FIRST BANCORP /PR/

SIGNATURES

Forward-Looking Statements

This Quarterly

Form 10-Q

(this “Form

10-Q”) contains

meaning of

Section 27A

of the Securities Act of 1933, as

amended (the “Securities Act”), and

Section 21E of the Securities Exchange

Act of 1934, as amended

(the “Exchange Act”),

which are subject to

the safe harbor created

by such sections. When

used in this Form

10-Q or future filings

by

First

(the

“Corporation,”

“we,”

“us,”

or

“our”)

with

the

U.S.

Securities

and

Exchange

Commission

(the

“SEC”),

in

the

Corporation’s press

releases or in other public or

stockholder communications made by

the Corporation, or in oral statements

made on

behalf

of

the

by,

or

with

the

of,

an

authorized

executive

officer

of

the

the

words

or

phrases

“would,”

“intends,”

“will,”

“expect,”

“should,”

“plans,”

“forecast,”

“anticipate,”

“look

forward,”

“believes,”

and

other

terms

of

similar meaning or import, or the

negatives of these terms or variations

of them, in connection with

any discussion of future operating,

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

statements.”

The Corporation cautions readers

not to place undue reliance on

any such “forward-looking statements,” which

speak only as of the

date made

or,

with respect

to such

contained in

this Form

10-Q, the

date hereof,

and advises

readers that

any such

are not

guarantees of

future performance

and involve

certain risks,

uncertainties, estimates,

and

by us

difficult

to predict

.

Various

factors, some

of which

are beyond

our

control,

could cause

actual results

to

differ materially from those expressed in, or implied

by, such forward-looking

statements.

Factors

that

could

cause

results

to

differ

materially

from

those

expressed

in,

or

implied

by,

the

statements include, but are not

limited to, risks described or

referenced in Part I, Item 1A,

“Risk Factors,” in the Corporation’s

Annual

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

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

●

the effect

of changes

in the

environment

and inflation

levels on

the level,

and performance

of the

liabilities, and

corresponding

effects on

income, net

interest margin,

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

position;

●

volatility

in

the

industry,

which

could

result

in,

among

other

things,

bank

deposit

runoffs,

constraints, and increased regulatory requirements and costs;

●

the effect of continued changes in the fiscal, monetary,

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

government, the

government and

other governments,

including those

determined by

the Board

of Governors

of

the Federal Reserve

System (the “Federal

Reserve Board”), the Federal

Reserve Bank of New

York

(the “FED”), the

Federal

Deposit

(the

“FDIC”),

government-sponsored

housing

and

regulators

in

Puerto

Rico,

the

U.S., and

Virgin

Islands (the

“USVI”) and

British Virgin

Islands (the

“BVI”), that

may affect

the future

results of

the Corporation;

●

uncertainty as

to the

ability of

FirstBank Puerto

Rico (“FirstBank”

or the

“Bank”), to

retain its core

generate sufficient

cash flow through

its wholesale funding

sources, such as

securities sold under

to

repurchase,

Federal

Home

Loan

Bank

(“FHLB”)

advances,

and

certificates

of

deposit

(“brokered

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

●

adverse changes

in general political

and economic

conditions in Puerto

Rico, the U.S.,

and the USVI

and the BVI,

in the interest

rate environment, unemployment

rates, market liquidity

and volatility,

trade policies, housing

absorption rates,

real

estate

markets,

and

U.S.

capital

markets,

which

may

affect

funding

sources,

loan

and

credit

market

prices

of

and

demand

for

the

products

and

services,

and which

may

reduce the Corporation’s revenues

and earnings and the value of the Corporation’s

assets;

●

the impact

of government

financial assistance

for hurricane

recovery and

other disaster

relief on

economic activity

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

disaster relief;

●

the ability

of the

FirstBank,

and

third-party

service providers

to identify

and prevent

cyber-security

incidents,

such

as

data

breaches,

ransomware,

malware,

“denial

of

service”

attacks,

“hacking,”

identity

theft,

and

state-

sponsored

cyberthreats,

and

the

of

and

response

to

any

incidents

that

occur,

which

may

result

in

misuse

or

misappropriation

of

confidential

or

proprietary

information,

disruption,

or

damage

to

our

systems

or

those

of

third-party

service providers on which we rely,

increased costs and losses and/or adverse effects

to our reputation;

●

general

competitive

factors

and

other

market

risks

as

well

as

the

implementation

of

or

planned

growth

opportunities,

risks,

uncertainties,

and

other

factors

or

events

related

to

any

acquisitions,

dispositions,

partnerships,

operational

investments,

systems

conversions,

and

any

anticipated

efficiencies

or

other expected results related thereto;

●

uncertainty regarding

the implementation

of Puerto

debt restructuring

plan (“Plan

of Adjustment”

or “PoA”)

and the

revised fiscal plan for Puerto Rico, as certified on June

6, 2025 (the “2025 Fiscal Plan”) by the oversight

board established by

Rico Oversight,

Management,

and Economic

Stability Act

(“PROMESA”),

or any

revisions

to it,

on our

clients

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

developments and tax regulations in Puerto Rico;

●

the

impact

of

changes

in

or

determinations

and

in

applying

those

and

of

forecasts of economic variables considered for the determination of

the allowance for credit losses (“ACL”);

●

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

●

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

to the Corporation;

●

environmental, social, and governance (“ESG”) matters, including

our climate-related initiatives and commitments,

as well as

the impact and potential cost to us of any policies, legislation, or initiatives in opposition

to our ESG policies;

●

the impacts of natural

or man-made disasters, widespread

health emergencies, geopolitical

conflicts (including sanctions, war

or

armed

conflict,

such

as the

ongoing

conflict

in

Ukraine, the

conflict

in

the

Middle

East, the

possible

expansion

of such

conflicts in

surrounding areas

and potential

geopolitical consequences

,

and the

threat of

conflict from

neighboring countries

in our

region), terrorist

attacks, or

other catastrophic

external events,

including impacts

of such

events on

general economic

conditions and on the Corporation’s

assumptions regarding forecasts of economic variables;

●

the

risk

that

portions

of

the

losses in

the

debt

securities portfolio

are

to

be

credit-related, resulting

in additional

charges to

the provision

losses on

and

the potential

that could

emerge

from further

downgrades of

the U.S.’s

Long-Term

Foreign-

Currency Issuer Default Rating and negative ratings outlooks;

●

the

impacts

of

legislative,

tax,

or

changes

or

changes

in

legislative,

tax,

or

priorities,

as

a

result

of

the

One

Big

Beautiful

Bill

Act,

signed

into

law

on

July

4,

2025;

the

in

staffing

at

U.S.

governmental

agencies;

and

shutdowns

and

political

impasses,

uncertainties

the

U.S. debt ceiling and federal budget, on the Corporation’s

financial condition or performance;

●

the

risk

of

possible

failure

or

circumvention

of

the

internal

controls

and

and

the

risk

that

the

Corporation’s risk management

policies may not be adequate;

●

the risk that the FDIC may

further increase the deposit insurance

premium and/or require further special

assessments, causing

an additional increase in the Corporation’s

non-interest expenses;

●

any need to recognize impairments on the Corporation’s

financial instruments, goodwill, and other intangible assets;

●

the risk

impact

of the

of any

uncertainties on

capital would

preclude

further

growth of FirstBank and preclude the Corporation’s

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

●

uncertainty as

to whether

FirstBank will

be able

to continue

to satisfy

its regulators

regarding,

among other

things, its

asset

plans,

of

capital

levels,

and

with

laws,

regulations

and

related

The

does

not

undertake

to

and

specifically

disclaims

any

to

update

any

“forward-looking

statements”

to

reflect

occurrences

or

unanticipated

events

or

circumstances

after

the

date

of

such

except

as

by

the

federal

securities laws.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except for share information)

ASSETS

$

735,384

$

1,158,215

Money market investments:

Time deposit with another financial institution

Other short-term investments

Total money market investments

1,326

1,200

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

$

4,931,635

5,125,408

as of December 31, 2024; ACL of $

as of December 31, 2024)

Held-to-maturity debt securities, at amortized

cost, net of ACL of $

as of December 31, 2024 (fair value of

$

299,846

308,040

as of December 31, 2024)

306,521

316,984

45,202

52,018

Total investment securities

4,848,526

4,934,304

Loans, net of ACL of $

248,578

243,942

as of December 31, 2024

Mortgage loans held for sale, at lower of

cost or market

9,857

15,276

Total loans, net

12,631,281

12,517,890

Accrued interest receivable on loans and

71,548

71,881

Premises and equipment, net

128,425

133,437

Other real estate owned (“OREO”)

14,449

17,306

Deferred tax asset, net

134,772

136,356

38,611

38,611

4,535

6,967

288,672

276,754

Total assets

$

$

LIABILITIES

Non-interest-bearing deposits

$

5,343,588

$

5,547,538

Interest-bearing deposits

11,210,450

11,323,760

Total deposits

320,000

561,700

Accounts payable and other liabilities

178,036

190,687

Total liabilities

17,052,074

17,623,685

Commitments and contingencies (See

Note 19)

(nil)

(nil)

STOCKHOLDERS’ EQUITY

Common stock, $

0.10

par value,

2,000,000,000

shares authorized;

223,663,116

shares issued;

shares outstanding as of June 30, 2025 and

163,868,877

shares outstanding as of December 31,

22,366

22,366

Additional paid-in capital

959,629

964,964

Retained earnings, includes legal surplus

reserve of $

230,178

as of each of June 30, 2025 and December

2,038,812

Treasury stock (at cost),

shares as of June 30, 2025 and

59,794,239

shares as of December 31, 2024

(790,350)

Accumulated other comprehensive loss,

net of tax of $

8,221

as of each of June 30, 2025 and December

(566,556)

Total stockholders’ equity

Total liabilities and stockholders’ equity

$

$

The accompanying notes are an integral part

of these statements.

CONSOLIDATED STATEMENTS OF INCOME

Interest and dividend income:

Loans

$

242,573

$

239,927

$

483,905

$

477,056

Investment securities

23,720

23,258

47,248

47,380

Money market investments and interest-bearing cash accounts

11,897

9,060

24,102

16,314

Total interest and dividend income

278,190

272,245

555,255

540,750

Interest expense:

Deposits

58,638

63,671

117,135

126,696

Short-term borrowings

3,693

8,946

9,788

17,906

Total interest expense

62,331

72,617

126,999

144,602

Net interest income

215,859

199,628

428,256

396,148

Provision for credit losses - expense (benefit):

Loans and finance leases

20,381

11,930

45,218

24,847

Unfunded loan commitments

(417)

(136)

Debt securities

(81)

(45)

(939)

Provision for credit losses - expense

20,587

11,605

45,397

23,772

Net interest income after provision for credit losses

195,272

188,023

382,859

372,376

Non-interest income:

9,756

9,725

19,396

19,387

Mortgage banking activities

3,401

3,419

6,578

6,301

2,538

2,786

8,343

8,293

11,880

11,523

23,355

22,835

Other non-interest income

3,375

4,585

9,012

9,205

30,950

32,038

66,684

66,021

60,058

57,456

122,195

116,962

22,297

21,851

44,927

43,232

3,495

4,359

6,773

8,201

Professional service fees

11,609

12,431

23,095

25,107

5,712

5,408

11,590

10,537

2,235

2,316

4,471

5,418

Net gain on OREO operations

(591)

(3,609)

(1,720)

(5,061)

7,747

7,607

12,857

13,358

Communications

2,208

2,261

4,453

4,358

8,567

8,602

17,718

17,493

123,337

118,682

246,359

239,605

Income before income taxes

102,885

101,379

203,184

198,792

Income tax expense

22,705

25,541

45,945

49,496

$

80,180

$

75,838

$

157,239

$

149,296

Net income attributable to common stockholders

$

80,180

$

75,838

$

157,239

$

149,296

Net income per common share:

Basic

$

0.50

$

0.46

$

0.97

$

0.90

Diluted

$

0.50

$

0.46

$

0.97

$

0.90

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

$

80,180

$

75,838

$

157,239

$

149,296

Other comprehensive income (loss), net of tax:

Available-for-sale debt securities:

Net unrealized holding gains (losses) on debt securities

(1)

41,205

10,560

125,266

(4,505)

Other comprehensive income (loss) for the period, net of tax

41,205

10,560

125,266

(4,505)

Total comprehensive income

$

121,385

$

86,398

$

282,505

$

144,791

(1)

Net unrealized holding

gains (losses) on

available-for-sale debt

securities have no

tax effect because

securities are either

tax-exempt, held by

an International Banking

Entity (“IBE”), or

have a full

deferred tax asset

valuation allowance.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six-Month Period ended June 30,

Cash flows from operating activities:

$

157,239

$

149,296

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization

8,809

9,313

Amortization of intangible assets

2,432

3,683

Provision for credit losses

45,397

23,772

Deferred income tax expense

1,584

7,402

Stock-based compensation

5,878

4,847

Unrealized gain on derivative instruments

(240)

(353)

Net gain on disposals or sales, and impairments of premises

and equipment and other assets

(69)

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

(2,230)

(1,599)

Net (accretion) amortization of discounts, premiums, and

deferred loan fees and costs

(353)

Originations and purchases of loans held for sale

(85,836)

(76,592)

Sales and repayments of loans held for sale

93,508

74,222

Amortization of broker placement fees

Net amortization of premiums and discounts on investment securities

1,630

2,181

Increase in accrued interest receivable

(2,605)

(142)

(Decrease) increase in accrued interest payable

(3,055)

9,351

Increase in other assets

(11,670)

(2,889)

Decrease in other liabilities

(7,151)

(13,656)

Net cash provided by operating activities

203,666

189,389

Cash flows from investing activities:

Net disbursements on loans held for investment

(194,164)

(307,677)

Proceeds from sales of loans held for investment

2,475

10,162

Proceeds from sales of repossessed assets

27,417

37,499

Purchases of available-for-sale debt securities

(404,332)

(28,037)

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

580,359

293,931

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

10,767

10,726

Additions to premises and equipment

(4,093)

(5,857)

Proceeds from sales of premises and equipment and other assets

1,317

Net redemptions (purchases) of equity securities

6,901

(1,388)

Proceeds from the settlement of insurance claims - investing activities

Net cash provided by investing activities

25,330

11,346

Cash flows from financing activities:

Net decrease in deposits

(299,298)

(122,546)

Repayments of long-term borrowings

(239,850)

Repurchase of outstanding common stock

(53,534)

(101,599)

Dividends paid on common stock

(59,019)

(53,472)

Net cash used in financing activities

(651,701)

(277,617)

Net decrease in cash and cash equivalents

(422,705)

(76,882)

Cash and cash equivalents at beginning of year

663,164

Cash and cash equivalents at end of period

$

736,710

$

586,282

Cash and cash equivalents include:

$

735,384

$

581,843

Money market investments

1,326

4,439

$

736,710

$

586,282

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

EQUITY

Common Stock

$

22,366

$

22,366

$

22,366

$

22,366

Additional Paid-In Capital:

957,380

959,319

964,964

965,707

Stock-based compensation expense

2,139

1,922

5,878

4,847

(11)

(11,356)

(9,347)

959,629

961,254

959,629

961,254

Retained Earnings:

2,086,276

1,892,714

2,038,812

1,846,112

80,180

75,838

157,239

149,296

Dividends on common stock ($

0.18

per share and $

0.16

per share for the quarters ended

June 30, 2025 and 2024, respectively; $

0.36

per share and $

0.32

per share for the

six-month periods ended June 30, 2025 and 2024, respectively)

(29,035)

(26,572)

(58,630)

(53,428)

1,941,980

1,941,980

Treasury Stock (at cost):

(804,185)

(740,447)

(790,350)

(697,406)

Common stock repurchases (See Note 11)

(28,376)

(50,005)

(53,534)

(102,359)

11,356

9,347

(110)

(24)

(143)

(47)

(790,465)

(790,465)

Accumulated Other Comprehensive Loss, net

of tax:

(482,495)

(654,235)

(566,556)

(639,170)

Other comprehensive income (loss), net of tax

41,205

10,560

125,266

(4,505)

(643,675)

(643,675)

Total stockholders’ equity

$

$

1,491,460

$

$

1,491,460

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Basis of Presentation and Significant Accounting Policies

Note 2 –

Debt Securities

Note 3 –

Loans Held for Investment

Note 4

–

Allowance for Credit Losses for Loans and Finance Leases

Note 5 –

Other Real Estate Owned (“OREO”)

Note 6 –

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

Note 7 –

Deposits

Note 8 –

Borrowings

Note 9 –

Earnings per Common Share

Note 10 –

Stock-Based Compensation

Note 11 –

Stockholders’ Equity

Note 12 –

Accumulated Other Comprehensive Loss

Note 13 –

Employee Benefit Plans

Note 14–

Income Taxes

Note 15

–

Note 16

–

Revenue from Contracts with Customers

Note 17 –

Segment Information

Note 18 –

Supplemental Statements

of Cash Flows Information

Note 19 –

Regulatory Matters, Commitments, and Contingencies

Note 20 –

First BanCorp. (Holding Company Only) Financial Information

STATEMENTS

NOTE 1 – BASIS

OF PRESENTATION AND

SIGNIFICANT

ACCOUNTING

POLICIES

The

(unaudited)

for

the

quarter

and

period

ended

June

30,

(the

“unaudited

statements”) of

(the “Corporation”)

prepared in

conformity with

the accounting

stated

in

the

Audited

for

the

fiscal

year

ended

31,

(the

“audited

statements”) included

in the

Form 10-K,

as updated

by the

information contained

in this

report.

Certain

and

note

normally

in

the

prepared

in

with

accepted accounting principles in the United States of America

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

to

the

rules

and

regulations

of

the

SEC

and,

accordingly,

these

should

be

read

in

conjunction

with

the

audited

consolidated financial statements, which are included in the 2024 Annual Report on Form 10-K. All adjustments (consisting only of normal

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

necessary for a fair presentation of the statement of

financial position, results

of operations and cash flows

for the interim periods have

been reflected. All significant

intercompany accounts and transactions

eliminated in consolidation. The Corporation evaluates subsequent events through

the date of filing with the SEC.

The results

of operations

for the

are not

necessarily indicative

of the

results to

be

for the

entire year.

Adoption of New Accounting Requirements

The Corporation was not impacted

by the adoption of the

following Accounting Standards Updates (“ASUs”) during

the first quarter of

2025:

●

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”

Recently

Issued Accounting

Standards

Not Yet Effective

or Not Yet Adopted

ASU

2025-05,

“Financial Instruments

–

Credit

Losses

(Topic

326):

Measurement of

Credit

Losses

for

Accounts Receivable

and

Contract Assets”

In July 2025,

the FASB issued

ASU 2025-05, which

provides a practical

expedient for current accounts

receivable and current

assets accounted

for pursuant

to ASC

Topic 606.

Such practical

expedient, if

elected, allows

an entity

to assume

that current

conditions as of the reporting date

remain unchanged over their remaining

lives. The amendments in this

Update, which should be

applied

prospectively, will be effective for annual reporting periods beginning after December 15, 2025,

and interim reporting periods within those

annual reporting periods. Early adoption is permitted for both interim and annual financial statements that have not yet been made available

for issuance. The Corporation does not expect to

be materially impacted by the adoption of this ASU during

the first quarter of 2026.

expect to

be impacted

by the

following ASU

issued during

2025 that

is not

yet effective

or has

not yet

been adopted:

●

ASU 2025-03, “Business Combinations (Topic

805. and Consolidation (Topic

810): Determining the Accounting Acquirer

in the Acquisition of a Variable

Interest Entity”

For

other

issued

standards

not

yet

or

not

yet

adopted,

see

Note

–

of

and

Summary

of

Significant Accounting Policies,” to the audited consolidated financial

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

NOTE 2 – DEBT SECURITIES

Available-for-Sale

Debt Securities

The amortized

cost, gross

unrealized gains

and losses,

ACL, estimated

fair value,

and weighted-average

yield of

debt securities by contractual maturities as of June 30, 2025 and

December 31, 2024 were as follows:

(1)

Gross Unrealized

ACL

(2)

Gains

Losses

U.S. Treasury securities:

$

217,634

$

$

$

$

217,432

3.94

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

1,027,771

13,922

1,013,849

0.73

546,010

28,679

517,357

1.01

7,015

7,003

4.68

(3)

2,833

1,576

United States and Puerto Rico government obligations

1,801,263

43,747

1,757,217

1.21

Mortgage-backed securities (“MBS”):

Freddie Mac (“FHLMC”) certificates:

11,321

11,047

2.14

141,349

10,269

131,080

1.46

868,484

136,249

732,663

1.58

1,021,154

146,792

874,790

1.57

Ginnie Mae (“GNMA”) certificates:

2.61

5,863

5,660

0.72

60,226

4,414

55,816

1.74

149,091

19,182

129,985

2.94

215,333

23,799

191,614

2.54

Fannie Mae (“FNMA”) certificates:

17,145

16,736

2.14

244,722

14,920

229,841

1.77

904,406

123,825

781,089

1.53

1,166,273

139,154

1,027,666

1.59

Collateralized mortgage obligations (“CMOs”) issued

or guaranteed by the FHLMC, FNMA, and GNMA:

484,723

1,724

44,570

441,877

3.32

Private label:

5,447

1,490

3,781

6.57

2,892,930

2,779

355,805

2,539,728

1.95

33,487

1,605

31,892

2.55

10,479

1,279

9,200

1.68

192,976

34,787

158,266

2.39

236,942

37,671

199,358

2.38

3,129,872

2,866

393,476

1.99

Other:

2.35

Total available-for-sale debt securities

$

4,931,635

$

2,904

$

437,223

$

$

1.70

(1)

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

8.8

million as of June 30, 2025 reported as part of accrued interest receivable on loans and investment securities in the consolidated

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

(2)

265.8

million (amortized cost - $

304.4

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

2.8

billion (amortized cost - $

3.1

billion) pledged as collateral for the

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

(3)

Consists of a residential

pass-through MBS issued by the

Puerto Rico Housing Finance Authority

(the “PRHFA”) that

is collateralized by certain

second mortgages originated under

a program launched by the

Puerto

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

(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

(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

CMOs issued or guaranteed by the FHLMC, FNMA,

and GNMA:

377,812

52,338

325,548

2.88

Private label:

After

5 to 10 years

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

1.82

Other

1,000

1,000

2.32

Total available-for-sale debt securities

$

5,125,408

$

$

559,768

$

$

1.45

(1)

Excludes accrued

interest receivable

on available-for-sale

debt

securities that

totaled $

9.6

reported as

part of

accrued interest

receivable on

securities in

the

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

(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

nonaccrual status

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

During the

Corporation purchased

409.4

debt securities,

of

which

$

196.8

million

were U.S

with

an

average

yield

of

4.27

% and

$

212.6

million

were

U.S agencies

MBS

with an average yield of

5.29

%, including $

195.5

million of residential MBS.

Maturities

of

debt

are

based

on

the

period

of

final

maturity.

Expected

might

differ

from

because

they

may

be

subject

to

prepayments

and/or

call

options.

The

yield

on

debt

is

based

on

cost

and,

therefore,

does

not

give

effect

to

changes

in

fair

value.

The

net

unrealized loss

on available-for-sale

is presented

as part

of accumulated

other comprehensive

loss in

the consolidated

statements of financial condition.

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 June 30, 2025 and December 31, 2024. The tables also include debt securities for

which an ACL was recorded.

Total

Losses

Losses

Losses

U.S. Treasury and U.S. GSEs’

$

104,471

$

$

1,545,519

$

42,780

$

1,649,990

$

42,827

1,576

(1)

1,576

MBS:

FHLMC

829,030

146,792

829,030

146,792

GNMA

15,257

155,770

23,578

171,027

23,799

FNMA

969,968

139,154

969,968

139,154

CMOs issued or guaranteed by the FHLMC,

8,683

176,975

44,556

185,658

44,570

3,781

1,490

(1)

3,781

1,490

30,982

131,045

37,076

162,027

37,671

$

159,393

$

$

3,813,664

$

436,346

$

3,973,057

$

437,223

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of June 30, 2025, the PRHFA

bond and private label MBS had an ACL of $

0.3

$

0.2

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

Assessment for Credit Losses

Debt securities

issued by

U.S. government

agencies,

U.S. GSEs,

and

Treasury,

notes and

MBS, accounted

for

substantially

all

of

the

total

as

of

June

30,

2025,

and

the

expects

no

credit

losses

on

these

given

the

explicit

and

implicit

guarantees

by

the

U.S.

federal

government.

Because

the

decline

in

fair

value

is

to

changes

in

rates,

and

not

credit

and

because,

as

of

June

30,

2025,

the

did

not

have

the

intent to

sell these

U.S. government

and agencies

and determined

that it

was likely

that it

will not

be required

to sell

these

before

their

anticipated

recovery,

the

does

not

consider

impairments

on

these

to

be

credit

related. The

credit loss

assessment was

concentrated mainly

on private

label MBS and

on the

debt security, for

which credit losses are evaluated on a quarterly basis.

held as part

of the Corporation’s

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

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

collateral.

The

the

ACL

for

private

label

MBS

based

on

a

risk-adjusted

discounted

cash

flow

methodology

that

the

structure

and

terms

of

the

instruments.

The

utilized

probability

of default

(“PDs”)

and

loss-given

default

(“LGDs”)

that

considered,

among

other

things, historical

payment performance,

loan-to-value attributes,

and relevant

such as

regional unemployment

rates and

the housing

price index.

approach, expected

(interest and

principal)

were discounted

at the U.S.

Treasury yield

curve as of

the reporting

date. See

Note 15

– “Fair Value

”

for the significant

used in the valuation of the private label MBS as of June 30, 2025 and December

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

discounted

cash

flow

methodology

that

considered the structure and

terms of the debt security.

The expected cash flows were

discounted at the U.S. Treasury

yield curve plus

a spread as

of the reporting date

and compared to

the amortized cost. The

Corporation utilized PDs and

LGDs that considered,

among

other

things,

payment

performance,

attributes,

and

relevant

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

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

guarantee

will

depend

on,

among

other

its

condition

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 following table presents

a roll-forward of the ACL on available-for-sale debt securities by major security type

for the quarters and

MBS

Obligation

Total

MBS

Obligation

Total

$

$

$

$

$

$

Provision for credit losses – (benefit) expense

(3)

(3)

Net recoveries

ACL on available-for-sale debt securities

$

$

$

$

$

$

MBS

Obligations

Total

MBS

Obligations

Total

$

$

$

$

$

$

Provision for credit losses - benefit

(8)

(8)

(9)

(9)

Net recoveries

ACL on available-for-sale debt securities

$

$

$

$

$

$

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 June 30, 2025

and December 31, 2024 were as follows:

(1) (2)

Gross Unrecognized

Gains

Losses

ACL

$

2,380

$

$

$

2,373

$

4.86

62,962

2,450

65,194

7.18

11,741

12,278

5.06

15,755

15,861

7.78

Total Puerto Rico municipal bonds

92,838

3,261

95,706

6.96

MBS:

10,156

9,966

3.03

16,349

15,499

4.33

26,505

1,040

25,465

3.83

12,271

11,748

3.30

58,175

2,610

55,565

4.19

CMOs issued or guaranteed by

FHLMC, FNMA, and GNMA:

24,123

23,228

3.43

121,074

5,068

116,006

3.87

9,160

9,074

3.48

84,214

5,154

79,060

1.90

93,374

5,240

88,134

2.06

214,448

10,308

204,140

3.08

$

307,286

$

3,261

$

10,701

$

299,846

$

4.25

(1)

Excludes accrued interest receivable

on held-to-maturity debt securities

that totaled $

3.8

million as of June 30,

2025 reported as part

of accrued interest receivable on

loans and investment securities

in the consolidated

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

(2)

188.8

million (fair value - $

185.7

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

$

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)

Excludes accrued

interest receivable

on held-to-maturity

that totaled

$

4.1

reported as

part of

accrued interest

receivable on

in the

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

(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.

The

tables

present

the

debt

securities’

fair

value

and

gross

losses,

aggregated by

category and

length of

time that

individual securities

had been

in a

continuous unrecognized

loss position,

as of

June

30, 2025 and December 31, 2024, including debt securities for which

an ACL was recorded:

Total

Losses

Losses

Losses

Puerto Rico municipal bonds

$

$

$

22,209

$

$

22,209

$

MBS:

FHLMC certificates

25,465

1,040

25,465

1,040

GNMA certificates

11,748

11,748

FNMA certificates

55,565

2,610

55,565

2,610

CMOs issued or guaranteed by FHLMC,

23,228

23,228

88,134

5,240

88,134

5,240

$

$

$

226,349

$

10,701

$

226,349

$

10,701

Total

Losses

Losses

Losses

Puerto Rico municipal bonds

$

$

$

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

The

classifies

the

debt

into

the

major

types:

MBS

issued

or

guaranteed by

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

Significant

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

2024 Annual Report on Form 10-K.

performs periodic

credit quality

reviews on

these issuers.

All of

bonds were

current as

to

scheduled contractual

payments as

of June

The ACL

of Puerto

bonds was

$

0.8

of each

of June

30,

2025 and December 31, 2024.

The following table presents

the activity in the

ACL for held-to-maturity debt

securities by major security

type for the quarters

and

Puerto Rico Municipal Bonds

$

$

1,235

Provision for credit losses – (benefit) expense

(78)

$

$

1,267

Puerto Rico Municipal Bonds

Beginning Balance

$

$

2,197

Provision for credit losses - benefit

(37)

(930)

$

$

1,267

From

time

to

time,

the

has

with

an

of

three

months

or

less

that

are

cash

and

cash

equivalents

and

are

classified

as

money

market

in

the

of

condition. As

of

June

30,

and

31,

2024,

the

had

no

that

were

classified as cash and cash equivalents.

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.

The Puerto

bonds are

as

but

are

underwritten

as

loans

with

features

that

are

found

in

loans.

Accordingly,

the

monitors the

credit quality

municipal bonds

use of

internal credit-risk

ratings, which

are generally

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

are considered

to be

Pass-rated

For

the

definitions

of

the

internal-credit

ratings,

see

Note

–

“Debt

Securities,”

to

the

audited

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

The

has

a

Loan

Review

Group

that

reports

directly

to

the

Risk

and

administratively

to

the

Chief

Risk

Officer.

The

Loan

Review

Group

annual

credit

process

reviews

of

the

loan

portfolios,

the

above-mentioned

Puerto

Rico

bonds

accounted

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

policies,

practices

and

procedures.

The

performed

by

this

group

contributes

to

the

of

with

credit

and

underwriting

the

of

the

current

level

of

credit

risk,

the

evaluation of

the effectiveness

of the credit

management process,

and the identification

of any deficiency

that may arise

in the credit-

granting process. Based

on its findings, the

Loan Review Group recommends

corrective actions, if

necessary,

that help in maintaining

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

process reviews to the Risk Management Committee.

As of June 30, 2025 and December 31, 2024, all Puerto Rico municipal bonds

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

No

held-to-maturity debt

securities were

on nonaccrual

status, 90

days past

due and

still accruing,

or past

due as

of June

and

31,

A

is

to

be

past

due

once

it

is

days

contractually

past

due

under

the

terms

of

the

agreement.

NOTE 3 – LOANS HELD FOR INVESTMENT

The

following table

provides information

about

the

loan

portfolio held

for

investment by

portfolio segment

and

disaggregated by

geographic locations

as of the indicated

dates:

As of December 31,

Puerto Rico and Virgin Islands region:

$

2,343,894

$

2,323,205

204,485

184,427

1,774,231

1,867,894

Commercial and Industrial (“C&I”) loans

2,367,000

2,325,875

3,741,142

3,750,205

$

10,430,752

$

10,451,606

Florida region:

$

515,264

$

505,226

40,865

43,969

728,244

698,090

5,869

7,502

$

$

2,294,950

Total:

$

$

245,350

228,396

(1)

(2)

ACL on loans and finance leases

(248,578)

(243,942)

Loans held for investment, net

$

$

(1)

As of June 30, 2025 and December 31, 2024, includes $

837.9

780.9

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

which the primary source of repayment at origination was

not dependent upon such real estate.

(2)

Includes accretable fair value net purchase discounts of $

22.1

23.6

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

Various

loans

were

assigned

as

for

time

and

related

unused

The

value

of

loans

pledged

as

to

$

5.7

billion

and

$

5.4

billion

as

of

June

30,

and

As of

loans pledged

as collateral

include $

2.0

billion

and

$

1.7

billion

that

were

pledged

at

the

FHLB

as

for

borrowings

and

letters

of

credit;

$

3.4

billion

pledged

as

to

secure

at

the

FED

Window

as of

each

of

and

31, 2024;

$

161.1

million pledged

to secure

as collateral

for the uninsured

portion of

government deposits,

$

163.5

31, 2024; and $

120.5

million pledged to secure time deposits accounts, compared to $

123.0

million as of December 31, 2024

.

aging of

the loan

portfolio held

for investment,

as well

as information

about nonaccrual

loans with

no ACL,

by

portfolio classes as of June 30, 2025 and December 31, 2024 are as follows:

Days Past Due and Accruing

Current

(1)

30-59

60-89

90+

(2) (3) (4)

(5)

Total loans held

Loans with no

ACL

(6)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1)

(2) (4)

$

71,798

$

$

2,453

$

15,706

$

$

89,957

$

(1) (3) (5)

2,708,739

23,731

5,941

30,790

2,769,201

239,632

5,718

245,350

(1) (3) (5) (6)

2,478,530

22,905

14,459

3,492,000

2,510

20,349

15,856

1,975,258

58,131

10,591

14,009

2,057,989

881,242

13,224

3,481

3,309

901,256

331,160

5,540

2,731

1,795

341,226

287,685

4,028

3,123

6,148

300,984

140,359

2,438

1,536

1,223

145,556

Total loans held for investment

$

12,606,403

$

85,871

$

48,095

$

29,535

$

100,098

$

$

31,849

(1)

delinquency policy and

consistent with the

instructions for the

preparation of the

Consolidated Financial

Statements for Bank

Holding Companies (FR

Y-9C)

required by

the Federal

Reserve Board, residential mortgage,

commercial mortgage, and construction

loans are considered past

due when the borrower

is in arrears on

two or more monthly

payments. FHA/VA

government-guaranteed loans,

conventional residential

mortgage loans,

and commercial

past due

30-59 days,

but less than

two payments

in arrears,

as of

to $

7.8

million, $

57.4

million, and

$

1.5

(2)

It is the Corporation’s policy to report

delinquent Federal Housing Authority (“FHA”)/U.S. Department of Veterans

Affairs (“VA”)

government-guaranteed residential mortgage loans as past-due loans 90 days and still

accruing as

opposed to

nonaccrual loans.

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 $

6.2

million of residential mortgage loans guaranteed by the FHA that were over 15 months delinquent as of June 30, 2025.

(3)

Includes purchased credit deteriorated (“PCD”) loans previously accounted

for under ASC Subtopic 310-30 for

which the Corporation elected to treat pools of

these loans as single assets both at the

time of adoption of

current expected

credit loss

(“CECL”) methodology on

January 1, 2020

and on an

ongoing basis for

credit loss measurement.

These loans

will continue to

be excluded

from nonaccrual loan

statistics as long

as the

Corporation can reasonably estimate

the timing and amount

of cash flows expected

to be collected on

the loan pools. The

portion of such loans

contractually past due 90 days

or more, amounting to

$

4.9

June 30, 2025 ($

4.0

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.

(4)

Included rebooked

were previously

GNMA securities,

amounting to

$

5.5

of June

GNMA program,

has the

option but

not the

repurchase loans

that meet

GNMA’s

specified delinquency

criteria. For

accounting purposes,

these loans

the repurchase

option are

required to

be reflected

on the

with an

offsetting

liability.

(5)

Nonaccrual loans in

the Florida region amounted

to $

23.4

June 30, 2025, of

which $

12.4

million was a commercial

mortgage loan, $

10.8

million were residential mortgage

loans, and $

0.2

million was a

C&I loan.

(6)

12.4

million related to a nonaccrual commercial mortgage loan with no ACL in the Florida region as of June 30, 2025.

Days Past Due and Accruing

Current

(1)

30-59

60-89

90+

(2) (3) (4)

(5)

Total loans held

Loans with no

ACL

(6)

Residential mortgage loans, mainly secured by first mortgages:

FHA/VA government-guaranteed

loans

(1)

(2) (4)

$

70,529

$

$

2,907

$

18,816

$

$

92,252

$

(1) (3) (5)

2,666,959

29,867

7,404

31,949

2,736,179

227,031

1,365

228,396

(1) (3)

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

$

$

10,199

(1)

delinquency policy

and consistent

instructions for

the preparation

of the

Consolidated Financial

Statements for

Bank Holding

Companies (FR

Y-9C)

required by

the Federal

Reserve Board, residential

mortgage, commercial mortgage,

and construction loans

are considered past

due when the

borrower is in

arrears on two

or more monthly

payments. FHA/VA

government-guaranteed loans,

conventional residential mortgage loans,

and commercial mortgage loans

past due 30-59 days,

but less than two payments

in arrears, as of

December 31, 2024 amounted to

$

8.8

million, $

65.6

million, and $

1.0

(2)

It is

policy to

report delinquent

FHA/VA

government-guaranteed residential

as past-due

loans 90

days and

still accruing

as opposed

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.

(3)

Includes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation elected to treat pools of these loans as single assets both at the time of adoption of CECL on January 1, 2020 and on an

ongoing basis for credit loss measurement. These loans will

continue to be excluded from nonaccrual loan statistics as long

as the Corporation can reasonably estimate the timing and

amount of cash flows expected to be

collected on the loan pools. The

portion of such loans contractually past

due 90 days or more,

amounting to $

6.2

million as of 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.

(4)

Include rebooked loans,

which were previously

pooled into GNMA

securities, amounting to

$

5.7

Under the GNMA

program, the Corporation

has the option

but not the

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.

(5)

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.

(6)

no

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

When

a

loan

is placed

in

status,

any

accrued

but uncollected

income

is reversed

and

charged

against interest

income

and the

amortization of

any net

deferred fees

is suspended.

The amount

of accrued

interest reversed

against interest

income

totaled $

0.7

1.6

million for the quarter and six-month

period ended June 30, 2025, respectively,

compared to $

0.7

million

and $

1.5

million for the same periods in 2024, respectively.

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

recognized

on nonaccrual

loans amounted

to $

0.4

$

0.7

to $

0.3

$

0.9

million

for the same periods in 2024, respectively.

As of

June

30,

2025,

the recorded

on

loans collateralized

by

real

estate property

that

were in

the process

of foreclosure

to $

29.5

$

7.8

FHA/VA

government-guaranteed

loans, and

$

3.3

PCD loans

acquired prior

to the

adoption, on

January 1,

2020, of

CECL. The

Corporation commences

the

foreclosure

process

on

real

estate

loans

when

a

becomes

days

delinquent.

Foreclosure

and

timelines

vary

depending

on

whether

the

is

located

in

a

judicial

or

non-judicial

state.

Occasionally,

foreclosures

may

be

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

court delays, and title issues.

Credit Quality Indicators:

categorizes loans

into risk

categories based

on relevant

ability of

the borrowers

to service

their debt

such as

current financial

information, historical

payment experience,

credit documentation,

public information,

and current

trends,

among

other

factors.

The

analyzes

non-homogeneous

loans,

such

as commercial

mortgage,

C&I,

and

construction loans individually

to classify the loans’ credit

risk. The Corporation

periodically reviews its commercial

loans

to

if

they

are

properly

classified.

The

frequency

of

these

reviews

will

depend

on

the

amount

of

the

aggregate

debt,

and

the

risk

rating

classification

of

the

obligor.

In

during

the

renewal

and

annual

review

process

of

applicable credit facilities,

the Corporation evaluates

the corresponding loan

grades. The Corporation

uses the same definition

for risk

ratings as those

described for Puerto

Rico municipal bonds

as held-to-maturity debt

securities, as discussed

in Note 3

–

“Debt Securities,” to the audited consolidated financial statements included

in the 2024 Annual Report on Form 10-K.

For residential mortgage and consumer loans, the Corporation evaluates

credit quality based on its interest accrual status.

Based on

the most

recent analysis

performed, the

of commercial

loans by portfolio

classes and

by

year based

on the

internal credit

-risk category

as of

gross charge

-offs for

2025 by

portfolio classes

and by

origination year,

and the

of commercial

loans by

classes based on the internal credit-risk category as of December 31, 2024,

were as follows:

As of

Puerto Rico and Virgin Islands Region

(1)

Prior

Loans

Total

Total

Pass

$

15,349

$

76,833

$

97,058

$

5,891

$

$

3,410

$

$

198,767

$

179,755

4,321

1,397

5,718

4,672

Loss

$

15,349

$

76,833

$

101,379

$

5,891

$

$

4,807

$

$

204,485

$

184,427

$

$

$

$

$

$

$

$

Pass

$

105,992

$

318,024

$

173,721

$

341,831

$

126,242

$

645,280

$

5,642

$

1,716,732

$

1,804,876

3,313

30,166

33,825

37,035

3,096

19,886

23,674

25,983

Loss

$

106,728

$

318,024

$

177,336

$

344,927

$

126,242

$

695,332

$

5,642

$

1,774,231

$

1,867,894

$

$

$

$

$

$

$

$

C&I

Pass

$

191,791

$

250,323

$

368,086

$

268,851

$

87,356

$

374,965

$

739,592

$

2,280,964

$

2,249,680

3,042

10,004

40,185

53,231

44,900

3,210

13,530

7,037

7,780

32,805

31,295

Loss

$

192,082

$

250,447

$

371,961

$

272,061

$

110,890

$

382,002

$

787,557

$

2,367,000

$

2,325,875

$

$

$

$

$

$

$

$

As of

Florida Region

(1)

Prior

Loans

Total

Total

Pass

$

$

20,065

$

20,800

$

$

$

$

$

40,865

$

43,969

Loss

$

$

20,065

$

20,800

$

$

$

$

$

40,865

$

43,969

$

$

$

$

$

$

$

$

Pass

$

65,430

$

80,564

$

28,453

$

210,611

$

100,464

$

187,552

$

24,274

$

697,348

$

672,736

17,704

13,192

30,896

25,354

Loss

$

65,430

$

80,564

$

28,453

$

228,315

$

100,464

$

200,744

$

24,274

$

728,244

$

698,090

$

$

$

$

$

$

$

$

C&I

Pass

$

70,446

$

326,597

$

176,680

$

156,867

$

124,317

$

118,558

$

175,342

$

1,148,807

$

1,029,100

11,063

Loss

$

70,446

$

326,597

$

176,680

$

156,867

$

124,317

$

118,759

$

175,342

$

$

$

$

$

$

$

$

$

$

As of

Total

(1)

Prior

Loans

Total

Total

Pass

$

15,349

$

96,898

$

117,858

$

5,891

$

$

3,410

$

$

239,632

$

223,724

4,321

1,397

5,718

4,672

Loss

$

15,349

$

96,898

$

122,179

$

5,891

$

$

4,807

$

$

245,350

$

228,396

$

$

$

$

$

$

$

$

Pass

$

171,422

$

398,588

$

202,174

$

552,442

$

226,706

$

832,832

$

29,916

$

2,414,080

$

2,477,612

3,313

30,166

33,825

37,035

20,800

33,078

54,570

51,337

Loss

$

172,158

$

398,588

$

205,789

$

573,242

$

226,706

$

896,076

$

29,916

$

$

$

$

$

$

$

$

$

$

C&I

Pass

$

262,237

$

576,920

$

544,766

$

425,718

$

211,673

$

493,523

$

914,934

$

3,429,771

$

3,278,780

3,042

10,004

40,185

53,231

55,963

3,210

13,530

7,238

7,780

33,006

31,295

Loss

$

262,528

$

577,044

$

548,641

$

428,928

$

235,207

$

500,761

$

962,899

$

$

$

$

$

$

$

$

$

$

tables present the

amortized cost of

residential mortgage

loans by portfolio

classes and by

origination year

accrual

status as

of June

30,

2025,

the gross

for the

2025 by

origination year,

and

the

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

status as of December 31, 2024:

As of

(1)

Prior

Loans

Total

Total

Puerto Rico and Virgin Islands Region:

$

$

$

1,133

$

$

1,262

$

85,283

$

$

88,847

$

91,124

$

$

$

1,133

$

$

1,262

$

85,283

$

$

88,847

$

91,124

$

112,671

$

185,513

$

160,203

$

149,413

$

59,563

$

1,567,730

$

$

2,235,093

$

2,208,672

19,396

19,954

23,409

$

112,671

$

185,513

$

160,269

$

149,905

$

59,563

$

1,587,126

$

$

2,255,047

$

2,232,081

Total

$

112,671

$

185,789

$

161,336

$

150,306

$

60,825

$

1,653,013

$

$

2,323,940

$

2,299,796

19,396

19,954

23,409

$

112,671

$

185,789

$

161,402

$

150,798

$

60,825

$

1,672,409

$

$

2,343,894

$

2,323,205

$

$

$

$

$

$

$

$

(1)

As of

(1)

Prior

Loans

Total

Total

Florida Region:

$

$

$

$

$

$

1,110

$

$

1,110

$

1,128

$

$

$

$

$

$

1,110

$

$

1,110

$

1,128

$

35,814

$

86,069

$

81,568

$

66,074

$

39,460

$

194,333

$

$

503,318

$

495,558

1,226

1,907

7,703

10,836

8,540

$

35,814

$

86,069

$

82,794

$

67,981

$

39,460

$

202,036

$

$

514,154

$

504,098

Total

$

35,814

$

86,069

$

81,568

$

66,074

$

39,460

$

195,443

$

$

504,428

$

496,686

1,226

1,907

7,703

10,836

8,540

$

35,814

$

86,069

$

82,794

$

67,981

$

39,460

$

203,146

$

$

515,264

$

505,226

$

$

$

$

$

$

$

$

(1)

As of

(1)

Prior

Loans

Total

Total

Total:

$

$

$

1,133

$

$

1,262

$

86,393

$

$

89,957

$

92,252

$

$

$

1,133

$

$

1,262

$

86,393

$

$

89,957

$

92,252

$

148,485

$

271,582

$

241,771

$

215,487

$

99,023

$

1,762,063

$

$

2,738,411

$

2,704,230

1,292

2,399

27,099

30,790

31,949

$

148,485

$

271,582

$

243,063

$

217,886

$

99,023

$

1,789,162

$

$

2,769,201

$

2,736,179

Total

$

148,485

$

271,858

$

242,904

$

216,380

$

100,285

$

1,848,456

$

$

2,828,368

$

2,796,482

1,292

2,399

27,099

30,790

31,949

$

148,485

$

271,858

$

244,196

$

218,779

$

100,285

$

1,875,555

$

$

$

$

$

$

$

$

$

$

$

(1)

The

tables present

the

cost

of

loans

by

classes

and

by

year

accrual

status as of

the gross charge

-offs for

the six-month period

2025 by portfolio

classes and by

year, and the amortized cost of consumer loans

by portfolio classes based on accrual status as of December 31, 2024:

As of

(1)

Prior

Loans

Total

Total

Puerto Rico and Virgin Islands Region:

$

325,017

$

573,183

$

443,551

$

340,593

$

222,562

$

139,017

$

$

2,043,923

$

2,010,690

1,919

3,293

2,830

2,426

3,352

14,008

15,295

$

325,205

$

575,102

$

446,844

$

343,423

$

224,988

$

142,369

$

$

2,057,931

$

2,025,985

$

$

2,981

$

5,984

$

3,674

$

1,778

$

1,668

$

$

16,188

$

122,329

$

232,756

$

237,739

$

167,135

$

94,413

$

43,575

$

$

897,947

$

895,634

3,309

3,812

$

122,396

$

232,982

$

238,541

$

167,988

$

94,826

$

44,523

$

$

901,256

$

899,446

$

$

$

2,462

$

1,805

$

$

$

$

6,102

$

56,027

$

107,297

$

91,876

$

57,082

$

12,689

$

14,282

$

$

339,253

$

358,033

1,795

2,136

$

56,049

$

107,665

$

92,460

$

57,697

$

12,753

$

14,424

$

$

341,048

$

360,169

$

$

2,007

$

4,497

$

2,779

$

$

$

$

10,586

$

$

$

$

$

$

$

300,984

$

300,984

$

321,014

$

$

$

$

$

$

$

300,984

$

300,984

$

321,014

$

$

$

$

$

$

$

11,610

$

11,610

$

37,369

$

45,292

$

26,783

$

12,635

$

3,386

$

4,981

$

8,271

$

138,717

$

142,091

1,206

1,500

$

37,419

$

45,750

$

27,047

$

12,757

$

3,418

$

5,151

$

8,381

$

139,923

$

143,591

$

$

3,293

$

2,583

$

$

$

$

$

7,570

Total

$

540,742

$

958,528

$

799,949

$

577,445

$

333,050

$

201,855

$

309,255

$

3,720,824

$

3,727,462

2,971

4,943

4,420

2,935

4,612

20,318

22,743

$

541,069

$

961,499

$

804,892

$

581,865

$

335,985

$

206,467

$

309,365

$

3,741,142

$

3,750,205

$

$

8,896

$

15,526

$

9,219

$

3,146

$

3,172

$

11,900

$

52,056

(1)

As of

(1)

Prior

Loans

Total

Total

Florida Region:

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

1,739

$

$

$

$

$

$

$

$

$

1,739

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

1,176

$

$

$

$

2,021

$

1,724

$

5,616

$

5,535

$

$

1,176

$

$

$

$

2,035

$

1,727

$

5,633

$

5,570

$

$

$

$

$

$

$

$

Total

$

$

1,311

$

$

$

$

2,078

$

1,724

$

5,851

$

7,457

$

$

1,311

$

$

$

$

2,093

$

1,727

$

5,869

$

7,502

$

$

$

$

$

$

$

$

(1)

As of

(1)

Prior

Loans

Total

Total

Total:

$

325,017

$

573,183

$

443,551

$

340,593

$

222,562

$

139,074

$

$

2,043,980

$

2,010,873

1,919

3,293

2,830

2,426

3,353

14,009

15,305

$

325,205

$

575,102

$

446,844

$

343,423

$

224,988

$

142,427

$

$

2,057,989

$

2,026,178

$

$

2,981

$

5,984

$

3,674

$

1,778

$

1,688

$

$

16,208

$

122,329

$

232,756

$

237,739

$

167,135

$

94,413

$

43,575

$

$

897,947

$

895,634

3,309

3,812

$

122,396

$

232,982

$

238,541

$

167,988

$

94,826

$

44,523

$

$

901,256

$

899,446

$

$

$

2,462

$

1,805

$

$

$

$

6,102

$

56,027

$

107,432

$

91,919

$

57,082

$

12,689

$

14,282

$

$

339,431

$

359,772

1,795

2,136

$

56,049

$

107,800

$

92,503

$

57,697

$

12,753

$

14,424

$

$

341,226

$

361,908

$

$

2,007

$

4,497

$

2,779

$

$

$

$

10,586

$

$

$

$

$

$

$

300,984

$

300,984

$

321,014

$

$

$

$

$

$

$

300,984

$

300,984

$

321,014

$

$

$

$

$

$

$

11,610

$

11,610

$

37,853

$

46,468

$

26,783

$

12,635

$

3,597

$

7,002

$

9,995

$

144,333

$

147,626

1,223

1,535

$

37,903

$

46,926

$

27,047

$

12,757

$

3,629

$

7,186

$

10,108

$

145,556

$

149,161

$

$

3,293

$

2,583

$

$

$

$

$

7,570

Total

$

541,226

$

959,839

$

799,992

$

577,445

$

333,261

$

203,933

$

310,979

$

3,726,675

$

3,734,919

2,971

4,943

4,420

2,935

4,627

20,336

22,788

$

541,553

$

962,810

$

804,935

$

581,865

$

336,196

$

208,560

$

311,092

$

$

$

$

8,896

$

15,526

$

9,219

$

3,146

$

3,192

$

11,900

$

52,076

(1)

As of June 30, 2025 and December 31, 2024, the balance of revolving loans

converted to term loans was

no

t material.

Accrued

on

loans

totaled

$

58.9

million

as

of

June

30,

($

58.2

million

as

of

31,

2024),

was

reported as part

of accrued interest receivable

on loans and

investment securities in

of financial condition,

and is excluded from the estimate of credit losses.

The

tables

present

about

loans

that

were

individually

evaluated

for

purposes

of

determining the ACL as of June 30, 2025 and December 31, 2024

:

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Related

Related

Residential mortgage loans:

$

24,914

$

1,213

$

$

24,914

$

1,213

4,321

5,277

4,454

32,894

37,348

15,856

15,856

$

33,717

$

1,970

$

49,706

$

83,423

$

1,970

Collateral Dependent Loans -

With Allowance

Collateral Dependent

Loans - With No

Related Allowance

Collateral Dependent Loans - Total

Related

Related

Residential mortgage loans:

$

24,163

$

1,285

$

$

24,243

$

1,285

4,981

41,784

46,765

15,684

6,120

21,804

$

44,979

$

1,892

$

48,940

$

93,919

$

1,892

The

for

and

loans consisted

of

single-family

properties,

and for

construction loans

consisted primarily

of office

buildings, multifamily

residential properties,

and

retail

establishments.

The

coverage

for

loans

as

of

June

30,

was

%,

to

% as

the inflow

of a

$

4.3

million

loan in

Rico

region with a

loan-to-value ratio of

% and the

refinancing at market

terms of a

$

37.7

million commercial mortgage

relationship in

the

Puerto

Rico

region

with

a

ratio

of

%,

offset

by

the

inflow

of

a

$

12.5

million

mortgage loan in the Florida region with a loan-to-value ratio of

%.

Purchases and Sales of Loans

In

the

ordinary

course

of

business,

the

enters

into

securitization

and

whole

loan

sales

with

GNMA

and

GSEs, such

as FNMA

and FHLMC.

During the

2025, loans

GNMA MBS

$

86.2

million, compared to

$

59.9

million, for the

first six months

of 2024, for

which the Corporation

recognized a net

gain on sale

of

$

3.0

$

2.3

Also, during

of 2025

and 2024,

sold approximately

$

6.8

15.1

of performing residential

mortgage loans to

GSEs, for which

the Corporation recognized

a

net

gain

on

sale

of

$

0.3

million

for

each

of

those

The

continuing

involvement

with

the

loans

that

it

sells

consists

of

the

loans.

In

the

agrees

to

loans

if

it

breaches

any

of

the

representations

and

warranties

in

the

sale

agreement.

These

representations

and

warranties

are

consistent

with

the

GSEs’

selling and servicing guidelines (

i.e.

, ensuring that the mortgage was properly underwritten according to established

guidelines).

For loans

GNMA MBS,

the Corporation,

as servicer,

holds an

option to

repurchase individual

delinquent loans

issued

on or after

January 1, 2003,

when certain delinquency

criteria are met. This

option gives the

Corporation the unilateral

ability,

but not

the obligation, to

repurchase the delinquent

loans at par without

prior authorization from

GNMA. Since the

Corporation is considered

to

have

regained

control

over

the

loans,

it

is

to

recognize

the

loans

and

a

corresponding

regardless of

its intent

to repurchase

the loans.

As of

2024, rebooked

GNMA delinquent

loans that

were included in the residential mortgage loan portfolio amounted

to $

5.5

5.7

six months of 2025

and 2024, the Corporation

repurchased, pursuant to

the aforementioned repurchase

option, $

1.0

million

and

$

0.9

of

loans

pooled

into

GNMA

MBS.

The

balance

of

these

loans

is

fully

guaranteed,

and the

risk of

loss related

to the

repurchased loans

is generally

limited to

the difference

between the

delinquent interest

payment advanced

to GNMA, which

is computed at

the loan’s

interest rate,

and the interest

payments reimbursed

by FHA, which

are

computed

at a

pre-determined

debenture

rate.

of GNMA

loans allow

the

among

other

things, to

acceptable

rates

on

GNMA

pools

and

remain

as

a

seller

and

servicer

in

good

standing

with

GNMA.

Historically, losses

on these repurchases of

GNMA delinquent loans have

been immaterial and no provision has

been made at the time

of sale.

Loan sales to FNMA and FHLMC are without recourse in relation

to the future performance of the loans.

The Corporation’s risk of

loss

with

respect

to

these

loans

is

also

minimal

as

these

loans

are

performing

loans

with

documentation

deficiencies.

six months of 2025,

the Corporation purchased

C&I loan participations

in the Florida region

totaling $

72.7

Meanwhile,

during

the

first

six

months

of

2024,

the

purchased

loan

participations

in

the

Florida

region

totaling $

79.1

million, which consisted

13.7

million in the

commercial mortgage portfolio

and $

65.4

million in the

C&I portfolio.

six months of 2025

and 2024, the Corporation

recognized recoveries of

$

2.4

9.5

from the

leases. These

recoveries are

net of

a repurchase

liability of

$

0.1

0.5

million, respectively, during

such periods.

Loan Portfolio Concentration

primary

lending area

is Puerto

Rico. The

FirstBank, also

lends in

the USVI

and the BVI markets and

in the United States (principally

in the state of Florida).

Of the total gross loans held

for investment portfolio

of $

12.9

billion as of

credit risk concentration

was approximately

% in Puerto

Rico,

% in the

U.S., and

% in the

USVI and the BVI.

As

of

June

30,

2025,

the

had

$

191.3

million

in

loans

extended

to

the

Puerto

Rico

its

and

public

to

$

193.3

million

as

of

31,

As

of

June

30,

2025,

$

132.2

million

of

loans

extended

to

in

Puerto

Rico

that

are

general

supported

by

assigned

tax

revenues,

and $

21.5

million

of

loans which

are supported

by one

or

more

specific sources

of municipal

revenues. The

vast

majority

of

revenues

of the

in

the

loan

are

independent

of

budgetary

subsidies

by

the

Puerto

Rico

central

government.

These

are

by

law

to

levy

special

taxes

in

such

amounts

as

are

to

satisfy

the

payment

of

all

of

their

general

bonds

and

notes.

In

to

loans

extended to

municipalities, the

exposure to

Rico government

as of

2025 included

$

8.7

a

loan granted to

an affiliate of

the Puerto Rico

Electric Power Authority

(“PREPA”)

and $

28.9

million in loans

to a public corporation

of the Puerto Rico government.

Moreover,

as of June 30, 2025, the outstanding balance of construction

loans funded through conduit financing structures to support

the

federal

of

Low-Income

Housing

Tax

Credit

(“LIHTC”)

combined

with

other

federal

to

$

69.7

to $

59.2

The main objective

of these programs

is to spur

development in

new or

rehabilitated and

affordable rental

housing. PRHFA,

as program

subrecipient and

conduit issuer,

issues tax-exempt

obligations which

are acquired

by private financial

institutions and

are required

to co-underwrite

with PRHFA

a mirror

agreement for

the specific project loan to which the Corporation will serve as ultimate lender

but where the PRHFA will be the

lender of record.

In addition, as of

June 30, 2025, the Corporation

had $

69.8

million in exposure to

residential mortgage loans that

are guaranteed by

the PRHFA,

a government

instrumentality that

has been designated

as a covered

entity under PROMESA,

$

72.5

million

as

of

31,

loans

by

the

PRHFA

are

secured

by

the

and

the

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

The Corporation also

has credit exposure

to USVI government entities.

had

$

129.2

loans to

USVI government

$

100.4

As of

all loans

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

Loss Mitigation Program for Borrowers Experiencing

Financial Difficulty

The Corporation provides assistance to

its customers through a loss mitigation

program. Depending upon the

nature of a borrower’s

or

loan

through

this

program

are

provided,

as

well

as

other

of

individual

C&I,

mortgage,

construction,

and

loans.

The

may

also

modify

terms to comply with regulations regarding the treatment of certain bankruptcy

filings and discharge situations.

The

loan

granted

to

that

are

with

payment

delays

include the following:

Forbearance plans –

Payments of either interest

and/or principal are

deferred for a pre-established

period of time, generally

not

exceeding

six

months

in

any

given

year.

The

deferred

and/or

is

repaid

as

either

a

lump

sum

payment

at

maturity date or by extending the loan’s

maturity date by the number of forbearance months granted.

Payment

plans

–

Borrowers

are

allowed

to

pay

the

regular

monthly

payment

plus

the

pre-established

delinquent

amounts

during a period generally not exceeding

six months.

At the end of the payment plan, the

borrower is required to resume making

its regularly scheduled loan payments.

Trial

–

These

types

of

loan

are granted

for

loans

and

home

equity

credit. Borrowers

continue making reduced monthly

payments during the

trial period, which is

generally up to six

months. The

reduced

that

are

made

by

the

during

the

trial

period

will

result

in

a

payment

delay

with

respect

to

the

original contractual terms of

the loan since the loan has

not yet been contractually

modified. After successful completion

of the

trial period, the mortgage loan is contractually modified.

Modifications

in

the

form

of

a

in

rate,

term

extension,

an

other-than-insignificant

payment

delay,

or

any

combination

of

these

types

of

loan

that

have

occurred

in

the

current

period

for

a