FIRST BANCORP PR

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.

NOTE 17 –

FAIR VALUE

Measurement

820, “Fair Value

Measurement,” defines

fair value as the

exchange price that

would be received

for an asset or

paid to

transfer

a

(an

exit

price)

in

the

or

most

advantageous

market

for

the

asset

or

in

an

orderly

transaction

between market

participants on

the measurement

date. This

guidance also

establishes a

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

of

Level

assets

and

are

obtained

from

readily-available

pricing

sources

for

market

transactions involving identical assets or liabilities in active markets.

Level 2

Va

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

Va

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

whose value

is determined

by using

pricing models

for

which

the determination

of fair

value

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

no

of

assets

and

at

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:

Fair Value Measurements Using

Fair Value Measurements Using

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

Debt securities available for sale:

U.S. Treasury securities

$

117,073

$

$

$

117,073

$

135,393

$

$

$

135,393

Noncallable U.S. agencies debt securities

495,689

495,689

433,437

433,437

Callable U.S. agencies debt securities

1,739,738

1,739,738

1,874,960

1,874,960

MBS

2,597,712

4,567

(1)

2,602,279

2,779,994

4,785

(1)

2,784,779

1,532

1,532

1,415

1,415

1,000

1,000

Equity securities

4,867

4,867

4,893

4,893

Derivative assets

Derivative liabilities

(1) Related to private label MBS.

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

Level 3 Instruments Only

(1)

(1)

(1)

(1)

$

6,275

$

7,605

$

6,200

$

8,495

Total gains (losses):

Included in other comprehensive income (loss) (unrealized)

(19)

(181)

Included in earnings (unrealized)

(2)

(60)

Purchases

1,000

1,000

Principal repayments and amortization

(3)

(291)

(245)

(524)

(982)

$

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

for

assets

at

fair

value

on

a

recurring

basis

using

significant unobservable inputs (Level 3) as of June 30,2024 and December

31, 2023:

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

$

4,567

16.8%

16.8%

16.8%

Prepayment rate

0.0%

5.6%

3.4%

0.2%

9.4%

4.1%

$

1,532

12.9%

12.9%

12.9%

25.9%

25.9%

25.9%

Valuation Technique

Unobservable Input

Range

Weighted

Average

Minimum

Maximum

$

4,785

16.1%

16.1%

16.1%

Prepayment rate

0.0%

6.9%

3.7%

0.1%

10.9%

4.2%

$

1,415

14.1%

14.1%

14.1%

25.8%

25.8%

25.8%

Information about Sensitivity to Changes in Significant Unobservable Inputs

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

measurements. Increases

in the probability

of default,

loss

severity

assumptions,

and

prepayment

rates

in

isolation

would

result

in

an

adverse

effect

on

the

fair

value

of

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

loans

that

collateralize

a

MBS

by

the

PRHFA.

A

(decrease) in

the assumed

rate would

lead to

a (lower)

higher fair

value estimate.

2 –

“Debt Securities”

on

the methodology used to calculate the fair value of these debt securities.

Additionally, fair value

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

For

the

quarter

and

period

ended

June

30,

2024,

the

losses

or

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

Losses recorded for the

Losses recorded for the

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

of

% for the quarter

(2)

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

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,

For

the

quarter

and

period

ended

June

30,

2023,

the

losses

or

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

Level 3:

Loans receivable

(1)

$

8,011

$

8,920

$

(6,515)

$

(6,744)

OREO

(2)

1,471

2,038

Level 2:

(3)

$

14,295

$

14,295

$

(73)

$

(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

period

ended June 30, 2023.

(2)

derived the

fair values

from appraisals

that took

into consideration

prices in

observed transactions

involving similar

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,”

on Form 10-K

for

the

fair

value

measurements

for

Level

at

fair

value

on

a

nonrecurring basis.

The

tables

present

the

value,

fair

value

and

fair

value

level

of

the

hierarchy

of

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

of

Level 1

Level 2

Level 3

Assets:

Cash and due from banks and money market investments (amortized

cost)

$

586,282

$

586,282

$

586,282

$

$

Available-for-sale debt

securities (fair value)

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

46,170

46,170

(1)

Other equity securities (fair value)

4,867

4,867

4,867

Loans held for sale (lower of cost or market)

10,392

10,450

10,450

Loans held for investment:

Loans held for investment (amortized cost)

Less: ACL for loans and finance leases

(254,532)

Loans held for investment, net of ACL

$

12,058,472

12,058,472

MSRs (amortized cost)

25,952

44,590

44,590

Derivative assets (fair value)

(2)

Deposits (amortized cost)

$

$

16,521,923

$

$

16,521,923

$

Advances from the FHLB (amortized cost):

500,000

495,838

495,838

Other long-term borrowings (amortized cost)

161,700

159,696

159,696

Derivative liabilities (fair value)

(2)

(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.

Total Carrying

Amount in Statement

of Financial Condition

as of December 31,

Fair Value Estimate as

of

Level 1

Level 2

Level 3

Assets:

Cash and due from banks and money market investments

(amortized cost)

$

663,164

$

663,164

$

663,164

$

$

Available-for-sale debt

securities (fair value)

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

44,782

44,782

(1)

Other equity securities (fair value)

4,893

4,893

4,893

Loans held for sale (lower of cost or market)

7,368

7,476

7,476

Loans held for investment:

Loans held for investment (amortized cost)

Less: ACL for loans and finance leases

(261,843)

Loans held for investment, net of ACL

$

11,762,855

11,762,855

MSRs (amortized cost)

26,941

45,244

45,244

Derivative assets (fair value)

(2)

Deposits (amortized cost)

$

$

16,565,435

$

$

16,565,435

$

Advances from the FHLB (amortized cost)

500,000

500,522

500,522

Other long-term borrowings (amortized cost)

161,700

159,999

159,999

Derivative liabilities (fair value)

(2)

(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

assets,

such

as

FHLB

stock.

Certain

assets,

the

most

being

premises

and

equipment,

and

other

intangible

assets, are

not

and

are

not

above. Accordingly,

this fair

value

is not

to, and

does not,

value.

Many of

these assets

and

liabilities that

to the

disclosure requirements

are not

actively traded,

requiring management

fair values.

These

necessarily

involve

the

use

of

and

judgment

about

a

wide

variety

of

but

not

limited

to,

relevancy of market prices of comparable instruments, expected future cash flows,

and appropriate discount rates.

NOTE 18 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with

606, “Revenue from

Contracts with Customers” (“ASC

Topic

606”), revenues are

recognized when

control

of

promised

goods

or

is

transferred

to

customers

and

in

an

amount

that

reflects

the

to

which

the

Corporation expects to be

entitled in exchange for those

goods or services. At contract

inception, once the contract is

determined to be

scope of

606, the

Corporation assesses

the goods

or services

promised within

each contract,

identifies

the

respective

obligations,

and

assesses

whether

each

promised

good

or

service

is

distinct.

The

then

recognizes

as revenue

of the

transaction price

that is

allocated to

the respective

performance obligation

when (or

as) the

performance obligation is satisfied.

Disaggregation of Revenue

The

tables

summarize

the

revenue,

which

net

income

on

that

is

outside of

606 and

non-interest income,

disaggregated by

type of

service and

business segment

for the

six-

month periods ended June 30, 2024 and 2023:

Quarter ended June 30, 2024

Banking

Banking

Total

(1)

$

14,332

$

151,269

$

14,927

$

(4,851)

$

18,884

$

5,067

$

199,628

5,254

3,536

9,725

2,563

2,786

10,472

1,002

11,523

1,018

2,798

(1)

3,620

1,201

5,206

3,661

20,463

4,816

2,166

32,038

$

17,993

$

171,732

$

19,743

$

(4,753)

$

19,718

$

7,233

$

231,666

Quarter ended June 30, 2023

Banking

Banking

Total

(1)

$

21,360

$

142,597

$

12,933

$

(2,789)

$

19,690

$

6,024

$

199,815

5,087

3,326

9,287

2,464

2,747

10,152

11,135

1,508

1,094

3,502

(1)

3,029

1,010

3,697

1,680

(11)

9,600

Total non-interest

income

3,062

20,221

8,145

1,680

1,155

2,008

36,271

$

24,422

$

162,818

$

21,078

$

(1,109)

$

20,845

$

8,032

$

236,086

Banking

Banking

Total

Net interest income loss

(1)

$

30,155

$

300,216

$

29,855

$

(11,383)

$

37,132

$

10,173

$

396,148

10,535

7,028

1,521

19,387

7,797

8,293

20,710

1,974

22,835

2,016

1,894

1,234

5,537

(1)

6,581

2,811

9,969

6,680

43,869

9,317

1,735

4,239

66,021

$

36,835

$

344,085

$

39,172

$

(11,202)

$

38,867

$

14,412

$

462,169

Banking

Banking

Total

(1)

$

43,148

$

280,341

$

27,873

$

(3,447)

$

40,620

$

12,165

$

400,700

10,573

6,480

1,438

18,828

7,104

7,594

20,053

1,870

22,053

2,660

1,948

1,243

6,596

(1)

5,942

1,865

3,842

1,840

(6)

13,718

6,136

42,255

12,320

1,840

2,002

4,236

68,789

$

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

2024 and 2023,

most of the

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,”

to

the

audited

in

the

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

the scope of ASC Topic 606.

Contract Balances

As of

and

2023,

there

were

no

contract

assets recorded

on the

statements. Moreover, the balances of contract

liabilities as of such dates were not significant.

Other

also did

not have

any material contract

acquisition costs

and did

not make

any significant

judgments or

in recognizing revenue for financial reporting purposes.

NOTE 19 – SEGMENT INFORMATION

Based

upon

the

organizational

and

the

to

the

Chief

Officer

and

management, the

operating segments

are based

primarily on

business for

its operations

in Puerto

Rico, the

market,

and

by

geographic

areas

for

its

outside

of

Puerto

Rico.

As

of

June

30,

2024,

the

had

six

reportable

segments:

and

Investments; United States

Operations; and Virgin

Islands Operations. Management

determined the reportable

based

on

the

internal

used

to

and

to

assess

where

to

allocate

resources.

Other

such

as

the

organizational

chart,

nature

of

the

products,

distribution

channels,

and

the

characteristics

of

the

products,

were also considered in the determination of the reportable segments.

The

Banking

segment

of

the

origination,

sale,

and

of

a

variety

of

loans.

The

Banking

segment

also

acquires

and

sells

in

the

secondary

markets.

The

Banking

segment

of

lending

and deposit

-taking

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

Banking segment

offers

commercial loans,

including commercial

loans, and

floor plan financings,

as well

as other

products, such

as cash

management and

business management

services. The

segment is

responsible for

and

treasury

functions

that

are

to

manage

and

enhance

liquidity.

This

segment

lends

funds

to

the

and

the

the

and

the

United

States

to

finance

their

lending

and

borrows

from

those

segments.

The

Banking

segment

also

lends

funds to

other segments.

The interest

rates charged

or credited

by the

and the

Banking

segments are

allocated based

on market

rates. The

difference between

the allocated

or expense

and the Corporation’s

actual

net

from

centralized

of funding

costs is

in the

segment.

The

Operations segment

consists of

all banking

activities conducted

by FirstBank

in the

mainland,

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

of

the

are

the

same

as

those

referred

to

in

Note

–

of

and

Summary

of

Significant Accounting Policies,” to the audited consolidated financial

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

The

evaluates

the

of

the

based

on

net

income,

the

for

credit

losses,

non-

income

and

direct

expenses.

The

are

also

based

on

the

average

volume

of

their

interest-

earning assets less the ACL.

The following tables present information about the reportable segments for

the indicated periods:

Banking

(Retail) Banking

Banking

Total

Quarter ended June 30, 2024:

$

31,446

$

95,139

$

72,914

$

28,912

$

36,413

$

7,421

$

272,245

(17,114)

99,472

(57,987)

(21,820)

(2,551)

(43,342)

(11,943)

(14,978)

(2,354)

(72,617)

14,332

151,269

14,927

(4,851)

18,884

5,067

199,628

(9,794)

26,076

(1,647)

(3,524)

11,605

3,661

20,463

4,816

2,166

32,038

6,300

44,688

8,355

9,092

7,022

76,441

$

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

Banking

(Retail) Banking

Banking

Total

Quarter ended June 30, 2023:

$

31,605

$

86,989

$

65,356

$

29,528

$

32,098

$

6,628

$

252,204

(10,245)

86,144

(52,423)

(22,739)

(737)

(30,536)

(9,578)

(11,671)

(604)

(52,389)

21,360

142,597

12,933

(2,789)

19,690

6,024

199,815

(3,829)

13,669

7,675

(16)

4,017

22,230

3,062

20,221

8,145

1,680

1,155

2,008

36,271

5,533

41,814

9,340

8,502

6,731

72,843

$

22,718

$

107,335

$

4,063

$

(2,016)

$

8,326

$

$

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

Banking

Banking

Banking

Total

$

62,889

$

189,934

$

145,026

$

56,970

$

71,178

$

14,753

$

540,750

(32,734)

195,723

(115,171)

(43,292)

(4,526)

(85,441)

(25,061)

(29,520)

(4,580)

(144,602)

30,155

300,216

29,855

(11,383)

37,132

10,173

396,148

(10,054)

41,494

(4,086)

(9)

(3,442)

(131)

23,772

6,680

43,869

9,317

1,735

4,239

66,021

13,005

87,333

18,694

2,055

18,202

13,613

152,902

$

33,884

$

215,258

$

24,564

$

(13,248)

$

24,107

$

$

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

Banking

Banking

Banking

Total

$

63,512

$

170,163

$

127,699

$

56,994

$

63,212

$

13,020

$

494,600

(20,364)

163,879

(99,826)

(42,278)

(1,411)

(53,701)

(18,163)

(21,181)

(855)

(93,900)

43,148

280,341

27,873

(3,447)

40,620

12,165

400,700

(4,335)

28,893

5,139

(25)

8,672

(612)

37,732

6,136

42,255

12,320

1,840

2,002

4,236

68,789

10,620

83,441

18,705

1,870

16,806

13,556

144,998

$

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

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

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

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:

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

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

NOTE 21 – REGULATORY

MATTERS, COMMITMENTS

AND CONTINGENCIES

Regulatory Matters

The

and

are

each

subject

to

various

capital

imposed

by

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

and activities.

Under

capital

and

the

for

prompt

corrective

action,

the

must

meet

capital

that

involve

of

and

assets,

liabilities,

and

certain

sheet items

as calculated

under regulatory

accounting practices.

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.

As

of

June

30,

and

31,

2023,

the

and

exceeded

the

minimum

capital

ratios

for

capital

purposes and

FirstBank exceeded

the minimum

capital ratios

to

be considered

a well-

capitalized

institution

under

the

for

prompt

corrective

action.

As

of

June

30,

2024,

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

to

an

capital

conservation

buffer

of

2.5

%

on

certain

capital

ratios

to

avoid

limitations

on

both

(i)

capital

(

e.g.

,

of

capital

instruments,

dividends

and

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

to executive officers and heads of major business lines.

As part

of its

response to

of COVID-19,

on March

31, 2020,

the federal

banking agencies

issued an

interim final

rule

that

the

option

to

temporarily

delay

the

effects

of

CECL

on

capital

for

two

years,

followed

by

a

three-year

period.

The

interim

final

rule

that,

at

the

election

of

a

qualified

banking

organization,

the

day

one

impact

to

retained earnings plus

% of the change in

the ACL (as defined

in the final rule) from

January 1, 2020 to

December 31, 2021 will

be

delayed

for

two

years

and

phased-in

at

%

per

year

beginning

on

January

1,

over

a

three-year

period,

in

a

total

period

of

five

years.

Accordingly,

as

of

June

30,

2024,

the

capital

of

the

and

the

Bank

$

48.6

million associated

CECL day

one impact

to retained

earnings plus

% of

the increase

in the

ACL (as

defined in

the

interim

final

rule)

from

January

1,

to

31,

2021,

and

$

16.2

million

remains

excluded

to

be

phased-in

on

January

1,

The regulatory

capital position

of the

and FirstBank

as of

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

Total Capital (to Risk-Weighted

Assets)

$

2,394,971

18.21

%

$

1,052,081

8.0

%

N/A

N/A

$

2,364,456

17.98

%

$

1,051,871

8.0

%

$

1,314,838

10.0

%

CET1 Capital (to Risk-Weighted Assets)

$

15.77

%

$

591,795

4.5

%

N/A

N/A

$

2,099,713

15.97

%

$

591,677

4.5

%

$

854,645

6.5

%

Tier I Capital (to Risk-Weighted

Assets)

$

15.77

%

$

789,061

6.0

%

N/A

N/A

$

2,199,713

16.73

%

$

788,903

6.0

%

$

1,051,871

8.0

%

Leverage ratio

$

10.63

%

$

779,944

4.0

%

N/A

N/A

$

2,199,713

11.29

%

$

779,653

4.0

%

$

974,566

5.0

%

Total Capital (to Risk-Weighted

Assets)

$

2,403,319

18.57

%

$

1,035,589

8.0

%

N/A

N/A

$

2,376,003

18.36

%

$

1,035,406

8.0

%

$

1,294,257

10.0

%

CET1 Capital (to Risk-Weighted Assets)

$

16.10

%

$

528,519

4.5

%

N/A

N/A

%

$

2,113,995

16.33

%

$

582,416

4.5

%

$

841,267

6.5

%

Tier I Capital (to Risk-Weighted

Assets)

$

16.10

%

$

776,692

6.0

%

N/A

N/A

$

2,213,995

17.11

%

$

776,554

6.0

%

$

1,035,406

8.0

%

Leverage ratio

$

10.78

%

$

773,615

4.0

%

N/A

N/A

$

2,213,995

11.45

%

$

773,345

4.0

%

$

966,682

5.0

%

The Corporation enters

into financial instruments

with off-balance sheet

risk in the normal

course of business to

meet the financing

needs

of

its

customers.

These

may

include

to

extend

credit

and

standby

letters

of

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

to

expire without

being drawn

upon, the

total commitment

amount does

not necessarily

represent future

cash requirements.

For most

of

the

lines

of

credit,

the

has

the

option

to

reevaluate

the

prior

to

disbursements.

In

the

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

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

As

of June

commitments to

extend credit

approximately $

2.1

billion, of

which $

0.9

billion relates

to retail

credit

card

loans.

In

and

standby

letters

of

credit

as

of

June

30,

to

$

80.5

Contingencies

As

of

June

30,

2024,

First

and

its

were

defendants

in

various

legal

claims

and

other

loss

arising

in

the

ordinary

course

of

business.

On

at

least

a

basis,

the

assesses

its

and

contingencies in connection

with threatened and

outstanding legal proceedings,

claims and other

loss contingencies utilizing

the latest

available. For

legal proceedings,

claims and

other loss

contingencies where

it is

both probable

will

incur

a

loss

and

the

amount

can

be

reasonably

estimated,

the

establishes

an

accrual

for

the

loss.

Once

established,

the

accrual

is

as

appropriate

to

reflect

any

relevant

developments.

For

legal

claims

and

other

loss

where a loss is not probable or the amount of the loss cannot be estimated, no accrual

is established.

Any estimate

involves significant

judgment, given

the 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

to

be

determined,

the

numerous

unresolved

issues

in

the

and

the

inherent

of

the

various

outcomes of such

proceedings. Accordingly,

estimate will change

from time to time,

and actual losses

may be more

or less than the current estimate.

While

the

final

outcome

of

legal

claims,

and

other

loss

is

inherently

uncertain,

based

on

currently

available,

that

the

final

disposition

of

the

legal

claims

and

other

loss

contingencies,

to

the

extent

not

for,

will

not

have

a

adverse

effect

on

the

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

of

any

accrual)

will

be

incurred

in

with

any

legal

contingencies,

the

discloses

an

of

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

Fund (“DIF”)

arising from

the closures

of Silicon

Valley

Bank and

Signature Bank.

The estimated

losses will

be recovered

through

special assessments

collected from

certain insured

depository

institutions, including

the Bank,

and collection

began

during

the

quarter

ended

June

30,

In

with

updates

made

by

the

FDIC

to

the

initial

losses

to

the

DIF,

the

charges

of

$

0.2

million

and

$

1.1

million

during

the

quarter

and

period

ended

June

30,

2024,

in the

of income

as part

of “FDIC

deposit

insurance”

which increased

the estimated

FDIC special

to

$

7.4

the

FDIC’s

loss to

the

DIF,

which

could

affect the amount of its accrued liability.

NOTE 22 – FIRST BANCORP.

(HOLDING COMPANY

ONLY) FINANCIAL

INFORMATION

condensed financial information

presents the financial

position of

at the holding

company level only

as of

2023, and

the results

of its

for the

30,

2024 and 2023:

Statements of Financial Condition

As of December 31,

Assets

$

10,516

$

11,452

Other investment securities

1,275

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

1,289

Investment in FBP Statutory Trust II

3,561

3,561

Dividends receivable

1,405

Total assets

$

1,658,840

$

1,663,864

Liabilities and Stockholders’ Equity

Long-term borrowings

$

161,700

$

161,700

Accounts payable and other liabilities

5,680

4,555

Total liabilities

167,380

166,255

Stockholders’ equity

Total liabilities and stockholders’

equity

$

1,658,840

$

1,663,864

Statements of Income

Income

Interest income on money market investments

$

$

$

$

Dividend income from banking subsidiaries

81,232

78,932

162,149

157,802

Dividend income from nonbanking subsidiaries

12,000

12,000

1,605

1,605

Other income

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

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

Equity in undistributed earnings of subsidiaries

(distributions in excess of earnings)

(1,782)

(18,169)

(5,615)

(22,704)

$

75,838

$

70,655

$

149,296

$

141,353

Other comprehensive income (loss), net of tax

10,560

(4,505)

32,391

Comprehensive income

$

86,398

$

15,818

$

144,791

$

173,744

ITEM

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

CONDITION

AND

RESULTS

OF

OPERATIONS (“MD&A”)

The

MD&A

relates

to

the

accompanying

of

First

(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

2023 (the

“2023 Annual

Form 10-

K”). This section

also presents certain

financial measures that

are not based

on generally accepted

accounting principles in

the United

States

of

America

(“GAAP”).

See

Measures

and

Reconciliations”

below

for

about

why

non-

GAAP

are

presented,

reconciliations

of

to

the

most

comparable

GAAP

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

products to

consumers and

commercial customers

through various

subsidiaries. First

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

Agency.

Through

its wholly

-owned

subsidiaries,

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

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”)

of

2.8% driven

by solid

gains in

consumer spending

and business

investment. Inflation

show progress

towards the

Federal

Reserve

(the

“FED”) inflation

target

of 2%.

The Commerce

Department’s

Bureau

of Economic

on July

26,

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

at

2.5%,

after

a

rise

of

2.6%

in

May.

The

FED

voted

to

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

our main

operating market,

the economy

benefit from

a high

level of

federal support

for

reconstruction

activities.

The

labor

market

remains

strong

with

reaching

5.8%

for

the

month

of

May

and

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

when compared to 2023.

closed the first

half of

the year with

another quarter

of solid

operating performance

across most

franchise metrics

and remain

s

highly encouraged

by its

prospects throughout

the rest

of the

year.

Assuming current

interest rates,

the net

reached its inflection

point in the

first quarter of

2024 and, as

such, the Corporation

expects the net

to

to

for

the

of

the

year.

The

it

should

to

benefit

from

sizable

opportunities,

such

as the

ability to

redeploy

cash

inflows from

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

stable,

the

to

see

early

and

trends

within

the

loans

and

finance leases portfolio returning to historical levels.

Return of Capital to Shareholders

In

the

second

quarter

of

2024,

the

returned

$76.3

or

over

100%

of

second

quarter

earnings,

to

its

shareholders

through

$50.0

million

in

of

common

stock

and

the

payment

of

$26.3

million

in

common

stock

dividends.

As

of

June

30,

2024,

the

has

authorization

to

$50.0

million

of

common stock.

Furthermore, on

July 22,

Corporation announced

that its

Directors approved

a new

under

which

the

may

up

to

an

$250

million

that

could

include

of

common

stock

or

junior

which

it

expects

to

execute

through

the

end

of

the

fourth

quarter

of

The

repayment

of

its

junior

will represent

an immediate

earnings per

share accretion

opportunity

and

will result

in

a simplified

capital

structure.

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

principles

of

the

and

the

methods

of

applying

these

principles

conform

to

GAAP.

In

preparing

the

is

to

make

estimates,

assumptions,

and

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

during

the

Note

of

the Notes

to

in

our

Annual

Report

on

Form

10-K,

as

supplemented

by

this

Quarterly

Report

on

Form

10-Q,

this

MD&A,

describes

the

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

are

those

made

in

with

GAAP

that

involve

a

level

of

and

have

had

or

are

reasonably

likely

to

have

a

impact

on

the

and

results

of

The

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

instruments and

income tax

policies, assumptions,

and judgments,

see “Critical

Estimates” in

Part

II,

Item

7,

and

of

Condition

and

Results

of

(“MD&A”),”

in

the

Annual

Report

on

Form

10-K.

The

“Risk

–

Credit

Risk

section

of

this

MD&A

details

the

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

results

of operations

depend

on

its

net

income,

which

is

the

between

the

income

earned

on

its

assets,

and

loans,

and

the

expense

incurred

on

its

liabilities,

and

borrowings.

Net

income

is

by

various

the

following:

(i)

the

rate

environment;

(ii)

the

volumes,

mix,

and

of

assets,

and

liabilities; and

(iii) the

characteristics of

these assets

and liabilities.

’s

results of

operations also

depend on

the

for

credit

losses,

(such

as

personnel,

occupancy,

service

fees,

the

FDIC

premium,

and

other

costs),

income

(mainly

service

charges

and

fees

on

cards

and

income,

and

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

taxes.

For

the

quarter

and

period

ended

June

30,

2024,

the

had

net

income

of

$75.8

million

($0.46

per

diluted

common

share)

and

$149.3

million

($0.90

per

diluted

common

share),

to

$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:

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

2023, include the following:

●

Net

income

for

the

quarter

ended

June

30,

flat

at

$199.6

to

$199.8

2023, mainly

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

the higher

environment on

yields. See “Results

of Operations

–

Net Interest Income”

●

The provision for credit

losses on loans, finance

leases, unfunded loan commitments

and debt securities for the

quarter ended

$11.6

$22.0 million

for the

in the

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

and

a

in

the

for

the

loan

with

updated

loss

offset

by

in

levels

in

the

loans

and

finance

leases

totaled $21.0 million

for the quarter

2024, or 0.69%

of average loans

on an annualized

basis,

to

$19.3

or

an

0.67%

of

average

loans,

for

the

second

quarter

of

The

in

net

charge-offs was

mainly due to

in consumer loans

leases net charge-offs,

by the effect

of 2023

of a

$6.2 million

recorded on

a C&I

participated loan

in the

in

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

income

of

$32.0

million

for

the

quarter

ended

June

30,

2024,

to

$36.3

million

for

the

of 2023

Special

Items: a

$3.6 million

gain recognized

from a

legal settlement

and a

$1.6 million

gain on

the repurchase

of $21.4

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

Income”

●

for

the

quarter

ended

June

30,

by

$5.8

million

to

$118.7

million

reflecting,

among

other things, a

$3.1 million increase in

employees’ compensation and

benefits expenses mainly

driven by annual

increases,

a

$1.1

million

in

credit

and

debit

card

fees

due

to

higher

transactional

volumes,

and

a

$1.1

in charges

for legal and

operational reserves, partially

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

OREO

in

the

Puerto

Rico

region.

See

“Results

of

–

Non-Interest

Expenses”

below

for

●

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.

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

2024,

to

30.1%

for

the

same

period

of

2023,

due

to

the

engaging

in

certain

with

tax treatment

PR Tax

Code during

the fourth

2023 which

in a

lower effective

tax

rate

for

See

“Income Taxes”

below

and

Note 16

– “Income

Taxes,”

to the

statements herein for additional information.

●

As

of

June

30,

2024,

total

assets were

$18.9

a

of

$28.2

million

from

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

to

$4.5

billion

as

of

June

30,

In

addition to

approximately $1.9

billion in

cash and

free high-quality

liquid assets,

maintains borrowing

capacity at

the FHLB

and the

FED’s

Discount Window.

As of

approximately $2.5

billion available

for

funding

under

the

FED’s

Window

and

$

968.1

million

for

on

FHLB

credit based

on collateral

pledged

at these

entities. On

a combined

basis, as

of June

had

$6.0 billion,

or 132%

uninsured deposits,

available to

meet liquidity

needs. See

– Liquidity

Risk” below for additional information about the Corporation’s

funding sources and strategy.

●

2024, the Corporation’s

total stockholders’ equity

was $1.5 billion, a

decrease of $6.1 million

from December

31,

The

was

driven

by

$100.0

million

in

common

stock

under

the

stock

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

in

the

fair

value

of

debt

as

part

of

other

loss

in

the

of

condition.

These

variances

were

offset

by

the

net

income

generated

in the

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

of

16.10%,

16.10%,

18.57%,

and

10.78%,

as

of

31,

See

“Risk

Management – Capital” below for additional information.

●

Total

loan

production,

refinancings,

renewals,

and

draws

from

revolving

and

non-revolving

commitments,

by

$51.0

million

to

$1.3

billion

for

the

quarter

ended

June

30,

2024,

as

to

the

second

2023, driven

by a

higher volume

in the

region.

See

“Results of Operations – Loan Production”

●

Total

non-performing assets

were $126.9

2024, an

increase of $1.0

million, from

2023,

a $12.5

in total

nonaccrual loans

investment mainly

due to

the inflow

of a

$16.5 million

commercial relationship

in the food

retail industry

in the

by an

$11.0

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.

Management –

Nonaccrual Loans

and Non-Performing

Assets” below for additional information.

●

Adversely

and

loans

by

$19.3

million

to

$86.8

million

as

of

June

30,

2024,

to

31,

2023,

also

driven

by

the

inflow

to

status

of

a

$16.5

million

in

the

Puerto

Rico

region

and

the

downgrade

of

a

$5.1

million

loan

in

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

income, interest

rate spread,

and net

are reported

instruments and

on a

tax-equivalent basis

in order

to provide

to investors

additional information

about the

income

that management

uses and

believes should

facilitate comparability and

analysis of

the periods

presented.

The changes

in the

of derivative

instruments have

no effect

on interest

due or

interest earned

on interest-bearing

liabilities or

assets, respectively.

The tax-equivalent

adjustment to

income recognizes

the income

tax savings

when comparing

taxable

and

tax-exempt

assets

and

assumes

a

marginal

income

tax

rate.

Income

from

tax-exempt

earning

assets

is

by

an

amount

equivalent to

the taxes

that would

paid if

this income

taxable at

statutory rates.

Management believes

that it

is a

standard

practice

in

the banking

industry

to

present

net

income,

rate

spread,

and

net

margin

on

a

fully

tax-

equivalent basis. This adjustment

puts all earning assets, most notably

tax-exempt securities and tax-exempt

loans, on a common basis

that 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

to

the

measure

of

net

income,

valuations,

and

on

a

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.

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

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.

common equity is total

less goodwill

and

other

intangibles. Similarly,

assets are

total assets

less goodwill

and

other

intangibles.

common

equity ratio is tangible common

equity divided by tangible assets. Tangible

book value per common share is

tangible assets divided by

the number

shares outstanding.

Management and

many stock

analysts use

the tangible

ratio and

book

value

per

common

share

in

with

more

traditional

bank

capital

ratios

to

compare

the

capital

of

banking

organizations with significant

amounts of goodwill or

other intangible assets, typically

stemming from the use

of the purchase method

of accounting for

mergers and acquisitions.

Accordingly,

the Corporation believes

that disclosures of these

financial measures may

be

useful to

investors. Neither

tangible common

equity nor

tangible assets,

or the

related measures,

should be

considered in

isolation or

as a substitute for stockholders’

equity,

total assets, or any other

measure calculated in accordance

with GAAP.

Moreover, the

manner

in which

calculates its

tangible common

equity,

tangible assets,

and any

other related

measures may

differ from

that

of other companies reporting measures with similar names.

Management –

Capital” below

for the

table that

reconciles the

total equity

and total

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

To

supplement the

presented in

GAAP,

uses, and believes

that

investors

benefit

from

disclosure

of,

that

reflect

to

net

income,

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

calculated based

on the

statutory tax

rate of

37.5%)

and $1.1

million ($0.

million

based

on

the

tax

rate

of

37.5%)

were

in

the

quarter

and

period

ended

June

30,

2024,

to

the

initial

FDIC

special

from

the

FDIC’s

updates

related

to

the

loss

in

with

losses

to

the

Deposit

Fund

with

protecting

the

of

certain

institutions

during

the

first

half

of

The

charges

the

FDIC

special

for

a

total

of

$7.4

which

was

the

revised

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

A

$3.6

million

($2.3

million

based

on

the

tax

rate

of

37.5%)

gain

from

a

legal

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

-interest income.

A

$1.6

million

gain

on

the

of

$21.4

million

in

junior

in

the

of

income

as

“Gain

on

early

extinguishment

of

debt.”

The

junior

are

in

the

of financial condition

as “Other long-term

borrowings.” The

purchase price

equated to

92.5% of the

$21.4

million

par

value

of

the

trust

preferred

The

7.5%

discount

in

the

gain

of

$1.6

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

periods ended

2023, net

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

the Special Items identified above.

Net income, as reported (GAAP)

$

75,838

$

70,655

$

149,296

$

141,353

Adjustments:

FDIC special assessment expense

1,099

Gain recognized from a legal settlement

(3,600)

(3,600)

(1,605)

(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

income is

the excess of

interest earned

by First BanCorp.

on its interest-earning

assets over

incurred on its

First

net

income

is

subject

to

rate

risk

due

to

the

and

mismatch

of

the

assets

and

In

sources

of

income,

such

as

loan

fees,

periodic

dividends, and

collection of

interest in

nonaccrual loans,

can fluctuate

from period

to period.

and

was $199.6

$396.1 million,

$199.8 million

and $400.7

million

for

the

comparable

periods

in

2023,

On

a

basis

and

the

changes

in

the

fair

value

of

derivative instruments,

$204.5 million

and $405.8

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

The

tables

include a

detailed

of net

for

the indicated

Part I

presents

average volumes

(based

on

the

average

daily

balance)

and

rates

on

an

basis

and

Part

II

presents,

also

on

an

tax-

equivalent basis,

the extent

to which

interest rates

and changes

in the

volume of

interest-related assets

and liabilities

have

income. For

each category

of interest-earning

liabilities, the

tables

provide

on

changes

in

(i)

volume

(changes

in

volume

multiplied

by

prior

period

rates),

and

(ii)

rate

(changes

in

rate

multiplied by

prior period

volumes). The

allocated rate-volume

variances (changes

in rate

multiplied by

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

effect of each factor on the combined totals.

income on

an adjusted

basis and

the changes

in the

of derivative

instruments is

a

measure.

For

the

definition

of

this

measure,

refer

to

the

discussion

in

Financial Measures and Reconciliations” above.

Average volume

(1)

/ expense

Average rate

(1)

Interest-earning assets:

$

667,564

$

617,356

$

9,060

$

7,880

5.44

%

5.12

%

(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

%

34,032

36,265

9.64

%

8.63

%

17,637

13,739

5.55

%

1.69

%

(3)

6,698,609

7,333,989

33,408

36,778

2.00

%

2.01

%

2,807,639

2,808,465

40,686

39,864

5.81

%

5.69

%

245,219

149,783

4,955

2,903

8.10

%

7.77

%

5,528,607

5,191,040

100,919

89,290

7.32

%

6.90

%

873,908

769,316

17,255

14,714

7.92

%

7.67

%

2,817,443

2,672,912

79,888

74,192

11.37

%

11.13

%

(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:

$

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

%

7,528,378

7,517,995

28,493

22,176

1.52

%

1.18

%

101,397

1,328

%

5.25

%

500,000

534,231

5,610

6,048

4.50

%

4.54

%

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

$

204,494

$

205,352

Interest rate spread

3.41

%

3.58

%

Net interest margin

4.32

%

4.35

%

Average volume

(1)

/ expense

Average rate

(1)

Interest-earning assets:

$

600,655

$

511,392

$

16,314

$

12,530

5.45

%

4.94

%

(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

%

34,334

38,539

1,672

1,201

9.77

%

6.28

%

17,094

13,441

3.64

%

2.96

%

(3)

6,709,502

7,283,450

65,873

72,149

1.97

%

2.00

%

2,808,972

2,821,779

81,159

79,658

5.79

%

5.69

%

232,036

147,923

9,492

5,579

8.20

%

7.61

%

5,516,695

5,179,448

199,993

175,175

7.27

%

6.82

%

868,796

752,501

34,382

28,523

7.94

%

7.64

%

2,813,829

2,654,008

159,528

145,406

11.37

%

11.05

%

(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:

$

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

%

7,531,361

7,531,374

57,428

39,692

1.53

%

1.06

%

96,229

2,397

%

5.02

%

500,000

581,436

11,220

13,224

4.50

%

4.59

%

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

$

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)

on loans

includes $3.1

$2.9 million

for the

quarters ended

2023, respectively,

and $6.3

$6.0 million

for the

ended June 30, 2024 and 2023, respectively,

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

loan portfolio.

Part II

2024 Compared to 2023

2024 Compared to 2023

Variance due to:

Variance due to:

Volume

Rate

Total

Volume

Rate

Total

Interest income on interest-earning assets:

$

$

$

1,180

$

2,333

$

1,451

$

3,784

(1,039)

(987)

(2,026)

(1,841)

(1,897)

(3,738)

MBS

(1,739)

(1,009)

(2,748)

(3,690)

(3,216)

(6,906)

(51)

(168)

(2,144)

(1,226)

(3,370)

(3,306)

(2,970)

(6,276)

(12)

(366)

1,867

1,501

1,923

2,052

3,394

3,913

5,990

5,639

11,629

11,813

13,005

24,818

2,053

2,541

4,547

1,312

5,859

4,074

1,622

5,696

8,944

5,178

14,122

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:

$

3,469

$

7,452

$

10,921

$

6,576

$

17,973

$

24,549

Brokered CDs

4,301

4,829

11,609

1,313

12,922

6,286

6,317

17,736

17,736

(1,328)

(1,328)

(2,397)

(2,397)

(384)

(54)

(438)

(1,823)

(181)

(2,004)

(319)

(73)

(750)

(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

international banking

entities (“IBEs”) are

tax-exempt under

tax

law

(see

Note

–

“Income

Taxes”

to

the

herein

for

information).

that

the

presentation

of

income

on

an

basis

facilitates

the

comparison

of

all

interest data

these assets. The

Corporation estimated

the tax

equivalent yield

by dividing

rate spread

on exempt

assets

by

less

the

Puerto

Rico

tax

rate

(37.5%)

and

adding

to

it

the

average

cost

of

The

computation considers the interest expense disallowance required

by Puerto Rico tax law.

that

the

presentation

of

net

income,

the

effects

of

the

changes

in

the

fair

value

of

the

(“valuations”),

about

the

net

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.

table reconciles

income in

GAAP to

income, excluding

valuations, and

net

income

on

an

basis

for

the

indicated

The

table

also

reconciles

net

spread

and

net

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

on an adjusted tax-equivalent basis:

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

$

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

$

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

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

3.41%

3.58%

3.38%

3.71%

Net interest margin on a tax-equivalent basis and excluding

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

2024,

a decrease of $0.2

million, when compared

to

$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:

A

$10.9

million

in

expense

on

time

CDs,

of

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

in the average

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

expense on

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

by

bps

to

1.52%

in

the

second

quarter

of

as

to

1.18%

in

the

same

2023. Excluding

public sector

deposits, the

average cost

of interest-bearing

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

in interest expense

on brokered

CDs, mainly

a $342.9

in the

average

A

$1.8

million

in

expense

on

mainly

due

to

a

$1.3

million

on

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

offset

by

a

$1.2

million

in

income

from

cash

balances,

which

of

cash

balances

deposited

at

the

FED,

of

which

$0.6

million

was

driven

by

a

$50.2

million

increase in the average balance, and $0.6

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

●

A $21.8

million increase in interest income on loans including:

A $12.8

million

in

on

and

loans,

driven

by

an $8.3

million

with

a

$433.0

million

in

the

average

balance,

and

a

$4.5

million

related

to

the

effect

of

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%

commercial and construction loans was

tied to

variable rates,

with 32%

based upon

SOFR of

3 months

or less,

13% based

Prime rate

index, and

9%

based

on

other

indexes.

For

the

second

quarter

of

2024,

the

average

one-month

SOFR

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.

An

$8.2

million

in

income

on

finance

leases,

with

a

$249.1

million increase in the average balance

of this portfolio,

mainly auto loans and finance leases,

under a higher interest rate

environment.

income

to $396.1

million

for the

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:

A

$24.6

million

in

expense

on

time

CDs,

of

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

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

of 2024

as compared

to 1.06%

for 2023,

mostly driven

by government

deposits in

Excluding government

deposits, the

average cost

of interest-bearing

savings accounts

for the

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

A $12.9

million

in

interest expense

on brokered

CDs, driven

by

of

$462.5

million

in

the

average

A

$4.5

million

in

expense

on

mainly

due

to

a

$2.4

million

on

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

a $662.7

million decrease

in the

average balance

of the

debt

,

by a

$3.8 million

from interest-bearing

cash balances,

which

consisted primarily

of cash

balances deposited

at the

FED, of

which $2.3

million was

a $89.3

in

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

of higher market interest rates.

●

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

A $26.8

million

in

on

and

loans,

driven

by

a

$16.3

million

associated with a

$421.4 million increase

in the average

balance of this

portfolio, and a

$10.5 million increase

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

in

the

average

balance

of

this

mainly

auto

loans

and

finance

leases,

under

a

higher

rate

environment.

Net

margin

for

the

second

quarter

of

flat

at

4.22%,

to

4.23%

for

the

same

period

in

For the

2024, net

decreased by

10 bps

to 4.19%,

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

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

a change

in asset mix

resulting from

the deployment

of

from lower-yielding

investment securities

to fund

as well

as the effect

of the higher

environment

on commercial and consumer loans yields.

Provision for Credit Losses

losses consists of

provisions for

credit losses on

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:

loans and finance leases

was $11.9

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”

to

the

herein

for

on

the

review

of

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

driven by an

improvement on

the economic outlook

of certain macroeconomic

variables,

variables associated

with commercial

property performance

,

and $1.2

recoveries of

two

commercial loans

in the

Meanwhile, the

net expense

recorded during

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

to an expense

of $14.1

provision expense

was

mainly

driven

by

in

levels

and,

to

a

lesser

extent,

updated

loss

used

for

resulting in

an upward

revision of

severities and

higher required

reserve levels

in the auto loans and finance leases portfolios.

was $24.8

half of

to $37.0

million

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

as follows:

●

Provision for

for the

was a

of $11.1

half of

to a net

benefit of

$3.4 million

for the

in net

benefit recorded

first

half

of

was

mainly

driven

by

the

updated

loss

offset

by

newly

originated loans that have a longer life.

●

Provision for

for the

portfolios was

a net

benefit of

$7.0 million

for the

first

half of 2024,

an expense of

$10.7 million

for the same

period of 2023.

The net benefit

recorded during

six months of 2024 was mainly driven

by recoveries of $5.0 million associated

with a C&I loan in the Puerto Rico

the

$1.2

million

in

in

the

Florida

region,

offset

by

volume.

the

expense recorded

first six months

of 2023

due to

a deterioration

in the

forecasted CRE

price index,

a

$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

for

the consumer

loan

and

was an

expense

of $42.9

million

for

half of

to an

$29.7 million

for the

in provision

expense was

mainly

driven

by

in

levels,

the

updated

loss

and

in

portfolio volumes,

by a

$9.5 million

recovery associated

bulk sale

of fully

charged-

off loans recorded during the first six months of 2024.

unfunded loan commitments

for

for

unfunded

and

loan

commitments and

standby

letters of

credit

for

the

and the

of 2024

was a

of $0.4

an expense

of

$0.7 million and $0.6 million, respectively,

for the same periods in 2023.

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

was an

$32 thousand

and a

$0.9 million

for the

half of

an expense

of $0.8

for

the same periods

in 2023. The net

benefit recorded during

the first half of

2024 was mostly driven

by improvements in the

updated

financial information

of a

municipal bond

issuer.

Meanwhile, the

provision recorded

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

with the rising interest rate environment.

for credit losses

for available-for-sale

debt securities for

first half of

2024 was an

$60

and

a

net

benefit

of

$9

thousand,

to

a

net

benefit

of

$16

and

$25

thousand,

respectively, for the

same periods in 2023.

Non-Interest Income

income amounted

to $32.0

to $36.3

Non-interest income for the second

quarter of 2023 included

the following Special Items: the

$3.6 million gain recognized

from

a

legal

settlement,

as part

of

“other

income,”

and

the

$1.6

million

gain

on

the

of

$21.4

million

in

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

of

loans in the

secondary market

due to higher

margins.

second quarters

of 2024

and 2023,

net realized

gains of $1.

million and $0.9

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.

to $66.0

to $68.8

the

On a

non-GAAP basis,

Special Items,

adjusted non-interest

income

increased by $2.4 million primarily due to:

●

A

$0.7

million

in

card

and

income,

mainly

in

merchant-related

fees

due

to

higher

transactional

volumes.

●

A $0.7 million increase in insurance commission income,

mainly related to higher contingent commissions.

●

A $0.6

million

in

from

banking

activities,

driven

by

an

in

the

net

realized

gain

on

sales of residential mortgage

loans in the secondary

market due to higher

margins. During the first

and

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

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

in service

charges and

fees on

deposits accounts,

in part

due to

in the number

of cash

management transactions of commercial clients.

Non-Interest Expenses

expenses for

to $118.7

to $11

2.9 million

for the

same

efficiency ratio

51.23%, compared

to 47.83% for

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,

this

Special Item, adjusted non-interest expenses increased by $5.6 million

primarily due to:

●

A

$3.1

million

in employees’

and benefits

annual

and

medical insurance premium costs.

●

A

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

higher transactional volumes.

●

A

$0.8

million

in

service

fees,

due

to

of

$0.5

million

in

consulting

fees

driven

by

information technology infrastructure enhancements and $0.4 million

in outsourced technology service fees.

●

A $0.8

in occupancy

and equipment

expenses, mainly

due to

increases in

maintenance charges,

offset by a decrease in depreciation charges.

●

A

$0.7

million

in

other

mainly

due

to

a

$1.1

million

in

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.

●

A

$1.6 million

net gains

on OREO

operations, driven

by the

aforementioned $2.3

million realized

gain on

the

sale

of

a

real

estate

OREO

in

the

Puerto

Rico

region,

which

more

than

offset

the

in

net

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

expenses for

to $239.6

to $228.2

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

of

for

the

period

ended

June

30,

include

the

$1.1

million

FDIC

special

See

Measures

and

Reconciliations”

above

for

On a

basis, excluding the effect of this Special Item, adjusted non-interest

increased by $10.3 million primarily due to:

●

A

$6.2

million

in employees’

and benefits

annual

and

in

stock-based

expense

of

retirement-eligible

employees,

medical

premium

costs,

and

higher matching contributions to the employees’ retirement plan.

●

A

$1.5

million

in

service

fees,

due

to

of

$1.4

million

in

consulting

fees

driven

by

technology

infrastructure

enhancements

and

$0.4

million

in

collections,

appraisals,

and

other

credit-related

fees, partially offset by a decrease of $0.3

million in outsourced technology service fees.

●

A

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

higher transactional volumes.

●

A

$0.9

million

in

occupancy

and

equipment

mainly

related

to

an

in

charges,

partially offset by a decrease in depreciation charges.

●

A

$0.6

million

in

other

mainly

due

to

a

$1.0

million

in

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.

●

A

$1.1 million

net gains

on OREO

operations, driven

by the

aforementioned $2.3

million realized

gain on

the

sale

of

a

real

estate

OREO

in

the

Puerto

Rico

region,

which

more

than

offset

the

in

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

2023. For the

first six months of

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

by a

lower effective

as a

result of

engaging in

certain business

activities with

tax

treatment under

the PR Tax

Code during

the fourth quarter

of 2023

which resulted

in a lower

effective tax

rate for

half of

2023 and for the year 2024.

annual estimated

for the

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

expects

that

the

tax

rate

for

the

year

will

be

around

24%.

The

tax

rate

of

the

Corporation is impacted

by,

among other things,

the composition and

source of its

taxable income.

See Note 16

– “Income Taxes,

”

to

the unaudited consolidated financial statements herein for additional

30, 2024, the

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

in the

net deferred

tax asset

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

total

assets

were

$18.9

billion

as

of

June

30,

2024,

a

of

$28.2

million

from

31,

2023,

primarily related

to repayments of

investment securities and

a decrease in

cash and cash

equivalents,

in

total loans.

Loans Receivable, including Loans Held for Sale

As of June 30, 2024,

total loan portfolio before

the ACL amounted to $12.4

billion, an increase of

$203.0 million

to

31,

In

terms

of

geography,

the

growth

of

of

$98.5

million

in

the

Florida

region,

$97.7

Rico region,

and $6.8

On a

basis, the

growth consisted

of

of

$157.7

million

in

and

loans

and

$54.3

million

in

loans,

auto

loans

and

finance leases, partially offset by a $9.0 million decrease

in residential mortgage loans.

As of

June

30,

2024,

the

loans

held-for-investment

was comprised

of

and

loans

(48%),

and

finance

leases

(29%),

and

real

estate

loans

(23%).

Of

the

total

gross

loan

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:

Total

$

2,163,245

$

161,057

$

485,364

$

160,093

3,681

22,183

185,957

1,697,939

62,821

662,549

2,176,489

135,456

942,632

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

Total loans held for investment,

gross

$

9,833,155

$

431,555

$

$

10,392

10,392

Total loans, gross

$

9,843,547

$

431,555

$

$

12,395,900

Total

$

2,187,875

$

168,131

$

465,720

$

111,664

3,737

99,376

214,777

1,725,325

65,312

526,446

2,130,368

119,040

924,824

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

Total loans held for investment,

gross

$

9,738,504

$

424,718

$

$

7,368

7,368

Total loans, gross

$

9,745,872

$

424,718

$

$

12,192,851

Residential Real Estate Loans

As of

2024,

total residential

loan portfolio,

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

in the

region during

the

2024 consisted

of conforming

to 58%

of the

$150.0 million

originated for

of

2024, the majority

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

loans in the Florida

region.

In

the

Florida

region,

37%

of

the

loan

of

hybrid

adjustable-rate

mortgages. In

underwriting guidelines,

loans are

primarily fully

documented

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

Commercial and Construction Loans

As of

construction loans

by $157.7

the balance as

of December 31,

The growth included

$76.7 million in

the Florida region,

reflecting, among other

things,

the

effect

of

the

of

various

and

relationships,

each

in

excess

of

$10

of

which

$52.3

million

are

related

to

three

relationships

and

$40.0

million

are

related

to

two

C&I

relationships,

and

higher utilization

of C&I

credit, including

a $14.1

million line

utilization.

These variances

were partially

offset

by

payoffs

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

The Puerto

Rico region

also grew

by $67.1

million, when

to the

balance

as of

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

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

to

a

municipality

in

Puerto

Rico

that

is

by assigned

tax

revenues.

These

variances

were

offset

by

multiple payoffs and paydowns, including payoffs

of four commercial and construction relationships totaling $52.7 million.

In

the

Virgin

Islands

region,

and

loans

by

$13.9

as

to

the

balance

as

of

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

region, $0.6

billion of

the exposure

was in

the

Florida region,

and $0.1

billion of

the exposure

was in the

Virgin

The $1.7

billion exposure

in the

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

total commercial

mortgage loan

exposure of

$2.4 billion,

$573.8 million

matures within

the next

12 months

and has

a

weighted-average interest

rate of

approximately 6.74%.

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%.

As

of

each

of

June

30,

and

31,

2023,

the

total

to

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

As

of

June

30,

2024,

the

loans

and

finance

leases

by

$54.3

million

to

$3.7

mainly in

the Puerto Rico

region, reflecting growth

of $45.8 million

and $23.5 million

in the auto

loans and finance

leases portfolios,

Loan Production

relies primarily

on its

retail network

of branches

to originate

residential and

consumer loans.

may

supplement

its residential

mortgage originations

with wholesale

servicing released

mortgage loan

purchases from

mortgage bankers.

The

manages

its

and

loan

through

centralized

units

and

most

of

its

come

from

customers,

as

well

as

through

referrals

and

direct

solicitations.

Auto

loans

and

finance

leases

rely

primarily on relationships with auto dealers and dedicated sales professionals who

serve selected locations to facilitate originations.

The

table

a

breakdown

of

First

loan

production,

refinancings,