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

continued

to

remain

generally

stable

through

the

end

of

the

first

quarter

of

2026.

The

unemployment rate was largely

unchanged on a quarter-over-quarter

basis, from 5.7% in the fourth quarter of

2025 to 5.6% by the end

of the first quarter of 2026, remaining near historic lows and reflecting a resilient

and stable labor market.

In the broader

U.S. economy,

economic momentum

continued to moderate

during the first

quarter of 2026

following softer

growth

trends

observed

in

the

second

half

of

2025.

Labor

market

conditions

eased

further

but

remained

orderly,

characterized

by

slower

hiring activity and a

gradual moderation in labor

demand. The U.S. unemployment

rate remained elevated relative

to mid-2025 levels,

standing

at

4.3%

in

January

2026,

unchanged

from

late

2025,

consistent

with

an

ongoing

transition

toward

a

more

balanced

labor

market rather

than a deterioration

in overall

economic conditions.

In response

to these

trends, and

following the

three 25

basis points

(“bps”) rate

cuts implemented

in September,

October,

and December

2025, the

Federal Reserve

(the “FED”)

maintained

the federal

funds target

range at

3.50%-3.75% during

the first

quarter of

2026, allowing

time to

assess the

lagged effects

of prior

policy actions

and to help ensure that inflation continues to move sustainably toward

its long-term 2% target.

Business activity

and

economic

conditions

in

Puerto

Rico

remained

stable

and

progressed

broadly

in line

with

the

Corporation’s

expectations.

Supported

by

a

resilient

labor

market

and

stable

economic

backdrop,

the

Corporation

remains

focused

on

serving

its

customers

across

a

range

of

economic

environments,

while

closely

monitoring

key

risks,

including

energy

costs

and

their

potential

impact

on

customers.

For

the

remainder

of

2026,

the

Corporation

continues

to

expect

growth

in

the

commercial

and

residential

mortgage

loan

portfolios,

despite

the

expected

moderation

in

consumer

credit demand.

In

addition,

the

Corporation

expects

the

net

interest margin to continue expanding as cash flows are reinvested

in higher-yielding assets.

Capital Deployment Actions

In the

first quarter

of 2026,

the Corporation

delivered approximately

$81.5 million

in the

form of

capital deployment

actions that

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

5

million in common stock dividends declared.

On

April

22,

2026,

the

Corporation’s

Board

of

Directors

declared

a

quarterly

cash

dividend

of

$0.20

per

common

share.

The

dividend is payable on June 12, 2026 to shareholders of record at the close of

business on May 28, 2026.

61

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.

62

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

$88.8

million

($0.57

per

diluted

common

share),

for

the

quarter

ended

March

31,

2026,

compared to $77.1

million ($0.47 per

diluted common

share), for the

quarter ended March

31, 2025. Other

relevant selected financial

indicators for the periods presented are included below:

Quarter Ended March 31,

2026

2025

Key Performance Indicators:

(1)

Return on Average Assets

(2)

1.89

%

1.64

%

Return on Average Common Equity

(3)

17.92

17.90

Efficiency Ratio

(4)

49.14

49.58

(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 March 31,

2026, compared to

the first quarter of

2025, include the following:

●

Net interest income

increased by

$8.6 million

to $221.0

million for the

first quarter of

2026, compared

to $212.4

million for

the

first

quarter

of

2025.

Net

interest

margin

for

the

first

quarter

of

2026

increased

by

23

bps

to

4.75%,

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,

primarily

on

non-maturity

government

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

and the

overall

decline

in

the

higher-yielding

consumer

loan

portfolio.

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

March

31,

2026

was $17.3

million,

compared

to $24.8

million

for

the first

quarter

of 2025.

The decrease

was driven

by

a

favorable

year-over-year

variance

in

the

provision

for

the

commercial

and

construction

loan

portfolios,

primarily

due

to

improvements in the projections of the unemployment rate and the commercial

real estate (“CRE”) price index.

Net

charge-offs

totaled

$21.1

million

for

the

first

quarter

of

2026,

or

an

annualized

0.65%

of

average

loans,

compared

to

$21.4 million,

or an

annualized 0.68%

of average

loans, for

the same

period in

2025. The

$0.3 million

decrease was

driven

by a $1.1 million reduction

in consumer loans and

finance leases net charge-offs,

after considering the impact

of $2.4 million

in

recoveries

related

to

the

bulk

sale

of

fully

charged-off

consumer

loans

and

finance

leases

recognized

during

the

first

quarter of

2025.

This improvement

was partially

offset

by a

$0.6 million

charge-off

on a

nonaccrual

commercial

mortgage

loan in

the Virgin

Islands region

during the

first quarter

of 2026.

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 $2.0

million to

$37.7 million

for the

first quarter

of 2026,

compared to

$35.7 million

for

the same period

in 2025, driven

in part by

$0.9 million

in higher revenues

from mortgage banking

activities. See “Results

of

Operations – Non-Interest Income” below for additional information.

●

Non-interest expenses

increased by

$4.1 million

to $127.1

mil

[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

in

revenues

from

mortgage

banking

activities.

The

results for

the year

ended

December 31,

2024 include

$1.5 million

in insurance

proceeds mostly

associated

with insurance

claims associated with property damage caused by Hurricane Fiona.

●

Non-interest expenses for the year ended December

31, 2025 amounted to $498.1 million, compared

to $487.1 million for the

year

ended

December

31,

2024.

Non-interest

expenses

for

the

year

ended

December

31,

2025

include

the

aforementioned

benefit in

payroll taxes

related to

the $2.3

million ERC,

and the

aforementioned benefit

of $1.1

million related

to the

FDIC

special assessment, while

non-interest expenses for

the same period

in 2024 include

the $1.1 million additional

FDIC special

assessment

expense.

On

a

non-GAAP

basis,

excluding

the

effect

of

these

Special

Items,

adjusted

non-interest

expenses

increased by

$15.5 million,

driven by

an $11.7

million increase

in adjusted

employees’ compensation

and benefits

expenses

and a $5.9 million

unfavorable variance in

net gain on OREO

operations, which includes

a $2.8 million valuation

adjustment

recorded in a

commercial OREO property

in the Virgin

Islands region. See

“Results of Operations

– Non-Interest Expenses”

below for additional information.

●

Income

tax

expense

decreased

to

$71.9

million

for

the

year

ended

December

31,

2025,

compared

to

$92.5

million

for

the

same period in

2024, driven by a

one-time reversal of

approximately $16.6 million

in valuation allowance

related to deferred

tax assets primarily

associated with NOL

carryforwards at

the holding company

level as a

result of the

enactment of

Act 65-

2025,

and

a

lower

annual

effective

tax

rate

due

to

a

higher

proportion

of

exempt

to

taxable

income.

See

“Income

Taxes”

below and Note 17 – “Income Taxes

”

included in Part II, Item 8 of this Form 10-K for additional information.

●

As of

December

31,

2025,

total assets

were

approximately

$19.1

billion,

a decrease

of $160.0

million

from

December 31,

2024, primarily related

to a decrease

in cash and

cash equivalents resulting

from the repayment

of long-term borrowings

and

a decrease in

total deposits, partially

offset by an

increase in total

loans and an

increase in the

fair value of

available-for-sale

debt securities due to changes in market interest rates.

●

As of

December 31,

2025, total

liabilities were

$17.2 billion,

a decrease

of $457.6

million from

December 31,

2024, driven

by a $271.7 million decrease in borrowings,

which includes the repurchase of $61.7 million in

junior subordinated debentures

associated with

the aforementioned

TruPS redemption,

and a

$201.2 million

decrease in

deposits. See

“Risk Management

–

Liquidity Risk” below for additional information about the Corporation’s

funding sources and strategy.

●

The

Corporation’s

primary

sources

of

funding

are

consumer

and

commercial

core

deposits,

which

exclude

government

deposits

and

brokered

certificates

of

deposit

(“CDs”).

Excluding

fully

collateralized

government

deposits,

estimated

uninsured

deposits

amounted

to

$4.8

billion

as

of

December

31,

2025.

The

Corporation

had

approximately

$2.6

billion

in

cash and cash

equivalents and

free high-quality

liquid securities as

of December

31, 2025. When

adding approximately

$2.6

billion available

for funding

under the FED’s

Discount Window

and $1.1

billion available

for additional

borrowing capacity

on the

Federal Home

Loan Bank

(“FHLB”) lines

of credit

based on

collateral pledged

at these

entities, the

Corporation had

$6.3

billion, or 132%

of estimated uninsured

deposits (excluding fully

collateralized government

deposits), available

to meet

liquidity needs.

See “Risk

Management –

Liquidity Risk”

below for

additional information

about the

Corporation’s

funding

sources and strategy.

42

●

As of

December 31,

2025, the

Corporation’s

total stockholders’

equity was

$2.0 billion,

an increase

of $297.6

million from

December 31, 2024. The

increase was driven by

net income generated in

2025 and a $212.4

million increase in the

fair value

of available-for-sale

debt securities recorded

as part of

accumulated other

comprehensive loss in

the consolidated

statements

of

financial

condition,

partially

offset

by

$150.0

million

in

common

stock

repurchases

and

$115.7

million,

or

$0.72

per

common share, in common stock dividends declared

in 2025. The Corporation’s

CET1 capital, tier 1 capital, total capital, and

leverage

ratios

were

16.76%,

16.76%,

18.01%,

and

11.58%,

respectively,

as

of

December

31,

2025,

compared

to

CET1

capital, tier 1 capital, total capital, and leverage ratios of 16.32%, 16.32%,

18.02%, and 11.07%, respectively,

as of December

31, 2024. See “Risk Management – Capital” below for additional information.

●

Total

loan

production,

including

purchases,

refinancings,

renewals,

and

draws

from

existing

revolving

and

non-revolving

commitments,

decreased

by $65.1

million

to $5.4

billion

for the

year

ended

December 31,

2025.

See “Financial

Condition

and Operating Data Analysis” below for additional information.

●

Total

non-performing

assets were

$114.1

million as

of December

31, 2025,

a decrease

of $4.2

million, from

December 31,

2024,

driven by

a $9.8

million

decrease

in the

other

real

estate owned

(“OREO”)

portfolio

balance,

which

includes

a $2.8

million valuation adjustment

recorded in a commercial

OREO property in the

Virgin

Islands region,

partially offset by a

$5.1

million

increase

in

nonaccrual

loans,

which

includes

a

$9.2

million

increase

in

nonaccrual

commercial

and

construction

loans,

driven

by

the

inflows

of

three

commercial

and

construction

loans

totaling

$16.2

million,

partially

offset

by

a

$3.1

million

payoff

of

a

C&I

loan

in

the

Puerto

Rico

region.

See “Risk

Management

–

Nonaccrual

Loans

and

Non-Performing

Assets” below for additional information.

●

Adversely classified commercial

and construction loans

decreased by $5.9 million

to $81.4 million as of

December 31, 2025,

when

compared

to December

31,

2024, driven

by

the upgrade

of a

$12.0 million

commercial

mortgage

loan in

the Florida

region, partially offset by the downgrade of a $10.0

million C&I loan in the Puerto Rico region.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

The Corporation

has included

in this

Annual Report

on Form

10-K the

following financial

measures that

are not

recognized under

GAAP,

which are referred to as non-GAAP financial measures:

Net Interest Income,

Interest Rate Spread,

and Net Interest Margin on

a Tax

-Equivalent Basis

Net

interest

income,

interest

rate

spread,

and

net

interest

margin

are

reported

on

a

tax-equivalent

basis

in

order

to

provide

to

investors

additional

information

about

the

Corporation’s

net

interest

income

that

management

uses

and

believes

should

facilitate comparability and

analysis

of

the

periods

presented.

The

tax-equivalent

adjustment

to

net

interest

income

recognizes

the

income tax savings

when comparing

taxable and tax-exempt

assets and assumes

a marginal

income tax rate.

Income from tax-exempt

earning assets is increased

by an amount equivalent

to the taxes that would

have been paid if this

income had been taxable

at statutory

rates. Management believes that it

is a standard practice in the banking

industry to present net interest income,

interest rate spread, and

net interest margin

on a fully tax-equivalent basis.

This adjustment puts all earning

assets, most notably tax-exempt

securities and tax-

exempt loans, on a common basis that facilitates comparison of

results to the results of peers.

See

“Results

of

Operations

–

Net

Interest

Income

–

Part

I”

below

for

a

reconciliation

of

the

Corporation’s

non-GAAP

financial

measure of net interest income on a tax-equivalent basis to net interest income

in accordance with GAAP.

Tangible

Common Equity Ratio and Tangible

Book Value

Per Common Share

The tangible

common equity

ratio and

tangible book

value per

common share

are non-GAAP

financial measures

that management

believes are generally

used by the financial

community to evaluate

capital adequacy.

Tangible

common equity is total

common equity

less goodwill

and other

intangible assets.

Similarly,

tangible assets

are total

assets less

goodwill and

other intangible

assets. Tangible

common

equity

ratio

is

tangible

common

equity

divided

by

tangible

assets.

Tangible

book

value

per

common

share

is

tangible

common

equity divided

by the

number of

common shares

outstanding.

Management uses

and believes

that many

stock analysts

use

the tangible

common equity

ratio and

tangible book

value per

common share

in conjunction

with other

more traditional

bank capital

ratios

to

compare

the

capital

adequacy

of

banking

organizations

with

significant

amounts

of

goodwill

or

other

intangible

assets,

typically

stemming

from

the use

of

the

purchase

method

of

accounting

for

mergers

and

acquisitions.

Accordingly,

the Corporation

believes that

disclosures of

these financial

measures may

be useful

to investors.

Neither tangible

common equity

nor tangible

assets,

or the related

measures, should be

considered in isolation

or as a substitute

for stockholders’

equity,

total assets, or any

other measure

calculated in accordance

with GAAP.

Moreover,

the manner in which

the Corporation calculates its

tangible common

equity, tangible

assets, and any other related measures may differ from

that of other companies reporting measures with similar names.

43

See “Risk

Management –

Capital” below

for the

table that

reconciles the

Corporation’s

total equity

and total

assets in

accordance

with GAAP to

the tangible common

equity and tangible

assets figures used

to calculate the

non-GAAP financial measures

of tangible

common equity ratio and tangible book value per common share.

Adjusted Net Income,

Adjusted Non-Interest Income, Adjusted Non-Interest

Expenses,

and Adjusted Income Tax

Expense

To

supplement the

Corporation’s