FIRST BANCORP /PR/ (FBP)

ITEM

2.

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

FINANCIAL

CONDITION

AND

RESULTS

OF

OPERATIONS (“MD&A”)

The

following

MD&A

relates

to

the

accompanying

unaudited

consolidated

financial

statements

of

First

BanCorp.

(the

“Corporation,” “we,” “us,”

“our,” or “First

BanCorp.”) and should be

read in conjunction with

such financial statements and

the notes

thereto,

and our

Annual Report

on Form

10-K for

the fiscal

year ended

December 31,

2025 (the

“2025 Annual

Report on

Form 10-

K”). This section

also presents certain

financial measures that

are not based

on generally accepted

accounting principles in

the United

States

of

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-

GAAP

financial

measures

are

presented,

reconciliations

of

non-GAAP

financial

measures

to

the

most

comparable

GAAP

financial

measures, and references to non-GAAP financial measures reconciliations

presented in other sections.

EXECUTIVE SUMMARY

First BanCorp. is

a diversified financial

holding company headquartered

in San Juan, Puerto

Rico, offering a

full range of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Recent Developments

Economy and Market Update

Economic conditions

in Puerto

Rico remained

stable throughout

the second

quarter of

2026, supported

by a

resilient labor

market,

ongoing reconstruction

activity,

and encouraging

reshoring trends.

Puerto Rico’s

unemployment rate

stood at

approximately 5.8%

in

June 2026, remaining near historic lows and reflecting continued

strength in employment conditions.

In

the

United

States,

economic

activity

continued

to

moderate

during

the

second

quarter

of

2026,

while

labor

market

conditions

remained generally stable.

The U.S. unemployment

rate decreased slightly

from 4.3% in

March 2026 to

4.2% in June 2026,

reflecting

a healthy

labor market

despite softer hiring

trends and continued

moderation in economic

growth. On

July 29, 2026,

the Chairman of

the

Federal

Reserve

(the

“FED”)

reiterated

that

the

federal

funds

target

range

remained

unchanged

at

3.50%

to

3.75%.

The

FED

remains focused on managing inflation, which in June 2026 was at 3.5% and

above the 2% target.

The Corporation

concluded the first

half of the

year with another

quarter of strong

financial performance,

delivering growth across

the franchise while generating attractive

returns for shareholders. The Corporation

continued to execute on its strategic

priorities while

maintaining

a

disciplined

approach

to

growth,

profitability,

and

asset

quality.

Loan

pipelines

remained

healthy,

supporting

Management’s

confidence

in

achieving

its

established

loan

growth

targets

for

the

full

year,

driven

primarily

by

commercial

and

residential

mortgage

lending opportunities.

In addition,

Management expects

net interest

margin

performance

to continue

benefiting

from

the

reinvestment

of

cash

flows

into

higher-yielding

assets,

while

remaining

focused

on

operational

efficiency,

prudent

risk

management, and delivering sustainable returns to shareholders.

Capital Deployment Actions

In the second quarter of

2026, the Corporation delivered

approximately $81.0

million in the form of

capital deployment actions that

included $50.0 million in repurchases of common stock and $31.

0

million in common stock dividends declared.

On

July

21,

2026,

the

Corporation’s

Board

of

Directors

declared

a

quarterly

cash

dividend

of

$0.20

per

common

share.

The

dividend is payable on September 11, 2026

to shareholders of record at the close of business on August 27, 2026.

65

CRITICAL ACCOUNTING POLICIES AND PRACTICES

The

accounting

principles

of

the

Corporation

and

the

methods

of

applying

these

principles

conform

to

GAAP.

In

preparing

the

consolidated

financial

statements,

management

is

required

to

make

estimates,

assumptions,

and

judgments

that

affect

the

amounts

recorded for assets,

liabilities and contingent

liabilities as of

the date of

the financial statements

and the reported

amounts of revenues

and

expenses

during

the

reporting

periods.

Note

1

of

the Notes

to

Consolidated

Financial

Statements

included

in

our

2025

Annual

Report

on

Form

10-K,

as

supplemented

by

this

Quarterly

Report

on

Form

10-Q,

including

this

MD&A,

describes

the

significant

accounting policies we used in our consolidated financial statements.

Not all significant

accounting policies require

management to make

difficult, subjective

or complex judgments.

Critical accounting

estimates

are

those

estimates

made

in

accordance

with

GAAP

that

involve

a

significant

level

of

uncertainty

and

have

had

or

are

reasonably

likely

to

have

a

material

impact

on

the

Corporation’s

financial

condition

and

results

of

operations.

The

Corporation’s

critical accounting

estimates that

are particularly

susceptible to

significant changes

include, but

are not

limited to,

the allowance

for

credit

losses (“ACL”).

In addition,

the use

of estimates

and

assumptions

is also

important

in performing

the

accounting

for

income

taxes, valuation of

financial instruments, determining

the accounting for goodwill,

pension and postretirement

benefit obligations, and

provisions for losses

that may arise from

litigation and regulatory proceedings

(including governmental investigations).

For additional

information, see “Critical Accounting

Estimates” and “Other Estimates” in Part II,

Item 7, “Management’s

Discussion and Analysis of

Financial

Condition

and

Results

of

Operations

(“MD&A”),”

in

the

2025

Annual

Report

on

Form

10-K.

In

addition,

the

“Risk

Management –

Credit Risk Management”

section of this

MD&A details the

policies, assumptions,

and judgments related

to the ACL.

Actual results could differ from estimates and assumptions if different

outcomes or conditions prevail.

66

Overview of Results of Operations

The

Corporation’s

results

of

operations

depend

primarily

on

its

net

interest

income,

which

is

the

difference

between

the

interest

income

earned

on

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

on

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

is

affected

by

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

of

interest-earning

assets,

and

interest-bearing

liabilities; and (iii) the repricing characteristics of these assets and liabilities.

For

the

quarter

and

six-month

period

ended

June

30,

2026,

the

Corporation

had

net

income

of

$96.1

million

($0.62

per

diluted

common

share)

and

$184.9

million

($1.19

per

diluted

common

share),

respectively

compared

to

$80.2

million

($0.50

per

diluted

common share) and $157.2

million ($0.97

per diluted common share)

respectively,

for the comparable periods

in 2025. Other relevant

selected financial indicators for the periods presented are included below:

Quarter Ended June 30,

Six-Month Period Ended June 30,

2026

2025

2026

2025

Key Performance Indicators:

(1)

Return on Average Assets

(2)

2.02

%

1.69

%

1.95

%

1.66

%

Return on Average Common Equity

(3)

19.49

17.79

18.70

17.85

Efficiency Ratio

(4)

48.07

49.97

48.60

49.78

(1)

These financial ratios are used by management to monitor the Corporation’s

financial performance and whether it is using its assets

efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets

and is calculated by dividing net income on an annualized

basis by its average total assets.

(3)

Measures the Corporation’s

performance based on its

average common stockholders’ equity and

is calculated by dividing net

income on an annualized

basis by its average total

common

stockholders’ equity.

(4)

Measures how much the Corporation incurred to generate a

dollar of revenue and is calculated by dividing non-interest expenses

by total revenue.

The key drivers of the Corporation’s

GAAP financial results for the quarter

ended June 30, 2026, compared to the

second quarter of

2025,

include the following:

●

Net interest income

increased by

$13.2 million to

$229.1 million for

the second quarter

of 2026,

compared to $215.9

million

for

the

second

quarter

of

2025.

Net

interest

margin

for

the second

quarter

of

2026

increased

by

31

basis

points

(“bps”)

to

4.87%,

driven

by

the

deployment

of

cash

flows

from

lower-yielding

investment

securities

to

higher-yielding

assets,

and

a

decrease in

the cost

of interest-bearing

liabilities due

to the

effect

of lower

interest rates

on deposits

and the

repayments of

Federal

Home

Loan

Bank

(“FHLB”)

advances

and

redemption

of

junior

subordinated

debentures.

These

factors

were

partially offset

by the downward

repricing of variable

-rate commercial loans.

The results for

the second quarter

of 2026 also

reflect

a

7

bps

increase

associated

with

the

acceleration

of

the

unamortized

purchase

discount

and

net

deferred

fees

in

connection with the

refinancings of a participated

loan for toll roads

infrastructure improvement and

a participated municipal

loan in the Puerto Rico region. See “Results of Operations – Net Interest Income

”

below for additional information.

●

The provision for credit

losses on loans, finance

leases, unfunded loan commitments

and debt securities for the

quarter ended

June

30,

2026

was

$17.3

million,

compared

to

$20.6

million

for

the

second

quarter

of

2025.

The

decrease

in

provision

expense

was

driven

by

lower net

charge-offs

and

delinquency

levels

in

the

consumer

loan

and

finance

lease

portfolios,

as

well as improvements

in the projection

of certain macroeconomic

variables associated with

the commercial

and construction

loan portfolios.

Net charge-offs

totaled $16.1

million for

the second

quarter of

2026, or

an annualized

0.49% of

average loans,

compared to

$19.1 million, or an annualized 0.60% of

average loans, for the same period in 2025.

The $3.0 million decrease in net charge-

offs for the second

quarter of 2026 was primarily

driven by a $4.1 million

reduction in consumer loans

and finance leases net

charge-offs

across

all

major

portfolio

classes.

See

“Results

of

Operations

–

Provision

for

Credit

Losses”

and

“Risk

Management” below for analyses of the ACL and non-performing

assets and related ratios.

●

Non-interest income increased

by $4.8 million to

$35.7 million for the second

quarter of 2026, compared to

$30.9 million for

the same

period

in 2025,

in part

due

to a

$2.2

million

increase related

to higher

realized

gains from

purchased

income tax

credits. See “Results of Operations – Non-Interest Income” below for

additional information.

●

Non-interest expenses increased by $4.0 million to $127.3 million

for the second quarter of 2026, compared to $123.3 million

for the same period in

2025,

[Excerpt truncated for page length; source filing is linked above.]

ITEM

7.

MANAGEMENT’S

DISCUSSION

AND

ANALYSIS

OF

FINANCIAL

CONDITION

AND

RESULTS

OF

OPERATIONS (“MD&A”)

The following MD&A

relates to the

accompanying audited consolidated

financial statements of

First BanCorp. (the

“Corporation,”

“we,” “us,”

“our,”

or “First

BanCorp.”) and

should be

read in

conjunction

with such

financial statements

and the

notes thereto.

This

section also

presents certain

financial measures

that are not

based on

generally accepted

accounting principles

in the

United States

of

America

(“GAAP”).

See

“Non-GAAP

Financial

Measures

and

Reconciliations”

below

for

information

about

why

non-GAAP

financial measures are

presented, reconciliations

of non-GAAP financial

measures to the

most comparable GAAP

financial measures,

and references to non-GAAP financial measures reconciliations presented

in other sections.

The detailed financial discussion

that follows focuses on

2025 results compared to

2024. For a discussion of

2024 results compared

to 2023, see Part I, Item 7,

“Management’s Discussion

and Analysis of Financial Condition

and Results of Operations” included

in the

Corporation’s Annual Report

on Form 10-K for the year ended December 31, 2024, filed on February

28, 2025.

In

this

discussion

and

analysis

of

our

financial

condition

and

results

of

operations,

we

have

included

information

that

may

constitute

“forward-looking

statements”

within

the

meaning

of

the

safe

harbor

provisions

of

Section

27A

of

the

Securities

Act

and

Section 21E

of the

Exchange Act.

Forward-looking statements

are not

historical facts

or statements

of current

conditions, but

instead

represent only our beliefs

regarding future events, many

of which, by their nature,

are inherently uncertain and

outside our control. By

identifying

these statements

for you

in this

manner,

we are

alerting you

to the

possibility that

our actual

results, financial

condition,

liquidity and capital actions may differ materially

from the anticipated results, financial condition, liquidity

and capital actions in these

forward-looking

statements. Important

factors

that could

cause our

results, financial

condition, liquidity

and capital

actions to

differ

from those in these statements include, among others, those described in

“Risk Factors” in Part I, Item 1A of this Form 10-K.

EXECUTIVE SUMMARY

First BanCorp.

is a diversified

financial holding

company headquartered

in San Juan,

Puerto Rico offering

a full range

of financial

products to

consumers and

commercial customers

through various

subsidiaries. First

BanCorp.

is the

holding company

of FirstBank

Puerto

Rico

(“FirstBank”

or the

“Bank”)

and

FirstBank

Insurance

Agency.

Through

its wholly

-owned

subsidiaries,

the Corporation

operates

in

Puerto

Rico,

the

United

States

Virgin

Islands

(“USVI”),

the

British

Virgin

Islands

(“BVI”),

and

the

state

of

Florida,

concentrating on

commercial banking,

residential mortgage loans,

credit cards, personal

loans, small loans,

auto loans and

leases, and

insurance agency activities.

Significant Events

Economy and Market Update

Economic conditions in Puerto

Rico remained generally stable

during 2025. The unemployment

rate decreased from 5.63% in

2024

to 5.56% in 2025, remaining near historic lows and reflecting a resilient labor

market with steady labor force participation.

In

the

broader

U.S.

economy,

momentum

moderated

during

the

second

half

of

2025

following

a

strong

first

half.

Labor

market

indicators softened but remained orderly,

with slower hiring activity and a modest increase in unemployment.

The U.S. unemployment

rate

stood

at 4.3%

in

January,

unchanged

from

August

2025,

underscoring

a transition

toward

a

more balanced

labor market

rather

than

a

deterioration

in

employment

conditions.

In

response

to

these

trends,

the

Federal

Reserve

(the

“FED”)

implemented

three

25

basis points (“bps”)

rate cuts in

September, October,

and December 2025,

reducing the federal

funds target range

to 3.50%-3.75%, its

lowest level in several years.

Looking ahead

to 2026, the

economic backdrop

remains broadly

constructive and

supportive of

our strategic

priorities.

We

remain

focused on delivering

organic loan growth,

primarily on commercial

and residential mortgage

loans despite anticipated

declines in the

consumer loan portfolio,

and maintaining strong

profitability metrics. Asset quality

is expected to remain

stable, with consumer

credit

trends

continuing

to

normalize.

From

an

earnings

perspective,

we

expect

several

of

the

favorable

dynamics

that

drove

net

interest

margin expansion in 2025 to continue into 2026.

Based on our current outlook, which assumes two additional FED rate

cuts during the

second half of

2026, along with

projected loan growth

and deposit mix

changes, we expect

quarterly net

interest margin

expansion of

approximately 2

to 3 bps.

Cash flows of

approximately $1.1 billion

from the investment

securities portfolio

(excluding U.S. Treasury

securities)

are

expected

to be

received

during

the year

and redeployed

into higher-yielding

interest-earning

assets. These

dynamics,

combined with continued

reductions in funding costs,

including brokered CDs, non-brokered

time deposits, and government

accounts,

position

us

well

to

sustain

margin

performance.

Overall,

the

Corporation

enters

2026

with

strong

capital

levels,

ample

liquidity,

diversified earnings profile, and expects to return

close to 100% of annual earnings to shareholders

through capital deployment actions

positioning it well to navigate a moderating economic environment

while continuing to deliver value to shareholders.

40

Capital Deployment Actions and Dividend Payment Increase

In

2025,

the

Corporation

delivered

approximately

$327.4

million,

or

95%

of

2025

earnings,

in

the

form

of

capital

deployment

actions through

$150.0 million

in repurchases

of common

stock, approximately

$115.7

million in

common stock

dividends declared,

and $61.7 million in the redemption

of the remaining outstanding trust-preferred

securities (“TruPS”) issued

by FBP Statutory Trusts

I

and

II.

As of

February

20,

2026,

the

Corporation

has

remaining

authorization

of approximately

$187.2

million,

which

it expects

to

execute during 2026.

On January

26, 2026,

the Corporation’s

Board of

Directors declared

a quarterly

cash dividend

of $0.20

per common

share, which

represents

an

increase

of

$0.02

per

common

share,

or

an

11%

increase,

compared

to

its

most

recent

quarterly

dividend

paid

in

December

12, 2025.

The dividend

is payable

on March

13, 202

6

to shareholders

of record

at the

close of

business on

February

26,

2026. The increased quarterly dividend level equates to an annualized dividend

of $0.80 per common share.

Recent Tax

Developments and Other Special Items

The financial results

for 2025 include a one-time

reversal of approximately

$16.6 million in valuation

allowance related to deferred

tax assets

primarily associated

with net

operating loss

(“NOL”) carryforwards

at the

holding company

level following

the enactment

of Act 65-2025,

and a $2.3

million employee

retention credit (“ERC”),

net of $0.3

million in related

commissions. For further

details

related to these Special Items, refer to the

Non-GAAP Disclosures – Special Items

section below.

Legislative and Regulatory

A

comprehensive

discussion

of

legislative

and

regulatory

matters

affecting

the

Corporation

can

be

found

in

Part

I,

Item

1,

“Business – Supervision and Regulation” of this Form 10-K.

Overview of Results of Operations

The

Corporation’s

results

of

operations

depend

primarily

on

its

net

interest

income,

which

is

the

difference

between

the

interest

income

earned

on

its

interest-earning

assets,

including

investment

securities

and

loans,

and

the

interest

expense

incurred

on

its

interest-bearing

liabilities,

including

deposits

and

borrowings.

Net

interest

income

is

affected

by

various

factors,

including

the

following:

(i)

the

interest

rate

environment;

(ii)

the

volumes,

mix,

and

composition

of

interest-earning

assets,

and

interest-bearing

liabilities; and (iii) the repricing characteristics of these assets and liabilities.

The

Corporation

had

net

income

of

$344.9

million

($2.15

per

diluted

common

share),

for

the

year

ended

December

31,

2025,

compared

to

$298.7

million

($1.81

per

diluted

common

share),

for

the

year

ended

December

31,

2024.

Other

relevant

selected

financial indicators for the periods presented are included below:

Year

Ended December 31,

2025

2024

2023

Key Performance Indicator:

(1)

Return on Average

Assets

(2)

(5)

1.81

%

1.58

%

1.62

%

Return on Average

Common Equity

(3) (5)

18.74

19.09

21.86

Efficiency Ratio

(4)

49.77

51.92

50.70

(1)

These financial ratios are used by management to monitor the Corporation’s

financial performance and whether it is using its assets

efficiently.

(2)

Indicates how profitable the Corporation is in relation to its total assets

and is calculated by dividing net income by its average total

assets.

(3)

Measures the Corporation’s performance

based on its average common stockholders’ equity and is calculated

by dividing net income by its average total common stockholders’

equity.

(4)

Measures how much the Corporation incurred to generate a

dollar of revenue and is calculated by dividing non-interest expenses

by total revenue.

(5)

For the year ended December 31, 2025, the employee retention credit

(“ERC”) and the one-time reversal in valuation allowance

related to deferred tax assets increased the return on

average assets by 10 bps and the return on average equity ratio by

98 bps.

41

The key

drivers of

the Corporation’s

GAAP financial

results for

the year

ended December

31, 2025,

compared to

the year

ended

December 31, 2024, include the following:

●

Net interest

income for

the year

ended December

31, 2025

increased to

$868.9 million,

compared to

$807.5 million

for the

year

ended

December

31,

2024,

driven

by

a

lower

cost

of

funds

and

the

redeployment

of

cash

flows

from

lower-yielding

investment securities

into loans

and higher-yielding

investment securities.

See “Result

of Operations

– Net

Interest Income”

below for additional information.

●

The provision

for credit

losses on

loans, finance

leases, unfunded

loan commitments

and debt

securities for

the year

ended

December 31,

2025 was

$86.0 million,

compared to

$59.9 million

for the year

ended December

31, 2024,

driven by

a $27.9

million increase

in the

provision for

the commercial

and construction

loan portfolios

mainly due

to C&I

loan growth

and a

deterioration

on

the

economic

outlook

of

certain

macroeconomic

variables,

particularly

those

related

to

commercial

real

estate property performance and the forecasted CRE price index

.

Net charge-offs totaled $80.8 million for

each of the years ended December 31, 2025 and 2024, or

0.63% of average loans for

the year ended December 31, 2025,

compared to 0.65% of average loans

for the year ended December 31,

2024. See “Results

of

Operations

–

Provision

for

Credit

Losses”

and

“Risk

Management”

below

for

the

analysis

of

the

allowance

for

credit

losses (“ACL”) and non-performing assets and related ratios.

●

Non-interest income

for the

year ended

December 31,

2025 increased

to $131.9

million, compared

to $130.7

million for

the

year

ended

December

31,

2024,

mainly

due

to

a

$1.4

million

increase

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]