FIRST BANCORP PR

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Nature of Business and Summary of Significant Accounting Policies

Note 2 –

Money Market Investments

Note 3 –

Note 4 –

Loans Held for Investment

Note 5

–

Allowance for Credit Losses for Loans and Finance Leases

Note 6

–

Premises and Equipment

Note 7 –

Other Real Estate Owned (“OREO”)

Note 8 –

Related-Party Transactions

Note 9 –

Goodwill and Other Intangibles

Note 10 –

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

Note 11 –

Note 12 –

Borrowings

Note 13 –

Earnings per Common Share

Note 14 –

Stock-Based Compensation

Note 15 –

Stockholders’ Equity

Note 16 –

Accumulated Other Comprehensive Loss

Note 17 –

Employee Benefit Plans

Note 18 –

Other Non-Interest Income

Note 19 –

Other Non-Interest Expenses

Note 20 –

Note 21 –

Operating Leases

Note 22 –

Derivative Instruments and Hedging Activities

Note 23

–

Note 24

–

Revenue from Contracts with Customers

Note 25 –

Segment Information

Note 26 –

Supplemental Statement of Cash Flows Information

Note 27 –

Regulatory Matters, Commitments, and Contingencies

Note 28 –

First BanCorp. (Holding Company Only) Financial Information

STATEMENTS

(Audited)

NOTE 1 –

NATURE OF BUSINESS AND SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES

Nature of business

First BanCorp. (the “Corporation”)

is a publicly owned, Puerto

Rico-chartered financial holding

company organized under

the laws

of the Commonwealth

of Puerto Rico in

1948. The Corporation

is subject to regulation,

supervision, and examination

by the Board

of

Governors of

Reserve System

(the “Federal

Reserve Board”).

Through its

subsidiaries, including

its banking

FirstBank Puerto Rico (“FirstBank”

or the “Bank”), the Corporation

provides full-service commercial

and consumer banking services,

mortgage banking

services, automobile

financing, trust

services, insurance

agency services,

financial products

and services

with operations in Puerto Rico, the United States, the U.S. Virgin

Islands (the “USVI”), and the British Virgin

Islands (the “BVI”).

has two

wholly-owned subsidiaries:

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), and

FirstBank Insurance

Agency,

Inc.

(“FirstBank

Agency”).

is

a

Puerto

bank,

and

Agency is

Rico-chartered insurance

agency.

the supervision,

examination, and

regulation of

both the

Office of

the Commissioner

of Financial

Institutions of

Rico (the

“OCIF”) and

Deposits are

insured

through

the

FDIC

Deposit

Fund.

also

in

the

State

of

subject

to

and

Office of

Financial Regulation

and the

FDIC; in

the USVI,

the

USVI

of

and

Regulation;

and

in the

BVI,

by the

British Virgin

Islands

Services Commission.

The Consumer

Financial Protection

Bureau (the

“CFPB”) regulates

products and services.

Agency

is

subject

to

the

examination,

and

regulation,

the

Office

of

the

Commissioner of

the Division

of Banking,

Insurance and

Financial Regulation

in the

USVI.

FirstBank conducts its

business through its

main office located

in San Juan, Puerto

Rico,

banking branches in

eight

banking branches in the USVI and the BVI, and

eight

banking branches in the state of Florida (USA). FirstBank

has

six

with

in

Puerto

Rico:

First

Federal

Finance

Corp.

(d/b/a

Money

Express

La Financiera),

a

finance

company

specializing

in

the

of

small

loans

with

offices

in

Puerto

Rico;

First

of

Puerto

Rico,

a

Puerto

Rico

which

holds

assets;

an

international

banking

entity

(an

“IBE”)

International Banking

Entity Act

Rico; two

companies engaged

in the

operation of

certain real

estate properties;

and

a

limited

in

under

the

laws

of

the

of

Puerto

Rico

and

Puerto

Rico

Tax

Incentives Code (“Act 60 of 2019”), which commenced operations in

2023 and engages in investing and lending transactions.

General

The accompanying

consolidated audited financial

statements have

been prepared

in conformity

with generally accepted

principles in the

United States of

America (“GAAP”). The

following is a description

most significant accounting

Principles of consolidation

The

include

the

of

the

and

its

All

intercompany

and

have

been

eliminated

in

consolidation.

The

results

of

of

or

assets

in

a

business combination are

included from the date

of acquisition. Entities in

which the Corporation

holds a controlling financial

are

consolidated.

For

a

voting

entity,

a

controlling

is

where

the

holds,

or

indirectly,

more than

50 percent

of the

outstanding voting

shares. For

a VIE,

a controlling

financial interest

is where

has

the

power

to

direct

the

of

an

entity

that

most

impact

the

entity’s

and

has

an

to

absorb

losses

or

the

right

to

receive

from

the

VIE.

trusts

that

are

wholly

owned

by

the

Corporation and are

issuers of trust-preferred

securities (“TRuPs”) and

entities in which the

Corporation has a non-controlling

are

not

in

the

in

with

authoritative

issued

by

the

Financial Accounting Standards Board (“FASB”)

for consolidation of VIEs.

Use of estimates in the preparation of financial statements

The

preparation

of

in

conformity

with GAAP

to

make

and

that

affect

amounts

in

the

and

about

future

economic and market conditions (for

example, unemployment, market liquidity,

real estate prices, etc.) contemplate current

and

how

we expect

them to

change in

the future,

it is

that actual

worse

than anticipated

in

those estimates, which could materially affect our results of operations

and financial condition.

utilizes processes

that involve

the use

of significant

estimates and

the judgements

of management

in determining

of its

ACL, income

taxes, as

well as

measurements

of investment

securities, goodwill,

other intangible

assets,

pension

plans,

rights,

and

loans

held

for

sale.

As

with

any

estimate,

actual

results

could

differ

from

those

estimates.

Cash and cash equivalents

For purposes of

reporting cash

flows, cash and

cash equivalents include

cash on hand,

cash items in

transit, and

amounts due

from

the Federal Reserve Bank of New York

(the “FED”) and other depository institutions. The

term also includes money market funds and

short-term investments with original maturities of three months or less.

Investment securities

The Corporation classifies its investments in debt and equity securities into one

of four categories:

Held-to-maturity

— Debt

the entity

has the

intent and

hold to

These securities

are carried

at

cost.

The

may

not

sell

or

without

calling

into

question

its

intent

to

hold other debt securities to

maturity, unless

a nonrecurring or unusual event

that could not have been reasonably

anticipated has

occurred.

Trading

— Debt securities that

are bought and

held principally for

the purpose of

selling them in

the near term.

These securities

are

carried

at

fair

value,

with

gains

and

losses

in

earnings.

As

of

31,

and

2023,

the

Corporation did not hold debt securities for trading purposes.

— Debt

securities not

classified as

held-to-maturity or

trading. These

carried at

fair value,

with

holding

gains

and

losses,

net

of

taxes,

in

other

loss

(“OCL”)

as

a

component of

stockholders’ equity.

The unrealized

holding gains

and losses

do not

affect earnings

until they

are realized,

or an

ACL is recorded.

Equity

—

Equity

that

do

not

have

readily

fair

values

are

as

equity

in

the

of

condition.

These

are

stated

at

cost

less

if

any.

This

is

principally composed

of Federal Home

Loan Bank (“FHLB”)

stock that the

Corporation owns to

comply with FHLB

The

value

of

the

FHLB

stock

equals

its

cost.

Also

in

this

are

marketable

equity

securities held at fair value with changes in unrealized gains or losses recorded through

earnings in other non-interest income.

Premiums

and

discounts

on

debt

are

as an

to

income

on

over

of

the

related securities

without anticipating

prepayments, except

for mortgage-backed

securities (“MBS”)

where

prepayments are anticipated. Premiums on

callable debt securities, if any,

are amortized to the earliest call date.

Purchases and sales of

recognized on

a trade-date

basis, the

date the

order to

buy or

sell is executed.

Gains and

sales are

using the specific identification method.

A debt

is placed

status at

the time

any

or interest

payment

becomes 90 days

delinquent.

accrued but

not received

for a

security placed

income.

3 –

“Debt Securities”

for

additional information on nonaccrual debt securities.

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

As

of

31,

and

2023,

the

debt

securities portfolio consisted of U.S. government-sponsored entities

(“GSEs”) MBS and Puerto Rico municipal bonds.

The ACL

on an

expected loss

methodology referred

to as

current expected

(“CECL”)

by

major

type.

Any

credit

loss

is

through

the

ACL

on

debt

and

is

deducted

from

the

cost

basis

of

the

so

that

the

statement

of

the

net

amount the Corporation expects to collect.

recognize an

ACL for

GSEs’ MBS

since they

are either

explicitly or

implicitly guaranteed

by the

U.S.

are highly

rated by

major rating

have a

long history

of no

For the

ACL of

Puerto

bonds,

considers historical

that is

adjusted for

current conditions

and

and

forecasts.

These

Puerto

Rico

are

not

issued

in

bearer

form, nor

are they

registered

with

the

and

(“SEC”)

and

are

not

rated

by

credit

These

arrangements with Puerto

Rico municipalities were

issued in bond form

and accounted for as

securities but underwritten as

that

are

found

in

loans.

similar

to

loans,

an

risk

rating

(

i.e

.,

pass,

special

mention,

substandard,

doubtful,

or

loss)

is

to

each

bond

at

the

time

of

or

and

monitored

on

a

continuous basis

with a

formal assessment

completed,

at a

minimum, on

basis. The

the ACL

for

Puerto

Rico

bonds

based

on

the

product

of

a

of

default

(“PD”)

and

loss

given

default (“LGD”),

and the amortized

cost basis of

each bond over

its remaining expected

life. PD estimates

represent the point

-in-time

as

of

which

the

PD

is

and

are

updated

based

on,

among

other

things,

the

payment

and

market

value

and

current

and

expected life

of the

bonds,

to determine

a lifetime

PD curve.

LGD estimates are

determined based

on, among

other

things,

events

and

(if

any),

sector

loss

as

well

as

relevant current

and forecasted

macroeconomic expectations

of variables,

such as unemployment

rates, interest

rates, and

market risk

factors based on industry

performance, to determine a

lifetime term structure LGD

curve. Under this approach,

all future period losses

for each

instrument are

calculated using

the PD

and LGD

loss rates

derived

curves applied

to the

cost

basis

of

each

bond.

For

the

of

the

an

initial

period

(a

“reasonable

and

period”)

of

two

years

and

a

period

of

up

to

three

years,

utilizing

a

straight-line

approach and

reverting back

to the

historical macroeconomic

mean. After

the reversion

period, the

Corporation uses

a historical

loss

forecast period covering the remaining contractual

life based on the changes in key historical

economic variables during representative

expansionary

and

recessionary

the

the

need

for

to

the

ACL.

may

be

related

to

and

but

not

be

limited

to,

factors

such

as:

(i)

of

used

in

the

model

and

how

those

align

with

overall

of

current

and

(ii)

organization

risks

such

as

credit

specific risks, nature

and size of

and external factors

that may ultimately

impact credit quality,

associated with factors such as changes in underwriting and resolution

strategies, among others.

has elected not

to measure

an ACL on

accrued interest related

to held-to-maturity

debt securities,

as uncollectible

receivables are written

off on

a timely manner.

See Note 3

– “Debt Securities”

information about

ACL

balances for held-to-maturity debt securities and activity during

the years ended December 31, 2024, 2023, and 2022.

for

Credit

Losses

–

Debt

Securities:

For

debt

in

an

loss

position, the Corporation first assesses whether

it intends to sell, or it is more

likely than not that it will be required

to sell, the security

before recovery of its amortized cost basis. If either of the criteria regarding

intent or requirement to sell is met, the difference between

fair

value

and

cost

is considered

to be

impaired and

in provision

for

For

debt

do not

criteria, the

Corporation evaluates

decline in

has resulted

from

credit losses or

other factors. In

making this assessment, management

considers the cash position

of the issuer and

its cash and capital

capacity,

which

could increase

or

diminish

the

issuer’s

ability

to

repay

its bond

the

extent

the

fair

value

is

less

than

the

cost

basis,

any

adverse

change

to

the

credit

and

of

the

issuer,

taking

into

consideration the latest information

available about the financial condition

of the issuer, credit

ratings, the failure of the

issuer to make

scheduled

principal or

interest payments,

recent legislation

and government

actions affecting

the issuer’s

and actions

taken

by the

issuer to

deal with

the economic

climate. The

Corporation also

takes into

consideration changes

in the

near-term prospects

of

the underlying

collateral of

a security,

if any,

such as

default rates,

loss severity

given default,

and significant

prepayment

and

the

level

of

cash

flows

generated

from

the

if

any,

the

and

interest payments

on the

debt securities.

If this

assessment indicates

that a

exists, the present

to be collected from

the security is compared

to the amortized cost

basis of the security.

If the present value

of cash flows expected

to

be collected

is less

than the

basis, a

exists and

records an

ACL for

the credit

loss portion,

limited to the

amount by which

is less than

the amortized cost

basis. Meanwhile, the

non-credit portion

is recognized in

OCL. Non-credit-related impairments result from other factors, including increased

liquidity spreads and higher interest rates.

Losses

are

charged

against

the

ACL

when

the

uncollectability

of

an

debt

is

confirmed or

when either

of the

criteria regarding

intent or requirement

to sell

is met.

has elected

not to measure

an

ACL on

debt

securities as

uncollectible

receivables are

written off

in a

timely manner as indicated above.

Substantially all

of the

GSEs. These

either explicitly

or

implicitly guaranteed

by the

U.S. government,

are highly

rated by

major rating

have a

long history

of no

there

is

a

zero-credit

loss

expectation

on

these

For

further

the

and

used

for

the

cash

flow

analyses

on

other

debt

such

as

private

label

MBS

and

bonds

issued

by

Rico

Housing

Finance

see

Note

–

“Debt

Securities”

and

Note

–

“Fair Value.”

Loans that the

Corporation has the

ability and

intent to hold

for the foreseeable

future,

or until maturity

or payoff,

are classified as

held

for

and

are

at

cost,

net

of

its

ACL.

The

of

the

loans

are

classified as held for investment.

Amortized cost is the principal outstanding

balance, net of unearned interest, cumulative

charge-offs,

unamortized deferred

origination fees

and costs,

and unamortized

premiums and

discounts. The

Corporation reports

credit card

loans

at

their

unpaid

balance

plus

uncollected

billed

and

fees

net

of

such

amounts

deemed

uncollectible.

income

is

accrued

on

the

unpaid

balance.

Fees

and

costs

in

the

of

new

loans

are

and amortized

or a

method that

approximates the

term of

as an

adjustment to

interest yield.

Unearned

certain personal

loans, auto

loans,

leases and

discounts and

are

as

income

under

a

method

that

approximates

the

method.

When

a

loan

is

paid-off

or

sold,

any

unamortized net deferred fees, or costs, discounts and premiums are included

in loan interest income in the period of payoff.

and

Past-Due

Loans

–

Loans

on

which

the

of

income

has

been

discontinued

are

as

nonaccrual.

Loans

are

as

when

they

are

days

past

due

for

and

principal,

except

for

mortgage loans insured or guaranteed

by the Federal Housing Administration

(the “FHA”), the Veterans

Administration (the “VA”)

or

the

PRHFA,

and

credit

card

loans.

It

is

the

policy

to

report

loans

insured

by

the

FHA,

or

the VA

or the

PRHFA,

as loans

days and

still accruing

as opposed

loans since

is

insured

or

guaranteed,

and

such

loans

to

accrue

at

the

rate

by

the

agency.

when

such FHA/VA

over

months delinquent,

discontinues the

taking

into

the

FHA

curtailment

process,

and

with

respect

to

PRHFA

loans

when

such

loans

are

over

days

delinquent. Credit card loans continue

to accrue finance charges and

fees until charged off at

days. Loans generally may be placed

on nonaccrual status

prior to when required

by the policies described

above when the full

and timely collection

of interest or principal

becomes

(generally

based

on

an

of

the

and

the

of

if

any).

When

a

loan

is

placed

on

status,

any

accrued

but

uncollected

income

is

reversed

and

charged

against

income and amortization

of any net

deferred fees is suspended.

Interest income on

nonaccrual loans is recognized

only to the extent

it

is received in

cash. However,

when there is

doubt regarding the

ultimate collectability of

loan principal, all

cash thereafter received

is

applied to reduce

the carrying value of

such loans (

i.e.

, the cost recovery

method). Under the cost-recovery

method, interest income

is

not recognized until the loan

balance has been collected

in full, including the charged

-off portion.

the Corporation returns a

loan

to

accrual

status

when

all

and

becomes

current

under

the

terms

of

the

loan

or

after

a

period

of

(

six months

)

and

the

loan

is

well

secured

and

in

the

process

of

and

full

repayment of

the remaining

contractual principal

is expected.

Loans that

are past

due 30

days or

more as

to principal

or

are

delinquent,

with

the

exception

and

loans,

which

are

past

due

when

the

is

in

arrears

on

two

or

more

monthly

The

has

elected

not

to

measure an ACL on accrued interest related to loans held for investment

as uncollectible accrued interest receivables are written off

on

a timely manner.

Collateral-dependent Loans

– Certain commercial,

residential and consumer

loans for which

repayment is expected

to be provided

through

the

operation

or

sale

of

the

loan

are

to

be

collateral-dependent.

and

construction loans of $

0.5

million or more and for

which borrowers exhibit specific

risk characteristics, such as repayment

capacity or

credit deterioration,

collateral dependent.

home equity

credit are

collateral dependent when

they are

days or more past

due. The ACL of

collateral dependent loans is

based on the fair

collateral at

the reporting

date, adjusted

for undiscounted

estimated costs

to sell,

as further

discussed below.

leases are not considered collateral dependent because its ACL is calculated using

a PD/LGD model as further discussed below.

Charge-off

of Uncollectible

Loans

–

Net charge

-offs consist

of the

unpaid principal

balances of

determines are

uncollectible,

net of

recovered amounts.

records charge

-offs as

a reduction

to the

ACL

and subsequent recoveries of previously charged-off

amounts are credited to the ACL.

Collateral

loans

in

the

and

and

industrial

(“C&I”)

loan

are

written

down

to

their

net

value

(fair

value

of

less

costs

to

sell)

when

loans

are

to

be

uncollectible. Within

the consumer loan portfolio,

closed-end consumer loans,

including auto loans and finance

leases, are charged off

when payments are

days in arrears. Open-end (revolving

credit) consumer loans, including credit

card loans, are charged off

when

payments are

days in arrears. Residential mortgage

loans that are

days delinquent are reviewed

and charged-off, as

needed, to

of the underlying

collateral less cost

to sell. Generally,

all loans may

be charged off

or written down

to the fair

prior to

the application

of the

policies described

above if

a loss-confirming

event has

occurred. Loss-confirming

events

include, but

are not

limited to,

bankruptcy (unsecured),

continued delinquency,

or receipt

of an

asset valuation

indicating a

deficiency when the asset is the sole source of repayment.

Modifications Granted

to Debtors

Experiencing

Financial Difficulties

– Effective

January 1,

Corporation adopted

ASU

2022-02

Instruments

–

Credit

Losses

(Topic

Debt

Restructurings

(“TDR”)

and

Vintage

Disclosures.

For

years 2024

and 2023, modifications

granted to debtors

experiencing financial

difficulties during

the current reporting

period in which

there was a change in

the timing and/or amount

of contractual cash flows in

the form of a reduction

in interest rate, term extension,

an

other-than-insignificant

payment

delay,

or

any

thereof

are

disclosed.

For

the

year

2022,

in

troubled debt

restructurings (“TDRs”)

the creditor for

economic or

legal reasons

the debtor’s

financial difficulties

grants

a

concession

to

the

debtor

that

it

would

not

are

disclosed.

A

debtor

is

to

be

difficulties

when

there

is

doubt

about

the

debtor’s

ability

to

make

on

the

debt

or

to

get

from

another

creditor

at

a

market

rate

for

similar

debt.

Modified

loans

are

as

either

accrual

or

nonaccrual loans.

Loans in

accrual status

may remain

in accrual

status when

their contractual

terms have

been modified

if the

loans

had

demonstrated

prior

to

the

and

payment

in

full

under

the

terms

is

expected.

Otherwise,

modified loans on nonaccrual

status at the time

of the restructuring will

remain on nonaccrual status

until the borrower has

proven the

ability to perform

under the modified

structure, generally for a

minimum of six months,

and there is evidence

that such payments

can,

and

are

likely

to,

as agreed.

the

applies

a

non-discounted

flow

portfolio-based

for

the

estimation of the ACL of modified loans to borrowers experiencing financial

difficulties for all portfolios.

Allowance for credit losses for loans and finance leases

The ACL

for

held

for

is a

account

that is

deducted

loans’

cost

basis to present

the net amount expected

to be collected on

loans. Loans are charged

-off against the

ACL when management

confirms

the loan balance is uncollectable.

The Corporation estimates the

ACL using relevant available

information, from internal and

external sources, relating to past

events,

current conditions,

and supportable

forecasts. Historical

experience is

input for

the estimation

of

credit

losses,

as

well

as

to

loss

made

for

in

current

loan-specific

risk

characteristics,

such

as

any

in

mix,

level,

or

term.

the

key

which

include

credit

and

such

as

changes

in

unemployment rates, property values, and other relevant

factors, to account for current and forecasted market

conditions that are likely

to cause

estimated credit

losses over

of the

differ

from historical

are

over the contractual term

of the loans, adjusted by

prepayments when appropriate.

The contractual term excludes

expected extensions,

and renewals,

unless

the extension or renewal options are included in

the original or modified contract at the reporting date and

are not

unconditionally cancellable by the Corporation.

The

the

ACL

based

on

a

PD/LGD

modeled

approach,

or

individually

for

dependent loans. The Corporation

evaluates the need for changes

to the ACL by portfolio

segments and classes of loans

within certain

of

those

segments.

Factors

such

as

the

credit

risk

in

a

and

how

the

monitors

the

related

quality, as well as the estimation

approach to estimate credit losses, are considered in the determination

of such portfolio segments and

classes. The Corporation has identified the following portfolio segments:

●

– Residential

loans

are

loans

secured

by

real

with

the

right

to

receive

the payment

of principal

on the

loan. The

majority of

first lien closed-end loans secured by 1-4 single-family residential properties.

●

– Commercial

loans

are

loans

secured

by

real

estate

for

which

the

primary

source

of

comes

from

rent

and

lease

that

are

generated

by

an

income-producing

property.

●

Commercial and Industrial

– C&I loans include both unsecured and secured

loans for which the primary source of repayment

comes

from

the

ongoing

and

by

the

and

not

from

rental

income

or

the

sale

or

refinancing

of

any

real

estate

collateral;

thus,

credit

risk

is

largely

on

the

current

and

The

C&I

loan

of

loans

granted

to

large

as

well as middle-market customers across several industries, and the government

sector.

●

–

loans

consist

of

loans

secured

by

real

estate

made

to

finance

the

of

industrial, commercial, or residential

buildings and include loans to

finance land development in preparation

for erecting new

structures.

These

loans

involve

an

higher

level

of

risk

and

to

market

Demand

from

prospective tenants or purchasers may erode after construction begins because

of a general economic slowdown or otherwise.

●

–

Consumer loans generally

consist of unsecured

and secured loans

extended to individuals

for household, family,

and other personal expenditures, including several classes of products.

For

of

the

ACL

determination,

the

stratifies

by

two

main

regions

(

i.e.,

the

Puerto

Rico/Virgin

Islands

region

and

the

Florida

region).

The

ACL

is

using

a

PD/LGD

model

that

is

based

on

the

product of a

cumulative PD and

LGD. PD and

LGD estimates are

updated quarterly

for each loan

over the remaining

expected life

to

term

curves.

Under

this approach,

the

calculates losses

for

each

loan

for

all future

periods

PD and

LGD loss

rates derived

curves applied

to the

basis of

the loans,

prepayments.

For

loans,

the

stratifies

the

segment

by

the

two

classes:

(i)

loans,

and

(ii)

loans.

Government-guaranteed

loans

are

those

to

under

the

FHA

and

the

VA

Originated

loans

that

meet

the

FHA’s

qualify

for

the

FHA’s

insurance program whereas

loans that meet the

standards of the VA

are guaranteed by

such entity.

No credit losses are

determined for

loans insured or guaranteed

by the FHA or the VA

due to the explicit

guarantee of the U.S. federal

government. On the other

hand, an

ACL is

calculated for

are loans

that do

not qualify

FHA or

VA

PD

are

based

on,

among

other

things,

payment

and

current

and

such as regional

unemployment rates. On

the other hand,

LGD estimates are based

on, among other

things,

events

and

and

current

and

variables, such as the regional housing price index.

For commercial

mortgage loans,

PD estimates

are based on,

things, industry historical

property type,

occupancy,

and

current

and

On

the

other

hand,

LGD

are

based

on

historical charge-off events and recovery

payments, industry historical loss experience, specific attributes of

the loans, such as loan-to-

value,

debt

service

ratios,

and

net

income,

as

well

as

current

and

expectations,

such

as

real

estate

price

indexes,

the

gross

product

(“GDP”),

rates,

and

rates, among others.

For C&I

loans, PD

estimates are

industry historical

and market

value indicators,

and

current

and

On

the

other

hand,

LGD

are

based

on

loss

attributes

of

the loans,

such

as loan

to

value,

as

well

as relevant

current

and

for

such

as

rates,

rates,

and

market

risk

factors

based

on

performance and the equity market.

For

loans,

PD

are

based

on,

among

other

things,

payment

type

of collateral,

and

variables. On

the

other

hand,

LGD

are

based

on

events

and

loss

specific attributes of the

loans, such as loan-to-value, debt service coverage

ratios, and relevant current and

forecasted macroeconomic

variables, such as unemployment rates, GDP,

interest rates, and real estate price indexes.

For consumer loans,

the Corporation stratifies

the portfolio segment by

the following five classes: (i)

auto loans; (ii) finance

leases;

(iii) credit

cards; (iv)

personal loans;

and (v)

other consumer

loans, such

as open-end

home equity

revolving lines

types

of

credit

lines,

among

others.

In

the

ACL,

loans

risk

including, but not limited to,

credit quality indicators such as

payment performance period, delinquency

and original FICO scores. For

auto loans and finance

leases, PD estimates are based on,

among other things, the historical

payment performance and relevant

current

and forward-looking macroeconomic

variables, such as regional

unemployment rates. On the

other hand, LGD estimates

are primarily

based

on

events

and

For

the

credit

card

and

loan

the

the ACL

on a

pool basis,

PDs and

LGDs developed

each origination

vintage by

length of

loan terms,

by geography,

payment performance

and by

credit score.

The PD

and LGD

for each cohort

key macroeconomic variables, such as regional GDP,

unemployment rates, and retail sales, among others.

For the

ACL determination

of all

portfolios, the

expectations for

relevant macroeconomic

variables related

to the

and

Virgin

Islands

region consider

an initial

and

period of

and

a

period

of up

to

three years

,

utilizing a

straight-line approach

and reverting

back to

the historical

mean. For

region, the

a

and

period

and

an

towards

the

trend

that

varies

for

each

macroeconomic variable.

After the reversion

period, a

historical loss

forecast period

covering the

remaining contractual

life, adjusted

for prepayments,

is used

in key

historical economic

variables during

representative historical

expansionary and

recessionary periods.

Furthermore, the

Corporation periodically

considers the

need for

qualitative adjustments

to the

ACL. Qualitative

adjustments may

be related to

and include, but not

be limited to,

factors such as: (i)

assessment of economic

forecasts used in the

model

and how

those forecasts

align with

overall evaluation

of current

and expected

economic conditions,

including, but

not

limited to,

expectations about

interest rate,

inflation, and

price levels,

as well

as labor

market challenges;

(ii) organization

risks

such

as

credit

risks,

nature

and

size

of

the

and

factors

that

may

ultimately impact credit

limitations associated

with factors such

as changes in

underwriting and loan

strategies, among others.

The

ACL

of

non-collateral

loans

written

down

to

their

values

is

using a risk-adjusted discounted

cash flow method. Under this

approach, all future cash

flows (interest and principal) for

each loan are

adjusted by

the PDs

and LGDs

derived from

the term

structure curves

and prepayments

and then

discounted at

rate as of the reporting date to arrive at the net present value of future cash

flows.

5 –

for Credit

Losses for

Loans

and Finance

Leases” for

about reserve

for

each portfolio segment and activity during the years ended December

31, 2024, 2023, and 2022.

Allowance for credit losses on off-balance sheet credit exposures and

other assets

The Corporation estimates expected

credit losses over the contractual period

in which the Corporation is exposed to

credit risk via a

to

extend

credit

unless

the

is

unconditionally

cancellable

by

the

The

ACL

on

off-

credit exposures is

adjusted as a

provision for credit

loss expense. The

estimate includes consideration

of the likelihood

that funding

will occur and

an estimate of

expected credit

losses on commitments

expected to be

funded over its

estimated life.

As of

sheet credit

exposures primarily

consisted of

unfunded loan

standby

letters of credit for

loans. The Corporation

utilized the PDs and

LGDs derived from the

above-explained

for

the

and

loan

portfolios.

Under

this

approach,

all

future

period

losses

for

each

loan

are

calculated using

the PD

and LGD

loss rates

derived from

the term

structure curves

applied to

the usage

given default

exposure.

The

ACL on

off-balance sheet

credit exposures

is included

accounts payable

liabilities in

of financial condition with adjustments included as part of the provision

for credit losses in the consolidated statements of income.

5 –

for Credit

Losses” for

Loans

and

Finance

Leases for

about reserve

for

unfunded loan commitments and activity during the years ended December 31,

2024, 2023, and 2022.

The

also

credit

losses

for

certain

receivable,

claims

from

loans,

loan

servicing-related

receivables,

and

other

receivables.

The

ACL

on other

assets

at

cost

is

as part

assets in

with adjustments

as part

non-

interest expenses

in the consolidated

statements of income.

ACL on other

assets measured at

amortized cost was immaterial.

Loans

intends to

sell or

that

have

and

hold

for the

foreseeable

future

are

as

held-for-sale

loans.

Loans

held

for

sale

are

at

the

lower

of

cost

or

fair

value

less

costs

to

sell.

the

loans

held-for-sale

of

loans

that

will

be

pooled

into

National Mortgage Association (“GNMA”)

MBS, which are then sold to

investors, and conforming residential mortgage

loans that the

Corporation intends

to sell to

GSEs, such as

the Federal National

Mortgage Association

(“FNMA”) and the

U.S. Federal Home

Loan

Mortgage Corporation (“FHLMC”).

loans held for sale

are valued on

an aggregate portfolio

basis and

the

value

is

derived

from

quotations

based

on

the

MBS

market.

The

amount

by

which

cost

exceeds

market

value

in

the

aggregate portfolio

sale, if

any,

is accounted

for as

allowance with

changes therein

in

the

of

net

income

and

as

part

of

banking

in

the

of

income.

Loan

costs

and

fees

are

at

and

are

in

income

at

the

time

of

sale

and

are

in

the

amortized cost basis when

evaluating the need for

a valuation allowance. The

fair value of commercial and

construction loans held for

sale, if any,

is primarily derived

from external appraisals,

or broker price

opinions that the

Corporation considers,

with changes in

the

valuation allowance reported as part of other non-interest income

in the consolidated statements of income.

In certain circumstances,

the Corporation transfers

loans from/to held

for sale or held

for investment based

on a change in

strategy.

If such a

change in holding

strategy is made, significant

adjustments to the loans’

carrying values may

be necessary.

Reclassifications

of loans held

for investment to held

for sale are made

at the amortized

cost on the date

of transfer and

establish a new cost

basis upon

transfer.

Write-downs of

loans transferred from

to held for

sale are recorded

as charge-offs at

the time of

transfer.

Any

ACL

is

reversed

in

after

the

write-down

policy.

Subsequent

changes

in

value

below

are recorded

through a

and are

non-interest income

in the

of

income.

Reclassifications

of

loans

held

for

sale

to

held

for

are

made

at

the

cost

on

the

date

and

any

recorded valuation

allowance is

reversed in

earnings. Upon

transfer to

investment, the

Corporation calculates

an

ACL using the CECL impairment model.

Transfers and servicing of financial assets and extinguishment

of liabilities

After a transfer of

financial assets in a

transaction that qualifies

for accounting as

a sale, the Corporation

derecognizes the financial

assets when it has surrendered control and derecognizes liabilities when they

are extinguished.

A transfer of financial

assets in which the

Corporation surrenders control

over the assets is

accounted for as

a sale to the extent

that

consideration other

than beneficial

interests is

received in

exchange. The

criteria that

must be

met to

the control

over

assets has

been surrendered

include

(i) the assets

must be

isolated from

creditors of

the transferor;

(ii) the

transferee

must

obtain

the

right

(free

of

that

constrain

it

from

taking

advantage

of

that

right)

to

pledge

or

the

assets;

and

(iii) the

transferor

cannot

control

over

the

assets

through

an

to

them

before

their

When

the

assets

and

the

fails

any

one

of

the

above

criteria,

the

is

prevented

from

derecognizing

the

assets

and

the

is

for

as

a

secured borrowing.

Servicing assets

The Corporation recognizes

as separate assets the

rights to service

loans for others,

whether those servicing

assets are originated

or

purchased. In the ordinary course of business, loans are

pooled into GNMA MBS for sale in the secondary

market or sold to FNMA or

FHLMC, with

servicing retained.

When the

Corporation sells

loans, it

recognizes any

retained servicing

right (“servicing

assets” or “MSRs”) at the time of sale, based on its fair value.

MSRs

in

a

sale

or

arise

from

between

the

and

in

MBS

and

loans.

Under

these

contracts,

the

loan-servicing

in

for

fees

and

other

remuneration. The

MSRs, included as

part of other

assets in the

statements of financial

condition, entitle

the Corporation to

fees

based

on

the

balance

of

the

loans

and

the

rate.

The

fees

are

to

income

on

a

monthly

basis

when

and

as

part

of

banking

in

the

statements of income. In

addition, the Corporation generally receives

other remuneration consisting of

mortgagor-contracted fees such

as late charges and prepayment penalties, which are credited to income

when collected.

Considerable judgment is required

to determine the fair value of

MSRs. Unlike highly liquid investments,

value

of

MSRs

cannot

be

readily

because

these

assets

are

not

actively

traded

in

markets.

The

initial

value

of

an

MSR is

based

on

its fair

value.

the

fair

value

of

the

MSRs using

a

static cash

flow analysis,

which incorporates

current market

assumptions commonly

used by

buyers of

these MSRs

and was

derived

from

prevailing

in

the

market.

The

of

the

MSRs

two

sets

of

assumptions: (i) market-derived

assumptions for discount

rates, servicing costs,

escrow earnings rates,

floating earnings rates,

and the

cost

of

funds;

and

(ii) market

calibrated

to

the

loan

and

behavior

for

escrow

balances, delinquencies and foreclosures, late fees, prepayments, and prepayment

penalties.

Once

recorded,

the

MSRs

for

impairment.

Impairments

are

through

a

allowance for

each individual

stratum of

servicing assets.

For purposes

of performing

the MSR

impairment evaluation,

portfolio is

stratified on

the basis of

certain risk

characteristics, such

as region,

terms, and

coupons. Impairment

charges are

as part

of revenues

in the

of income.

If the value

of the

MSR subsequently

increases, the recovery

in value is recognized

in current period earnings

also as part of

revenues from mortgage

banking activities and

the carrying

the MSR

is adjusted

through

a reduction

in the

allowance.

conducts an

other-than-

to

whether

a

loss

in

the

value

of

the

MSR

in

a

stratum,

if

any,

is

other

than

temporary or

not. When

the recovery

of the

value is

unlikely in

the foreseeable

future, a write-down

of the

MSR in

the stratum

to its

estimated recoverable value is charged to the valuation

allowance.

The

MSRs

are

over

the

life

of

the

loans

based

on

an

income

method

as

a

of

servicing income.

The income forecast

method of amortization

is based on

projected cash flows.

A particular periodic

amortization is

by

to

the

amount

of

the

MSRs

the

ratio

of

the

cash

flows

for

the

current

period

to

total

remaining net MSR forecasted cash flow.

Premises

and

equipment

are

carried

at

cost,

net

of

depreciation

and

amortization.

Depreciation

is

on

the

straight-line method over the estimated useful

life of each type of asset. Amortization of

leasehold improvements is computed over

the

terms

of

the

leases

(

i.e.

,

the

term

plus

lease

renewals

that

are

assured)

or

the

useful

lives

of

the

improvements, whichever

is shorter.

Costs of

maintenance and

repairs that

do not

improve or

extend the

life of

the respective

assets

are expensed

as incurred.

Costs of

renewals and

betterments

are capitalized.

When

sells or

disposes of

assets, their

cost and related

accumulated depreciation

are removed from

the accounts and

any gain or

loss is reflected

in earnings as

part of other

income

in

the

of

income.

When

the

asset

is

no

longer

used

in

and

intends to

sell it,

the asset

is reclassified

to other

assets held

for sale

and is

reported at

the lower

of the

or fair

value

less cost to

sell. Premises

and equipment

are evaluated

for impairment

whenever events

or changes

in circumstances

indicate that

the

of the

asset may

not be

recoverable. Impairments

on premises

and equipment

are included

occupancy and

equipment expenses in the consolidated statements of income.

Operating leases

The Corporation,

as lessee,

if an

arrangement

is a

lease or

contains a

lease at

inception.

Operating lease

liabilities are

based

on

the

present

value

of

the

lease

using

the

rate

for

the

lease

at

the

commencement

date,

or

at

date

in

case

of

a

combination.

As

the

rates

in

the

leases are

not readily

determinable,

generally uses

an incremental

rate based

on information

at

the commencement

date to

determine the

present value

of future

lease payments.

The incremental

borrowing rate

is calculated

based

on fully

amortizing secured

borrowings. Operating

right-of-use (“ROU”)

assets are

generally recognized

of the

initial measurement of the

lease liability. Non-lease

components, such as common

area maintenance charges,

are not considered a part

of the

gross-up of

the ROU

asset and

lease liability

and are

recognized as

incurred. The

leases are

primarily related

to

operating leases

for the

branches. Most

of the

leases with

operating ROU

assets have

terms of

to

years, some

include options

to extend

the leases

for up

to

ten years

.

recognize ROU

lease

that

arise

from

leases

(less

than

months).

Operating

lease

which

is

as

part

of

occupancy and equipment expenses

in the consolidated statements

is recognized on a straight-line

basis over the lease term

that is based

on the

assessment of

renewal options

are reasonably

certain to be

exercised. The

the

ROU

assets

and

lease

as

part

of

other

assets

and

payable

and

other

in

the

of financial condition.

As of December 31, 2024 and 2023, the Corporation, as lessee, did

no

t have any leases that qualified as finance leases.

Other real estate owned

OREO,

which

of

in

settlement of

loans,

is recorded

at fair

value

less estimated

costs to

sell the

real

estate acquired.

loans have

been

written down

to their

net realizable

value

prior

to

foreclosure.

Any further

to

their

net

value

is

with

a

charge

to

the

ACL

at

the

time

of

or

within

six

months

after

foreclosure.

Thereafter, costs of maintaining and

operating these properties, losses recognized on the periodic reevaluations of

these properties, and

gains or

losses resulting

sale of

these properties

are charged

or credited

to earnings

and are

included as

part of

net gain

on

OREO operations in the consolidated statements of income. Appraisals are obtained

periodically, generally

on an annual basis

.

Claims arising from FHA/VA

government-guaranteed residential mortgage loans

Upon

the

on

collateralizing

an

FHA/VA

loan,

the

derecognizes

the

loan

and

a

as

part

of

other

assets

in

the

of

if

the

in

ASC

310-40,

“Reclassification

of

Real

Estate

Collateralized

Loans

upon

Foreclosure,”

(“ASC

310-40”)

are

met.

See

Note

7–

“Other

Real

Estate

Owned”

for

on foreclosures

associated to

FHA/VA

reclassified to

other

assets as of December 31, 2024 and 2023.

Goodwill and other intangible assets

–

the

cost

in

excess

of

the

fair

value

of

net

assets

intangibles)

in

transactions accounted

for as

business combinations.

allocates goodwill

to the

reporting unit(s)

benefit from

the synergies

of the

business combination.

Once goodwill

assigned to

unit, it

no longer

retains its

association with

a particular

acquisition, and

all of

the activities within

unit, whether

acquired or

internally generated,

are

available to support

the value of the goodwill.

The Corporation tests goodwill

for impairment at

least annually and more

frequently if

circumstances exist that indicate a possible reduction

in the fair value of a reporting unit below its carrying

value. If, after assessing all

events

or

the

concludes

that

it

is

more-likely-than-not

that

the

fair

value

of

a

unit

is

below its

carrying value,

then an

impairment test

is required.

to the

goodwill recorded

at the

Corporate,

Consumer Retail, and Mortgage

Banking reporting units in connection

with the acquisition of Banco

Santander Puerto Rico (“BSPR”)

in 2020,

goodwill is

mostly related

to the

(Florida) reporting

unit. See

Note 9–

“Goodwill and

Other

Intangible Assets” for information on the qualitative assessment performed

by the Corporation during the fourth quarter of 2024.

Other

Intangible

Assets

–

As

of

31,

and

2023,

other

assets

relate

to

core

The

Corporation amortizes

core deposit

intangibles based

on the

projected useful

lives of

the related

deposits, generally

on a

straight-line

basis, and reviews these assets for

impairment whenever events or changes

in circumstances indicate that the carrying

amount may not

exceed their fair value.

Securities purchased and sold under agreements to repurchase

The

for

under

resale

and

sold

under

as

collateralized financing

transactions. Generally,

records these

agreements at

at which

the securities

were

purchased or

sold. The

Corporation monitors

securities purchased

and sold,

and obtains

collateral from,

or returns

it

to,

the counterparties

when

appropriate.

These financing

do not

create material

given

and the related monitoring process.

The Corporation sells and acquires

securities under agreements to repurchase or

resell the same or

similar

similar

are

from

the

same

issuer,

with

identical

form

and

type,

similar

maturity,

identical

interest rates,

similar assets

as collateral,

and the

same aggregate

unpaid

principal amount.

The counterparty

to

certain agreements may have the right to repledge the collateral by

contract or custom. The Corporation presents such assets separately

in

the

of

as

pledged

with

creditors’

rights

to

repledge.

Repurchase

and

resale

activities may be

transacted under

legally enforceable

master repurchase

agreements that give

the Corporation, in

the event of

default

by

the

counterparty,

the

right

to

liquidate

held

and

to

offset

receivables

and

payables

with

the

same

counterparty.

The

Corporation offsets repurchase

and resale transactions with the same

counterparty in the consolidated statements

of financial condition

where it has such

a legally enforceable

right under a master

netting agreement,

the intention of setoff

is existent, the transactions

have

the same maturity date, and the amounts are determinable.

From

time

to

time,

the

modifies

to

take

advantage

of

prevailing

rates.

Following

GAAP guidance,

if

the

that

under

the modified

terms

is substantially

from

the

original terms,

the modification

must be accounted

for as an

extinguishment of

debt. The

Corporation considers

modified terms

to be

substantially different

if the present

the cash flows

terms of the

new debt instrument

is at least

10% different

from

the

present

value

of

the

cash

flows

under

the

terms

of

the

instrument.

The

new

debt

will be

initially

at fair

value, and

that amount

will be

used to

gain or

loss to

be recognized

through

the

and the

effective rate

of the

new instrument.

If the

debt under

the

terms is

not

different,

then

the

new effective

rate

the

of

the

debt

instrument.

The

has

that

none

of

the

in

the

past

were

substantially different from the original terms, and,

therefore, these modifications were not accounted for as extinguishments of debt

.

Income taxes

uses the

asset and

liability method

for the recognition

of deferred

tax assets and

liabilities for

the expected

future

tax

of events

been

in

or

tax returns.

Deferred

income

tax

assets

and

are

for

between

the

statement

and

tax

bases

of

assets

and

that

will

taxable or

deductible amounts

in the

future. The

computation is

enacted tax

rates applicable

to periods

in

which the temporary

differences are expected

to be recovered or

settled. The effect

on deferred tax assets and

liabilities of a change

in

tax rates

in income

at the

time of

enactment of

such change

in tax

rates. Any

interest or

penalties due

for payment

of

income taxes are included

in the provision for income

taxes. Valuation

allowances are established, when

necessary, to

reduce deferred

tax assets to the

amount that is more

likely than not to

be realized. In making

such assessment, significant

weight is given to

that can

be objectively

verified, including

both positive

and negative

evidence. The

authoritative guidance

for accounting

for income

taxes requires the consideration of all sources of taxable income

available to realize the deferred tax asset, including the future

of

differences,

tax

and

future

taxable

income,

exclusive

of

the

impact

of

the

of

temporary differences and

carryforwards. In estimating

taxes, management assesses the

relative merits and risks

of the appropriate tax

treatment

of

statutory,

judicial,

and

guidance.

income

tax effects

from

OCL

as

pension

and

are

extinguished.

Discounts

on

income

tax

credits

are

in

non-

interest income when realized. See Note 20 – “Income Taxes

”

Under

the authoritative

accounting guidance,

benefits are

recognized and

measured based

on a

two-step analysis:

i) a

tax

must

be

more

not

to be

based solely

on

its technical

merits

in

order

to

be recognized;

and

ii)

the

benefit

is

at

the

largest

dollar

amount

of

that

that

is

more

likely

than

not

to

be

upon

settlement.

The

difference between

a benefit not

recognized in

this analysis

and the

tax benefit

claimed on

a tax return

is referred

to

as an unrecognized tax benefit.

Stock repurchases

shares

are

at

their

reacquisition

cost,

as

a

of

stockholders’

equity

in

the

of

financial condition. When

reissuing treasury shares

for the granting

of stock-based compensation

awards, treasury stock

is reduced by

the

cost

allocated

to

such

stock

and

paid-in

capital

is

for

gains

and

debited

for

losses

when

stock

is

reissued at prices that differ from the reacquisition cost.

cost

is

in

the

for

all

share-based

payment

grants.

The

First

Omnibus

Incentive

Plan,

as

amended

(the

“Omnibus

Plan”)

for

equity-based

and

non-equity-based

incentives

(the

“awards”)

through

the

grant

of

stock

options,

stock

appreciation

rights,

stock,

stock

units,

shares,

other stock-based

awards and

cash-based awards.

The compensation

cost for

an award,

the estimate

of the

fair

value

at

the

grant

date

(considering

forfeitures

and

any

post-vesting

restrictions),

is

over

the

period

during

which

an

or director

to

provide

in

for

an

award,

which

is the

vesting

period,

taking

into account

the

retirement eligibility of the award.

accounting guidance

requires the

Corporation to

reverse compensation

expense for

any awards

forfeited due

to employee

or director

turnover.

Changes in

the estimated

forfeiture rate

may have

effect on

as

the

the

effect

of

adjusting

the

rate

for

all

expense

in

the

period

in

which

the

forfeiture estimate is changed. If the actual forfeiture

rate is higher than the estimated forfeiture rate, an adjustment

is made to increase

the

rate,

which

will

the

expense

in

the

If

the

actual

rate

is

lower

than

the

rate,

an

is

made

to

the

rate,

which

will

the

expense recognized in the financial

statements. For additional information regarding

equity-based compensation and

awards granted, see Note 14– “Stock-Based Compensation.”

Comprehensive income (loss)

Comprehensive income

(loss) for First

BanCorp. includes

net income,

changes

in unrealized

gains (losses) on

available-

for-sale debt securities and change in unrecognized

pension and post-retirement costs, net of estimated tax effects.

Pension and other postretirement benefits

maintains two

frozen qualified

noncontributory defined

benefit pension

plans (the

“Pension Plans”)

(including a

complementary postretirement

benefits plan covering medical

benefits and life insurance

after retirement) that it assumed

in the BSPR

acquisition.

Pension costs are computed

on the basis of

accepted actuarial methods

and are charged

to current operations.

Net pension costs are

various actuarial

assumptions regarding

future experience

plan, which

include costs

rendered during

the

period,

costs

and

return

on

plan

assets,

as

well

as

deferral

and

of

certain

items

such

as

gains

or

losses.

The funding

policy is to

contribute to

the plan,

as necessary,

to date and

for those expected

to be earned

in

the future. To

the extent that these

requirements are fully

covered by assets in

the plan, a contribution

may not be made

in a particular

year.

The

cost

of

benefits,

which

and

of

the

costs of

these benefits in the future, is accrued during the years that the employee

renders the required service.

The

for

of

ASC

Topic

715,

“Retirement

Benefits,”

the

of

the

funded status of

each defined pension

benefit plan, retiree

health care plan

and other postretirement

benefit plans on

the statements

of

maintains contributory

retirement plans

covering substantially

all employees.

Employer contributions

to the plan are charged

to current earnings as part of

employees’ compensation and benefits expenses

in the consolidated statements of

income.

Segment information

The Corporation reports financial and

descriptive information about its reportable

segments. Operating segments are components

of

an

about

which

is

that

is

by

the

Chief

Officer

in

deciding how

to allocate

resources and

assess performance.

CEO determined

segregation that

best fulfills

the segment

definition

above is

by lines

of business

for

market,

and

by

geographic

areas

for

its

outside

of

Puerto

Rico.

As

of

31,

and

2023,

the

had

the

six

operating segments that are all

reportable segments: Commercial and

Corporate Banking; Mortgage Banking;

(Retail) Banking; Treasury

and Investments; United

States Operations; and

Virgin

Islands Operations. The

accounting policies for

the

business segments

are the

same as

those used

in the

preparation of

the Consolidated

Financial Statements

to

to

each

in

compiling

segment

financial information are

highly subjective and,

unlike financial accounting,

are not based on

authoritative guidance similar

to GAAP.

As a

result, reported

segment results

are not

necessarily comparable

with similar

information reported

by other

financial institutions.

See Note 25 – “Segment Information” for additional information.

See

Standards

Update

(“ASU”)

2023-07,

“Segment

(Topic

280):

Improvements

to

Reportable

Segment

Disclosure” below for the impact associated with the adoption of this standard

during the fourth quarter of 2024.

of financial instruments

The measurement

of fair value

is fundamental

to the Corporation’s

presentation of

its financial condition

and results of

holds debt

and equity

securities, derivatives,

financial instruments

at fair

value. The

Corporation holds

its

investments and liabilities

mainly to manage liquidity

needs and interest

rate risks. A meaningful

part of the Corporation’s

total assets

is reflected at fair value on the Corporation’s

financial statements.

The FASB’s

authoritative guidance

for fair

value measurement

defines fair

value as

the exchange

price that

received for

an asset or paid to

transfer a liability (an

exit price) in the principal

or most advantageous market

for the asset or liability

in an orderly

transaction between

market participants on

the measurement date.

This guidance also

establishes a fair

value hierarchy for

classifying

The

hierarchy

is

based

on

whether

the

inputs

to

the

techniques

used

to

measure

fair

value

are

observable or unobservable.

accounting guidance,

an entity

has the

irrevocable option

to elect,

on a

contract-by-contract

basis, to measure

certain financial assets and

liabilities at fair value

at the inception of

the contract and, thereafter,

to reflect any changes

in fair value in

current earnings.

did not

make any fair

value option

election as of

2024 or

2023. See Note

23 – “Fair

Value”

Revenue from contract with customers

See Note 24 –

“Revenue from Contracts with

Customers”

for a detailed description

policies on the recognition

and presentation

of revenues from

contracts with customers,

income recognition for

the insurance agency

commissions’

revenue.

Earnings per common share

Basic earnings per share

is calculated by dividing net

income attributable to common stockholders

by the weighted-average number

of

common

shares

issued

and outstanding.

Net

income

to

common

net

income

for

any

stock

if

any,

any

stock

but

not

yet

paid,

and

any

related to the

current dividend period

that have not

been declared as

of the end

of the period.

Basic weighted-average

common

shares

excludes

unvested

shares

of

stock

that

do

not

contain

rights.

The

computation of diluted earnings per share is similar to the computation

of basic earnings per share except that the number of weighted-

average

common

shares

is

to

include

the

number

of

common

shares

that

would

have

been

if

the

dilutive common shares had been issued, referred to as potential common shares.

Potential dilutive

common shares

consist of

unvested shares

of restricted

stock that

do not

contain non-forfeitable

dividend rights,

warrants

during

the

period,

and

common

stock

issued

under

the

assumed

of

stock

options,

if

any,

using

the

stock method.

This method

assumes that

the potential

common

shares are

issued and

and the

from the exercise, in addition to the amount

of compensation cost attributable to future services, are used

to purchase common stock at

the

date.

The

between

the

number

of

shares

issued

and

the

shares

is

added

as

shares

to

the

actual

number

of

shares

to

compute

diluted

per

share.

Unvested

shares

of

stock, stock options, and

warrants outstanding during the

period, if any,

that result in lower potential

dilutive shares issued than

shares

under

the

stock

method

are

not

in

the

computation

of

per

share

since

their

inclusion

would have

an antidilutive

effect on

earnings per

share. Potential

dilutive common

shares also

include performance

units that

do not

contain non-forfeitable dividend rights if the performance condition

is met as of the end of the reporting period.

Adoption of New Accounting Requirements

Standard

Effective Date

Effect on the financial statements

ASU 2023-07 - Segment

Reporting (Topic 280):

Improvements to Reportable

Segment Disclosure, Issued

November 2023

In November 2023, the FASB issued ASU

2023-07 to improve the disclosures about a

public entity’s reportable segments. Among

other things, the amendments in this ASU

require disclosure on an interim and annual

basis of the following: significant segment

expenses that are regularly provided to the

chief operating decision maker (“CODM”)

and included within each reported measure of

segment profit or loss; and an amount for

other segment items (to reconcile segment

revenues less significant expenses to the

reported measure(s) of a segment’s profit or

loss) by reportable segment and a description

of its composition. This ASU also requires

disclosure on an annual basis of the title and

position of the CODM and an explanation of

how the CODM uses the reported measure(s)

of segment profit or loss in assessing segment

performance and deciding how to allocate

resources. In addition, this ASU requires

interim disclosure of segment-related

disclosures that were previously only required

on an annual basis and permits disclosure of

multiple measures of segment profit or loss,

provided that disclosure of the measure that is

closest to GAAP is also provided and certain

other criteria are met.

Management adopted the guidance

during the fourth quarter of 2024.

The ASU has been applied

retrospectively. As part of the

adoption of this ASU, the

Corporation added the disclosure of

significant segment expenses and the

title and position of the CODM.

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

Standard

Effective Date

Effect on the financial statements

ASU 2024-03, Income

Statement – Reporting

Comprehensive Income –

Expense Disaggregation

Disclosures (Subtopic 220-

40): Disaggregation of

Income Statement Expenses,

Issued November 2024

In November 2024, the FASB issued ASU

2024-03, which requires disclosure in the

notes to financial statements at each interim

and annual reporting period, of specified

information about certain costs and expenses

in a tabular format, including but not limited

to, employee compensation and intangible

asset amortization; the inclusion of amounts

already required under previous GAAP in the

same disclosure as these disaggregation

requirements; and a qualitative description of

the amounts remaining in relevant expense

captions that are not separately disaggregated

quantitatively.

Effective for annual periods

beginning after December 15,

2026, and interim periods

beginning after December 15,

2027. Early adoption is permitted

for annual financial statements not

yet issued. The amendments in

this ASU should be applied on a

prospective basis. Retrospective

application is permitted.

The Corporation will be impacted by

the standard and will disclose

required information by the adoption

date.

ASU 2023-09 - Income

Taxes (Topic

740):

Improvements to Income

Tax Disclosures, Issued

December 2023

In December 2023, the FASB issued ASU

2023-09 to improve the annual income tax

disclosures to, among other things, require

disclosure of the following: eight prescribed

categories in the tabular rate reconciliation

(using both percentages and dollar amounts)

with certain reconciling items at or above 5%

further broken out by nature and/or

jurisdiction; income taxes paid (net of refunds

received) disaggregated by federal, state, and

foreign taxes; the amount of income taxes

paid (net of refunds received) disaggregated

by individual jurisdictions in which income

taxes paid (net of refunds received) is equal to

or greater than 5% of total income taxes paid

(net of refunds received); income or loss from

continuing operations before income tax

expense or benefit disaggregated between

domestic and foreign; and income tax expense

or benefit from continuing operations

disaggregated by federal, state, and foreign.

Effective for fiscal years ending

on December 31, 2025. Early

adoption is permitted for annual

financial statements not yet issued.

The amendments in this ASU

should be applied on a prospective

basis. Retrospective application is

permitted.

The Corporation will be impacted by

the standard and will disclose

required information by the adoption

date. The Corporation is reviewing

its processes to ensure accurate data

collection for disaggregation of

income taxes by jurisdiction and

other required disclosures.

Preparatory steps will be taken to

comply with the new disclosure

requirements, ensuring timely and

accurate reporting starting in 2025.

expect to

be impacted

by the

following ASUs

issued during

not yet

effective or

have not

yet

been adopted:

●

ASU 2024-04, “Debt – Debt with Conversion and Other Options (Subtopic 470-20):

Induced Conversions of Convertible Debt

Instruments”

●

ASU 2024-02, “Codification Improvements –

Amendments to Remove References to the Concepts Statements”

●

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

Stock Application of Profits Interest and Similar Awards”

NOTE 2 – MONEY MARKET

.

INVESTMENTS

Money market investments are composed of time deposits,

overnight deposits with other financial institutions,

and other short-term

investments with original maturities of three months or less.

Money market investments were as follows as of the indicated dates:

Time deposits with other financial institutions

(1)

$

$

Overnight deposits with other financial institutions

(2)

Other short-term investments

(3)

$

1,200

$

1,239

(1)

Consists of time deposits segregated for compliance with the Puerto

Rico International Banking Law.

Interest rate of

1.05

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

(2)

Weighted-average interest rate

of

4.33

% and

5.33

% as of December 31, 2024 and 2023, respectively.

(3)

Weighted-average interest rate

of

1.39

% and

2.47

% as of December 31, 2024 and 2023, respectively.

As

of

31,

2024,

the

had

$

0.1

million

(2023

$

0.4

million)

in

money

market

pledged

as

collateral as part of margin calls associated to derivative contracts.

NOTE 3 – DEBT SECURITIES

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

debt securities by contractual maturities as of December 31, 2024

and 2023 were as follows:

(1)

Gross Unrealized

ACL

(2)

Gains

Losses

U.S. Treasury securities:

$

59,992

$

$

$

$

59,189

0.75

U.S. GSEs obligations:

1,090,678

22,826

1,067,852

0.79

817,835

53,195

764,679

0.96

7,835

7,800

4.73

Puerto Rico government obligation:

(3)

2,951

1,620

United States and Puerto Rico government obligations

1,979,291

77,845

1,901,140

0.87

MBS:

14,477

14,017

2.14

122,548

9,977

112,571

1.52

936,531

168,691

767,865

1.51

1,073,556

179,128

894,453

1.52

2.68

8,025

7,675

0.71

67,181

6,125

61,056

1.86

142,330

22,041

120,305

2.78

218,417

28,522

189,911

2.42

21,921

21,232

2.13

244,966

18,874

226,092

1.74

979,366

159,560

819,822

1.51

1,246,253

179,123

1,067,146

1.56

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

377,812

52,338

325,548

2.88

Private label:

4,886

1,430

3,399

6.69

1,200

6.32

6,086

1,715

4,195

6.62

2,922,124

440,826

2,481,253

1.79

33,835

2,286

31,562

2.59

10,621

1,653

8,968

1.67

178,537

37,158

141,379

2.06

222,993

41,097

181,909

2.12

3,145,117

481,923

2,663,162

1.82

Other:

1,000

1,000

2.32

Total available-for-sale debt securities

$

5,125,408

$

$

559,768

$

$

1.45

(1)

$

9.6

part of

in the

(2)

466.1

million (amortized cost - $

533.7

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

3.0

billion (amortized cost - $

3.3

billion) pledged as collateral for the

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

(3)

Consists of a

residential pass-through MBS

issued by the

PRHFA that

is collateralized by

certain second mortgages

originated under a program

launched by the Puerto

Rico government in

2010 and is in

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

(1)

Gross Unrealized

ACL

(2)

Gains

Losses

U.S. Treasury securities:

$

80,314

$

$

2,144

$

$

78,170

0.66

60,239

3,016

57,223

0.75

U.S. GSEs’ obligations:

542,847

15,832

527,015

0.77

1,899,620

135,347

1,764,322

0.86

8,850

8,163

2.64

8,891

8,897

5.49

Puerto Rico government obligation:

(3)

3,156

1,346

1,415

United States and Puerto Rico government obligations

2,603,917

158,374

2,445,205

0.85

MBS:

19,561

18,693

2.06

153,308

12,721

140,587

1.55

991,060

161,197

829,878

1.41

1,163,929

174,786

989,158

1.44

3.27

16,882

16,010

1.19

27,916

2,247

25,677

1.62

206,254

22,786

183,555

2.57

251,306

25,908

225,493

2.38

32,489

1,423

31,066

2.11

293,492

23,146

270,346

1.70

1,047,298

156,344

891,037

1.37

1,373,279

180,913

1,192,449

1.46

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

273,539

52,263

221,276

1.54

Private label:

7,086

2,185

4,785

7.66

3,069,139

436,055

2,633,161

1.55

45,022

6,898

38,124

2.17

22,386

2,685

19,701

2.16

122,830

29,037

93,793

1.36

190,238

38,620

151,618

1.64

3,259,377

474,675

2,784,779

1.55

Total available-for-sale debt securities

$

5,863,294

$

$

633,049

$

$

1.24

(1)

$

10.6

part of

in the

(2)

477.9

million (amortized cost - $

527.2

million) that was pledged

at the FHLB as

collateral for borrowings and

letters of credit as well

as $

2.8

billion (amortized cost -

$

3.2

billion) pledged as collateral for

the

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

(3)

Consists of a residential pass-through MBS issued by the PRHFA

that is collateralized by certain second mortgages originated under a program

launched by the Puerto Rico government in 2010 and is in

nonaccrual status

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

During

2024,

the

$

266.2

million

of

debt

mainly

consisting

of

$

224.5

million of residential MBS and $

40.7

million of commercial MBS.

Maturities

of

debt

are

based

on

the

period

of

final

might

differ

from

because

they

may

be

subject

to

and/or

call

options.

The

yield

on

debt

is

based

on

cost

and,

does

not

give

effect

to

changes

in

fair

value.

The

net

unrealized loss

is presented

as part

of accumulated

loss in

The

tables

present

the

fair

value

and

gross

losses

of

the

debt

aggregated by

investment category

and length of

time that individual

securities have

been in a

continuous unrealized

loss position, as

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

which an ACL was recorded.

Total

Losses

Losses

Losses

U.S. Treasury and U.S. GSEs’

$

8,005

$

$

1,886,046

$

76,824

$

1,894,051

$

76,859

1,620

(1)

1,620

MBS:

FHLMC

36,224

857,492

179,043

893,716

179,128

GNMA

22,281

166,470

28,014

188,751

28,522

FNMA

53,325

1,012,331

178,991

1,065,656

179,123

CMOs issued or guaranteed by the FHLMC,

52,778

187,772

52,090

240,550

52,338

4,195

1,715

(1)

4,195

1,715

44,831

131,152

40,274

175,983

41,097

$

217,444

$

1,831

$

4,247,078

$

557,937

$

4,464,522

$

559,768

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2024, the

PRHFA bond and private label MBS

had an ACL of $

0.3

million

and $

0.2

Total

Losses

Losses

Losses

U.S. Treasury and U.S. GSEs’

$

2,544

$

$

2,428,784

$

157,026

$

2,431,328

$

157,028

1,415

1,346

(1)

1,415

1,346

MBS:

FHLMC

988,092

174,786

988,101

174,786

GNMA

12,257

202,390

25,808

214,647

25,908

FNMA

1,183,275

180,913

1,183,275

180,913

CMOs issued or guaranteed by the FHLMC,

221,276

52,263

221,276

52,263

4,785

2,185

(1)

4,785

2,185

11,370

140,248

38,602

151,618

38,620

$

26,180

$

$

5,170,265

$

632,929

$

5,196,445

$

633,049

(1)

Unrealized losses do not include

the credit loss component recorded

as part of the ACL.

As of December 31, 2023,

the PRHFA bond

and private label MBS had

an ACL of $

0.4

million

and $

0.1

Assessment for Credit Losses

Debt securities

U.S. government

U.S. GSEs,

and

Treasury,

notes and

MBS, accounted

for

substantially all of the total available-for

-sale portfolio as of December 31, 2024, and

the Corporation expects no credit losses on

these

given

the

explicit

and

guarantees

by

the

U.S.

federal

government.

Because

the

decline

in

fair

value

is

attributable to changes in interest

rates, and not credit quality,

and because, as of December 31,

2024, the Corporation did not have

the

sell these

U.S. government

and agencies

and determined

that it

was likely

that it

be required

to sell

these

before

their

recovery,

the

does

not

impairments

on

these

to

be

credit

related. The Corporation’s

credit loss assessment was

concentrated mainly on

private label MBS and

on Puerto Rico government

debt

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

held as part

available for sale

portfolio consist of

trust certificates issued

by an unaffiliated

party

backed

by

fixed-rate,

single-family

loans

in

the

U.S.

mainland

with

FICO

scores

over

and

moderate

ratios (under

%), as

well

as moderate

levels.

The interest

rate

on

these

private label

MBS is

variable, tied

to 3-month

CME Term

Secured Overnight

Financing Rate

(“SOFR”) plus

a tenor

spread adjustment

of

0.26161

% and

the

spread

limited

to

the

coupon

of

the

The

the

ACL

for

private

label

MBS

based

on

a

risk-adjusted

cash

flow

that

the

and

terms

of

the

of default

PDs and

LGDs that

considered,

among

other

things, historical

payment

and

current

and

such

as

unemployment rates and the

housing price index. Under

this approach, expected cash

flows (interest and principal)

were discounted at

the U.S. Treasury yield curve as of

the reporting date. See Note 23 – “Fair Value

”

for the significant assumptions used in the valuation

of the private label MBS as of December 31, 2024 and 2023.

For the residential

pass-through MBS issued

by the PRHFA

held as part of

available-for-sale portfolio

backed by

second

loans

in

Puerto

Rico,

the

ACL

was

based

on

a

cash

flow

that

considered the structure and

terms of the debt security.

The expected cash flows were

discounted at the U.S. Treasury

yield curve plus

a spread as

of the reporting date

and compared to

the amortized cost. The

Corporation utilized PDs and

LGDs that considered,

among

other

things,

payment

and

current

and

variables, such as

regional unemployment

rates, the housing

price index,

and expected recovery

from the PRHFA

guarantee. PRHFA,

not the

government, provides

a guarantee

in the event

of default

and subsequent

foreclosure of

the properties underlying

the

second

loans.

In

the

event

that

the

second

loans

default

and

the

is

insufficient

to

satisfy

the

balance

of

this

MBS,

PRHFA’s

ability

to

honor

such

will

depend

on,

among

other

its

at

the

time

such

becomes

due

and

payable.

Deterioration

of

the

Puerto

Rico

economy

or

fiscal health of the PRHFA

could impact the value of this security,

resulting in additional losses to the Corporation.

The

tables

present

a

roll-forward

of

the

ACL on

debt

securities by

major

type

for

the

years

ended December 31, 2024, 2023 and 2022:

Year

Total

$

$

$

Provision for credit losses - (benefit)

(50)

(50)

Net recoveries

$

$

$

Year

Ended December 31, 2023

Total

$

$

$

Provision for credit losses - expense

Net recoveries

$

$

$

Year

Ended December 31, 2022

Total

$

$

$

1,105

(501)

(434)

(213)

(213)

$

$

$

During

2024,

the

$

71.7

million

of

income

on

debt

(2023

$

78.3

86.1

million), of which $

36.2

million was exempt (2023 - $

39.1

40.7

million). The exempt securities

primarily relate to MBS and

government obligations held by

IBEs (as defined in the

International Banking Entity

Act of Puerto Rico),

whose interest income and sales are exempt from Puerto Rico income

taxation under that act.

Held-to-Maturity Debt Securities

The

cost,

gross

gains

and

losses,

fair

value,

ACL,

yield

and

maturities of held-to-maturity debt securities as of December 31,

2024 and 2023 were as follows:

(1) (2)

Gross Unrecognized

Gains

Losses

ACL

Puerto Rico municipal bonds:

$

2,214

$

$

$

2,342

$

5.07

61,289

2,724

63,575

7.33

13,184

13,790

5.79

15,755

15,901

8.07

Total Puerto Rico municipal bonds

92,442

3,815

95,608

7.18

MBS:

12,112

11,759

3.03

16,936

1,142

15,794

4.30

29,048

1,495

27,553

3.77

13,472

12,630

3.29

61,233

3,786

57,447

4.19

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

25,566

1,321

24,245

3.49

129,319

7,444

121,875

3.86

9,258

9,107

3.48

86,767

5,317

81,450

3.92

96,025

5,468

90,557

3.88

225,344

12,912

212,432

3.87

$

317,786

$

3,815

$

13,561

$

308,040

$

4.83

(1)

$

4.1

part of

in the

(2)

198.6

million (fair value - $

192.4

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

(1) (2)

Gross Unrecognized

Gains

Losses

ACL

Puerto Rico municipal bonds:

$

3,165

$

$

$

3,135

$

9.30

51,230

51,514

1,266

7.78

36,050

3,540

39,380

7.13

16,595

16,864

8.87

Total Puerto Rico municipal bonds

107,040

4,811

110,893

2,197

7.78

MBS:

16,469

15,913

3.03

18,324

17,610

4.32

34,793

1,270

33,523

3.71

16,265

15,476

3.32

67,271

2,486

64,785

4.18

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

28,139

1,274

26,865

3.49

146,468

5,819

140,649

3.84

9,444

9,147

3.48

91,226

5,783

85,443

3.15

100,670

6,080

94,590

3.18

247,138

11,899

235,239

3.57

$

354,178

$

4,811

$

12,857

$

346,132

$

2,197

4.84

(1)

$

4.8

part of

in the

(2)

126.6

million (fair value - $

125.9

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

The

tables

present

the

debt

securities’

fair

value

and

gross

losses,

aggregated

by

and

length

of

time

that

had

been

in

a

continuous

loss

position,

as

of

December 31, 2024 and 2023, including debt securities for which an ACL was recorded:

Total

Losses

Losses

Losses

$

$

$

20,071

$

$

20,071

$

MBS:

FHLMC certificates

27,553

1,495

27,553

1,495

GNMA certificates

12,630

12,630

FNMA certificates

57,447

3,786

57,447

3,786

CMOs issued or guaranteed by FHLMC,

24,245

1,321

24,245

1,321

90,557

5,468

90,557

5,468

$

$

$

232,503

$

13,561

$

232,503

$

13,561

Total

Losses

Losses

Losses

$

$

$

34,682

$

$

34,682

$

MBS:

FHLMC certificates

33,523

1,270

33,523

1,270

GNMA certificates

15,476

15,476

FNMA certificates

64,785

2,486

64,785

2,486

CMOs issued or guaranteed by FHLMC,

26,865

1,274

26,865

1,274

94,590

6,080

94,590

6,080

$

$

$

269,921

$

12,857

$

269,921

$

12,857

The

classifies

the

debt

into

the

major

types:

MBS

issued

or

GSEs and

underlying collateral

and Puerto

bonds. The

Corporation does

not recognize

an ACL

for MBS

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

Puerto Rico municipal

bonds, the Corporation

determines the ACL

based on the product

of a cumulative

PD and LGD, and

the amortized

cost

basis

of

the

bonds

over

their

life

as

in

Note

–

of

and

Summary

of

Accounting Policies.”

performs periodic

credit quality

reviews on

these issuers.

All of

bonds were

current as

to

scheduled

as

of

31,

The

ACL

of

Puerto

Rico

bonds

to

$

0.8

million

as

of

December 31, 2024, from $

2.2

31, 2023, mostly related to updated

financial information of a bond

issuer received

during 2024.

The following tables

present the activity

in the ACL for

held-to-maturity debt

securities by major

security type for

Puerto Rico Municipal Bonds

Year

$

2,197

$

8,286

$

8,571

Provision for credit losses - (benefit)

(1,395)

(6,089)

(285)

ACL on held-to-maturity debt securities

$

$

2,197

$

8,286

Municipalities,

which

are

covered

instrumentalities

under

Puerto

Rico

Oversight,

and

Stability

Act

(“PROMESA”),

may

be

by

the negative

and

other

effects

from

revenue,

or

cash management

measures taken

by the

Puerto Rico government

to address its

fiscal situation,

or measures

included in

its fiscal

plan or

fiscal plans

of

other

entities. Given

the

about

the fiscal

situation

of the

Puerto

Rico

central

and

the

measures taken, or

to be taken, by

other government entities

in response to

economic and fiscal challenges,

the Corporation cannot

be

certain whether future charges to the ACL on these securities will be required.

From

time

to

time,

the

has

with

an

of

three

months

or

less

that

are

cash

and

cash

and

are

as

money

market

in

the

of

condition. As of

no

outstanding held-to-maturity

were classified

as

cash and cash equivalents.

During

2024,

the

$

17.1

million

of

income

on

debt

(2023

$

20.9

15.5

million), of which $

16.8

million was exempt (2023 - $

20.5

15.4

million). The exempt securities

relate to tax-exempt Puerto Rico municipal bonds

and MBS held by IBEs (as defined in the International Banking

Entity Act of Puerto

Rico), whose interest income and sales are exempt from Puerto Rico income

taxation under that act.

Credit Quality Indicators:

The

debt

of

GSEs’

MBS,

for

which

the

expects

no

credit

losses,

and

financing arrangements

with Puerto

Rico municipalities

issued in

bond form.

bonds are

accounted for

as

but

are

underwritten

as

loans

with

that

are

found

in

loans.

the

monitors the

credit quality

municipal bonds

use of

internal credit-risk

ratings, which

updated on

a

basis.

The

a

bond

as

a

criticized

asset

if

its

risk

rating

is

Special

Mention,

Substandard,

Doubtful, or Loss.

Puerto Rico municipal

bonds that do

not meet the

criteria for classification

as criticized assets

to be

Pass-rated securities. The asset categories are defined below:

Pass –

Assets classified

as Pass

have a

well-defined primary

source of

repayment, with

no apparent

risk, strong

financial position,

minimal operating

risk, profitability,

liquidity and

strong capitalization

and include

assets categorized

as Watch.

Assets classified

as

Watch

have

acceptable business

credit,

but borrowers’

operations, cash

flow or

evidence more

than average

risk

and requires additional level of supervision and attention from loan officers.

Special Mention – Special

Mention assets have potential

weaknesses that deserve management’s

close attention. If left uncorrected,

these potential

weaknesses may

deterioration of

the repayment

prospects for

the asset or

in the

credit position

at some future date.

Special Mention assets are

not adversely classified and

do not expose the

Corporation to sufficient

risk to warrant

adverse classification.

Substandard – Substandard assets are inadequately protected

by the current sound worth and paying capacity of the obligor

or of the

pledged,

if

any.

Assets

as

must

have

a

well-defined

weakness

or

weaknesses

that

jeopardize

the

liquidation of

the debt.

They are

characterized by

the distinct

possibility that

the institution

will sustain

some loss

if the

deficiencies

are not corrected.

Doubtful –

Doubtful classifications

have all

the weaknesses

inherent in

those classified

added characteristic

that

the

weaknesses

make

or

liquidation

in

full

highly

questionable

and

improbable,

based

on

known

facts,

values. A

Doubtful classification

may be

appropriate in

cases where

significant risk

exposures are

perceived, but

loss

cannot be determined because of specific reasonable pending factors,

which may strengthen the credit in the near term.

Loss – Assets classified

as Loss are considered

uncollectible and of

such little value that

their continuance as

bankable assets is not

warranted. This classification does not mean that the asset has absolutely

no recovery or salvage value, but rather that it is not practical

or desirable

to defer

writing off

this asset even

though partial

recovery may

occur in

the future. There

is little or

no prospect

for near

term improvement and no realistic strengthening action of significance

pending.

The

reviews

its Puerto

Rico

bonds

to

if

they are

properly

classified,

and to

measure

credit losses on

these securities. The

frequency of these

reviews will depend

on the amount

of the aggregate

outstanding debt, and

the

risk rating classification of the obligor.

The

has

a

Loan

Review

Group

that

reports

to

the

Risk

and

administratively

to

the

Chief

Risk

The

Loan

Review

Group

annual

credit

process

reviews

of

the

loan

the

above-mentioned

Puerto

Rico

bonds

for

as

debt

The objective

of

these

loan

reviews is

to

assess accuracy

of the

and

of

loan

risk

rating

and

its

adherence

to

lending

and

The

by

this

group

contributes

to

the

of

with

credit

and

the

of

the

current

level

of

credit

risk,

the

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

that help in maintaining

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

process reviews to the Risk Management Committee.

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

classified as held-to-maturity were classified as Pass.

No

held-to-maturity debt

securities were

status, 90

days past

due and

still accruing,

or past

due as

31,

2024 and 2023. A security is considered to be past due once it is 30 days contractually

past due under the terms of the agreement.

NOTE 4 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about

the

loan

for

investment by

portfolio segment

and

disaggregated by

geographic locations

as of the indicated

dates:

Puerto Rico and Virgin Islands region:

$

2,323,205

$

2,356,006

184,427

115,401

1,867,894

1,790,637

2,325,875

2,249,408

3,750,205

3,651,770

$

10,451,606

$

10,163,222

Florida region:

$

505,226

$

465,720

43,969

99,376

698,090

526,446

924,824

7,502

5,895

$

2,294,950

$

Total:

$

$

228,396

214,777

(1)

(2)

ACL on loans and finance leases

(243,942)

(261,843)

Loans held for investment, net

$

$

(1)

2024 and 2023, includes $

780.9

787.5

million, respectively, of

commercial loans that were secured

by real estate and

the primary source of repayment at origination was not dependent

upon such real estate.

(2)

Includes accretable fair value net purchase discounts of $

23.6

24.7

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

As

of

and

2023,

the

had

net

costs

on

its

loan

to

$

1.8

$

6.1

The total

is net

of unearned

income of

$

130.4

$

132.6

of

$

126.0

$

128.0

million are

as of

31, 2024 and 2023, respectively.

As of

2024,

was

loans owned

by others

in an

amount

of

$

3.7

— $

3.8

billion), and

commercial loan

participations owned

by others

in an

aggregate amount

of $

262.9

of December 31, 2024 (2023 — $

230.5

Various

loans

were

as

for

time

and

related

unused

commitments.

The carrying

loans pledged

to $

5.4

billion and

$

4.6

billion

as of

and

2023,

As

of

31,

and

2023,

loans

pledged

as

include

$

1.7

billion

and

$

1.8

billion

that

were

pledged

at

the

FHLB

as

for

and

letters

of

credit;

$

3.4

billion

pledged

as

to

secure borrowing

capacity at

the FED

Discount Window,

$

2.5

31, 2023;

$

163.5

million pledged

to secure

for the

portion

of government

to $

166.9

million

as of

2023; and

$

123.0

million pledged to secure time deposits accounts, compared to $

121.1

million as of December 31, 2023

.

aging of

for investment,

as well

as information

about nonaccrual

no ACL,

by

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

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

(4)

Total loans held

Loans with no

ACL

(5)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

$

70,529

$

$

2,907

$

18,816

$

$

92,252

$

(2) (6)

2,666,959

29,867

7,404

31,949

2,736,179

1,773

227,031

1,365

228,396

(2) (6)

2,554,226

10,851

6,732

3,336,465

1,589

6,895

20,514

1,189

1,935,995

61,524

13,354

15,305

2,026,178

1,032

875,663

15,879

4,092

3,812

899,446

349,588

6,591

3,593

2,136

361,908

303,311

5,366

3,969

8,368

321,014

143,957

2,222

1,447

1,535

149,161

Total loans held for investment

$

12,463,724

$

93,171

$

59,804

$

42,390

$

87,467

$

$

11,972

(1)

It is the

Corporation’s policy

to report delinquent

FHA/VA

government-guaranteed residential mortgage

loans as past-due

loans 90 days

and still accruing

as opposed to

nonaccrual loans. The

Corporation continues

accruing interest on these loans until they

have passed the 15-month delinquency mark, taking

into consideration the FHA interest curtailment process. These

balances include $

8.0

million of residential mortgage loans

guaranteed by the FHA that were over 15 months delinquent as of December 31, 2024.

(2)

Includes purchased credit

deteriorated (“PCD”) loans

previously accounted for

under ASC Subtopic

310-30 for

which the Corporation

made the

accounting policy election

of maintaining pools

of loans as

“units of

account” both at the time of adoption of

CECL methodology on January 1, 2020 and on an

ongoing basis for credit loss measurement. These loans will

continue to be excluded from nonaccrual loan statistics as long

as

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

6.2

December 31, 2024 ($

5.3

million conventional residential mortgage loans and $

0.9

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

(3)

Include rebooked loans, which

were previously pooled into

GNMA securities, amounting to

$

5.7

31, 2024. Under the

GNMA program, the Corporation

has the option but

not the obligation to

repurchase loans

that meet

GNMA’s

specified delinquency

criteria. For

accounting purposes,

option are

be reflected

on the

with an

(4)

Nonaccrual loans in the Florida region amounted to $

8.6

million as of December 31, 2024, of which $

8.5

million were residential mortgage loans.

(5)

no

nonaccrual loans with no ACL in the Florida region as of December 31, 2024.

(6)

delinquency policy and

consistent with the

instructions for the

preparation of the

Consolidated Financial

Statements for Bank

Holding Companies (FR

Y-9C)

required by

Reserve Board, residential mortgage,

commercial mortgage, and construction

loans are considered past

due when the borrower

is in arrears on

two or more monthly

payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans, and commercial mortgage

loans past due 30-59 days, but less than two

payments in arrears, as of December 31, 2024

amounted to $

8.8

65.6

1.0

Days Past Due and Accruing

Current

30-59

60-89

90+

(1) (2) (3)

(4)

Total loans held

Loans with no

ACL

(5)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1) (3) (6)

$

68,332

$

$

2,592

$

29,312

$

$

100,236

$

(2) (6)

2,644,344

33,878

11,029

32,239

2,721,490

1,742

210,911

2,297

1,569

214,777

(2) (6)

2,303,753

1,108

12,205

2,536

3,148,254

1,130

1,143

8,455

15,250

1,687

1,846,652

60,283

13,753

15,568

1,936,256

837,881

13,786

1,861

3,287

856,815

370,746

5,873

2,815

1,841

381,275

313,360

5,012

3,589

7,251

329,212

147,278

3,084

1,997

1,748

154,107

Total loans held for investment

$

11,891,511

$

89,185

$

61,628

$

59,452

$

83,707

$

$

6,953

(1)

It is

policy to

report delinquent

FHA/VA

as past-due

loans 90

days and

still accruing

as opposed

loans. The

Corporation continues

accruing interest on these loans until they

have passed the 15-month delinquency mark,

taking into consideration the FHA interest

curtailment process. These balances include $

15.4

million of residential mortgage loans

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

(2)

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

at the time of adoption of

CECL on January 1, 2020 and on an

ongoing basis for credit loss measurement. These loans will

continue to be excluded from nonaccrual loan statistics as long

as the Corporation can reasonably estimate the timing

and

be collected

on the

loan pools.

The portion

of such

loans contractually

90 days

or more,

amounting to

$

8.3

($

7.4

million conventional

residential mortgage loans, and $

0.9

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

(3)

Include rebooked loans,

which were previously

pooled into GNMA

securities, amounting to

$

7.9

Under the GNMA

program, the Corporation

has the option

but not the

obligation to

repurchase loans that meet GNMA’s

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

(4)

Nonaccrual loans in the Florida region amounted to $

8.0

million as of December 31, 2023, of which $

7.2

million were residential mortgage loans and $

0.7

million were C&I loans.

(5)

no

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

(6)

delinquency policy

and consistent

instructions for

the preparation

of the

Consolidated Financial

Statements for

Bank Holding

Companies (FR

Y-9C)

required by

Reserve Board, residential

mortgage, commercial mortgage,

and construction loans

are considered past

due when the

borrower is in

arrears on two

or more monthly

payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans,

and commercial mortgage loans

past due 30-59 days,

but less than two payments

in arrears, as of

December 31, 2023 amounted to

$

8.2

69.9

1.1

When

a

loan

is placed

in

status,

any

accrued

but uncollected

income

and

charged

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

income

totaled $

3.1

2.7

1.7

years ended December

31, 2024, 2023,

and 2022, respectively.

For each of

the

years

ended

31,

and

2023,

income

on

nonaccrual loans

to

$

1.8

and

$

1.5

million for the year ended December 31, 2022.

As of

recorded investment

on residential

collateralized by

residential real

estate property

that

were

in

the

process

of

to

$

30.0

$

10.4

million

of

FHA/VA

loans,

and

$

4.4

million