FIRST BANCORP /PR/

INDEX TO NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

PAGE

Note 1 –

Nature of Business and Summary of Significant Accounting Policies

Note 2 –

Note 3 –

Loans Held for Investment

Note 4

–

Allowance for Credit Losses for Loans and Finance Leases

Note 5

–

Premises and Equipment

Note 6 –

Other Real Estate Owned (“OREO”)

Note 7 –

Related-Party Transactions

Note 8 –

Note 9 –

Borrowings

Note 10 –

Earnings per Common Share

Note 11 –

Stock-Based Compensation

Note 12 –

Stockholders’ Equity

Note 13 –

Accumulated Other Comprehensive Loss

Note 14 –

Employee Benefit Plans

Note 15 –

Other Non-Interest Income

Note 16 –

Other Non-Interest Expenses

Note 17 –

Income Taxes

Note 18 –

Operating Leases

Note 19

–

Note 20

–

Revenue from Contracts with Customers

Note 21 –

Segment Information

Note 22 –

Supplemental Statements

of Cash Flows Information

Note 23 –

Regulatory Matters, Commitments, and Contingencies

Note 24 –

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,

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

examination by

Office of

Financial Regulation

and the

FDIC; in

the USVI,

regulation and

examination by

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

the

Office

of

the

Commissioner of

Rico and

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

tax-exempt

assets;

an

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

of 2019

”),

which

commenced

in

and

engages in

and

lending

The

limited liability corporation organized under the laws of Act 60

of 2019 has one wholly-owned subsidiary organized under such

laws.

General

The accompanying

consolidated audited

financial statements have

been prepared in

conformity with generally

accepted accounting

principles in the

United States of

America (“GAAP”). The

following is a description

most significant accounting

policies.

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,

directly

or

indirectly,

more than 50 percent

of the outstanding voting

shares. For a variable

interest entity (“VIE”),

a controlling financial

is

where

the

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.

Statutory

trusts

that

are

wholly

owned by

and are

issuers of

trust-preferred

securities (“TruPS”)

and

entities in

which the

a

non-controlling

are

not consolidated

in the

in

with authoritative

guidance issued by the

Financial Accounting Standards Board

(“FASB”) for

consolidation of VIEs. Additional

non-consolidated VIEs

arise

from

transfers

of

loans

in

sale

or

in

which

it

has

involvement,

including servicing responsibilities and guarantee arrangements.

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, as

well as

measurements of

investment securities,

goodwill, other

intangible assets,

pension plans,

mortgage servicing 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

with

original

of

three

months

or

less

that

are

used

as

part

of

an

institution’s

cash

As of

Corporation maintained

$

0.8

$

0.5

in a

segregated time

deposit held in accordance with the requirements of the Puerto Rico International

Banking Law.

Investment securities

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

of four categories:

Held-to-maturity

— Debt

securities that

the entity

has the

intent and

hold to

maturity.

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

2024,

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

These

are

stated

at

cost

less

impairment,

if

any.

This

is

principally composed

of Federal Home

Loan Bank (“FHLB”)

stock that the

Corporation owns

to comply with

FHLB regulatory

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

the life

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

accrued but

not received

for a

security placed

is reversed

income.

2 –

for

additional information on nonaccrual debt securities.

for

Credit

Losses

–

Held-to-Maturity

Debt

Securities:

As

of

31,

and

2024,

the

debt

securities portfolio consisted of U.S. government-sponsored

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

The ACL

on held-to-maturity

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

of no

For the

ACL of

Puerto

bonds, the

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 generally completed

on a quarterly basis. The

Corporation determines the ACL

for held-to-

Puerto

Rico

bonds

based

on

the

product

of

a

of

default

(“PD”)

and

loss

given

default

(“LGD”),

and

the

cost

basis

of

each

bond

over

its

life.

PD

are

updated

and

incorporate

payment

and

market

and

current

and

to

a

term

PD curve.

LGD

events and

payments (if

any), government

sector historical

loss experience,

as well

as relevant

forecasted macroeconomic

of

such

as

rates,

rates,

and

market

risk

factors

based

on

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

the term structure

curves applied to

the amortized cost

basis of each

bond. The methodology

uses

a

two-year

and

period

followed

by

an

up

to

to

the

mean. After

reaching the

long-term historical

averages, the

losses

using

the

same

with

assumed

to

fluctuate

around

their

averages

over

the

life

of

the instruments.

The

also

the

need

for

adjustments,

which

may

reflect

uncertainties,

organization-specific

risks

such

as

credit

concentrations,

considerations,

portfolio-specific

risk

characteristics, changes in underwriting or resolution practices, and other relevant

internal or external factors.

has elected not

to measure

an ACL on

accrued interest related

to held-to-maturity

debt securities,

as uncollectible

accrued interest

receivables are written

off on

a timely manner.

See Note 2

– “Debt Securities”

information about

ACL

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

the years ended December 31, 2025, 2024, and 2023.

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

of

its

cost

basis.

If

either

is

met,

the

between

fair

value

and

cost

is

to

be

impaired

and

in

for

credit

losses.

For

debt

that

do

not

meet

the

criteria,

whether the

decline

in fair

value

has resulted

from

credit factors

market

This

the

issuer’s

and

capital

strength,

the

and

duration

of

the

loss,

changes

in

credit

payment

and

developments,

and,

when

applicable,

changes

in

such

as

default

rates,

loss

severity,

and

cash

flow

trends.

When

credit

loss indicators

are

present,

the

compares

the

present

value

future

cash

flows

to

the

security’s

cost. If

the present

value

future cash

flows is

lower,

a credit

loss is

through an

ACL, limited

to the

amount by

which fair

value is

below amortized

cost. Any

remaining decline

in fair

value not

credit is

OCL.

Non-credit-related losses typically arise from factors, such as widening liquidity spreads

or rising 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

accrued interest

debt

securities as

uncollectible

accrued

interest receivables

are written

off

in a

timely manner as indicated above.

Substantially all

of the

available-for-sale debt

GSEs. These

either explicitly

or

implicitly guaranteed

by the

U.S. government,

are highly

rated by

major rating

have a

of no

there is a zero-credit

loss expectation on these

securities. For further information,

including the assumptions used

for the

discounted cash flow analyses performed

on other available-for-sale debt securities

such as private label MBS and bonds

issued by the

Puerto Rico Housing Finance Authority (“PRHFA”),

see Note 19 – “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

interest yield.

Unearned

interest on

certain personal

loans, auto

loans,

leases and

discounts and

premiums

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

guaranteed by

the VA

or the

PRHFA,

days and

still accruing

as opposed

loans since

the principal

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

collateral,

if

any).

When

a

loan

is

placed

on

status,

any

accrued

but

uncollected

income

is

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

agreement,

or

after

a

period

of

(

six months

)

and

the

loan

is

well

secured

and

in

the

process

of

and

full

repayment of

contractual principal

and interest

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

payments.

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,

are

dependent.

home

equity

lines

of

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.

Construction,

and

and

industrial

(“C&I”)

loans

are

written

down

to

their

net

value

(fair value

of collateral,

less estimated

costs to

sell) when

considered to

be uncollectible.

Within the

consumer loan

closed-

end

loans,

auto

loans

and

finance

leases,

are

charged

off

when

are

days

in

arrears.

Open-end

(revolving

credit)

loans,

credit

card

loans,

are

charged

off

when

are

days

in

arrears.

mortgage loans that are

days delinquent are reviewed

and charged-off, as

needed, to the fair value

of the underlying collateral less

cost to

sell. Generally,

all loans

may be

charged

off or

written down

to the

of the

collateral 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 collateral deficiency

when the asset is the

sole source

of repayment.

Modifications

Granted

to

Debtors

Experiencing

Difficulties

–

The

discloses

loan

granted

to

debtors

difficulties

when,

during

the

period,

the

timing

and/or

amount

of

cash

flows

is

changed through a

reduction in interest

rate, term extension, an

other-than-insignificant payment

delay, or

any combination thereof.

A

debtor is considered to be experiencing financial

difficulties when there is significant doubt about

the debtor’s ability to make required

on

the

debt

or

to

get

from

another

creditor

at

a

market

rate

for

similar

debt.

Modified

loans

are

classified 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

performance prior to the

restructuring and payment

in full under the

restructured terms is

expected.

Otherwise,

loans on

status at

the

time of

the restructuring

will remain

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,

continue as

agreed. Furthermore,

applies a

non-discounted flow

portfolio-

based approach 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,

delinquency

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

the life

of the

loans to

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

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

and interest

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

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

of

any

real

estate

collateral;

thus,

credit

risk

is

largely

on

the

current

and

financial condition.

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 secured

and unsecured 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

term structure

curves applied

to the

basis of

the loans,

considering

prepayments.

For

loans,

the

stratifies

the

segment

by

the

two

classes:

(i)

government-

loans,

and

(ii)

loans.

Government-guaranteed

loans

are

those

originated

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. LGD

based on,

things, historical

charge-

off events

and recovery

payments, loan-to-value

attributes, and

relevant current

such as

the

regional House Price Index.

For

and

loans,

PD

are

based

on,

among

other

things,

default

experience, property

type, occupancy,

and relevant

variables. LGD

based

on

events

and

payments,

loss

attributes

of

the

loans,

such

as

loan-to-value,

debt

service

ratios,

and

net

income,

as

well

as

current

and

such

as

real

estate

price

indexes,

the

gross

product

(“GDP”),

rates,

and

unemployment rates, among others.

For C&I loans, PD estimates

are based on industry historical default

experience, financial performance and market

value indicators,

and

current

and

variables.

LGD

are

based

on

industry historical

loss

attributes

of

the

loans,

such

as

loan

to

value,

as

well

as

current

and

for

such as unemployment

rates, interest

rates, and

market risk

factors based

on industry

the

equity market.

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. The

PD

are

based

on,

among

other

things,

the

payment

and

current

and

such as

rates.

LGD

are

based

on

events

and recovery payments.

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

two years

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

variable.

After

reaching

the

averages,

the

to

credit

losses using

forecast framework,

with macroeconomic

variables assumed

to fluctuate

around their

long-term averages

over

the remaining expected life of the instruments.

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

concentrations,

risks,

nature

and

size

of

the

and

factors

that

may

ultimately impact credit

and (iii) other

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

the term

structure curves

and prepayments

and then

discounted at

the effective

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

flows.

4 –

for Credit

Losses for

Loans

Leases” for

about reserve

for

each portfolio segment and activity during the years ended December

31, 2025, 2024, and 2023.

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

commitments expected

to be

funded over

its expected

life. As

of

sheet credit

exposures primarily

consisted of

unfunded loan

standby

letters of credit for

commercial and construction

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

the term

structure curves

applied to

the usage

given default

exposure.

The

ACL on

off-balance sheet

credit exposures

accounts payable

liabilities in

of financial condition with adjustments included as part of the provision

for credit losses in the consolidated statements of income.

4 –

for Credit

Losses” for

Loans

and

Finance

Leases for

about reserve

for

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

2025, 2024, and 2023.

The

also

credit

losses

for

certain

receivable,

claims

from

government-

loans,

loan

servicing-related

receivables,

and

other

receivables.

The

ACL

on other

assets

at

cost

is

as part

with adjustments

as part

non-

interest expenses

statements of income.

ACL on other

assets measured at

amortized cost was immaterial.

Loans

sell or

that

have

and

intent to

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

conforming

loans

that

will

be

pooled

into

National Mortgage Association (“GNMA”)

MBS, which are then sold to

investors, and conforming residential mortgage

loans that the

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

in

after

the

write-down

policy.

Subsequent

changes

in

value

below

through a

and are

reflected in

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

the following:

(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

maturity.

When

the

transfers

assets

and

the

fails

any

one

of

the

above

criteria,

the

is

prevented

from

derecognizing

the

assets

and

the

is

accounted

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

retained.

When

the

sells mortgage

loans,

it recognizes

any

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

discounted

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

for

escrow

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

penalties.

The

MSRs

for

impairment.

Impairments

are

through

a

by

individual strata

certain risk

characteristics, such

as region,

terms, and

coupons. Impairment

charges are

recorded as

part of

revenues from

activities in the

of income.

If the value

of the MSR

subsequently increases,

the

in

value

is

in

current

period

also

as

part

of

from

banking

through

a

reduction in

the valuation allowance.

also assesses whether

any impairment

is other-than-temporary.

When recovery

is not expected in the foreseeable future, the MSR is written down to its estimated recoverable

value through the valuation allowance.

MSRs

are

over

the

life

of

the

loans

using

the

income

method.

Under

this

method,

on projected

cash flows,

with each

period’s

expense determined

by applying

to the

MSR carrying

amount the

ratio of current-period projected cash flows to total remaining forecasted

cash flows.

As of each

2025 and 2024,

the Corporation serviced

loans securitized through

GNMA with a

principal balance of

$

2.1

billion.

As

of

31,

2025,

the

amount

of

total

MSRs

totaled

$

23.3

to

$

25.0

million

as

of

31,

The

$

4.3

million

in

expense,

offset

by

$

2.6

million

in

capitalized

MSRs

during

Sensitivity

analyses

as

of

each

of

31,

and

that

in

the

constant

rate

(“CPR”)

of

%

and

%

would

reduce

the

MSR

value

by

%

and

%,

increases in

the discount

rate of

% and

% would

reduce the

MSR value

by approximately

% and

%,

The

CPR assumptions

used

in

the

were

6.06

% and

6.34

% as

31,

and

2024,

while the

discount rate

assumptions were

10.77

% and

10.72

% for

periods. Key

economic assumptions

used in

MSRs capitalized

and 2023

were consistent

with those

applied to

total MSRs.

19 –

“Fair Value”

on the

of MSRs

as of

2024. For

ended

31,

2025,

the

$

6.4

million

in

net

income,

within

activities in the consolidated

statements of income. This amount

reflects $

10.0

million in servicing fee income,

$

4.3

million in amortization

expense. This compares

to $

6.8

million in net

servicing income for

December 31, 2024,

which

included $

10.3

million in servicing

fee income and

$

4.2

million in amortization

expense, and $

7.0

million in net

servicing income

for

31, 2023,

which included

$

10.6

servicing fee

$

4.3

Temporary impairment

charges during the years ended December 31, 2025, 2024, and 2023 were not

considered significant.

Premises and equipment

Premises and

equipment are

carried at cost,

net of

accumulated depreciation

and amortization.

Depreciation is

calculated using

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

sell it,

the asset

is reclassified

to other

assets held

for sale

and is

reported at

the lower

of the

carrying amount

or fair

value

less cost to

sell. Premises

and equipment

are evaluated

for impairment

whenever events

or changes

in circumstances

indicate that

the

carrying amount

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.

lease liabilities

are

based

on

the

present

value

of

the

lease

payments,

discounted

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,

the

uses

an

rate,

based

on

fully

amortizing

secured

borrowings.

right-of-use

(“ROU”)

assets

are

based

on

the

amount

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

and

are

as

incurred.

The

leases

are

related

to

leases for

the Bank’s

recognize ROU

lease liabilities

that arise

from short-

term

leases (less

than

months).

lease

expense,

which

as part

of occupancy

and

equipment

expenses in

the

of

income,

is

on

a

basis

over

the

lease

term

that

is

based

on

the

assessment of whether

the renewal options

are reasonably certain

to be exercised.

The Corporation includes

the ROU assets

and lease

as

part

of

other

assets

and

payable

and

other

in

the

of

As of December 31, 2025 and 2024, 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

Subtopic

310-40,

“Reclassification

of

Real

Estate

Collateralized

Loans

upon

Foreclosure,”

(“ASC

Subtopic

310-40”)

are

met.

See

Note

6–

“Other

Real

Estate

Owned”

for

on foreclosures

associated to

FHA/VA

reclassified to

other

assets as of December 31, 2025 and 2024.

Goodwill and other intangible assets

– Goodwill

represents the

the purchase

price

of net

assets acquired

identifiable

intangibles) in business combinations.

The Corporation allocates goodwill

to the reporting unit(s) that

are expected to benefit

synergies

of

the

combination.

Once

allocated,

is

by

all

within

the

unit,

whether

or

internally

generated.

The

tests goodwill

for

at

least annually,

during

the

fourth

quarter

of each

year,

or

more

frequently

if

events

or

impairment.

If, after

determines that it is

more-likely-than-not that a

reporting unit’s

fair value is less

than its carrying value,

a quantitative impairment test

is performed. Goodwill

as of each of

and 2024 amounted

to $

38.6

million. There were

no changes in the

amount

of

during

the

years

ended

31,

2025,

2024,

and

In

to

the

at

the

and

Corporate,

Retail,

and

Banking

units

in

with

the

of

Banco

(“BSPR”) in

2020,

goodwill is

mostly related

to the

(Florida) reporting

unit.

fourth quarter

management performed

a qualitative

assessment for

each reporting

unit and

concluded that

it was

that

fair

value

value;

no

was

recorded.

The

assessment considered macroeconomic conditions,

industry and market trends, interest rate

fluctuations, financial performance

of each

reporting unit, peer performance, and recent market transactions.

Other

Intangible

Assets

–

As

of

31,

and

2024,

other

assets

entirely

of

core

deposit

intangibles,

$

3.5

million

and

$

7.0

As

of

31,

2025,

core

deposit

intangibles

had

a

period

of

4 years

.

These

intangibles

are

over

the

useful

lives

of

the

related

on a

basis. The

evaluates core

deposit

intangibles for

whenever events

or changes

in

that

their

amount

may

not

be

recoverable.

has

identified

no

such

indicators

as

of

December 31, 2025, 2024, and 2023.

Securities purchased and sold under agreements to repurchase

The

for

under

resale

and

sold

under

as

collateralized financing transactions,

generally recorded at the purchase

or sale amount. The Corporation

monitors the fair value of the

underlying securities, and obtains or

returns collateral, as necessary.

Given the level of collateralization

and ongoing monitoring, these

transactions do not

present material credit

risk. The Corporation

sells and acquires

securities under agreements

to repurchase or

resell

or similar

securities. Generally,

similar securities

are securities

same issuer,

with identical

form and

type, similar

maturity,

identical

rates,

similar

assets

as

collateral,

and

the

same

unpaid

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

securities held

and to

offset receivables

and payables

same

counterparty.

The Corporation offsets

repurchase and resale

transactions with

the same counterparty

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 Corporation

modifies repurchase agreements

to take advantage

of prevailing interest rates.

Under applicable

GAAP,

if

the

terms result

in

a

debt

instrument

that

is substantially

different,

defined

as a

change in

the

present

value of cash flows of

10% or more, the modification

is accounted for as a debt

extinguishment, and the new instrument

is recorded at

fair value, and such

amount is used to

determine the extinguishment

gain or loss to

be recognized through the

of income and the effective rate of the new instrument.

If the modification is not substantially different, the original

carrying amount is

and

a

new

rate

is

established.

The

has

that

none

of

the

modified in the past were substantially different from the original

terms, and, therefore, none resulted in a debt extinguishments.

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

is recognized

in income

at the

time 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

evidence

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

strategies

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

considering

statutory,

judicial,

and

guidance.

releases

income

tax effects

from

OCL

as

pension

and

are

extinguished.

Discounts

on

income

tax

credits

are

in

non-

interest income when realized. See Note 17 – “Income Taxes

”

for additional information.

Under

the authoritative

accounting guidance,

income tax

benefits are

recognized and

measured based

on a

two-step

analysis: i)

a

tax

must

be

more

likely than

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

this analysis

and the

tax benefit

claimed on

a tax return

is referred

to

as an unrecognized tax benefit.

See ASU

2023-09,

“Income Taxes

(Topic

740): Improvements

to Income

Tax

Disclosures” below

for the

impact

the adoption of this standard during the fourth quarter of 2025.

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

(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, determined

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

is required

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

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 11– “Stock-Based Compensation.”

Comprehensive income (loss)

Comprehensive

net income,

as well

as change

s

in unrealized

gains on

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

is determined

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

financial condition.

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

2024,

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

utilized

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 21 – “Segment Information” for additional information.

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

would be

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

2025 or

2024. See Note

19 – “Fair

for additional information.

Revenue from contract with customers

See Note 20 –

“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

stockholders

net

income

for

any

stock

if

any,

any

stock

but

not

yet

paid,

and

any

stock dividends

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

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

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 2023-09 -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.

Management adopted the guidance

during the fourth quarter of 2025.

The ASU has been applied

retrospectively. Accordingly,

comparative disclosures were

provided for all periods presented.

As part of the adoption of this ASU,

the Corporation expanded its income

tax rate reconciliation to separately

present nontaxable or nondeductible

items, as well as changes in

unrecognized tax benefits.

Additionally, the Corporation

provided disaggregated disclosures

for its major jurisdictions, which

include local and federal taxes.

The Corporation was not impacted by the adoption of the following Accounting Standards

Updates (“ASUs”) during 2025:

●

ASU 2024-02, “Codification Improvements – Amendments to Remove References

to the Concepts Statements”

●

ASU

2024-01,

–

Stock

(Topic

718):

Stock

Application

of

Profits

and

Similar

Awards”.

Recently Issued Accounting Standards Not Yet

Effective or Not Yet

Adopted

Standard

Effective Date

Effect on the Financial Statements

ASU 2025-11, “Interim

Reporting”

In December 2025, the FASB issued ASU

2025-11, which clarifies when ASC 270

applies, addresses the form and content of

such financial statements, lists the interim

disclosures required by all other Codification

topics, and establishes a disclosure principle

under which an entity must disclose events

since the end of the last annual reporting

period that have a material impact on the

entity.

Effective for interim reporting

periods within annual reporting

15, 2027. Early adoption is

permitted. The amendments in this

ASU can be applied either

prospectively or retrospectively to

any or all prior periods presented

in the financial statements.

The Corporation will consider this

guidance when preparing its

interim disclosures for the first

quarter of 2028.

ASU 2025-08, “Financial

Instruments – Credit Losses

(Topic 326): Purchased

Loans”

In November 2025, the FASB issued ASU

2025-08, which expands the population of

acquired financial assets subject to the gross-

up approach in ASC 326 to include closed-

ended purchased seasoned loans, which

include non-PCD loans that are obtained in a

business combination and non-PCD loans that

are obtained in an asset acquisition or upon

consolidation of a VIE that is not a business

and are acquired more than 90 days after their

origination date by a transferee that was not

involved in their origination. In addition, an

entity can elect to use the amortized cost basis

of the asset to subsequently measure the ACL

if a method other than a discounted cash flow

method is used.

15, 2026, and interim periods

within those annual reporting

periods. The amendments in this

ASU should be applied

prospectively to loans that are

acquired on or after the adoption

date. Early adoption is permitted

in an interim or annual reporting

period in which financial

statements have not yet been

issued.

The Corporation will consider this

standard for loans that are

acquired on or after the adoption

date.

ASU 2025-06, “Intangibles

– Goodwill and Other –

Internal-Use Software

(Subtopic 350-40): Targeted

Improvements to the

Accounting for Internal-Use

Software”

In September 2025, the FASB issued ASU

2025-06, which, among other things, removes

all references to project stages in ASC 350-40

and replaces them with a probability-based

assessment framework to determine the

appropriate point at which capitalization of

software development costs should begin.

15, 2027, and interim reporting

periods within those annual

reporting periods. Early adoption

is permitted as of the beginning of

an annual reporting period. Any of

the following transition

approaches may be elected: a

prospective transition approach, a

modified transition approach that

is based on the status of the

project and whether software costs

were capitalized before the date of

adoption, and a retrospective

transition approach.

The Corporation does not expect

to be materially impacted by the

adoption of this ASU during the

first quarter of 2028.

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

contract assets accounted for pursuant to ASC

Topic 606. Such practical expedient, if

elected, allows an entity to assume that

current economic conditions as of the

reporting date remain unchanged over their

remaining lives.

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. Prospective

application is required.

The Corporation does not expect

to be materially impacted by the

adoption of this ASU during the

first quarter of 2026.

ASU 2024-03, “Income

Statement – Reporting

Comprehensive Income –

Expense Disaggregation

Disclosures (Subtopic 220-

40): Disaggregation of

Income Statement

Expenses”

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.

The Corporation does not expect to be impacted

by the following ASUs that are not yet effective

or have not yet been adopted:

●

ASU 2025-12, “Codification Improvements”

●

ASU 2025-09, “Derivatives and Hedging

(Topic 815): Hedge Accounting Improvements”

●

ASU 2025-07, “Derivatives

and Hedging

(Topic 815)

and Revenue

from Contracts

with Customers

(Topic 606):

Derivatives

Scope Refinements and Scope Clarification for Share-Based Noncash

Consideration from a Customer in a Revenue Contract”

●

ASU 2025-04, “Compensation

– Stock

Compensation (Topic

718. and Revenue

from Contracts

with Customers

(Topic 606):

Clarifications to Shared-Based Consideration Payable to a Customer”

●

ASU 2025-03,

“Business Combinations (Topic

805. and

Consolidation (Topic

810): Determining

the Accounting Acquirer

in

the Acquisition

of a Variable Interest

Entity”

●

ASU 2024-04,

“Debt – Debt with Conversion and Other Options

(Subtopic 470-20): Induced Conversions of Convertible Debt

Instruments”

NOTE 2 – 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, 2025

and 2024 were as follows:

(1)

Gross Unrealized

ACL

(2)

Gains

Losses

U.S. Treasury securities:

$

497,159

$

$

$

$

497,342

3.85

U.S. GSEs’ obligations:

402,352

4,659

397,710

0.92

500,025

16,114

483,916

1.45

14,996

14,985

4.75

6,547

6,501

3.97

(3)

2,700

1,620

United States and Puerto Rico government obligations

1,423,779

21,592

1,402,074

2.18

MBS:

2,401,704

2,360

256,589

2,147,475

1.80

U.S. Agencies collateralized mortgage

obligations (“CMOs”)

833,330

4,123

39,299

798,154

3.95

5,072

1,361

3,266

5.92

(4)

3,240,106

6,483

297,249

2,948,895

2.36

(4)

238,097

35,542

203,063

2.42

3,478,203

6,991

332,791

3,151,958

2.36

Total available-for-sale debt securities

$

4,901,982

$

7,196

$

354,383

$

$

2.31

(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:

2,538,226

386,773

2,151,510

1.62

377,812

52,338

325,548

2.88

6,086

1,715

4,195

6.62

(4)

2,922,124

440,826

2,481,253

1.79

U.S Agencies Commercial MBS

(4)

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)

Excludes accrued interest receivable on

available-for-sale debt securities that totaled

$

9.4

9.6

million as of December 31, 2025

and 2024, respectively, reported

as part of accrued interest receivable

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

(2)

Includes $

230.2

million (amortized cost - $

251.0

million) and $

466.1

million (amortized cost - $

533.7

million) as of December 31, 2025

and 2024, respectively, that was

pledged at the FHLB as collateral

for borrowings

and letters of credit, as well

as $

2.5

billion (amortized cost - $

2.7

billion) and $

3.0

billion (amortized cost - $

3.3

billion) as of December 31, 2025

and 2024, respectively, 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.

(4)

The weighted-average remaining contractual life of residential MBS and

commercial MBS was

16.3

29.1

years, respectively, as of December 31,

2025, compared to

15.3

30.0

years, respectively, as of

During

2025,

$

1.9

billion

in

debt

$

974.9

million

were U.S.

MBS and

with an

average yield

of

4.76

%, including

$

872.1

million

MBS; and

$

963.2

million were U.S. Treasury securities with an average

4.02

%.

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, 2025 and 2024. The tables also include debt securities for

which an ACL was recorded.

Total

Losses

Losses

Losses

U.S. Treasury and U.S. GSEs’ obligations

$

91,584

$

$

796,505

$

20,730

$

888,089

$

20,830

1,620

(1)

1,620

MBS:

52,599

1,851,881

256,441

1,904,480

256,589

74,773

170,490

38,897

245,263

39,299

3,266

1,361

(1)

3,266

1,361

2,810

138,412

35,392

141,222

35,542

$

221,766

$

$

2,962,174

$

353,583

$

3,183,940

$

354,383

(1)

Unrealized losses do not include the credit loss component recorded

as part of the ACL. As of December 31, 2025, the

PRHFA bond and private label MBS

had an ACL of $

0.3

million

and $0.5 million, respectively.

Total

Losses

Losses

Losses

U.S. Treasury and U.S. GSEs’ obligations

$

8,005

$

$

1,886,046

$

76,824

$

1,894,051

$

76,859

1,620

(1)

1,620

MBS:

111,830

2,036,293

386,048

2,148,123

386,773

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

expects no

U.S. government

agencies, U.S.

GSEs and

the U.S. Treasury

given the explicit

and implicit guarantees

provided by the

U.S. federal government.

Because the decline

in fair value

is attributable to

interest rates, and

not credit

and because, as

Corporation did

not have the

intent to sell

these

debt

and

that

it

was

likely

that

it

will

not

be

to

sell

these

before

their

anticipated

recovery,

the

does

not

impairments

on

these

to

be

credit

related.

The

credit

loss

assessment was

concentrated mainly

on private

label MBS

and on

Rico government

debt security,

are evaluated on a quarterly basis.

The

tables

present

a

roll-forward

of

the

ACL

on

debt

securities by

major

type

for

the

years

ended December 31, 2025, 2024, and 2023:

Year

Total

$

$

$

Provision for credit losses - expense (benefit)

(27)

Net charge-offs

(12)

(12)

$

$

$

Year

Ended December 31, 2024

Total

$

$

$

Provision for credit losses - (benefit)

(50)

(50)

Net recoveries

$

$

$

Year

Ended December 31, 2023

Total

$

$

$

Net recoveries

$

$

$

During

2025,

the

$

86.0

million

of

income

on

debt

(2024

$

71.7

78.3

million), of which $

53.5

million was exempt (2024 - $

36.2

39.1

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,

2025 and 2024 were as follows:

(1) (2)

Gross Unrecognized

Gains

Losses

ACL

$

1,044

$

$

$

1,083

$

4.94

54,611

1,921

56,401

7.05

10,376

10,870

4.78

14,870

14,886

7.46

Total government bonds

80,901

2,638

83,240

6.81

MBS:

89,798

2,245

87,553

3.99

21,653

21,261

3.40

(3)

111,451

2,637

108,814

3.87

(3)

72,944

2,943

70,001

2.13

184,395

5,580

178,815

3.19

$

265,296

$

2,638

$

5,879

$

262,055

$

4.29

(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 government bonds

92,442

3,815

95,608

7.18

MBS:

103,753

6,123

97,630

3.96

25,566

1,321

24,245

3.49

(3)

129,319

7,444

121,875

3.86

(3)

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

debt securities that totaled $

3.2

4.1

million as of December 31, 2025

and 2024, respectively, reported

as part of accrued interest receivable on

loans

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

(2)

Includes $

153.0

million (fair value

• $

150.9

million) and $

198.6

million (fair value

• $

192.4

million) as of

and 2024, respectively,

that serves as

collateral for the

uninsured portion of

deposits. The secured parties are not permitted to sell or repledge the collateral.

(3)

The weighted-average remaining contractual life of

residential MBS and commercial MBS was

21.0

11.9

years, respectively, as of

2025, compared to

21.5

13.2

years, respectively, as

The

tables

present

the

debt

securities’

fair

value

and

gross

losses,

aggregated

by

and

length

of

time

that

had

been

in

a

continuous

loss

as

of

December 31, 2025 and 2024, including debt securities for which an ACL was recorded:

Total

Losses

Losses

Losses

Government bonds

$

$

$

21,460

$

$

21,460

$

MBS:

87,553

2,245

87,553

2,245

21,261

21,261

70,001

2,943

70,001

2,943

$

$

$

200,275

$

5,879

$

200,275

$

5,879

Total

Losses

Losses

Losses

Government bonds

$

$

$

20,071

$

$

20,071

$

MBS:

U.S Agencies MBS

97,630

6,123

97,630

6,123

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

by

GSEs

and

and

bonds,

of

Puerto

Rico

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

of no

In the

case of

government bonds,

determines the

ACL based

on the

product of

a

cumulative PD and LGD, and

the amortized cost basis of the

bonds over their remaining expected

life as described in Note 1

– “Nature of

Business and Summary of Significant Accounting Policies.”

performs periodic

credit quality

reviews on

these issuers.

All of

bonds were

current as

to scheduled

contractual payments as of December 31,

presents the activity

in the ACL for

securities by major

security type for

the years ended

Government Bonds

Year

Beginning Balance

$

$

2,197

$

8,286

Provision for credit losses - (benefit)

(69)

(1,395)

(6,089)

ACL on held-to-maturity debt securities

$

$

$

2,197

During 2025, the Corporation recognized

$

13.9

million of interest income on held-to-maturity

debt securities (2024 - $

17.1

million;

2023 - $

20.9

million), of which $

13.6

million was exempt (2024 - $

16.8

20.5

million). The exempt securities relate to

tax-exempt Puerto

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

government issued

in bond form

,

which are

accounted for as

securities but

are underwritten

with

that

are

found

in

loans.

the

the

credit

quality

of

these

bonds through

the use

of internal

credit-risk ratings,

which

updated

on a

basis. The

a government

bond as

a criticized

asset if

its risk

rating

is Special

Mention,

Substandard,

Doubtful, or

Loss. Government

bonds that do

not meet the

criteria for classification

as criticized assets are

considered 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.

periodically reviews its

government bonds

to evaluate

if they are

properly classified,

and to measure

on these

securities. The

of these

reviews will

depend

on the

the aggregate

outstanding debt,

and the

risk rating

classification of the obligor.

Loan Review Group

reports to the Risk

Management Committee

and administratively to

the Chief Risk Officer.

It

annual

reviews

of

the

loan

the

above-mentioned

bonds.

These

reviews assess

the accuracy

of loan

risk ratings

and compliance

with lending

procedures.

The monitoring

performed by

this

group

helps

credit

risk,

adherence

to

and

the

of

credit

while

identifying any

deficiencies. Based on

its findings,

it recommends corrective

actions, as needed.

Results of the

credit process reviews

are reported to the Risk Management Committee.

As of December 31, 2025 and 2024, all government bonds classified as held-to-maturity

were classified as Pass.

No

securities were

status, 90

days past

due and

still accruing,

or past

due as

31,

2025 and 2024. A security is considered to be past due once it is 30 days contractually

past due under the terms of the agreement.

NOTE 3 – 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:

$

2,377,604

$

2,323,205

263,640

184,427

1,763,927

1,867,894

2,519,002

2,325,875

3,703,019

3,750,205

$

10,627,192

$

10,451,606

Florida region:

$

530,698

$

505,226

1,928

43,969

790,325

698,090

5,857

7,502

$

$

2,294,950

Total:

$

$

265,568

228,396

(1)

(2)

ACL on loans and finance leases

(249,037)

(243,942)

Loans held for investment, net

$

$

(1)

2025 and 2024, includes $

887.5

780.9

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 $

18.4

23.6

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

As

of

and

2024,

the

had

net

costs

on

its

loan

amounting

to

$

1.0

$

1.8

The total

is net

of unearned

income of

$

116.8

$

130.4

of

$

113.2

$

126.0

million are

as of

31, 2025 and 2024, respectively.

As of

2025,

was servicing

loans owned

by others

in an

amount

of

$

3.6

billion (2024

— $

3.7

billion), and

commercial loan

participations owned

by others

in an

aggregate amount

of $

252.8

of December 31, 2025 (2024 — $

262.9

Various

loans were

assigned as

collateral for

borrowings, government

deposits, certain

time deposits

accounts, and

related unused

commitments.

The carrying

loans pledged

as collateral

to $

5.7

$

5.4

billion

as of

and

2024,

As

of

31,

and

2024,

loans

pledged

as

include

$

2.1

billion

and

$

1.7

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

as of each of December

31, 2025 and 2024; $

126.1

million pledged to secure

as

for

the

portion

of

to

$

163.5

million

as

of

31,

2024;

and

$

111.2

million pledged to secure certain time deposits accounts, compared to $

123.0

million as of December 31, 2024

.

aging of

for investment,

as well

as information

about nonaccrual

no ACL,

by

portfolio classes as of December 31, 2025 and 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)

$

70,781

$

$

2,163

$

15,776

$

$

88,720

$

(1) (3) (5)

2,758,359

25,985

6,069

29,169

2,819,582

260,032

5,536

265,568

(1) (3)

2,544,283

8,382

(5)

3,653,509

1,514

2,563

2,730

28,042

13,752

1,952,600

63,085

12,661

14,665

2,043,011

871,810

14,049

2,670

3,510

892,039

325,474

5,185

2,705

1,792

335,156

278,938

4,479

3,266

6,405

293,088

140,117

2,157

1,841

1,467

145,582

Total loans held for investment

$

12,855,903

$

90,610

$

54,367

$

31,913

$

92,563

$

$

16,391

(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

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, 2025

8.7

59.1

0.8

(2)

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

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 $

4.1

million of residential mortgage loans

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

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 $

4.8

($

3.9

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 loans, which were previously

pooled into GNMA securities, amounting to $

6.7

million as of December 31, 2025.

Under the GNMA program, the Corporation

has the option but not the obligation

to

repurchase loans

that meet

GNMA’s

specified delinquency

criteria. For

accounting purposes,

the repurchase

option are

be reflected

on the

with an

offsetting

(5)

Nonaccrual loans in the Florida region amounted to $

11.3

million as of December 31, 2025, of which $

11.1

million were residential mortgage loans and $

0.2

million was a C&I loan.

(6)

There were

no

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

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

(2)

It is

policy to

report delinquent

FHA/VA

as past-due

loans 90

days and

still accruing

as opposed

loans. The

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

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

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.

(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)

There were

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

income

and the

amortization of

any net

deferred fees

is suspended.

of accrued

interest reversed

income

totaled $

3.3

3.1

2.7

million for the years ended

December 31, 2025, 2024,

and 2023, respectively.

ended

loans

to $

1.5

to $

1.8

million

for

each of the years ended December 31, 2024 and 2023.

As of

recorded investment

on residential

collateralized by

residential real

estate property

that

were

in

the

process

of

to

$

26.2

$

6.7

million

of

FHA/VA

loans,

and

$

3.2

million

of

PCD

loans

prior

to

the

adoption,

on

January

1,

2020,

of

CECL.

The

commences

the

process

on

real

estate

loans

when

a

becomes

days

Foreclosure

and

timelines

vary

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

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

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

of

these

reviews

will

depend

on

the

amount

of

the

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

bonds accounted

for as

securities, as

discussed in

Note 2

“Debt Securities.”

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

loans by portfolio

classes and

by

origination year

the internal

credit-risk category

as of

the gross

charge-offs for

ended December 31, 2025 and 2024 by portfolio classes and by origination year

were as follows:

Puerto Rico and Virgin Islands Region

(1)

Prior

Basis

Total

Pass

$

21,427

$

112,490

$

115,427

$

4,846

$

$

3,695

$

$

258,104

4,321

1,215

5,536

Loss

$

21,427

$

112,490

$

119,748

$

4,846

$

$

4,910

$

$

263,640

$

$

$

$

$

$

$

$

Pass

$

205,625

$

305,963

$

165,231

$

330,570

$

119,291

$

608,805

$

5,674

$

1,741,159

3,286

3,588

3,034

15,627

19,180

Loss

$

205,998

$

305,963

$

168,965

$

333,604

$

119,291

$

624,432

$

5,674

$

1,763,927

$

$

$

$

$

$

$

$

C&I

Pass

$

477,313

$

252,346

$

297,662

$

243,043

$

58,466

$

289,577

$

821,745

$

2,440,152

1,675

38,968

40,643

1,809

22,778

6,426

6,247

38,207

Loss

$

479,122

$

252,385

$

300,140

$

243,148

$

81,244

$

296,003

$

866,960

$

2,519,002

$

$

$

$

$

$

$

$

Florida Region

(1)

Prior

Basis

Total

Pass

$

1,238

$

$

$

$

$

$

$

1,928

Loss

$

1,238

$

$

$

$

$

$

$

1,928

$

$

$

$

$

$

$

$

Pass

$

172,503

$

75,602

$

26,003

$

201,236

$

99,591

$

165,794

$

31,268

$

771,997

17,510

18,328

Loss

$

172,503

$

75,602

$

26,003

$

218,746

$

99,591

$

166,612

$

31,268

$

790,325

$

$

$

$

$

$

$

$

C&I

Pass

$

199,181

$

264,207

$

175,181

$

139,415

$

93,519

$

85,140

$

197,628

$

1,154,271

10,933

3,965

14,898

Loss

$

199,181

$

275,140

$

175,181

$

139,415

$

93,519

$

85,327

$

201,593

$

$

$

$

$

$

$

$

$

Total

(1)

Prior

Basis

Total

Pass

$

22,665

$

113,180

$

115,427

$

4,846

$

$

3,695

$

$

260,032