exposure

in the

office real

estate industry,

which

matures within the next 12 months, amounted to $127.0 million and has

a weighted-average interest rate of approximately 6.56%.

each

June

30,

2024

and

December

31,

2023,

the

Corporation’s

total

exposure

shared

national

credit

(“SNC”)

loans

(including unused commitments) amounted

to $1.2 billion. As of June

30, 2024, approximately $386.6 million

of the SNC exposure is

related to the portfolio in the Puerto Rico region and $803.5 million is related to

the portfolio in the Florida region.

Consumer Loans and Finance Leases

June

30,

2024,

the

Corporation’s

consumer

loans

and

finance

leases

portfolio

increased

$54.3

million

$3.7

billion,

mainly in

the Puerto Rico

region, reflecting growth

of $45.8 million

and $23.5 million

in the auto

loans and finance

leases portfolios,

respectively.

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,

2024

2023

2024

2023

(In thousands)

Puerto Rico:

Residential mortgage

92,624

88,485

160,267

149,965

Construction

38,459

33,829

74,110

57,267

Commercial mortgage

83,852

28,704

101,754

96,691

C&I

337,347

365,796

742,566

814,977

Consumer

404,645

442,213

798,551

866,686

Total loan production

956,927

959,027

1,877,248

1,985,586

Virgin Islands:

Residential mortgage

696

843

2,122

1,769

Construction

162

Commercial mortgage

298

3,859

423

3,859

C&I

12,351

65,215

23,460

74,614

Consumer

8,897

11,408

16,793

21,608

Total loan production

22,404

81,327

42,960

101,856

Florida:

Residential mortgage

28,884

25,923

47,985

40,819

Construction

9,609

13,175

20,655

25,232

Commercial mortgage

20,304

9,821

77,933

30,526

C&I

219,086

119,563

391,253

216,865

Consumer

2,970

384

3,427

1,029

Total loan production

280,853

168,866

541,253

314,471

Total:

Residential mortgage

122,204

115,251

210,374

192,553

Construction

48,230

47,006

94,927

82,505

Commercial mortgage

104,454

42,384

180,110

131,076

C&I

568,784

550,574

1,157,279

1,106,456

Consumer

416,512

454,005

818,771

889,323

Total loan production

1,260,184

1,209,220

2,461,461

2,401,913

Commercial and

construction loan

originations (excluding

government loans)

for the

quarter and

six-month period

ended June

30,

2024

amounted

$708.4

million

and

$1.4

billion,

respectively,

compared

$563.6

million

and

$1.2

billion,

respectively,

for

the

comparable periods

in 2023.

The increase

of $144.8

million in

the second

quarter of

2024, as

compared to

the same

period in

2023,

reflects growth

of $106.5

million in

the Florida

region and

$40.5 million

in the

Puerto Rico

region, partially

offset by

a $2.2

million

decrease in

the Virgin

Islands regions.

For the

first six

months of

2024, the

increase of

$157.1 million

consisted of

growth of

$217.3

million

in the

Florida region,

partially

offset

by decreases

of $54.5

million

in the

Puerto Rico

region

and $5.7

million in

the Virgin

Islands region.

The growth

in the

Florida region

for the

first six

months of

2024 includes

the effect

of the

origination of

seven C&I

relationships, each

in excess of

$10 million,

with an

aggregate balance

of $116.4

million, increased

utilization of

C&I lines of

credit,

and an increase

in the commercial

mortgage loan portfolio

by $47.4 million.

Meanwhile, the decline

in the Puerto

Rico region for

the

first six

months of

2024 was

mainly driven

by a

decrease of

$76.0 million

in the

C&I loan

portfolio, partially

offset by

increases of

$16.4 million in the construction loan portfolio and $5.1 million in the

commercial mortgage loan portfolio.

Government

loan

originations

for

the

quarter

and

six-month

period

ended

June

30,

2024

amounted

$13.1

million

and

$38.8

million, respectively,

compared to $76.3 million and $83.6 million, respectively,

for the comparable periods in 2023. Government loan

originations

during

the

first

six

months

2024

were

mainly

the

aforementioned

origination

of a

$13.6

million

loan

municipality in

Puerto Rico that

is supported

by assigned property

tax revenues and

the utilization of

a line of

credit of a

government

entity in

the Virgin

Islands region.

On the

other hand,

government loan

originations during

the first

six months

of 2023 were mainly

the

line

credit

utilization

the

Virgin

Islands

region,

loan

agency

the

Puerto

Rico

government

for

low-

income housing project, and the utilization of an arranged overdraft line of

credit of a government entity in the Virgin

Islands region.

Originations of auto

loans (including finance

leases) for the quarter

and six-month period

ended June 30,

2024 amounted to

$233.9

million and

$462.0 million,

respectively,

compared to

$250.3 million

and $495.4

million, respectively,

for the

comparable periods

2023. The

decrease in the

second quarter of

2024, as

compared to

the same

quarter of

2023, consisted

of declines

of $14.7

million in

the Puerto

Rico region and

$1.7 million

in the Virgin

Islands region.

The decrease in

the first six

months of 2024,

as compared to

the

same

period

the

year,

consisted

declines

$30.4

million

the

Puerto

Rico

region

and

$3.0

million

the

Virgin

Islands region.

Other consumer

loan originations

other than

credit cards,

for the

quarter and

six-month period

ended June

30, 2024

amounted

$64.6

million

and

$124.5

million,

respectively,

compared

$77.7

million

and

$149.6

million,

respectively,

for

the

comparable periods

in 2023.

Most of

the decrease

in other

consumer loan

originations for

the first

six months

of 2024,

as compared

with the

same period

in 2023,

was in

the Puerto

Rico region.

The utilization

activity on

the outstanding

credit card

portfolio for

the

quarter and

six-month period

ended June

30, 2024

amounted to

$118.0 million

and $232.3

million, respectively,

compared to

$125.9

million and $244.3 million, respectively,

for the comparable periods in 2023.

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.

The Corporation’s

total available-for

-sale debt

securities portfolio

as of

June 30,

2024 amounted

to $5.0

billion, a

$272.7 million

decrease from

December 31, 2023

The decrease was

mainly driven

by repayments of

approximately $178.8

million of U.S.

agencies

mortgage-backed

securities

(“MBS”)

and

debentures,

repayments

$115.1

million

associated

matured

securities,

and

$4.5

million decrease in

fair value attributable

to changes in market

interest rates. These

variances were partially

offset by $28.0

million in

purchases

Community

Reinvestment

Act

qualified

debt

securities

during

the

second

quarter

2024.

June

30,

2024,

the

Corporation had

a net unrealized

loss on available-for-sale

debt securities of

$637.3 million.

This net unrealized

loss is attributable

instruments

on books

carrying

a 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, 2024,

approximately $500

million in

cash inflows, which

are expected

to be

received during

the

second

half

2024

from

contractual

maturities

the

available-for-sale

debt

securities

portfolio,

are

expected

redeployed

fund loan growth, reinvested into higher-yielding

securities,

or used to repay maturing brokered CDs.

June

30,

2024,

substantially

all

the

Corporation’s

available-for-sale

debt

securities

portfolio

was

invested

U.S.

government and agencies

debentures and fixed-rate

GSEs’ MBS. In

addition, as of

June 30, 2024,

the Corporation held

a bond issued

the

Puerto

Rico

Housing

Finance

Authority

(“PRHFA”),

classified

available

for

sale,

specifically

residential

pass-through

MBS in

the aggregate

amount of

$3.1 million

(fair value

- $1.5

million). This

residential pass-through

MBS issued

by the

PRHFA

collateralized by

certain second

mortgages originated

under a

program launched

by the

Puerto Rico

government in

2010 and

had an

unrealized loss of

$1.6 million as

of June 30,

2024, of which

$0.4 million is

due to credit

deterioration. During

2021, the Corporation

placed this instrument in nonaccrual status based on the delinquency status of

the underlying second mortgage loans collateral.

June

30,

2024,

the

Corporation’s

held-to-maturity

debt

securities

portfolio,

before

the

ACL,

decreased

$344.4

million,

compared to

$354.2 million

as of December

31, 2023,

mainly driven

by repayments

of approximately

$10.5 million

of U.S.

agencies

MBS.

Held-to-maturity

debt

securities

include

fixed-rate

GSEs’ MBS

with

carrying

value

of $237.0

million

(fair

value

of $222.4

million)

June

30,

2024,

compared

$247.1

million

December

31,

2023.

Held-to-maturity

debt

securities

also

include

financing

arrangements

with

Puerto

Rico

municipalities

issued

bond

form,

which

the

Corporation

accounts

for

as securities,

but

which were

underwritten as

loans with

features that

are typically

found in

commercial loans.

Puerto Rico

municipal bonds

typically

are

not

issued

bearer

form,

are

not

registered

with

the

SEC,

and

are

not

rated

external

credit

agencies.

These

bonds

have

seniority to the payment of operating costs and expenses of the

municipality and, in most cases, are supported by assigned

property tax

revenues. As

of June

30, 2024,

approximately 54%

of the

Corporation’s

municipal bonds

consisted of

obligations issued

by three

the largest

municipalities in Puerto

Rico. The municipalities

are required by

law to levy

special property taxes

in such amounts

as are

required for the payment of all of their respective general obligation bonds

and loans.

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”

to the

unaudited consolidated

financial statements

herein for

the ACL

of the

exposure to

Puerto Rico

municipal bonds.

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

June 30, 2024

December 31, 2023

(In thousands)

Money market investments

4,439

1,239

Available-for-sale

debt securities, at fair value:

U.S. government and agencies obligations

2,352,500

2,443,790

Puerto Rico government obligations

1,532

1,415

MBS:

Residential

2,430,965

2,633,161

Commercial

171,314

151,618

Other

1,000

Total available-for-sale

debt securities, at fair value

4,957,311

5,229,984

Held-to-maturity debt securities, at amortized cost:

MBS:

Residential

138,615

146,468

Commercial

98,370

100,670

Puerto Rico municipal bonds

107,450

107,040

ACL for held-to-maturity Puerto Rico municipal bonds

(1,267)

(2,197)

Total held-to-maturity

debt securities

343,168

351,981

Equity securities, including $34.0 million and $34.6 million of FHLB stock

as of June 30, 2024 and December 31, 2023

51,037

49,675

Total money market

investments and investment securities

5,355,955

5,632,879

The carrying values of debt securities as of June 30, 2024 by contractual maturity

(excluding MBS), are shown below:

Carrying Amount

Weighted-Average

Yield %

(Dollars in thousands)

U.S. government and agencies obligations:

Due within one year

864,132

0.88

Due after one year through five years

1,472,025

0.82

Due after five years through ten years

8,100

2.64

Due after ten years

8,243

5.69

2,352,500

0.86

Puerto Rico government and municipalities obligations:

Due within one year

3,178

9.30

Due after one year through five years

51,424

7.72

Due after five years through ten years

36,253

7.03

Due after ten years

18,127

7.40

108,982

7.48

MBS

2,839,264

1.72

ACL on held-to-maturity debt securities

(1,267)

Total debt securities

5,300,479

1.47

100

Net

interest

income

future

periods

could

affected

prepayments

MBS.

Any

acceleration

the

prepayments

MBS

purchased

premium

would

lower

yields

these

securities,

since

the

amortization

premiums

paid

upon

acquisition

would

accelerate. Conversely,

acceleration of the

prepayments of MBS would

increase yields on

securities purchased at

a discount, since

the

amortization

the

discount

would

accelerate.

These

risks

are

directly

linked

future

period

market

interest

rate

fluctuations.

Net

interest income in future periods might also be affected

by the Corporation’s investment

in callable securities. As of June 30, 2024, the

Corporation had

approximately $1.7

billion in

callable debt

securities (U.S.

agencies debt

securities) with

an average

yield of

0.80%

of which

approximately 64%

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 rate

risk management

strategies.

Also,

refer

Note

–

“Debt

Securities”

the

unaudited

consolidated

financial

statements

herein

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 2023 Annual

Report on Form 10-K.

Liquidity Risk

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

Corporate

Strategic

and

Business

Development

Director,

the

Business

Group

Director,

the

Treasury

and

Investments Risk

Manager,

the Financial

Planning and

Asset and

Liability Management

(“ALM”) Director,

and the

Treasurer.

The

Treasury

and

Investments

Division

responsible

for

planning

and

executing

the

Corporation’s

funding

activities

and

strategy,

monitoring

liquidity availability

on a

daily basis,

and reviewing

liquidity measures

on a

weekly basis.

The Financial

Planning and

ALM Division is responsible for estimating the liquidity gap.

101

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 $586.3

million as of June 30,

2024, compared to $663.2

million as of December 31,

2023. When adding $1.9

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 $2.5

billion

as of

June 30,

2024,

or 13.37%

total assets,

compared to $2.8 billion, or 14.93%

of total assets as of December 31, 2023.

addition

the

aforementioned

$1.9

billion

cash

and

free

high

quality

liquid

assets,

the

Corporation

had

$968.1

million

available

for

credit

with

the FHLB

based

the

value

loan

collateral

pledged

with

the

FHLB.

such,

the

basic

liquidity

ratio

(which adds such

available secured lines

of credit to

the core liquidity)

was approximately 18.50%

of total assets as

of June 30,

2024,

compared to 19.82% of total assets as of December 31, 2023.

Further,

the

Corporation

also

maintains

borrowing

capacity

the

FED

Discount

Window

and

had

approximately

$2.5

billion

available for funding under

the FED’s

Borrower-in-Custody (“BIC”) Program

as of June 30, 2024

as an additional source

of liquidity.

Total

loans pledged

to the

FED BIC

Program

amounted

to $3.2

billion

as of

June 30,

2024.

The Corporation

also does

not

rely on

uncommitted

inter-bank

lines

credit

(federal

funds

lines)

fund

its

operations.

combined

basis,

June

30,

2024,

the

Corporation had $6.0

billion available to meet

liquidity needs, or 132%

of estimated uninsured deposits

excluding fully collateralized

government deposits.

Liquidity

the Bank

level

is highly

dependent

bank deposits,

which

fund

87.8%

of the

Bank’s

assets (or

84.4%

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.

102

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, 2024,

the Corporation’s commitments to

extend credit amounted to approximately $2.1

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, 2024

December 31, 2023

(In thousands)

Financial instruments whose contract amounts represent credit risk:

Commitments to extend credit:

Construction undisbursed funds

294,782

234,974

Unused credit card lines

868,739

882,486

Unused personal lines of credit

38,326

38,956

Commercial lines of credit

863,711

862,963

Letters of credit:

Commercial letters of credit

61,109

69,543

Standby letters of credit

19,359

8,313

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 $4.4

billion as

of June

30,

2024.

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.

103

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. As

of June

30, 2024,

the Corporation’s

core deposits,

which exclude

government

deposits

and

brokered

CDs,

increased

$105.9

million

$12.7

billion

from

$12.6

billion

December

31,

2023.

The

$105.9

million

increase

in such

deposits was

primarily

to increases

of $71.7

million

in the

Puerto

Rico region,

$21.1 million

in the

Virgin Islands

region, and $13.1 million in the Florida region. This increase includes a $162.4

million increase in time deposits.

Government

deposits

(fully

collateralized)

–

June

30,

2024,

the

Corporation

had

$2.7

billion

Puerto

Rico

public

sector

deposits ($2.5

billion in transactional

accounts and

$159.2 million in

time deposits),

relatively unchanged

compared to the

balance as

of December

31, 2023.

Government deposits

are insured

by the

FDIC up

to the

applicable limits

and the

uninsured portions

are fully

collateralized.

Approximately 23% of

the public sector

deposits as of

June 30, 2024

were from municipalities

and municipal agencies

in Puerto Rico and 77% were from public corporations,

the central government and its agencies, and U.S. federal government

agencies

in Puerto Rico.

addition,

June

30,

2024,

the

Corporation

had

$491.8

million

government

deposits

the

Virgin

Islands

region,

compared

$449.4

million

as of

December

31,

2023,

and

$19.0

million

the

Florida

region

compared

$10.2

million

December 31, 2023.

The

uninsured

portions of

government

deposits were

collateralized

by securities

and

loans with

an amortized

cost of

$3.4

billion

and $3.5

billion as of

June 30, 2024

and December 31, 2023,

respectively,

and an estimated

market value of

$3.1 billion as of

each of

such

periods.

addition

securities

and

loans,

each

June

30,

2024

and

December

31,2023,

the

Corporation

used

$175.0

million in letters of credit issued by the FHLB as pledges for a portion of public deposits

in the Virgin Islands.

Estimate of Uninsured

Deposits –

As of June 30, 2024 and December 31,

2023, the estimated amounts of uninsured

deposits totaled

$7.5

billion

and

$7.4

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

each of

June 30,

2024 and

December 31,

2023, the

uninsured

portion of

fully collateralized

government deposits

amounted to

$3.0 billion.

Excluding fully

collateralized government

deposits,

the

estimated

amounts

uninsured

deposits

amounted

$4.5

billion,

which

represent

28.46%

total

deposits

(excluding

brokered

CDs), as of June 30, 2024, compared to $4.4 billion, or 28.13%, as of December

31, 2023.

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.

104

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 30,2024:

(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

370,764

212,827

372,052

128,489

1,084,132

Other uninsured time deposits

10,947

16,493

18,906

1,644

47,990

Brokered

CDs

–

Total

brokered

CDs

decreased

$158.5

million

$624.8

million

June

30,

2024,

compared

$783.3

million as

of December

31, 2023.

The decline

reflects maturing

short-term brokered

CDs amounting

to $370.1

million with

an all-in

cost of 5.46%

that were paid

off during

the first six

months of 2024,

partially offset

by $211.7

million of new

issuances with original

average maturities of approximately 2 years and an all-in cost of 4.92%.

The average remaining term to maturity of the brokered CDs outstanding

as of June 30, 2024 was approximately 1.1 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 of brokered

CDs as of June 30, 2024:

Total

(In thousands)

Three months or less

170,272

Over three months to six months

173,892

Over six months to one year

83,839

Over one year to three years

123,732

Over three years to five years

57,603

Over five years

15,441

Total

624,779

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, 2024 and 2023.

Securities

sold

under

agreements

repurchase

–

From

time

time,

the

Corporation

enters

into

repurchase

agreements

additional source of funding. As of June 30, 2024 and December 31,

2023, 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

each of June 30, 2024

and December 31, 2023,

the outstanding balance of

long-term fixed-rate FHLB advances

was

$500.0

million.

the

$500.0

million

FHLB

advances

June

30,

2024,

$400.0

million

were

pledged

with

investment

securities and

$100.0 million

were pledged

with mortgage

loans. As

of June

30, 2024,

the Corporation

had $968.1

million available

for additional credit on FHLB lines of credit based on collateral pledged

at the FHLB of New York.

105

Trust

Preferred

Securities –

In 2004,

FBP Statutory

Trusts I

and II,

statutory trusts

that are

wholly-owned by

the Corporation

and

not consolidated in

the Corporation’s

financial statements, sold

to institutional investors

variable-rate TRuPs and

used the proceeds of

these issuances, together

with the proceeds

of the purchases by

the Corporation of

variable rate common

securities, to purchase

junior

subordinated

deferrable

debentures.

The

subordinated

debentures

are

presented

the

Corporation’s

consolidated

statements

financial condition as

other long-term borrowings.

Under the indentures,

the Corporation has the

right, from time

to time, and without

causing an

event of

default, to defer

payments of

interest on the

Junior Subordinated

Deferrable Debentures

by extending the

interest

payment

period

any

time

and

from

time

during

the

term

the

subordinated

debentures

for

twenty

consecutive

quarterly periods.

each

June

30,

2024

and

December

31,

2023,

the

Corporation

had

junior

subordinated

debentures

outstanding

the

aggregate

amount

$161.7

million,

with

maturity

dates

ranging

from

June

17,

2034

through

September

20,

2034.

June

30,

2024,

the

Corporation

was

current

all

interest

payments

due

its

subordinated

debt.

See

Note

–

“Other

Long-Term

Borrowings”

and Note 7 – “Non-Consolidated

Variable

Interest Entities (“VIEs”) and Servicing

Assets” to the unaudited

consolidated

financial

statements

herein

for

additional

information.

Also,

see

Note

–

“Stockholders’

Equity”

the

unaudited

consolidated

financial

statements

herein

for

additional

details

capital

actions

that

include

the

approval

new

repurchase

program

$250

million that could include repurchases

of common stock or junior subordinated debentures.

Other Sources

of Funds and

Liquidity

- The Corporation’s

principal uses of

funds are for

the origination of

loans, the repayment

maturing deposits

and borrowings,

and deposits

withdrawals. Over

the years,

in connection

with its

mortgage banking

activities, the

Corporation has invested in technology and personnel to enhance the Corporation’s

secondary mortgage market capabilities.

These enhanced capabilities

improve the Corporation’s

liquidity profile as they

allow the Corporation to

derive liquidity,

if needed,

from the

sale of mortgage

loans in

the secondary

market. The

U.S. (including

Puerto Rico)

secondary mortgage

market is

still highly

liquid,

large

part because

the

sale of

mortgages

through

guarantee

programs

the Federal

Housing

Authority

(“FHA”),

U.S.

Department of

Veterans

Affairs (“VA”),

U.S. Department

of Housing

and Urban

Development (“HUD”),

Federal National

Mortgage

Association (“FNMA”)

and Federal

Home Loan

Mortgage Corp.

(“FHLMC”). During

the first

six months of

2024, loans

pooled into

Government

National

Mortgage

Association

(“GNMA”)

MBS

amounted

approximately

$59.9

million.

Also,

during

the

first

six

months of 2024, the Corporation sold approximately $15.1 million of

performing residential mortgage loans to FNMA.

The

FED

Discount

Window

cost-efficient

source

short-term

funding

for

the

Corporation

highly-volatile

market

conditions. As

previously mentioned,

as of

June 30,

2024, the

Corporation had

approximately $2.5

billion fully

available for

funding

under the FED’s Discount Window

based on 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.

As of

the date

hereof, the

Corporation’s

credit as

a long-term

issuer is

rated BB+

by S&P

and BB

by Fitch.

As of

the date

hereof,

FirstBank’s

credit ratings

as a long

-term issuer

are BB+ by

S&P 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.

106

Cash Flows

Cash and

cash equivalents

were $586.3

million as

of June

30, 2024,

a decrease

of $76.9

million when

compared to

December 31,

2023.

The following

discussion highlights

the major

activities and

transactions that

affected the

Corporation’s

cash flows

during

the

first six months of 2024 and 2023:

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

June

30,

2024

and

2023,

net

cash

provided

operating

activities

was

$189.4

million

and

$166.5

million,

respectively.

Net

cash

generated

from

operating

activities

was

higher

than

reported

net

income

largely

result

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,

2024, net cash

provided

by investing

activities was

$11.3

million, primarily

due to

repayments of

U.S. agencies

MBS and

debentures; proceeds

from sales

repossessed assets;

and proceeds

from sales

of loans,

mainly 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.

For

the

six-month

period

ended

June

30,

2023,

net

cash

provided

investing

activities

was

$25.0

million,

primarily

due

repayments of U.S.

agencies MBS and debentures

and proceeds from sales

of repossessed assets,

partially offset by

net disbursements

on loans held for investment.

Cash Flows from Financing Activities

The Corporation’s

financing activities

primarily

include the

receipt of

deposits and

the issuance

of brokered

CDs, the

issuance of

and payments

on long-term

debt, the

issuance of

equity instruments,

return of

capital, and

activities related

to its

short-term funding.

For

the

six-month

period

ended

June

30,

2024,

net

cash

used

financing

activities

was

$277.6

million,

mainly

reflecting

capital

returned to stockholders and a decrease in total deposits.

For the

first six

months of

2023, net

cash provided

by financing

activities was

$375.5 million,

mainly reflecting

a $675.9

million

net

increase

deposits,

partially

offset

$196.0

million

net

decrease

borrowings

and

$104.4

million

capital

returned

stockholders.

107

Capital

As of

June 30,

2024, the

Corporation’s

stockholders’ equity

was $1.5

billion, a

decrease of

$6.1 million

from December

31, 2023.

The decrease

was driven

by $100.0

million in

common stock

repurchases

under the

2023 stock

repurchase program,

common

stock

dividends declared

in the

first half

of 2024

totaling $53.4

million or

$0.32 per

common share,

and a

$4.5 million

decrease in

the fair

value of

available-for-sale debt

securities recorded

as part of

accumulated other

comprehensive loss

in the consolidated

statements of

financial condition. These variances were partially offset by the

net income generated in the first half of 2024.

On July 22,

2024, the Corporation’s

Board declared a

quarterly cash dividend

of $0.16 per common

share. The dividend

is payable

on September

13, 2024 to

shareholders of

record at the

close of business

on August

29, 2024.

The Corporation

intends to continue

pay quarterly dividends on common stock. However,

the Corporation’s common stock

dividends, including the declaration, timing and

amount, remain subject to the consideration and approval by the Corporation’s

Board at the relevant times.

July

24, 2023,

the Corporation

announced

that its

Board

of Directors

approved

a stock

repurchase

program,

under which

the

Corporation

may

repurchase

to $225

million

of its

outstanding

common

stock, which

commenced

the fourth

quarter

of 2023.

During the first half of 2024, the Corporation

repurchased approximately 5.8 million shares of common

stock for a total cost of $100.0

million,

which

approximately

2.8

million

common

stock

for

total

cost

$50.0

million

were

repurchased

during

the

second quarter

of 2024.

As of June

30, 2024,

the Corporation

has remaining

authorization to

repurchase approximately

$50.0 million

of common

stock. For

more information,

see Part

II, Item

2, “Unregistered

Sales of

Equity Securities

and Use

of Proceeds,”

of this

Quarterly

Report

Form

10-Q.

Furthermore,

July 22,

2024,

the

Corporation

announced

that

its Board

of Directors

approved

new repurchase program, under which the Corporation may

repurchase up to an additional $250 million that could

include repurchases

of common stock or junior subordinated debentures, which it expects to execute

through the end of the fourth quarter of 2025.

Repurchases

under

the

programs

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 programs

are subject

to various

factors, including

the Corporation’s

capital position,

liquidity,

financial performance

and

alternative uses of

capital, stock trading

price, and general

market conditions.

The Corporation’s

repurchase programs do

not obligate

it to acquire any

specific number of shares

and do not have

an expiration date. The

repurchase programs may be

modified, suspended,

terminated

any

time

the

Corporation’s

discretion.

The

Corporation’s

holding

company

has

operations

and

depends

dividends,

distributions

and

other

payments

from

its

subsidiaries

fund

dividend

payments,

stock

repurchases,

and

fund

all

payments on its obligations, including debt obligations.

The tangible common

equity ratio and

tangible book value

per common share

are non-GAAP financial

measures generally used

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.

108

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 June 30, 2024 and December 31, 2023, respectively:

June 30, 2024

December 31, 2023

(In thousands, except ratios and per share information)

Total common equity

- GAAP

1,491,460

1,497,609

Goodwill

(38,611)

Other intangible assets

(9,700)

(13,383)

Tangible common

equity - non-GAAP

1,443,149

1,445,615

Total assets - GAAP

18,881,374

18,909,549

Goodwill

(38,611)

Other intangible assets

(9,700)

(13,383)

Tangible assets -

non-GAAP

18,833,063

18,857,555

Common shares outstanding

163,865

169,303

Tangible common

equity ratio - non-GAAP

7.66%

7.67%

Tangible book

value per common share - non-GAAP

8.81

8.54

See Note 21 – “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, 2024 and December 31, 2023, respectively.

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 $199.6

million as

of each

of June

30, 2024 and December 31, 2023, respectively.

There were no transfers to the legal surplus reserve during the first half of 2024.

109

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, brokered

CDs rates, repurchase agreements rates, and the mortgage commitment rate of

30 years.

June

30,

2024,

the

Corporation

forecasted

the

12-month

net

interest

income

assuming

June

30,

2024

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,

2024, as

compared with

December 31,

2023, reflects

an increase

of 10

bps on

average in

the short-

term sector of the curve, or

between one to twelve months;

an increase of 52 bps

in the medium-term sector of

the curve, or between 2

to 5 years; and

an increase of 50 bps

in the long-term sector

of the curve, or

over 5-year maturities. A

similar behavior in market

rates

changes was observed

in the Constant

Maturity Treasury

yield curve with

an increase of

8 bps in

the short-term sector,

an increase of

49 bps in the medium-term sector, and an

increase of 46 bps in the long-term sector.

110

The following table presents the results of the static simulations as of June 30,2024

and December 31, 2023. 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, 2024

December 31, 2023

Gradual Change in Interest Rates:

+ 300 bps ramp

1.38

1.08

+ 200 bps ramp

0.93

0.73

- 300 bps ramp

-3.06

-3.09

- 200 bps ramp

-1.95

-2.02

Immediate Change in Interest Rates:

+ 200 bps shock

1.90

2.45

- 200 bps shock

-4.94

-5.67

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,

2024, and

December 31,

2023, 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

scenarios,

the

net

interest

income

simulation

shows

slight

increase

interest

rate

sensitivity,

when

compared with December

31, 2023, due to

lower sensitivity in the

liabilities side. The decrease

in sensitivity in

the liabilities side was

mainly

driven by

an increase

in repricing

lag, mainly

in public

sector non

-maturity

deposits, partially

offset

higher sensitivity

saving

accounts

and

time

deposits

result

higher

balances.

the

assets

side,

the

sensitivity

remained

flat.

The

increase

sensitivity from

the investment

securities portfolio

due to

the level

of scheduled

maturities of

U.S. agencies

debentures over

the next

twelve months and an increase in the prepayment rate assumptions of MBS was offset

by lower sensitivity due to lower cash balances.

Gradual falling

rates scenarios

show a

slight decrease

in interest

rate sensitivity,

when compared

with December

31, 2023,

due to

lower sensitivity

in the

assets side.

The decrease

in sensitivity

due to

lower cash

balances was

partially offset

by the

aforementioned

increase

sensitivity

from

the

investment

securities

portfolio.

the

liabilities

side,

the

sensitivity

resulted

minor

decrease

driven

the

aforementioned

increase

repricing

lag,

partially

offset

higher

sensitivity

time

deposits

result

higher

balances.

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 will be redeployed into higher yielding

alternatives.

111

Credit Risk Management

First BanCorp.

is subject

credit

risk

mainly

with

respect to

its portfolio

of loans

receivable

and

off-balance-sheet

instruments,

principally

loan

commitments.

Loans

receivable

represents

loans

that

First

BanCorp.

holds

for

investment

and,

therefore,

First

BanCorp. is at risk for

the term of the loan.

Loan commitments represent commitments

to extend credit, subject

to specific conditions,

for specific amounts

and maturities. These commitments

may expose the Corporation

to credit risk and

are subject to the

same review

and

approval

process as

for

loans

made

the

Bank.

See “Risk

Management

–

Liquidity

Risk” and

“Risk Management

–

Capital”

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

prevent

migration

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.

112

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 to

regular review

and may

change to

reflect updated

performance trends

and expectations,

particularly in

times of

severe

stress.

The

process

includes

judgments

and

quantitative

elements

that

may

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 as

the following:

(i) management’s

assessment of

economic forecasts

used in

the model

and how

those

forecasts

align

with

management’s

overall

evaluation

current

and

expected

economic

conditions;

(ii)

organization

specific

risks such

as credit

concentrations,

collateral

specific risks,

nature

and

size of

the portfolio

and

external

factors that

may

ultimately

impact credit quality,

and (iii) other

limitations associated with

factors such as

changes in underwriting

and loan resolution

strategies,

among others.

The ACL

for loans

and finance

leases is

reviewed at

least on

a quarterly

basis as

part of

the Corporation’s

continued

evaluation of its asset quality.

The Corporation

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 to

each

scenario

for

the

different

loan

portfolio

categories

depend

variety

factors

including

recent

economic

events,

leading

national and

regional economic indicators,

and industry

trends. As of

June 30,

2024 and December

31, 2023,

the Corporation

applied

the

baseline

scenario

for

the

commercial

mortgage

and

construction

loan

portfolios

since

expects

favorable

economic

outlook

of certain

macroeconomic

variables

associated

with

commercial

real

estate property

performance,

particularly

the Puerto

Rico

region.

The

economic

scenarios

used

the

ACL

determination

contained

assumptions

economic

uncertainties

associated

with

geopolitical

instability,

the

CRE

price

index,

unemployment

rate,

inflation

levels,

and

expected

future

interest

rate

adjustments in the Federal Reserve Board’s

funds rate.

June

30,

2024,

the

Corporation’s

ACL

model

considered

the

following

assumptions

for

key

economic

variables

the

probability-weighted economic scenarios:

●

CRE

price

index

the

national

level

with

average

projected

contraction

7.58%

for

the

remainder

2024

and

average

projected

appreciation of

0.81% for

the year

2025, compared

to an

average projected

contraction

of 6.88%

for the

remainder of 2024 and an average projected appreciation of 2.01%

for the year 2025 as of December 31, 2023.

●

Regional

Home

Price

Index

forecast

Puerto

Rico

(purchase

only

prices)

projected

remain

relatively

flat

for

the

remainder

of 2024

and for

the year

2025,

when compared

to the

same period

projection

as of

December

31, 2023.

For the

Florida region, the

Home Price Index

forecast shows an

improvement of 6.42%

and 6.39% for the

remainder of 2024

and for

the year 2025, respectively,

when compared to the same period as of December 31, 2023.

●

Average

regional unemployment

rate in

Puerto Rico

is forecasted

at 6.08%

for the

remainder of

2024 and

6.27% for

2025,

compared to 7.53%

for the remainder of

2024 and 8.08%

for the year 2025

as of December 31,

2023. For the Florida

and the

U.S. mainland,

average unemployment

rate is

forecasted at

4.03%

and 4.45%, respectively,

for the remainder

of 2024,

and -

4.44%

and 4.84%,

respectively,

for the

year 2025,

compared to

4.42% and

4.87%, respectively,

for the

remainder of

2024,

and 4.12% and 4.52%, respectively,

for the year 2025 as of December 31, 2023.

●

Annualized change in

GDP in the U.S.

mainland of 1.66% for

the remainder of 2024

and 1.13%

for the year 2025,

compared

to 0.48%

for the remainder of 2024 and 1.64%

for the year 2025 as of December 31, 2023.

113

It is difficult to estimate how potential changes

in one factor or input might affect the overall ACL because

management considers a

wide variety of

factors and inputs in

estimating the ACL.

Changes in the

factors and inputs considered

may not occur

at the same rate

and may not be consistent

across all geographies or product

types, and changes in factors

and inputs may be directionally

inconsistent,

such that improvement

in one factor

or input may

offset deterioration

in others. However,

to demonstrate the

sensitivity of credit

loss

estimates

macroeconomic

forecasts

June

30,

2024,

management

compared

the

modeled

estimates

under

the

probability-

weighted

economic

scenarios

against

adverse

scenario.

Such

scenario

incorporates

additional

adverse

scenario

and

decreases the

weight applied

to the

baseline scenario.

Under this

more adverse

scenario, as

an example,

average unemployment

rate

for the

Puerto Rico

region increases

to 6.40%

for the

remainder of

2024, compared

to 6.08%

for the

same period

on the

probability-

weighted economic scenario projections.

demonstrate

the

sensitivity

key

economic

parameters

used

the

calculation

the

ACL

June

30,

2024,

management

calculated

the

difference

between

the

quantitative

ACL

and

this

adverse

scenario.

Excluding

consideration

qualitative

adjustments,

this

sensitivity

analysis

would

result

hypothetical

increase

the

ACL

approximately

$44

million

June

30,

2024.

This analysis

relates only

to the

modeled credit

loss estimates

and is

not intended

to estimate

changes in

the overall

ACL as

does

not

reflect

any

potential

changes

other

adjustments

the

qualitative

calculation,

which

would

also

influenced

the

judgment

management

applies

the

modeled

lifetime

loss

estimates

reflect

the

uncertainty

and

imprecision

these

estimates

based

current

circumstances

and

conditions.

Recognizing

that

forecasts

macroeconomic

conditions

are

inherently

uncertain,

particularly in

light of

recent economic

conditions and

challenges, which

continue to

evolve, management

believes that

its process

consider the

available information

and associated

risks and

uncertainties is

appropriately governed

and that

its estimates

of expected

credit losses were reasonable and appropriate for the period ended

June 30, 2024.

As of June 30, 2024, the ACL for loans and finance

leases was $254.5 million, a decrease of $7.3 million, from $261.8 million

as of

December

31,

2023.

The

ACL

for

residential

mortgage

loans

decreased

$11.3

million,

mainly

driven

updated

historical

loss

experience

used for

determining the

ACL estimate

resulting

in a

downward

revision

of estimated

loss severities

and

lower

required

reserve

levels,

partially

offset

newly

originated

loans

that

have

longer

life.

The

ACL

for

commercial

and

construction

loans

decreased by $1.3 million, mainly due to an improvement on the

economic outlook of certain macroeconomic variables, particularly

variables associated with commercial real estate property performance,

partially offset by increased volume.

Meanwhile,

the

ACL

for

consumer

loans

increased

$5.3

million

mainly

driven

increases

historical

charge-off

and

delinquency levels, mainly

in credit cards;

increases in portfolio volumes

in auto loan portfolio; and

updated historical loss experience

used for

determining the

ACL estimate

resulting in

an upward

revision of

estimated loss

severities and

higher required

reserve levels

the

auto

loan

and

finance

lease

portfolios.

See

Note

–

“Loans

Held

for

Investment”

the

unaudited

consolidated

financial

statements

herein

for

additional

information

the

review

the

credit

models

completed

the

Corporation

during

the

second

quarter of 2024.

The

ratio

the

ACL

for

loans

and

finance

leases

total

loans

held

for

investment

decreased

2.06%

June

30,

2024,

compared to 2.15% as of December 31, 2023. An explanation for

the change for each portfolio follows:

●

The ACL to total

loans ratio for the

residential mortgage loan

portfolio decreased from

2.03% as of December

31, 2023 to

1.64% as of

June 30, 2024,

mainly due to

the aforementioned updated

historical loss experience

partially offset

by newly

originated loans that have a longer life.

●

The ACL

to total

loans ratio

for the

construction loan

portfolio increased

from 2.61%

as of

December 31,

2023 to

3.04%

as of June 30, 2024, mainly due to newly originated loans which have a longer

life.

●

The ACL

to total

loans ratio

for the

commercial mortgage

loan portfolio

decreased from

1.41% as

of December

31, 2023

1.24%

June

30,

2024,

mainly

driven

improvement

the

economic

outlook

certain

macroeconomic

variables.

●

The ACL to total

loans ratio for

the C&I loan portfolio

remained relatively flat

at 1.06% as of

June 30, 2024, compared

1.05% as of December 31, 2023.

●

The ACL

to total

loans ratio

for the

consumer loan

portfolio increased

from 3.64%

as of December

31, 2023

to 3.73% as

June

30,

2024,

mainly

driven

increases

delinquency

levels

and

the

aforementioned

updated

historical

loss

experience.

The ratio

of the

total ACL

for loans

and finance

leases to

nonaccrual loans

held for

investment was

264.66% as

of June

30, 2024,

compared to 312.81% as of December 31, 2023.

114

Substantially all of

the Corporation’s

loan portfolio is

located within the

boundaries of the

U.S. economy.

Whether the collateral

located in

Puerto Rico,

the U.S.

and British

Virgin

Islands, or

the U.S.

mainland (mainly

in the

state of

Florida), the

performance of

the Corporation’s

loan portfolio and

the value of

the collateral supporting

the transactions are

dependent upon the

performance of and

conditions

within each

specific area’s

real estate

market. The

Corporation believes

it sets

adequate loan-to-value

ratios following

its

regulatory and credit policy standards.

As shown in

the following

tables, the ACL

for loans

and finance

leases amounted

to $254.5

million as of

June 30,

2024, or 2.06%

of total loans, compared with $261.8 million, or 2.15%

of total loans, as of December 31, 2023. See “Results of Operations

- Provision

for Credit Losses” and Note 4 – “Allowance for Credit Losses for Loans and Finance

Leases” above for additional information.

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(Dollars in thousands)

ACL for loans and finance leases, beginning of year

263,592

265,567

261,843

260,464

Impact of adoption of ASU 2022-02

2,116

Provision for credit losses - (benefit) expense:

Residential mortgage

(10,593)

(3,500)

(11,057)

(3,427)

Construction

(554)

1,202

2,062

Commercial mortgage

(2,976)

5,999

(2,986)

7,245

C&I

(668)

2,997

(4,028)

1,347

Consumer and finance leases

26,721

14,072

42,901

29,799

Total provision for credit losses

- expense

11,930

20,770

24,847

37,026

Charge-offs:

Residential mortgage

(491)

(1,146)

(1,007)

(2,129)

Construction

(38)

Commercial mortgage

(88)

(106)

C&I

(332)

(6,350)

(791)

(6,468)

Consumer and finance leases

(25,591)

(16,462)

(53,955)

(33,260)

Total charge offs

(26,414)

(24,084)

(55,753)

(42,001)

Recoveries:

Residential mortgage

446

757

718

1,254

Construction

409

472

Commercial mortgage

393

433

224

C&I

958

132

6,077

222

Consumer and finance leases

3,613

3,451

16,343

(1)

7,281

Total recoveries

5,424

4,805

23,595

(1)

9,453

Net charge-offs

(20,990)

(19,279)

(32,158)

(32,548)

ACL for loans and finance leases, end of period

254,532

267,058

254,532

267,058

ACL for loans and finance leases to period-end total loans

held for investment

2.06%

2.28%

2.06%

2.28%

Net charge-offs (annualized) to average loans

outstanding during the period

0.69%

0.67%

0.53%

(2)

0.56%

Provision for credit losses - expense for loans and finance

leases to net charge-offs during

the period

0.57x

1.08x

0.77x

1.14x

(1)

For the six-month period ended June 30, 2024 includes a recovery totaling $9.5 million associated with the bulk sale of fully charged-off consumer loans and finance leases.

(2)

The recovery associated with the aforementioned bulk sale reduced the ratio of total net charge-offs to related average loans by 15 basis points.

115

The following tables set forth information concerning the composition of the

Corporation's loan portfolio and related ACL by loan

category, and the percentage

of loan balances in each category to the total of such loans as of the indicated dates:

As of June 30, 2024

Residential

Mortgage

Loans

Commercial

Mortgage

Loans

C&I Loans

Consumer and

Finance

Leases

Construction

Loans

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

2,809,666

185,957

2,423,309

3,254,577

3,711,999

12,385,508

Percent of loans in each category to total loans

100

Allowance for credit losses

46,051

5,646

30,078

34,448

138,309

254,532

Allowance for credit losses to amortized cost

1.64

3.04

1.24

1.06

3.73

2.06

As of December 31, 2023

Residential

Mortgage

Loans

Commercial

Mortgage

Loans

C&I Loans

Consumer and

Finance Leases

Construction

Loans

(Dollars in thousands)

Total

Total loans held for investment:

Amortized cost of loans

2,821,726

214,777

2,317,083

3,174,232

3,657,665

12,185,483

Percent of loans in each category to total loans

100

Allowance for credit losses

57,397

5,605

32,631

33,190

133,020

261,843

Allowance for credit losses to amortized cost

2.03

2.61

1.41

1.05

3.64

2.15

Allowance for Credit Losses for Unfunded Loan

Commitments

The Corporation estimates

expected credit losses

over the contractual

period in which

the Corporation is

exposed to credit

risk as a

result

contractual

obligation

extend

credit,

such as

pursuant

to unfunded

loan

commitments

and

standby

letters of

credit

for

commercial and

construction loans,

unless the

obligation is

unconditionally cancellable

by the

Corporation. The

ACL for

off-balance

sheet

credit

exposures

is adjusted

as a

provision

for

credit loss

expense.

As of

June 30,

2024,

the

ACL for

off-balance

sheet

credit

exposures decreased by $0.1 million to $4.5 million, when compared

to December 31, 2023.

Allowance for Credit Losses for Held-to-Maturity

Debt Securities

As of

June 30,

2024, the

ACL for

held-to-maturity

securities portfolio

was entirely

related to

financing arrangements

with Puerto

Rico municipalities

issued in bond

form, which

the Corporation accounts

for as securities,

but which

were underwritten as

loans with

features

that

are

typically

found

commercial

loans.

June

30,

2024,

the

ACL

for

held-to-maturity

debt

securities

was

$1.3

million,

compared

$2.2

million

December

31,

2023.

The

decrease

was

mostly

driven

improvements

the

underlying

updated financial information of a Puerto Rico municipal bond issuer.

Allowance for Credit Losses for Available

-for-Sale Debt Securities

The

ACL

for

available-for-sale

debt

securities,

which

associated

with

private

label

MBS

and

residential

pass-through

MBS

issued by the PRHFA, was $0.5

million as of each of June 30, 2024 and December 31, 2023.

116

Nonaccrual Loans and Non-Performing Assets

Total

non-performing

assets consist

of nonaccrual

loans (generally

loans held

for

investment or

loans held

for

sale for

which

the

recognition of

interest income

was discontinued

when the

loan became

90 days

past due

or earlier

if the

full and

timely collection

interest or principal

is uncertain), foreclosed

real estate and

other repossessed properties,

and non-performing

investment securities, if

any.

When a

loan is placed

in nonaccrual

status, any

interest previously

recognized and

not collected

is reversed

and charged

against

interest

income.

Cash

payments

received

are

recognized

when

collected

accordance

with

the

contractual

terms

the

loans.

The

principal

portion

of the

payment is

used to

reduce

the principal

balance

of the

loan,

whereas the

interest portion

is recognized

on a

cash basis

(when collected).

However,

when management

believes that

the ultimate

collectability of

principal is

in doubt,

the interest

portion

applied

the

outstanding

principal.

The

risk

exposure

this

portfolio

diversified

individual

borrowers

and

industries, among other factors. In addition, a large portion

is secured with real estate collateral.

Nonaccrual Loans Policy

Residential Real Estate Loans

— The Corporation generally classifies real estate loans in nonaccrual

status when it has not received

interest and principal for a period of 90 days or more.

Commercial

and

Construction

Loans

—

The

Corporation

classifies

commercial

loans

(including

commercial

real

estate

and

construction loans) in nonaccrual

status when it has not

received interest and principal

for a period of 90

days or more or when

it does

not expect to collect all of the principal or interest due to deterioration in the financial condition

of the borrower.

Finance Leases

— The Corporation

classifies finance leases

in nonaccrual status

when it has not

received interest and

principal for

a period of 90 days or more.

Consumer Loans

— The Corporation

classifies consumer

loans in nonaccrual

status when it

has not received

interest and

principal

for a period of 90 days or more. Credit card loans continue to accrue finance

charges and fees until charged-off at 180

days delinquent.

Purchased

Credit Deteriorated

Loans (“PCD”)

— For

PCD loans,

the nonaccrual

status is

determined in

the same

manner as

for

other loans,

except for

PCD loans

that prior

to the

adoption of

CECL were

classified as

purchased credit

impaired (“PCI”)

loans and

accounted

for

under

ASC

Subtopic

310-30,

“Receivables

–

Loans

and

Debt

Securities

Acquired

with

Deteriorated

Credit

Quality”

(“ASC

Subtopic

310-30”).

allowed

CECL,

the

Corporation

elected

maintain

pools

loans

accounted

for

under

ASC

Subtopic 310-30

as “units

of accounts,”

conceptually treating

each pool

as a

single asset.

Regarding interest

income recognition,

the

prospective

transition

approach

for

PCD loans

was applied

pool

level, which

froze

the

effective

interest

rate of

the pools

as of

January

1, 2020.

According

to regulatory

guidance,

the determination

of nonaccrual

or accrual

status for

PCD loans

with respect

which the Corporation has made

a policy election to maintain previously

existing pools upon adoption of CECL

should be made at the

pool level, not the individual

asset level. In addition, the guidance

provides that the Corporation can continue

accruing interest and not

report

the PCD

loans as

being

in nonaccrual

status if

the following

criteria are

met: (i)

the Corporation

can reasonably

estimate

the

timing and amounts of

cash flows expected to

be collected; and (ii)

the Corporation did not

acquire the asset primarily

for the rewards

of ownership

of the

underlying collateral,

such as

the use

in operations

or improving

the collateral

for resale.

Thus, the

Corporation

continues to exclude these pools of PCD loans from nonaccrual loan statistics.

Other Real Estate Owned

OREO

acquired

settlement

loans

carried

fair

value

less

estimated

costs

sell

the

real

estate

acquired.

Appraisals

are

obtained periodically,

generally on an annual basis.

Other Repossessed Property

The

other

repossessed

property

category

consists

of a

residential

pass-through

MBS

issued

the

PRHFA placed

non-performing

status

the

second

quarter of 2021 based on the delinquency status of the underlying second

mortgage loans.

117

Loans Past-Due 90 Days and Still Accruing

These are accruing loans

that are contractually delinquent

90 days or more. These

past-due loans are either

current as to interest but

delinquent as to the

payment of principal (

i.e.

, well secured and in

process of collection) or

are insured or guaranteed

under applicable

FHA,

VA,

other

government-guaranteed

programs

for

residential

mortgage

loans.

Furthermore,

required

instructions

regulatory

reports,

loans

past

due

days

and

still

accruing

include

loans

previously

pooled

into

GNMA

securities

for

which

the

Corporation

has

the

option

but

not

the

obligation

repurchase

loans

that

meet

GNMA’s

specified

delinquency

criteria

(

e.g.

borrowers

fail

make

any

payment

for

three

consecutive

months).

For

accounting

purposes,

these

GNMA

loans

subject

the

repurchase option are required to be reflected in

the financial statements with an offsetting liability.

In addition, loans past due 90 days

and

still

accruing

include

PCD

loans,

mentioned

above,

and

credit

cards

that

continue

accruing

interest

until

charged-off

180

days.

The following table presents non-performing assets as of the indicated dates:

June 30, 2024

December 31, 2023

(Dollars in thousands)

Nonaccrual loans held for investment:

Residential mortgage

31,396

32,239

Construction

4,742

1,569

Commercial mortgage

11,736

12,205

C&I

27,661

15,250

Consumer and finance leases

20,638

22,444

Total nonaccrual loans held for investment

96,173

83,707

OREO

21,682

32,669

Other repossessed property

7,513

8,115

Other assets

(1)

1,532

1,415

Total non-performing assets

126,900

125,906

Past due loans 90 days and still accruing

(2) (3) (4)

47,173

59,452

Non-performing assets to total assets

0.67

Nonaccrual loans held for investment to total loans held for investment

0.78

0.69

ACL for loans and finance leases

254,532

261,843

ACL for loans and finance leases to total nonaccrual loans held

for investment

264.66

312.81

ACL for loans and finance leases to total nonaccrual loans held

for investment, excluding residential real estate loans

392.94

508.75

(1)

Residential pass-through MBS issued by the PRHFA

held as part of the available-for-sale debt securities

portfolio.

(2)

Includes PCD loans previously accounted for under ASC Subtopic 310-30

for which the Corporation made the accounting policy

election of maintaining pools of loans as “units of

account” both at the time of adoption of CECL on January

1, 2020 and on an ongoing basis for credit loss measurement.

These loans will continue to be excluded from nonaccrual loan

statistics as long as the Corporation can reasonably estimate the

timing and amount of cash flows expected to be collected on

the loan pools. The portion of such loans contractually past due

90 days or more amounted to $7.4 million and $8.3 million as of

June 30, 2024 and December 31, 2023, respectively.

(3)

Includes FHA/VA

government-guaranteed residential mortgage as

loans past-due 90 days and still accruing as opposed

to nonaccrual loans. The Corporation continues accruing interest on

these loans until they have passed the 15 months delinquency mark,

taking into consideration the FHA interest curtailment process.

These balances include $11.0 million and $15.4

million

of FHA government guaranteed residential mortgage loans that were

over 15 months delinquent as of

June 30, 2024 and December 31, 2023,

respectively.

(4)

These includes rebooked loans, which were previously pooled into

GNMA securities, amounting to $6.8 million and $7.9 million as

of June 30, 2024 and December 31, 2023, respectively.

Under the GNMA program, the Corporation has the option but not

the obligation to repurchase loans that meet GNMA’s

specified delinquency criteria. For accounting purposes,

the loans

subject to the repurchase option are required to be reflected

on the financial statements with an offsetting liability.

118

Total

non-performing

assets

increased

$1.0

million

$126.9

million

June

30,

2024,

compared

$125.9

million

December 31,

2023. The

increase in

non-performing assets

was driven

by a

$12.5 million

increase in

total nonaccrual

loans held

for

investment, partially offset

by an $11.0

million decrease in

the OREO portfolio

balance in the

Puerto Rico region,

mainly attributable

to the sale of a $5.3 million commercial real estate OREO property and sales of

residential OREO properties.

Total nonaccrual

loans were $96.2 million as of June 30, 2024. This represents

a net increase of $12.5 million from $83.7 million as

of December

31, 2023,

consisting of

increases of

$15.1 million

in nonaccrual

commercial and

construction loans,

partially offset

decreases

$1.8

million

nonaccrual

consumer

loans

and

$0.8

million

nonaccrual

residential

mortgage

loans.

The

increase

nonaccrual commercial

and construction

loans was

primarily driven

by the

inflow of

a $16.5

million commercial

relationship

in the

Puerto Rico region in the food retail industry.

The following table shows non-performing assets by geographic segment

as of the indicated dates:

June 30, 2024

December 31, 2023

(In thousands)

Puerto Rico:

Nonaccrual loans held for investment:

Residential mortgage

16,895

18,324

Construction

3,776

595

Commercial mortgage

2,865

3,106

C&I

26,387

13,414

Consumer and finance leases

20,276

21,954

Total nonaccrual loans held for investment

70,199

57,393

OREO

17,413

28,382

Other repossessed property

7,330

7,857

Other assets

1,532

1,415

Total non-performing assets

96,474

95,047

Past due loans 90 days and still accruing

44,028

53,308

Virgin Islands:

Nonaccrual loans held for investment:

Residential mortgage

6,446

6,688

Construction

966

974

Commercial mortgage

8,871

9,099

C&I

1,274

1,169

Consumer

326

419

Total nonaccrual loans held for investment

17,883

18,349

OREO

4,202

4,287

Other repossessed property

183

252

Total non-performing assets

22,268

22,888

Past due loans 90 days and still accruing

3,145

6,005

United States:

Nonaccrual loans held for investment:

Residential mortgage

8,055

7,227

C&I

667

Consumer

Total nonaccrual loans held for investment

8,091

7,965

OREO

Other repossessed property

Total non-performing assets

8,158

7,971

Past due loans 90 days and still accruing

139

119

The following tables present the activity of commercial and construction

nonaccrual loans held for investment for the indicated

periods:

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Quarter Ended June 30, 2024

Beginning balance

1,498

11,976

25,067

38,541

Plus:

Additions to nonaccrual

3,300

14,800

18,107

Less:

Loans returned to accrual status

(35)

(77)

(9,226)

(1)

(9,338)

Nonaccrual loans transferred to OREO

(684)

Nonaccrual loans charge-offs

(332)

Loan collections

(21)

(170)

(1,964)

(2,155)

Ending balance

4,742

11,736

27,661

44,139

(1)

Mainly related to the restoration to accrual status of a C&I

loan in the Florida region in the power generation industry that entered

in nonaccrual status during the first quarter of 2024.

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Quarter Ended June 30, 2023

Beginning balance

1,794

21,598

13,404

36,796

Plus:

Additions to nonaccrual

439

2,691

3,130

Less:

Loans returned to accrual status

(374)

Nonaccrual loans transferred to OREO

(61)

Nonaccrual loans charge-offs

(88)

(6,350)

(6,438)

Loan collections

(117)

(352)

(177)

(646)

Ending balance

1,677

21,536

9,194

32,407

120

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Six-Month Period Ended June 30, 2024

Beginning balance

1,569

12,205

15,250

29,024

Plus:

Additions to nonaccrual

3,300

25,841

29,148

Less:

Loans returned to accrual status

(35)

(77)

(9,226)

(1)

(9,338)

Nonaccrual loans transferred to OREO

(48)

(684)

(732)

Nonaccrual loans charge-offs

(791)

Loan collections

(44)

(399)

(2,729)

(3,172)

Ending balance

4,742

11,736

27,661

44,139

(1)

Mainly related to the restoration to accrual status of a C&I

loan in the Florida region in the power generation industry that entered

in nonaccrual status during the first quarter of 2024.

Construction

Commercial

Mortgage

C&I

Total

(In thousands)

Six-Month Period Ended June 30, 2023

Beginning balance

2,208

22,319

7,830

32,357

Plus:

Additions to nonaccrual

127

983

10,161

11,271

Less:

Loans returned to accrual status

(361)

(526)

(887)

Nonaccrual loans transferred to OREO

(332)

(223)

(183)

(738)

Nonaccrual loans charge-offs

(106)

(6,468)

(6,574)

Loan collections

(326)

(1,082)

(1,620)

(3,028)

Reclassification

Ending balance

1,677

21,536

9,194

32,407

121

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

for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(In thousands)

Beginning balance

32,685

36,410

32,239

42,772

Plus:

Additions to nonaccrual

3,397

3,009

7,993

5,090

Less:

Loans returned to accrual status

(2,137)

(2,714)

(4,970)

(6,651)

Nonaccrual loans transferred to OREO

(743)

(1,549)

(1,147)

(4,259)

Nonaccrual loans charge-offs

(153)

(401)

(278)

(621)

Loan collections

(1,653)

(1,503)

(2,441)

(3,073)

Reclassification

(6)

Ending balance

31,396

33,252

31,396

33,252

The amount of nonaccrual consumer loans, including finance leases, decreased

by $1.8 million to $20.6 million as of June 30, 2024,

compared to $22.4 million as of December 31, 2023. The decrease was mainly

reflected in the auto loan and finance lease portfolios.

June

30,

2024,

approximately

$29.7

million

the

loans

placed

nonaccrual

status,

mainly

commercial

and

residential

mortgage loans,

were current, or had delinquencies of

less than 90 days in their interest payments.

Collections on these loans are being

recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions

warrant.

During the six-month

period ended June

30, 2024, interest income

of approximately $0.2 million

related to nonaccrual

loans with a

carrying

value of

$40.3 million

as of

June 30,

2024,

mainly nonaccrual

commercial

and construction

loans, was

applied against

the

related principal balances under the cost-recovery method.

Total loans in early

delinquency (

i.e.

, 30-89 days past due loans, as defined in regulatory reporting

instructions) amounted to $147.4

million as of June 30, 2024,

a decrease of $3.4 million, compared

to $150.8 million as of December

31, 2023.

The variances by major

portfolio categories are as follows:

●

Residential mortgage loans in early delinquency decreased by $4.2

million to $32.3 million.

●

Consumer loans in early delinquency decreased by $0.3 million to $111.7

million, mainly reflected in the auto loan portfolio.

●

Commercial

and

construction

loans

early

delinquency

increased

$1.1

million

$3.4

million,

mainly

due

commercial mortgage

loan that

matured and

is in

the process

of renewal

but for

which the

Corporation continues

to receive

interest and principal payments from the borrower.

In addition,

the Corporation

provides

homeownership

preservation

assistance to

its customers

through

a loss

mitigation

program.

Depending

upon

the

nature

borrower’s

financial

condition,

restructurings

loan

modifications

through

this

program

are

provided,

as well

as other

modifications of

individual C&I,

commercial

mortgage, construction,

and residential

mortgage loans.

For

the quarter and six-month

period ended June 30,

2024, loans modified to

borrowers experiencing financial

difficulty had an

amortized

cost

basis of

$118.9

million

and $121.4

million,

respectively,

which

included

$110.9

million

to a

relationship

that had

been

previously

reported as

a troubled

debt restructuring

under ASC

310-40.

See Note

3 –

“Loans Held

for Investment”

to the

unaudited

consolidated financial statements herein for additional information

and statistics about the Corporation’s modified

loans.

122

The OREO portfolio, which is part of non-performing

assets, amounted to $21.7 million as of June 30,

2024 and $32.7 million as of

December 31,

2023. The

following tables

show the

composition of

the OREO portfolio

as of

June 30,

2024 and

December 31,

2023,

as well as the activity of the OREO portfolio by geographic area during the

six-month period ended

June 30, 2024:

OREO Composition by Region

As of June 30, 2024

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

14,035

1,366

15,468

Construction

1,632

1,658

Commercial

1,746

2,810

4,556

17,413

4,202

21,682

As of December 31, 2023

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Residential

18,809

1,452

20,261

Construction

1,576

1,601

Commercial

7,997

2,810

10,807

28,382

4,287

32,669

OREO Activity by Region

Six-Month Period Ended June 30, 2024

(In thousands)

Puerto Rico

Virgin Islands

Florida

Consolidated

Beginning Balance

28,382

4,287

32,669

Additions

4,532

4,599

Sales

(14,690)

(85)

(14,775)

Subsequent measurement adjustments

(169)

Other adjustments

(642)

Ending Balance

17,413

4,202

21,682

123

Net Charge-offs and Total

Credit Losses

Net charge-offs

totaled $21.0

million for

the second

quarter of

2024, or

0.69% of

average loans

on an

annualized basis,

compared

to $19.3

million, or

an annualized

0.67% of

average loans,

for the

second quarter

of 2023.

For the

six-month period

ended June

30,

2024,

net

charge-offs

totaled

$32.2

million,

annualized

0.53%

average

loans,

compared

to $32.5

million,

or an

annualized

0.56%

of average

loans, for

the same

period

in 2023.

Net charge

-offs

for

the six-month

period

ended

June 30,

2024 include

a $9.5

million

recovery

associated

with

the

bulk

sale

fully

charged-off

consumer

loans

and

finance

leases,

which

reduced

basis

points the ratio of total net charge-offs to average loans

for such period.

Consumer loans

and finance

leases net

charge-offs

for the

second quarter

of 2024

were $22.0

million, or

an annualized

2.38% of

related average

loans, compared

to net

charge-offs

of $13.0

million, or

an annualized

1.51% of

related average

loans, for

the second

quarter

2023.

Net

charge-offs

consumer

loans

and

finance

leases

for

the

six-month

period

ended

June

30,

2024

were

$37.6

million, or

2.04% of

related average

loans, compared

to net

charge-offs

of $26.0

million, or

an annualized

1.53% of

related average

loans, for the

same period in

2023. The increase

for the second

quarter and first

six months of 2024

was mainly driven

by an increase

in charge-offs

across all major portfolio

classes which have been

trending higher towards historical

loss experience, partially

offset by

the recovery

associated with

the aforementioned

bulk sale,

which reduced

by 52

basis points

the ratio

of consumer

loans and

finance

leases net charge-offs to related average loans for the

first six months of 2024.

C&I

loans

net

recoveries

for

the

second

quarter

2024

were

$0.6

million,

annualized

0.08%

average

loans,

compared

to net

charge-offs

$6.2 million,

an annualized

0.87%

of related

average loans,

for

the second

quarter of

2023.

C&I

loans net recoveries for

the six-month period ended

June 30, 2024 were $5.3

million, or an annualized 0.33%

of related average loans,

compared

to net

charge-offs

of $6.2

million, or

an annualized

0.44% of

related average

loans,

for the

same period

in 2023.

The net

recoveries

for

the

second

quarter

and

first

six

months

2024

include

$0.8

million

recovery

associated

with

C&I

loan

the

Florida region.

The net recoveries

for the

first six

months of 2024

also include

a $5.0 million

recovery associated

with a C&I

loan in

the

Puerto

Rico region.

Meanwhile,

the

net charge

-offs

for

the

second

quarter

and first

six

months

of 2023

included

$6.2

million

charge-off recorded on a C&I participated loan in

the Florida region in the power generation industry.

Commercial mortgage

loans net recoveries

for the second

quarter and

six-month period

ended June 30,

2024 were $0.4

million, or

annualized

0.07%

and

0.04%,

respectively,

average

loans,

compared

net

charge-offs

$32

thousand

and

net

recoveries of

$0.1 million,

or an

annualized 0.01%

of related

average loans,

for the

comparable periods

in 2023.

The net

charge-offs

for the

second quarter

and first

six months

of 2024

include a

$0.4 million

recovery

recorded on

a commercial

real estate

loan in

the

Florida region.

The following table presents annualized net charge-offs

(recoveries) to average loans held-in-portfolio for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

Residential mortgage

0.01

0.06

0.02

0.06

Construction

(0.02)

(0.99)

(0.02)

(0.59)

Commercial mortgage

(0.07)

0.01

(0.04)

(0.01)

C&I

(0.08)

0.87

(0.33)

0.44

Consumer and finance leases

2.38

1.51

2.04

(1)

1.53

Total loans

0.69

0.67

0.53

(1)

0.56

(1)

The $9.5 million recovery associated with the bulk sale

of fully charged-off consumer loans and finance leases

during the first six months of 2024 reduced the ratios of consumer loans

and

finance leases and total net charge-offs to related

average loans by 52 basis points and 15 basis points,

respectively.

124

The following table presents annualized net charge-offs

(recoveries) to average loans held in various portfolios by geographic

segment for the indicated periods:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

PUERTO RICO:

Residential mortgage

0.01

0.08

0.03

0.09

Construction

(3.04)

(1.86)

Commercial mortgage

0.02

0.01

C&I

0.04

0.01

(0.44)

0.01

Consumer and finance leases

2.39

1.51

2.03

(1)

1.47

Total loans

0.90

0.56

0.66

(1)

0.57

VIRGIN ISLANDS:

Residential mortgage

(0.02)

(0.05)

Construction

3.93

1.93

Commercial mortgage

(0.23)

(0.04)

(0.22)

C&I

(0.01)

Consumer and finance leases

2.49

2.02

0.42

2.10

Total loans

0.36

0.34

0.06

0.31

FLORIDA:

Residential mortgage

(0.04)

(0.02)

Construction

(0.07)

(0.06)

(0.05)

Commercial mortgage

(0.23)

(0.12)

(0.04)

C&I

(0.37)

2.67

(0.13)

1.31

Consumer and finance leases

(3.57)

(1.16)

(1.69)

(0.45)

Total loans

(0.25)

1.23

(0.10)

0.60

(1)

The recovery associated with the aforementioned bulk sale reduced the ratios of consumer loans and finance leases and total net charge-offs to related average loans for the six-month period ended June 30, 2024 by 53

basis points and 20 basis points, respectively.

125

The following table presents information about the OREO inventory

and related gains and losses for the indicated periods:

Quarter ended June 30,

Six-Month Period Ended June 30,

2024

2023

2024

2023

(Dollars in thousands)

OREO

OREO balances, carrying value:

Residential

15,468

23,621

15,468

23,621

Construction

1,658

1,892

1,658

1,892

Commercial

4,556

6,058

4,556

6,058

Total

21,682

31,571

21,682

31,571

OREO activity (number of properties):

Beginning property inventory

247

344

277

344

Properties acquired

103

Properties disposed

(58)

(68)

(104)

(127)

Ending property inventory

222

320

222

320

Average holding period (in days)

Residential

512

524

512

524

Construction

2,541

2,178

2,541

2,178

Commercial

3,342

2,580

3,342

2,580

Total average holding period (in days)

1,262

1,018

1,262

1,018

OREO operations (gain) loss:

Market adjustments and (gains) losses on sale:

Residential

(1,918)

(2,553)

(3,744)

(5,043)

Construction

(10)

(7)

(19)

(47)

Commercial

(2,241)

(2,222)

Total net gain

(4,169)

(2,560)

(5,985)

(5,023)

Other OREO operations expenses

560

576

924

1,043

Net Gain on OREO operations

(3,609)

(1,984)

(5,061)

(3,980)

126

Operational Risk

The

Corporation

faces

ongoing

and

emerging

risk

and

regulatory

pressure

the

activities

that

surround

the

delivery

banking

and

financial

products.

Coupled

with

external

influences,

such

market

conditions,

security

risks,

and

legal

risks,

the

potential for

operational and

reputational loss

has increased.

mitigate and

control operational

risk, the

Corporation has

developed,

and continues

to enhance, specific

internal controls,

policies and procedures

that are designed

to identify and

manage operational

risk

appropriate

levels

throughout

the

organization.

The

purpose

these

mechanisms

provide

reasonable

assurance

that

the

Corporation’s business operations

are functioning within the policies and limits established by management.

The

Corporation

classifies operational

risk

into

two

major

categories:

business-specific

and

corporate-wide

affecting

all business

lines. For business specific risks,

Enterprise Risk Management works

with the various business units to

ensure consistency in

policies,

processes

and

assessments.

With

respect

corporate-wide

risks,

such

information

security,

business

recovery,

and

legal

and

compliance,

the

Corporation

has

specialized

groups,

such

the

Legal

Department,

Information

Security,

Corporate

Compliance,

Operations and Enterprise

Risk Management. These

groups assist the lines

of business in

the development and

implementation of risk

management practices specific to the needs of the business groups.

Legal and Compliance Risk

Legal and compliance risk includes

the risk of noncompliance with applicable

legal and regulatory requirements, the

risk of adverse

legal

judgments

against

the

Corporation,

and

the

risk

that

counterparty’s

performance

obligations

will

unenforceable.

The

Corporation

subject

extensive

regulation

the

different

jurisdictions

which

conducts

its

business,

and

this

regulatory

scrutiny has

been significantly

increasing over

the years.

The Corporation

has established,

and continues

to enhance,

procedures that

are designed

to ensure

compliance with

all applicable

statutory,

regulatory

and any

other legal

requirements.

The Corporation

has a

Compliance

Director

who

reports

the

Chief

Risk

Officer

and

responsible

for

the

oversight

regulatory

compliance

and

implementation

of an

enterprise-wide compliance

risk assessment

process.

The Compliance

division

has officer

roles in

each major

business area with direct reporting responsibilities to the Corporate Compliance

Group.

Concentration Risk

The Corporation conducts

its operations in

a geographically concentrated

area, as its main

market is Puerto

Rico. Of the total

gross

loan portfolio

held for

investment of

$12.4 billion

as of

June 30,

2024, the

Corporation had

credit risk

of approximately

80% in

the

Puerto Rico region, 17% in the United States region, and 3% in the Virgin

Islands region.

127

Update on the Puerto Rico Fiscal and Economic Situation

A significant

portion

of the

Corporation’s

business activities

and credit

exposure

is concentrated

in the

Commonwealth of

Puerto

Rico, which

has experienced

economic

and fiscal

distress over

the last

decade. See

“Risk Management

— Exposure

to Puerto

Rico

Government”

below.

Since

declaring

bankruptcy

and

benefitting

from

the

enactment

the

federal

Puerto

Rico

Oversight,

Management and Economic Stability Act (“PROMESA”)

in 2016, the Government of Puerto Rico has made

progress on fiscal matters

primarily

by restructuring

a large

portion of

its outstanding

public debt

and identifying

funding

sources for

its underfunded

pension

system.

Economic Indicators

On March

18, 2024,

the Puerto

Rico Planning

Board (“PRPB”)

published

an analysis

of the

Puerto Rico’s

economy during

fiscal

year 2023, as well as a

short-term forecast for fiscal years

2024 and 2025. According to

the preliminary estimates issued by the

PRPB,

Puerto Rico’s

real gross

national product

(“GNP”) grew

by 0.7%

in fiscal

year 2023,

the third

consecutive year

with a positive

year-

over-year

variance.

The

main

drivers

behind

growth

fiscal

year

2023

were

personal

consumption

expenditures

and

fixed

investments

both

construction,

and

machinery

and

equipment.

The

PRPB

also

revised

previously

published

real

GNP

growth

estimates for fiscal years 2022 and 2021 from 3.7% to 3.8% and from 0.9%

to 1.4%, respectively.

There

are

other

indicators

that

gauge

economic

activity

and

are

published

with

greater

frequency,

for

example,

the

Economic

Development

Bank

for

Puerto

Rico’s

Economic

Activity

Index

(“EDB-EAI”).

Although

not

direct

measure

Puerto

Rico’s

real

GNP,

the EDB-EAI is correlated to Puerto Rico’s

real GNP.

For April 2024, estimates showed that the EDB-EAI stood

at 123.9, down

2.0% on a year-over-year basis.

Over the 12-month period

ended April 30, 2024, the EDB-EAI

averaged 126.7, the highest level

since

April 2015

and approximately 2.0% above the comparable figure a year earlier.

Labor

market trends

remain positive.

Data published

by the

Bureau

of Labor

Statistics showed

that non-farm

payrolls as

of June

2024 in

Puerto Rico

increased by

2.0% when

compared to

June 2023,

supported by

a year-over-year

increase of

8.5% in Leisure

and

Hospitality payroll

employment and

a 5.8%

year-over-year

increase in

construction-related payroll

employment.

The unemployment

rate remained relatively at a near-record low of 5.8%.

Fiscal Plan

On June

5, 2024,

the PROMESA

oversight board

certified the

2024 Fiscal

Plan for

Puerto Rico

(the “2024

Fiscal Plan”),

updated

with

the

most

recent

data

and

projections

for

revenues

and

expenses,

and

renewed

roadmap

for

Puerto

Rico

achieve

fiscal

responsibility.

The 2024

Fiscal Plan is

made up

of four

parts: (i) progress

made in stabilizing

government finances,

(ii) Puerto Rico’s

current financial

conditions and

risks, (iii) details

of the actions

required to

achieve fiscal

responsibility and

adequate access

to credit

markets, and

(iv) description

of the

actions the

PROMESA oversight

board and

the Government must

take to complete

PROMESA’s

mandate.

The 2024

Fiscal Plan

outlines

eight areas

of focus

to achieve

long-term

fiscal responsibility:

(i) improved

economic

and revenue

forecasting,

(ii)

adoption

budget

best

practices,

(iii)

comprehensive

capital

delivery

program,

(iv)

improved

management

education

resources,

(v)

improved

government

service

delivery

and

labor

relations,

(vi)

outcome-based,

data-driven,

and

controlled

healthcare

spending,

(vii)

improved,

transparent

financial

reporting,

and

(viii)

optimized

municipal

fiscal

management.

Success

these areas, which

aim to address

the most crucial

financial management

challenges that Puerto

Rico faces, is

critical for

Puerto Rico

to fully recover from bankruptcy and to fulfill the mandate of PROMESA to achieve

fiscal responsibility.

As the

debt restructurings

come to

an end,

a significant

portion of

the uncertainty

that has

plagued the

economy over

the past

ten

years has

faded away.

generate revenues

that are

resilient even

when the

unprecedented influx

of federal

funding subsides,

fiscal

stability alone

will not

suffice. The

2024 Fiscal

Plan describes

an effort

to develop

an integrated

plan that

will serve

as a

roadmap to

unlock

future

growth.

While

that

plan

developed,

the

PROMESA

oversight

board

and

the

Government

will

continue

support

specific priorities

through a first

wave of economic

growth initiatives that

aim to address

the most crucial

challenges that Puerto

Rico

faces.

The

list

focus

areas

outlined

the

2024

Fiscal

Plan

promote

economic

growth

include:

(i)

integrated

framework

for

economic

growth,

(ii)

human

capital,

focused

robust,

highly-skilled,

and

health

workforce,

(iii)

economic

strategies,

focused

improved

ease

doing

business,

(iv)

economic

policies,

focused

reforms

Puerto

Rico’s

tax

system,

and

(v)

infrastructure,

focused on reduced cost and increased reliability of energy,

transportation, and internet connectivity.

Similar to

fiscal plans,

the 2024

Fiscal Plan

includes

an updated

macroeconomic forecast

reflecting

the impact

of fiscal

and

structural

measures,

natural disasters,

COVID-19,

and

federal

funding

in response

to natural

disasters

and

the

pandemic

on the

baseline

economic

trajectory.

The

2024

Fiscal

Plan

projects

Puerto

Rico

GNP

growth

fiscal

year

2024

1.0%,

followed

declines of 0.8% and

0.1% in fiscal year

2025 and fiscal year

2026, respectively.

On average, Puerto Rico’s

GNP is projected

to grow

approximately 0.4%

between fiscal

year 2023

and fiscal

year 2026.

Contrary to

previous fiscal

plans where

Puerto Rico’s

population

128

was projected to decline,

the 2024 Fiscal Plan includes

a stable population projection

through 2029 mainly due to

the offset between a

negative

natural

population

decline

and

positive

net

migration.

Specifically,

the

revised

fiscal

plan

projections

contemplate

net

inflow of over 20,000 people annually through 2029, compared to

an average of less than 5,000 people in the 2023 fiscal plan.

The 2024 Fiscal Plan projects

that approximately $54.5 billion

in total disaster relief funding,

from federal and private

sources, will

disbursed

as part

the

reconstruction

efforts

over

span of

years

(fiscal

years

2024

through

2035).

These

funds

will

benefit

individuals, the

public (e.g.,

reconstruction of

major infrastructure,

roads, and

schools), and

will cover

part of

Puerto Rico’s

share of

the

cost

disaster

relief

funding.

Also,

the

2024

Fiscal

Plan

projects

the

$5.9

billion

remaining

COVID-19

relief

funds

deployed

in fiscal

years 2024

and

2025.

Additionally,

the 2024

Fiscal Plan

continues

to account

for $2.1

billion

in federal

funds

Puerto

Rico

from

the

Bipartisan

Infrastructure

Law

directed

towards

improving

Puerto

Rico’s

infrastructure

over

fiscal

years

2024

through

2026.

Overall,

Puerto

Rico’s

economic

growth

is highly

dependent

the

Government’s

ability

efficiently

deploy

these

federal funds.

Debt Restructuring

Over

80%

Puerto

Rico’s

outstanding

debt

has

been

restructured

date.

March

15,

2022,

the

Plan

Adjustment

the

central

government’s

debt

became

effective

through

the

exchange

of more

than

$33

billion

existing

bonds

and

other

claims

into

approximately

billion

new

bonds,

saving

Puerto

Rico

than

$50

billion

debt

payments

creditors.

Also,

the

restructurings

the

Puerto

Rico

Sales

Tax

Financing

Corporation

(“COFINA”),

the

Highways

and

Transportation

Authority

(“HTA”),

and

the

Puerto

Rico

Aqueducts

and

Sewers

Authority

(“PRASA”)

are

expected

yield

savings

approximately

$17.5

billion,

$3.0

billion,

and

$400

million,

respectively,

future

debt

service

payments.

The

main

restructuring

pending

that

the

Puerto Rico Electric Power Authority (“PREPA”).

February

23,

2024,

the

PROMESA

oversight

board

filed

the

fourth

amended

Plan

Adjustment

reduce

than

$10

billion of total asserted claims by various creditors against PREPA

by approximately 80% to $2.5 billion, excluding pension

liabilities.

According to the PROMESA oversight

board, bondholders who support the

plan would recover 12.5% of their original

asserted claim,

while bondholders who do not agree to the proposed plan would recover

3.5% of their asserted claim.

On June

12, 2024,

the Court

of Appeals

for the

First Circuit

(the “First

Circuit”) issued

its opinion

in the

appeal of

the Amended

Lien & Recourse

Challenge whereby it

ruled that PREPA’s

bondholders are secured

by a perfected security

interest in PREPA’s

“Net

Revenues” (as

defined in

the Trust

Agreement) and

that they hold

non-recourse claims

secured by

the Net

Revenues and

do not

hold

any unsecured

claims. As

a result

of the

First Circuit’s

ruling, the

PROMESA oversight

board expressed

its intention

of requesting

reopening

the

confirmation

hearing

record

for

the

limited

purpose

valuing

the

non-settling

bondholders’

the

bonds’

collateral, namely PREPA’s

net revenues and showing the court how such value as determined by the court will be

paid.

Recognizing that

parties’ views

of appropriate

next steps

may vary,

on July 10,

2024, the

Court held

a conference

to address

what

further

submissions

proceedings

are

necessary

regarding

the

pending

motion

for

confirmation

the

PREPA

Plan.

Following the

conference, Judge

Taylor

Swain issued an

order whereby

all PREPA

confirmation and

bond-related litigation

is stayed

for at least

sixty days, through

and including September

8, 2024, unless

otherwise ordered

by the court.

In addition, the

court ordered

all parties to begin working with the mediation team throughout the duration of

the stay period.

129

Other Developments

Notable

progress

continues

made

part

the

ongoing

efforts

prioritizing

the

restoration,

improvement,

and

modernization of

Puerto Rico’s

infrastructure,

particularly in

the aftermath

of Hurricane

Maria in

2017. During

the 12-month

period

ended

May 31,

2024, over

$3.5

billion

in disaster

relief funds

were disbursed

through the

Federal

Emergency

Management

Agency

(“FEMA”) Public Assistance program and the

HUD Community Development Block Grant

(“CDBG”) program, a 20% increase

when

compared to the

same period in 2023.

These funds will continue

to play a key

role in supporting

Puerto Rico’s

economic stability and

are expected

to have a

positive impact on

the Island’s

infrastructure. For

example, approximately 86%

of the projects

that FEMA has

obligated

address

damage

caused

Hurricane

Maria

have

resources

reinforce

their

infrastructure,

among

other

hazard

mitigation measures,

that will

prepare these

facilities for

future weather

events. As

of July

15, 2024,

over 3,170

projects had

already

been

completed

under

FEMA’s

Public

Assistance

programs

while

over

20,800

projects

were

active

across

different

stages

execution for

a total

cost of $10.6

billion, equivalent

to approximately

30% of

the agency’s

$35.7 billion

obligation, according

to the

Central Office for Recovery,

Reconstruction and Resiliency (“COR3”).

130

Exposure to Puerto Rico Government

As of

June 30,

2024, the

Corporation had

$316.7 million

of direct

exposure to

the Puerto

Rico government,

its municipalities

and

public

corporations,

compared

$297.9

million

December

31,

2023.

The

$18.8

million

increase

was

mainly

due

the

origination

$13.6

million

loan

municipality

Puerto

Rico

that

supported

assigned

property

tax

revenues

and

$6.1

million

disbursements

construction

loan

public

corporation

the

Puerto

Rico

government.

June

30,

2024,

approximately $203.1 million of the

exposure consisted of loans and

obligations of municipalities in Puerto

Rico that are supported by

assigned

property

tax

revenues

and

for

which,

most

cases,

the

good

faith,

credit

and

unlimited

taxing

power

the

applicable

municipality have

been pledged

to their

repayment, and

$59.4 million

consisted of

loans and

obligations which

are supported

by one

specific

sources

municipal

revenues.

Approximately

69%

the

Corporation’s

exposure

Puerto

Rico

municipalities

consisted

primarily

senior

priority

loans

and

obligations

concentrated

four

the

largest

municipalities

Puerto

Rico.

The

municipalities

are

required

law

levy

special

property

taxes

such

amounts

are

required

for

the

payment

all

their

respective general

obligation bonds

and notes.

In addition

to municipalities,

the total

direct exposure

also included

$8.8 million

in a

loan extended

to an affiliate

of PREPA,

$42.3 million

in loans to

agencies or

public corporations of

the Puerto

Rico government,

and

obligations of the

Puerto Rico government, specifically

a residential pass-through

MBS issued by

the PRHFA,

at an amortized

cost of

$3.1 million as part of its available-for-sale debt securities portfolio (fair value

of $1.5 million as of June 30, 2024).

The

following

table

details

the

Corporation’s

total

direct

exposure

Puerto

Rico

government

obligations

according

their

maturities:

As of June 30,2024

Investment

Portfolio

(Amortized

cost)

Loans

Total

Exposure

(In thousands)

Puerto Rico Housing Finance Authority:

After 10 years

3,084

Total

Puerto Rico Housing Finance Authority

3,084

Agencies and public corporation of the Puerto Rico government:

After 1 to 5 years

18,973

After 5 to 10 years

23,352

Total agencies and public

corporation of the Puerto Rico government

42,325

Affiliate of the Puerto Rico Electric Power Authority:

After 1 to 5 years

8,849

Total Puerto Rico government

affiliate

8,849

Total

Puerto Rico public corporations and government affiliate

51,174

Municipalities:

Due within one year

3,178

40,410

43,588

After 1 to 5 years

51,424

43,264

94,688

After 5 to 10 years

36,253

71,346

107,599

After 10 years

16,595

Total

Municipalities

107,450

155,020

262,470

Total

Direct Government Exposure

110,534

206,194

316,728

131

In addition, as of

June 30, 2024, the Corporation

had $74.9 million in exposure

to residential mortgage loans

that are guaranteed by

the

PRHFA,

governmental

instrumentality

that

has

been

designated

covered

entity

under

PROMESA

(December

31,

2023

–

$77.7

million).

Residential

mortgage

loans

guaranteed

the

PRHFA

are

secured

the

underlying

properties

and

the

guarantees

serve to

cover shortfalls

in collateral in

the event

of a borrower

default. The

Puerto Rico government

guarantees up

to $75 million

the

principal

for

all

loans

under

the

mortgage

loan

insurance

program.

According

the

most

recently

released

audited

financial

statements of the PRHFA,

as of June 30, 2023, the PRHFA’s

mortgage loans insurance program covered

loans in an aggregate amount

of approximately $388 million. The regulations adopted by

the PRHFA require the establishment

of adequate reserves to guarantee the

solvency of the mortgage

loans insurance program. As

of June 30, 2023,

the most recent date

as of which information

is available, the

PRHFA had a

liability of approximately $1.3 million as an estimate of the losses inherent in the portfolio.

each

June

30,

2024 and

December

31,

2023,

the

Corporation

had

$2.7

billion

public

sector

deposits

Puerto

Rico.

Approximately 23% of

the public sector deposits

as of June 30,

2024 were from municipalities

and municipal agencies

in Puerto Rico

and 77%

were from

public corporations,

the Puerto

Rico central

government and

agencies, and

U.S. federal

government agencies

Puerto Rico.

Exposure to USVI Government

The Corporation has operations in the USVI and has credit exposure

to USVI government entities.

For many years, the

USVI has been experiencing

several fiscal and economic

challenges that have deteriorated

the overall financial

and

economic

conditions

the

area.

June

17,

2024,

the

United

States

Bureau

Economic

Analysis

(the

“BEA”)

released

its

estimates of GDP

for 2022.

According to

the BEA, the

USVI’s

real GDP decreased

1.3% in 2022

after increasing

3.7% in 2021.

The

decrease

real

GDP

reflected

declines

exports,

private

fixed

investment,

government

spending,

and

personal

consumption

expenditures. These

negative variances were

partly offset

by an increase

in inventory investment,

while imports,

a subtraction item

the calculation of GDP,

decreased.

Over the past

three years, the

USVI has been

recovering from the

adverse impact caused

by COVID-19 and

has continued to

make

progress

its

rebuilding

efforts

Hurricanes

Irma

and

Maria,

which

occurred

September

2017.

According

data

published by

FEMA, over

$5.2 billion

in disaster

recovery funds

had been

disbursed through

May 2024

and nearly

$10 billion

were

remaining

obligated

funds

pending

be disbursed.

Moreover,

labor

market

trends

remain

stable

with

non-farm

payrolls as

May

2024 in line with the comparable figure for the first quarter of 2024 and up 0.1% when

compared to the fourth quarter of 2023.

On December 14, 2023,

Fitch Ratings announced that it

withdrew the ratings of the

U.S. Virgin

Islands Water

and Power Authority

(“WAPA”)

primarily

due

limited

availability

the

authority’s

operating

and

financial

information

from

public

sources

from

WAPA’s

management.

Finally, PROMESA

does not apply to

the USVI and, as such,

there is currently no

federal legislation permitting the

restructuring of

the debts of the USVI and

its public corporations and instrumentalities.

To the

extent that the fiscal condition of the

USVI government

deteriorates

again,

the

U.S.

Congress

the

government

the

USVI

may

enact

legislation

allowing

for

the

restructuring

the

financial

obligations

the

USVI

government

entities

imposing

stay

creditor

remedies,

including

making

PROMESA

applicable to the USVI.

As of June 30,

2024 and December

31, 2023, the

Corporation had $105.0

million and $90.5

million, respectively,

in loans to USVI

public

corporations,

which

$69.9

million

and

$57.2

million,

respectively,

were

fully

collateralized

cash

balances

held

the

Bank. As of June 30, 2024, all loans were currently performing and up

to date on principal and interest payments.

132

ITEM 3. QUANTITATIVE

AND QUALITATIVE DISCLOSURES

ABOUT MARKET

RISK

For

information

regarding

market

risk

which

the

Corporation

exposed,

see

the

information

contained

Part

Item

“Management’s

Discussion

and

Analysis

Financial

Condition

and

Results of

Operations

— Risk

Management”

this Quarterly

Report on Form 10-Q.

ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

First

BanCorp.’s

management,

including

its

Chief

Executive

Officer

and

Chief

Financial

Officer,

evaluated

the

effectiveness

First BanCorp.’s

disclosure controls and

procedures (as defined

in Rules 13a-15(e)

and 15d-15(e) under

the Exchange Act)

as of June

30, 2024 the

end of the

period covered by

this Quarterly Report

on Form 10-Q.

Based on this

evaluation, the

Chief Executive Officer

and

Chief Financial

Officer

concluded that

the Corporation’s

disclosure

controls

and

procedures were

effective

as of

June 30,

2024

and provide reasonable

assurance that the information

required to be disclosed

by the Corporation

in reports that the

Corporation files

or submits

under the

Exchange Act

is recorded,

processed, summarized

and reported

within the

time periods

specified in

SEC rules

and

forms

and

accumulated

and

reported

the

Corporation’s

management,

including

the

Chief

Executive

Office

and

Chief

Financial Officer, as appropriate,

to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

There were

no changes

to the

Corporation’s

internal control

over financial

reporting (as

defined

in Rules

13a-15(f) and

15d-15(f)

under the Exchange

Act) during our

most recent quarter

ended June 30,

2024 that have materially

affected, or are

reasonably likely to

materially affect, the Corporation’s

internal control over financial reporting.

133

PART II - OTHER INFORMATION

In accordance with the instructions to Part II

of Form 10-Q, the other specified items in

this part have been omitted because they are not

applicable, or the information has been previously reported.

ITEM 1.

LEGAL PROCEEDINGS

For

discussion

legal

proceedings,

see

Note

–

“Regulatory

Matters,

Commitments

and

Contingencies,”

the

unaudited

consolidated financial statements herein, which is incorporated by reference

in this Part II, Item 1.

ITEM 1A.

RISK FACTORS

The Corporation’s business, operating results and/or the market price of our common stock may be significantly affected by a number of

factors. A detailed

discussion of certain

risk factors that

could affect

the Corporation’s future

operations, financial

condition or results

for

future periods is set forth in Part I, Item 1A, “Risk Factors,” in the 2023 Annual Report on Form 10-K. These risk factors, and others, could

cause actual

results to

differ materially

from historical

results or

the results

contemplated by

the forward-looking

statements contained

this report. Also,

refer to the

discussion in

“Forward-Looking Statements” and

Part I, Item

2, “Management’s

Discussion and

Analysis of

Financial Condition and Results

of Operations,” in this Quarterly

Report on Form 10-Q

for additional information that may

supplement or

update the discussion of risk factors in the

2023 Annual Report on Form 10-K.

Other than as described below, there have been

no material changes from those risk factors previously

disclosed in Part I, Item 1A, “Risk

Factors,” in the 2023 Annual Report on Form

10-K.

The

volatility

the

financial

services

industry,

including

failures

rumored

failures

other

depository

institutions,

and

actions taken by governmental

agencies to stabilize the financial

system, could result in,

among other things, bank deposit

runoffs,

liquidity constraints,

and increased regulatory requirements and costs.

The closure and

placement into receivership

with the FDIC

of certain large

U.S. regional banks with

assets over $100 billion

in March

and

May

2023,

and

adverse

developments

affecting

other

banks,

resulted

heightened

levels

market

volatility

and

consequently

negatively

impacted

customer

confidence

the

safety

and

soundness

financial

institutions.

These

developments

resulted

certain

regional banks experiencing higher than normal

deposit outflows and an elevated

level of competition for available

deposits in the market.

The impact of market

volatility from the adverse

developments in the banking industry,

along with continued elevated

interest rates on our

business and related financial results, will

depend on future developments, which are highly uncertain

and difficult to predict.

In the

aftermath of

these recent

bank failures,

the banking

agencies have

increased regulatory

requirements and

costs that

may impact

capital ratios or the FDIC deposit insurance premium. For example,

in 2023, the FDIC issued a final rule to impose a

special assessment to

recover

certain estimated

losses

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. In

connection with

updates made

by the

FDIC to

the

initial

estimated

losses

the DIF,

the

Corporation recorded

charges of

$0.2

million

and $1.1

million during

the quarter

and

six-month

period ended

June 30,

2024, respectively,

in the

consolidated statements

of income

as part

of “FDIC

deposit insurance”

expenses, which

increased the

estimated FDIC

special assessment

to $7.4

million. The

Corporation continues

to monitor

the FDIC’s

estimated loss

to the

DIF, which could

affect the

amount of

its accrued

liability.

134

ITEM 2.

UNREGISTERED

SALES OF

EQUITY SECURITIES

AND USE OF

PROCEEDS

The Corporation did not have any unregistered sales

of equity securities during the quarter ended June

30, 2024.

Issuer Purchases of Equity Securities

The following

table provides information

in relation to

the Corporation’s purchases

of its

common stock during

the quarter ended

June

30, 2024:

Period

Total Number of Shares

Purchased

Average Price

Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

(1)

Approximate Dollar

Value of Shares that

May

Yet be Purchased

Under

the Plans or Programs

(in thousands)

(1)

April 1, 2024 - April 30, 2024

160,195

17.41

160,195

97,212

May 1, 2024 - May 31, 2024

1,234,806

17.84

1,234,806

75,179

June 1, 2024 - June 30, 2024

1,445,590

17.42

1,445,320

50,000

Total

2,840,591

(2) (3)

2,840,321

(1)

As of June 30, 2024,

the Corporation was authorized to

purchase up to $225 million

of the Corporation’s

common stock under the

program that was publicly announced

on July 24, 2023,

of which $175 million

had been utilized.

The remaining $50 million

in the table represents

the remaining amount authorized

under the stock

repurchase program as of

June 30, 2024. The

program does

not obligate

the Corporation

to acquire

any specific

number of

shares, does

not have

an expiration date

and may

be modified,

suspended, or

terminated at

any time

at the

Corporation's

discretion.

Under

the

stock

repurchase

program,

may

repurchased

through

open

market

purchases,

accelerated

repurchases

and/or

privately

negotiated

transactions, including under plans complying with Rule 10b5-1 under

the Exchange Act.

(2)

Includes 2,840,321 shares of common stock repurchased in the

open market at an average price of $17.60 for a total purchase price

of approximately $50.0 million.

(3)

Includes 270

shares of

common stock

acquired by

the Corporation

to cover

minimum tax

withholding obligations

upon the

vesting of

equity-based awards.

The Corporation

intends to

continue to satisfy statutory tax withholding obligations in connection

with the vesting of outstanding restricted stock and performance

units through the withholding of shares.

ITEM 5.

OTHER INFORMATION

During the quarter ended June 30, 2024, none of the Corporation’s

directors or officers (as defined in Rule 16a-1(f) of

the Exchange

Act)

adopted

terminated

“Rule

10b5-1

trading

arrangement”

“non-Rule

10b5-1

trading

arrangement,”

those

terms

are

defined in Item 408 of Regulation S-K.

135

ITEM 6.

EXHIBITS

See the Exhibit Index below, which is incorporated by

reference herein:

EXHIBIT INDEX

Exhibit No.

Description

31.1

CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

32.2

CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of

2002

101.INS

Inline XBRL Instance Document, filed herewith. The

instance document does not appear in the interactive data file

because

its XBRL tags are embedded within the inline XBRL

document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document, filed herewith

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document, filed herewith

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith

101.DEF

Inline XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith

104

The cover page of First BanCorp. Quarterly Report on Form 10-Q

for the quarter ended June 30, 2024, formatted in Inline

XBRL (included within the Exhibit 101 attachments)

136

SIGNATURES

Pursuant to

the requirements

of the

Securities Exchange

Act of

1934, the

Corporation has

duly caused

this report

to be

signed on

its

behalf by the undersigned hereunto duly authorized:

First BanCorp.

Registrant

Date:

August 8, 2024

By:

/s/ Aurelio Alemán

Aurelio Alemán

President and Chief Executive Officer

Date: August 8, 2024

By:

/s/ Orlando Berges

Orlando Berges

Executive Vice President and Chief Financial Officer