First BanCorp. Announces Earnings for the Quarter Ended June 30, 2021

• Net income of $70.6 million, or $0.33 per diluted share, for the second quarter of 2021, compared to $61.2 million, or $0.28 per diluted share, for the first quarter of 2021. The net income for the second and first quarters of 2021 included the following items of note:

- Provision for credit losses was a net benefit of $26.2 million ($16.3 million after-tax, or an increase of $0.08 per diluted share) for the second quarter of 2021, primarily driven by improvements in macroeconomic factors and lower loans outstanding. The provision for credit losses for the first quarter of 2021 was a net benefit of $15.3 million ($9.5 million after-tax, or an increase of $0.04 per diluted share).

- Merger and restructuring costs of $11.0 million ($6.9 million after-tax, or a decrease of $0.03 per diluted share) for the second quarter of 2021 associated with the acquisition of Banco Santander Puerto Rico (“BSPR”), compared to $11.3 million ($7.0 million after-tax, or a decrease of $0.03 per diluted share) for the first quarter of 2021.

• Income before income taxes of $110.7 million for the second quarter of 2021, compared to $89.2 million for the first quarter of 2021.

• On a non-GAAP basis, adjusted pre-tax, pre-provision income of $96.6 million for the second quarter of 2021, compared to $86.4 million for the first quarter of 2021.

• Net interest income increased by $8.5 million to $184.8 million for the second quarter of 2021, compared to $176.3 million for the first quarter of 2021, driven primarily by an increase of approximately $4.8 million related to interest income realized from deferred interests and discounts recognized on certain commercial and construction loans paid-off during the second quarter. Net interest income also benefited from a growth in the average balance of investment securities, a lower premium amortization expense on U.S. agencies mortgage-backed securities (“MBS”), the positive effect of one additional day in the second quarter, and a decrease in the average cost of deposits.

• Net interest margin was 3.81% for the second quarter of 2021, compared to 3.91% for the first quarter of 2021. The decrease was primarily attributable to a change in asset mix resulting from average low-yielding cash balances and investment securities increasing $1.4 billion to 41% of total average interest-earning assets in the second quarter, compared to 36% in the first quarter, associated with the continued strong deposit growth. In addition, the average total loan portfolio balance during the second quarter declined $207.5 million to 59% of total average interest-earning assets, compared to 64% in the first quarter.

• Non-interest income decreased by $1.1 million to $29.9 million for the second quarter of 2021, compared to $31.0 million for the first quarter of 2021. The decrease was driven by the positive effect in the first quarter of seasonal contingent insurance commissions of $3.3 million, partially offset by an increase of approximately $2.0 million in fee income from merchant, credit and debit cards, automated teller machines (“ATMs”) and point-of-sale (“POS”) transactions.

• Non-interest expenses decreased by $3.1 million to $130.2 million for the second quarter of 2021, compared to $133.3 million for the first quarter of 2021. Total non-interest expenses for the second quarter of 2021 included $11.0 million of merger and restructuring costs, compared to $11.3 million in the first quarter of 2021, as well as $1.1 million of COVID-19 pandemic-related expenses, compared to $1.2 million in the first quarter of 2021. Adjusted for those costs, total non-interest expenses decreased by $2.8 million compared to the first quarter of 2021, primarily related to declines in other real estate owned (“OREO”) losses and in employees’ compensation and benefits expenses.

• Income tax expense was $40.1 million for the second quarter of 2021, compared to $28.0 million for the first quarter of 2021. The variance was primarily related to both higher pre-tax income and a higher estimated effective tax rate.

• Credit quality variances:

- Non-performing assets decreased by $29.3 million to $255.6 million as of June 30, 2021, compared to $284.9 million as of March 31, 2021. The decrease was driven primarily by the sale of a $10.0 million commercial OREO property in the Puerto Rico region, as well as reductions of $10.6 million and $6.0 million in nonaccrual residential mortgage and consumer loans, respectively.

- An annualized net charge-offs to average loans ratio of 0.27% for the second quarter of 2021, compared to 0.43% for the first quarter of 2021. The decrease was primarily driven by a $5.2 million loan loss recovery in connection with the partial repayment of a nonaccrual commercial and industrial loan in the Puerto Rico region.

• Total deposits, excluding brokered deposits and government deposits, increased by $557.7 million to $13.8 billion as of June 30, 2021. During the second quarter of 2021, deposit increases included $440.5 million in demand deposits and $200.6 million in savings deposits, across all regions, partially offset by an $83.3 million decrease in retail certificates of deposit (“CDs”).

• Government deposits increased in the quarter by $1.5 billion and totaled $3.9 billion as of June 30, 2021, consisting of increases of $867.3 million, $658.9 million, and $0.6 million in the Puerto Rico, Virgin Islands, and Florida regions, respectively.

• Brokered CDs decreased by $24.5 million during the second quarter to $137.7 million as of June 30, 2021. Meanwhile, non-maturity brokered deposits decreased in the quarter by $0.5 million to $247.8 million as of June 30, 2021.

• Total loans decreased in the quarter by $277.6 million to $11.4 billion as of June 30, 2021. The decrease consisted of a $184.2 million decrease in commercial and construction loans and a $155.2 million reduction in residential mortgage loans, partially offset by a $61.8 million increase in consumer loans.

• Total loan originations, including refinancings, renewals and draws from existing commitments (other than credit card utilization activity), amounted to $1.2 billion in the second quarter of 2021, down $66.9 million compared to the first quarter of 2021. During the second quarter of 2021, Small Business Administration Paycheck Protection Program (“SBA PPP”) loan originations amounted to $74.1 million, compared to $209.3 million in the first quarter of 2021. Excluding SBA PPP loan originations, total loan originations increased by $68.2 million to $1.1 billion during the second quarter of 2021, compared to $1.0 billion in the first quarter of 2021, primarily reflecting a higher volume of commercial and construction loan originations in the Florida region and in consumer loan originations in the Puerto Rico region.

• Liquidity levels have remained high with the ratio of cash and liquid securities to total assets increasing to 26.4% as of June 30, 2021, compared to 23.9% as of March 31, 2021.

• During the second quarter, First BanCorp. repurchased 7.96 million shares of its common stock through private and open market transactions for a total purchase price of approximately $100 million under the previously announced $300 million stock repurchase program.

• Capital ratios remained higher than required regulatory levels for bank holding companies and well-capitalized banks. Preliminary estimated total capital, common equity tier 1 capital (“CET1”), tier 1 capital, and leverage ratios of 20.38%, 17.34%, 17.64%, and 10.51%, respectively, as of June 30, 2021. The tangible common equity ratio was 9.84% as of June 30, 2021.

First BanCorp. (the “Corporation” or “First BanCorp.”) (NYSE: FBP), the bank holding company for FirstBank Puerto Rico (“FirstBank” or “the Bank”), today reported net income of $70.6 million, or $0.33 per diluted share, for the second quarter of 2021, compared to $61.2 million, or $0.28 per diluted share, for the first quarter of 2021, and $21.3 million, or $0.09 per diluted share, for the second quarter of 2020. Financial results for the second quarter of 2021 include a net benefit of $26.2 million ($16.3 million after-tax, or an increase of $0.08 per diluted share) recorded to the provision for credit losses, primarily due to continuing improvements in macroeconomic forecasts, compared to a net benefit of $15.3 million ($9.5 million after-tax, or an increase of $0.04 per diluted share) for the first quarter of 2021. In addition, during the second quarter of 2021, the Corporation recorded merger and restructuring costs of $11.0 million ($6.9 million after-tax, or a decrease of $0.03 per diluted share) related to the BSPR integration process and related restructuring initiatives, compared to $11.3 million ($7.0 million after-tax, or a decrease of $0.03 per diluted share) for the first quarter of 2021. The Corporation repurchased 7,962,647 shares of its common stock in the second quarter of 2021, representing a 4 percent reduction in shares outstanding.

Aurelio Alemán, President and Chief Executive Officer of First BanCorp., commented: “We are very pleased with our results for the second quarter and the recovery trends of our markets. We generated $70.6 million of net income, or $0.33 per share. Improving macroeconomic trends drove a reserve release of $26 million this quarter. Excluding our reserve release, pre-tax, pre-provision revenue reached $96.6 million. Economic activity continues to improve and is on track to reach pre-pandemic levels in the next few months. Improved consumer confidence is apparent as we have seen an extraordinary rise in retail sales, auto sales, and government collections, and as evidenced by our historically low levels of troubled assets and high levels of liquidity in our markets. Strong growth in our deposits for the second quarter, continues to have an adverse effect on loan growth. Our originations, including refinancings, were healthy at $1.2 billion, but the overall portfolio declined primarily due to commercial payoffs, including PPP loans repaid during the second quarter. During the second quarter we disbursed $74 million in new SBA PPP loans and received principal forgiveness remittances of approximately $151.0 million. We are on track to complete the integration and conversion of the acquired operations during the third quarter, now shifting our focus on achieving growth and capturing additional market share through our expanded and fully integrated franchise. Lastly, with regard to capital and our $300 million repurchase plan, during the second quarter we repurchased 7.96 million shares for approximately $100 million.”

NON-GAAP DISCLOSURES

This press release includes certain non-GAAP financial measures, including adjusted net income, adjusted pre-tax, pre-provision income, adjusted net interest income and margin, adjusted non-interest expenses, tangible common equity, tangible book value per common share, certain capital ratios, and certain other financial measures that exclude the effect of items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”), and should be read in conjunction with the discussion below in Basis of Presentation – Use of Non-GAAP Financial Measures, the accompanying tables (Exhibit A), which are an integral part of this press release, and the Corporation’s other financial information that is presented in accordance with GAAP.

SPECIAL ITEMS

The financial results for the second and first quarters of 2021 and second quarter of 2020 included the following significant Special Items:

Quarter ended June 30, 2021

- Merger and restructuring costs of $11.0 million ($6.9 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the second quarter included approximately $1.7 million related to the previously announced Employee Voluntary Separation Program (the “VSP”) offered to eligible employees in the Puerto Rico region and approximately $2.1 million related to service contracts cancellation penalties. In addition, merger and restructuring costs in the second quarter of 2021 included expenses related to system conversions and other integration related efforts, as well as accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan.

- Costs of $1.1 million ($0.7 million after-tax) related to COVID-19 pandemic response efforts, primarily costs related to additional cleaning, safety materials, and security measures.

Quarter ended March 31, 2021

- Merger and restructuring costs of $11.3 million ($7.0 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the first quarter included approximately $4.8 million related to the VSP and involuntary employee separation programs implemented in the Puerto Rico region.

- Costs of $1.2 million ($0.8 million after-tax) related to COVID-19 pandemic-related expenses.

Quarter ended June 30, 2020

- Benefit of $5.0 million ($3.1 million after-tax) resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria in 2017.

- Merger and restructuring costs of $2.9 million ($1.8 million after-tax) in connection with the acquisition of BSPR and related restructuring initiatives. Merger and restructuring costs in the second quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts associated with the then-pending acquisition of BSPR.

- Costs of $3.0 million ($1.9 million after-tax) related to COVID-19 pandemic response efforts, including approximately $1.7 million in bonuses paid to branch personnel and other essential employees for working during the pandemic, as well as other employee-related expenses such as expenses for the administration of COVID-19 tests and purchases of personal protective equipment.

- Loss of $0.2 million realized on sales of U.S. agencies MBS. The loss, realized at the tax-exempt international banking entity subsidiary level, had no effect on the income tax expense recorded in the second quarter of 2020.

NET INCOME AND RECONCILIATION TO ADJUSTED NET INCOME (NON-GAAP)

Net income was $70.6 million for the second quarter of 2021, or $0.33 per diluted share, compared to $61.2 million for the first quarter of 2021, or $0.28 per diluted share. Adjusted net income was $78.2 million, or $0.36 per diluted share, for the second quarter of 2021, compared to $68.9 million, or $0.31 per diluted share, for the first quarter of 2021. The following table reconciles for the second and first quarters of 2021 and the second quarter of 2020 the net income to adjusted net income and adjusted earnings per share, which are non-GAAP financial measures that exclude the significant Special Items identified above.

INCOME BEFORE INCOME TAXES AND RECONCILIATION TO ADJUSTED PRE-TAX, PRE-PROVISION INCOME (NON-GAAP)

Income before income taxes was $110.7 million for the second quarter of 2021, compared to $89.2 million for the first quarter of 2021. Adjusted pre-tax, pre-provision income was $96.6 million for the second quarter of 2021, up $10.3 million from the first quarter of 2021. The following table reconciles income before income taxes to adjusted pre-tax, pre-provision income for the last five quarters:

NET INTEREST INCOME

The following table sets forth information concerning net interest income for the last five quarters:

Net interest income amounted to $184.8 million for the second quarter of 2021, an increase of $8.5 million, compared to $176.3 million for the first quarter of 2021. The increase in net interest income was mainly due to:

• A $3.9 million increase in interest income on investment securities mainly due to an increase of $1.1 billion in the average balance of U.S. agencies MBS and debt securities driven by strong deposit growth. Interest income on investment securities also benefited from a decrease of the U.S. agencies MBS premium amortization expense due to lower prepayments.

• A $2.5 million increase in interest income on commercial and construction loans, primarily due to: (i) interest income of approximately $2.9 million realized from deferred interest recognized on a construction loan paid-off during the second quarter; (ii) an increase of approximately $1.9 million in interest income attributed to a higher discount accretion for acquired commercial and construction loans driven by the early payoff of certain large commercial mortgage loans during the second quarter; and (iii) the positive effect of one additional day in the second quarter, which resulted in an increase of approximately $0.8 million in interest income on this portfolio. These variances were partially offset by a $1.7 million decrease in fee income recognition related to lower forgiveness remittances received for SBA PPP loans, and lower interest income attributable to a decrease of approximately $112.9 million in the average total balance of commercial and construction loans.

• A $1.7 million decrease in interest expense, including a reduction of approximately $1.8 million related to lower average rates paid on interest-bearing checking, savings, and non-brokered time deposits, partially offset by a $0.2 million increase in total interest expense associated with one additional day in the second quarter.

• A $0.5 million increase in interest income on consumer loans and finance leases, primarily due to an increase of approximately $42.1 million in the average balance of this portfolio, largely related to auto loans and finance leases, which resulted in an increase in interest income of approximately $0.8 million. Interest income on consumer loans also benefited from the positive effect of one additional day in the second quarter, which resulted in an increase of approximately $0.4 million in interest income on consumer loans. The variances were partially offset by lower average yields on credit card loans resulting from higher interest income reversals related to charged-off loans in the second quarter.

Net interest margin was 3.81%, compared to 3.91% for the first quarter of 2021. The decrease was driven by an increase in low-yielding interest-bearing cash balances and investment securities from continued strong deposit growth. The total average balance of interest-bearing cash deposited at the Federal Reserve Bank and investment securities increased by $1.4 billion to 41% of total average interest-earning assets in the second quarter, compared to 36% in the first quarter, while the average balance of the loan portfolio declined $207.5 million to 59% of total average interest-earning assets in the second quarter, compared to 64% in the first quarter.

The second quarter results continue to reflect the effect of SBA PPP loans. During the second quarter of 2021, the Corporation originated $74.1 million in new SBA PPP loans and received forgiveness remittances related to approximately $151.0 million in principal balance of SBA PPP loans originated in 2020. Forgiveness remittances in the second quarter of 2021 resulted in the acceleration of fee income recognition in the amount of $1.5 million, compared to $3.2 million in the first quarter of 2021.

NON-INTEREST INCOME

The following table sets forth information concerning non-interest income for the last five quarters:

Non-interest income amounted to $29.9 million for the second quarter of 2021, compared to $31.0 million for the first quarter of 2021. The $1.1 million decrease in non-interest income was mainly due to:

• The effect in the first quarter of 2021 of seasonal contingent insurance commissions of $3.3 million, included as part of Other operating income in the table above.

• A $0.9 million decrease in revenues from mortgage banking activities, driven by a $0.6 million decrease related to the net change in mark-to-market gains and losses from both interest rate lock commitments and To-Be-Announced (“TBA”) MBS forward contracts, a $0.2 million increase in the amortization of mortgage servicing rights, and a $0.1 million decrease in realized gains on sales of residential mortgage loans in the secondary market. Total loans sold in the secondary market to U.S. government-sponsored agencies during the second quarter of 2021 amounted to $146.7 million, with a related net gain of $5.6 million (net of realized losses of $0.2 million on TBA hedges), compared to total loans sold during the first quarter of 2021 of $151.5 million, with a related net gain of $5.7 million (including realized gains of $0.3 million on TBA hedges).

Partially offset by:

• A $1.0 million increase in transactional fee income from credit and debit cards, POS and ATMs, included as part of Other operating income in the table above, due to higher transaction volumes.

• A $1.0 million increase in transactional fee income from merchant-related activities, included as part of Other operating income in the table above, driven by both higher transaction volumes and the consolidation of the merchant portfolio acquired from BSPR under the existing revenue-sharing alliance.

• A $0.5 million increase in service charges on deposits driven by an increase in the monthly service fee charged on certain checking and savings products.

NON-INTEREST EXPENSES

The following table sets forth information concerning non-interest expenses for the last five quarters:

Non-interest expenses amounted to $130.2 million in the second quarter of 2021, a decrease of $3.1 million from $133.3 million in the first quarter of 2021. Included in non-interest expenses are the following Special Items:

• Merger and restructuring costs associated with the acquisition of BSPR of $11.0 million for the second quarter of 2021, compared to $11.3 million for the first quarter of 2021.

• COVID-19 pandemic-related expenses of $1.1 million for the second quarter of 2021, compared to $1.2 million for the first quarter of 2021. COVID-19 pandemic-related expenses for the second quarter of 2021 primarily consist of $1.0 million of expenses associated with cleaning and security protocols, included as part of Occupancy and equipment in the table above, relatively flat compared to the first quarter of 2021.

On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the Special Items mentioned above, amounted to $118.0 million for the second quarter of 2021, compared to $120.8 million for the first quarter of 2021. The $2.8 million decrease in adjusted non-interest expenses reflects, among other things, the following significant variances:

• A $2.0 million decrease in the net loss on OREO operations, primarily due to the effect in the first quarter of 2021 of a $2.2 million write-down to the value of a commercial property in the Puerto Rico region, and a $0.3 million increase in income recognized from rental payments associated with income-producing OREO properties. These variances were partially offset by a $0.4 million increase in OREO-related operating expenses, including a $0.2 million increase in property taxes.

• A $1.1 million decrease in employees’ compensation and benefits expenses, due to several factors, including: (i) a $1.5 million decrease related to lower seasonal payroll taxes and bonuses expenses; and (ii) a $0.8 million decrease related to expense savings from the VSP and involuntary separation programs implemented by the Corporation. These variances were partially offset by an increase of approximately $0.5 million related to the effect of one additional business day in the second quarter, and a $0.3 million decrease in deferred loan origination costs in connection with a lower volume of SBA PPP loan originations.

• A $0.9 million decrease in total professional service fees, primarily driven by a $0.7 million decrease in costs incurred in connection with the platform used for processing SBA PPP loan originations and forgiveness remittances due to lower activity in the second quarter.

• A $0.7 million decrease in other non-interest expenses in the table above, including a $0.4 million decrease in charges for legal reserves and a $0.3 million decrease in printing and mailing expenses associated with informative tax returns issued in the first quarter.

• A $0.6 million decrease in taxes, other than income taxes, including a $0.3 million decrease in sales and use tax expense.

Partially offset by:

• A $2.5 million increase in credit and debit card processing expenses, primarily related to credit card networks incentive payments of $1.6 million recorded as a contra expense in the first quarter of 2021, and higher transaction volumes in the second quarter.

The adjusted non-interest expense financial metric presented above is a non-GAAP financial measure. See Basis of Presentation for additional information and the reconciliation of total non-interest expense and certain non-interest expense components to adjusted total non-interest expense and certain adjusted non-interest expense components.

INCOME TAXES

The Corporation recorded an income tax expense of $40.1 million for the second quarter of 2021, compared to $28.0 million for the first quarter of 2021. The variance was primarily related to both higher pre-tax income driven by the aforementioned credit loss reserve release, and a higher estimated effective tax rate.

The Corporation’s estimated effective tax rate, excluding entities with pre-tax losses from which a tax benefit cannot be recognized and discrete items, increased to 33.2%, compared to 30.6% as of the end of the first quarter of 2021, primarily due to a higher proportion of taxable income to total pre-tax income. As of June 30, 2021, the Corporation had a deferred tax asset of $273.9 million (net of a valuation allowance of $104.5 million, including a valuation allowance of $64.6 million against the deferred tax assets of the Corporation’s banking subsidiary, FirstBank).

CREDIT QUALITY

Non-Performing Assets

The following table sets forth information concerning non-performing assets for the last five quarters:

Variances in credit quality metrics:

• Total non-performing assets decreased by $29.3 million to $255.6 million as of June 30, 2021, compared to $284.9 million as of March 31, 2021. Total nonaccrual loans held for investment decreased by $18.4 million to $182.7 million as of June 30, 2021, compared to $201.1 million as of March 31, 2021.

The decrease in non-performing assets consisted of:

- A $12.6 million decrease in the OREO portfolio balance. The decrease was driven by sales of $14.3 million, including the sale of a $10.0 million commercial property in the Puerto Rico region, and approximately $2.4 million of fair value and other adjustments that reduced the OREO carrying value, partially offset by additions of $4.1 million.

- A $10.6 million decrease in nonaccrual residential mortgage loans, driven by loans brought current and restored to accrual status during the second quarter, as well as collections.

- A $6.0 million decrease in nonaccrual consumer loans, primarily auto loans and small personal loans, driven by collections and charge-offs recorded in the second quarter.

- A $1.8 million decrease in nonaccrual commercial and construction loans, primarily due to a paydown that reduced by $1.4 million the carrying value of a nonaccrual commercial and industrial loan in the Puerto Rico region, as well as reductions related to foreclosures and loans restored to accrual status.

- A $1.1 million decrease in non-real estate repossessed assets, primarily repossessed automobiles.

Partially offset by:

- The classification as a non-performing asset of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority (the “PRHFA”) carried on books at its fair value of $2.9 million.

• Inflows to nonaccrual loans held for investment were $16.8 million, a $15.2 million decrease compared to inflows of $32.0 million in the first quarter of 2021. Inflows to nonaccrual residential mortgage loans were $6.4 million in the second quarter of 2021, a decrease of $10.9 million compared to inflows of $17.3 million in the first quarter of 2021. Inflows to nonaccrual consumer loans were $7.9 million, a decrease of $2.9 million compared to inflows of $10.8 million in the first quarter of 2021. Inflows to nonaccrual commercial and construction loans were $2.5 million in the second quarter of 2021, a decrease of $1.4 million compared to inflows of $3.9 million in the first quarter of 2021. See Early Delinquency, CARES Act Modifications, and SBA PPP Loans below for additional information.

• Adversely classified commercial and construction loans increased by $7.8 million to $212.5 million as of June 30, 2021, driven by the downgrade of a $15.0 million commercial and industrial loan in the Florida region, partially offset by the sale in the Florida region of a $9.7 million commercial loan participation.

• Total Troubled Debt Restructured (“TDR”) loans held for investment were $450.1 million as of June 30, 2021, down $10.1 million from March 31, 2021. Approximately $369.1 million of total TDR loans held for investment were in accrual status as of June 30, 2021. These figures exclude $58.3 million of TDR residential mortgage loans guaranteed by the U.S. federal government (i.e., Federal Housing Administration and Veterans Administration loans).

Early Delinquency, CARES Act Modifications, and SBA PPP Loans

Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $83.6 million as of June 30, 2021, a decrease of $60.0 million, compared to $143.6 million as of March 31, 2021. The variances by major portfolio categories were as follow:

- Residential mortgage loans in early delinquency decreased by $7.2 million to $40.7 million as of June 30, 2021, and consumer loans in early delinquency decreased by $6.0 million to $34.3 million as of June 30, 2021. The decreases reflect the combination of loans brought current during the second quarter and loans that migrated to nonaccrual status as explained above.

- Commercial and construction loans in early delinquency decreased in the second quarter by $46.7 million to $8.6 million as of June 30, 2021, primarily due to a $19.1 million commercial mortgage loan brought current in the second quarter and the maturity extension of a $14.2 million syndicated loan participation with respect to which the Corporation continues to receive from the borrower interest and principal payments.

As of June 30, 2021, commercial loans totaling $326.4 million, or 2.87% of the balance of the total loan portfolio held for investment, were permanently modified under the provisions of Section 4013 of the Coronavirus Aid, Relief, and Economic Security (the “CARES”) Act of 2020, as amended by Section 541 of the Consolidated Appropriations Act. These permanent modifications primarily relate to loans by commercial borrowers in industries with longer expected recovery times, mostly hospitality, retail and entertainment industries.

As of June 30, 2021, SBA PPP loans, net of unearned fees of $18.1 million, totaled $349.2 million. The unearned fees are being accreted into income based on the two-year contractual maturity (five years for the $275.2 million in SBA PPP loans originated after June 5, 2020). In January 2021, the SBA announced rules related to the expansion and extension of the original PPP program and the authorization of another round of PPP loans pursuant to the Consolidated Appropriations Act that ended on May 31, 2021. During the second quarter of 2021, the Corporation originated $74.1 million in new SBA PPP loans and received forgiveness remittances related to approximately $151.0 million in principal balance of SBA PPP loans originated in 2020.

Allowance for Credit Losses

The following table summarizes the activity of the allowance for credit losses (“ACL”) for on-balance sheet and off-balance sheet exposures during the second and first quarters of 2021:

The main variances of the total ACL by main categories are discussed below:

Allowance for Credit Losses for Loans and Finance Leases

The following table sets forth information concerning the ACL for loans and finance leases during the periods indicated:

• As of June 30, 2021, the ACL for loans and finance leases was $325.0 million, down $34.0 million from March 31, 2021. The reduction of the ACL for commercial and construction loans was $22.1 million in the second quarter of 2021, primarily reflecting continued improvement in the outlook of macroeconomic variables to which the reserve is correlated, including improvements in the commercial real estate price index and unemployment rate forecasts, and the overall decline in the size of these portfolios. In addition, there were ACL net reductions of $10.7 million and $1.2 million for consumer loans and residential mortgage loans, respectively. The net reduction of the ACL for consumer loans consisted of net charge-offs of $11.5 million, primarily taken on credit card loans and personal loans, partially offset by charges to the provision of $0.8 million recorded in the second quarter, as further explained below. The net reduction of the ACL for residential mortgage loans consisted of net charge-offs of $2.0 million, partially offset by a $0.8 million charge to the provision in the second quarter, as further explained below.

• The provision for credit losses on loans and finance leases was a net benefit of $26.3 million for the second quarter of 2021, compared to a net benefit of $14.4 million in the first quarter of 2021. The variance primarily reflects the effect of the aforementioned reduction of the ACL for commercial and construction loans in the second quarter of 2021. The following table shows the breakdown of the provision for credit losses net benefit by portfolio for the second and first quarters of 2021:

- Provision for credit losses for the commercial and construction loan portfolio was a net benefit of $27.9 million for the second quarter of 2021, compared to a net benefit of $14.6 million in the first quarter of 2021. The net benefit recorded in the second quarter of 2021, reflects continued improvements in current and forecasted macroeconomic variables, primarily in the commercial real estate price index and unemployment rate variables, the $5.2 million loan loss recovery recorded in the second quarter in connection with a paydown of a nonaccrual commercial and industrial loan, and, the overall decrease in the size of this portfolio in the Puerto Rico region, partially offset by charges associated with changes in certain borrowers’ financial metrics based on their most recent financial statements.

- Provision for credit losses for the residential mortgage loan portfolio was $0.8 million for the second quarter of 2021, compared to a net benefit of $4.2 million in the first quarter of 2021. The provision recorded for the second quarter of 2021 was primarily related to the net effect of the qualitative adjustments applied to this portfolio that consider, among other things, loan resolution strategies, expectations on the outlook of macroeconomic variables, and delinquency trends.

- Provision for credit losses for the consumer loans and finance leases portfolio was $0.8 million for the second quarter of 2021, compared to $4.3 million in the first quarter of 2021. The charges to the provision in the second quarter of 2021 were primarily related to the personal loans portfolio that, among other things, reflect some increases in cumulative historical charge-off levels. These charges were partially offset by reserve releases recorded for auto loans, finance lease, and credit card loans associated with improvements in macroeconomic variables, such as the regional unemployment rate and lower credit card loans outstanding. The expense recorded in the first quarter of 2021 primarily reflected charges to the provision for auto loans and finance leases related to the overall increase in the size of this portfolio, as well as charges to the provision for credit card loans that, at the time, reflected some deterioration in delinquency trends, partially offset by releases associated with improvements in macroeconomic variables.

• The ratio of the ACL for loans and finance leases to total loans held for investment was 2.85% as of June 30, 2021, compared to 3.08% as of March 31, 2021. The decrease was driven by the improvements in macroeconomic factors, primarily reflected in the commercial real estate loan portfolio. No ACL was allocated to SBA PPP loans since they are fully guaranteed. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was 2.94% as of June 30, 2021, compared to 3.20% as of March 31, 2021. The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 177.91% as of June 30, 2021, compared to 178.49% as of March 31, 2021.

The following table sets forth information concerning the composition of the Corporation’s ACL for loans and finance leases as of June 30, 2021 and March 31, 2021 by loan category:

Net Charge-Offs

The following table presents ratios of annualized net charge-offs to average loans held-in-portfolio:

The ratios above are based on annualized net charge-offs and are not necessarily indicative of the results expected in subsequent periods.

Net charge-offs were $7.7 million for the second quarter of 2021, or an annualized 0.27% of average loans, compared to $12.5 million, or an annualized 0.43% of average loans, in the first quarter of 2021. The decrease of $4.8 million in net charge-offs consisted of:

• A $7.1 million decrease in commercial and construction loan net charge-offs, as the Corporation recorded net recoveries of $5.8 million in the second quarter of 2021 compared to net charge-offs of $1.3 million in the first quarter of 2021. The commercial and construction loan loss net recoveries in the second quarter of 2021 included a $5.2 million loan loss recovery in connection with the aforementioned paydown of a nonaccrual commercial and industrial loan participation in the Puerto Rico region.

• A $0.1 million decrease in residential mortgage loan net charge-offs.

• A $2.4 million increase in consumer loan net charge-offs, driven by higher charge-offs taken on credit card loans.

Allowance for Credit Losses for Unfunded Loan Commitments

The Corporation estimates expected credit losses over the contractual period during which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of June 30, 2021, the ACL for off-balance sheet credit exposures was $2.7 million, down $1.7 million from $4.4 million as of March 31, 2021. The decrease was mainly related to a lower available balance of unfunded construction loan commitments, as well as improvements in forecasted macroeconomic variables.

Allowance for Credit Losses for Held-to-Maturity Debt Securities

As of June 30, 2021, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. As of June 30, 2021, the ACL for held-to-maturity debt securities was $10.7 million, up $1.8 million from $8.9 million as of March 31, 2021. The increase was mainly related to changes in some issuers’ financial metrics based on their most recent financial statements.

Allowance for Credit Losses for Available-for-Sale Debt Securities

As of June 30, 2021, the ACL for available-for-sale debt securities was $1.2 million, relatively unchanged from March 31, 2021.

STATEMENT OF FINANCIAL CONDITION

Total assets were approximately $21.4 billion as of June 30, 2021, up $2.0 billion from March 31, 2021.

The following variances within the main components of total assets are noted:

• A $1.3 billion increase in cash and cash equivalents attributable to the liquidity obtained from the growth in deposits and loan repayments, partially offset by the deployment of some cash balances into U.S. agencies MBS and debt securities, the repayment of $120.0 million in FHLB advances upon maturity, and the repurchase of 7.96 million shares of common stock in the second quarter for a total purchase price of approximately $100 million.

• A $990.1 million increase in investment securities, mainly driven by purchases of U.S. agencies MBS and U.S. agencies callable and bullet debentures totaling $1.3 billion during the second quarter and a $28.5 million increase in the fair value of available-for-sale investment securities attributable to changes in market interest rates, partially offset by approximately $41.3 million of U.S. agencies bonds that were called prior to maturity during the second quarter and prepayments of approximately $283.9 million of U.S. agencies MBS. The purchases of investment securities reflect, to some extent, the deployment of liquidity obtained from the growth in deposits.

• A $277.6 million decrease in total loans. The decrease consisted of reductions of $283.0 million in the Puerto Rico region and $7.1 million in the Virgin Islands region, partially offset by a $12.5 million increase in the Florida region. On a portfolio basis, the decrease consisted of reductions of $184.2 million in commercial and construction loans (including an $81.2 million decrease in the SBA PPP loan portfolio), and $155.2 million in residential mortgage loans, partially offset by an increase of $61.8 million in consumer loans, including a $97.8 million increase in auto loans and leases. As further discussed below, the decrease in commercial and construction loans reflect the payoff of four large commercial mortgage loan relationships totaling $121.3 million in the Puerto Rico region and the sale of a $9.7 million adversely classified commercial loan participation in the Florida region. Almost one half of the large loan payoffs was related to one facility that was up for renewal and the Corporation decided not to participate in the financing.

The decrease in the Puerto Rico region consisted of reductions of $230.4 million in commercial and construction loans (including a $68.1 million decrease in the SBA PPP loan portfolio) and $117.2 million in residential mortgage loans, partially offset by an increase of $64.6 million in consumer loans, primarily auto loans and finance leases. Excluding the $68.1 million decrease in the SBA PPP loan portfolio, commercial and construction loans in the Puerto Rico region decreased by $162.3 million, driven by the aforementioned payoff of four large commercial mortgage loan relationships totaling $121.3 million, a $25.5 million decrease in the balance of floor plan lines of credit, and principal repayments that reduced by $9.5 million the balance of a revolving commercial and industrial line of credit. The decline in the residential mortgage loan portfolio in the Puerto Rico region reflects the effect of repayments and charge-offs, which more than offset the volume of new loan originations kept on the balance sheet. Approximately 92% of the $126.9 million in residential mortgage loan originations in the Puerto Rico region during the second quarter of 2021 consisted of conforming loan originations and refinancings. Conforming mortgage loans are generally originated with the intent to sell in the secondary market to GNMA and U.S. government-sponsored agencies. The growth in consumer loans was driven by new loan originations, primarily auto loans and finance leases, partially offset by reductions in the balances of personal loans and credit card loans.

The decrease in total loans in the Virgin Islands region consisted of reductions of $7.2 million in residential mortgage loans, and $43 thousand in commercial and construction loans (including a $0.3 million decrease in the SBA PPP loan portfolio), partially offset by a $0.2 million increase in the balance of consumer loans.

The increase in total loans in the Florida region consisted of an increase of $46.3 million in commercial and construction loans (net of a $12.8 million decrease in the SBA PPP loan portfolio), partially offset by reductions of $30.7 million in residential mortgage loans and $3.1 million in consumer loans. Excluding the decrease in the SBA PPP loan portfolio, commercial and construction loans in the Florida region increased by $59.1 million, driven by new loan originations, including the origination of several commercial loans related to three commercial and industrial relationships totaling $57.7 million, partially offset by the sale of a $9.7 million adversely classified commercial loan participation and other loan repayments.

Total loan originations, including refinancings, renewals and draws from existing commitments (excluding credit card utilization activity), amounted to $1.2 billion in the second quarter of 2021, down $66.9 million compared to the first quarter of 2021. During the second quarter of 2021, the Corporation originated SBA PPP loans totaling $74.1 million, compared to $209.3 million in the first quarter of 2021. Excluding SBA PPP loans, total loan originations increased by $68.2 million from $1.0 billion in the first quarter of 2021 to $1.1 billion in the second quarter of 2021, consisting of: (i) a $49.4 million increase in commercial and construction loan originations, primarily related to a higher volume of new loans in the Florida region, (ii) a $25.6 million increase in consumer loan originations, primarily auto loans and finance leases in the Puerto Rico region; and (iii) a $6.8 million decrease in residential mortgage loan originations, across all regions.

Total loan originations in the Puerto Rico region amounted to $877.7 million in the second quarter of 2021, compared to $966.8 million in the first quarter of 2021. Total loan originations in the Puerto Rico region during the second quarter of 2021 included $57.5 million of SBA PPP loans, compared to $136.2 million in the first quarter of 2021. Excluding SBA PPP loans, total loan originations in the Puerto Rico region decreased by $10.5 million from $830.6 million in the first quarter of 2021 to $820.1 million in the second quarter of 2021, consisting of: (i) a $32.2 million decrease in commercial and construction loan originations, driven by lower utilizations of commercial lines of credit, as compared to the first quarter of 2021, partially offset by a higher volume of new commercial mortgage loan originations; (ii) a $4.5 million decrease in residential mortgage loan originations; and (iii) a $26.1 million increase in consumer loan originations.

Total loan originations in the Florida region amounted to $264.7 million in the second quarter of 2021, compared to $249.4 million in the first quarter of 2021. Total loan originations in the Florida region during the second quarter of 2021 included $9.1 million of SBA PPP loans, compared to $61.8 million in the first quarter of 2021. Excluding SBA PPP loans, total loan originations in the Florida region increased by $68.0 million from $187.6 million in the first quarter of 2021 to $255.6 million in the second quarter of 2021, consisting of: (i) a $69.2 million increase in commercial and construction loan originations, driven by a higher volume of new commercial and industrial loan originations, including $57.7 million related to three relationships individually in excess of $15 million; (ii) a $1.0 million decrease in residential mortgage loan originations; and (iii) a $0.2 million decrease in consumer loan originations.

Total loan originations in the Virgin Islands region amounted to $35.3 million in the second quarter of 2021, compared to $28.3 million in the first quarter of 2021. Total loan originations in the Virgin Islands region during the second quarter of 2021 included $7.5 million of SBA PPP loans, compared to $11.3 million in the first quarter of 2021. Excluding SBA PPP loans, total loan originations in the Virgin Islands region increased by $10.7 million from $17.1 million in the first quarter of 2021 to $27.8 million in the second quarter of 2021, consisting of: (i) a $12.3 million increase in commercial and construction loan originations, driven by the renewal of several loans of a government unit; (ii) a $1.3 million decrease in residential mortgage loan originations; and (iii) a $0.3 million decrease in consumer loan originations.

Total liabilities were approximately $19.2 billion as of June 30, 2021, up $2.0 billion from March 31, 2021.

The increase in total liabilities was mainly due to:

• A $1.5 billion increase in government deposits, consisting of increases of $867.3 million in the Puerto Rico region, $658.9 million in the Virgin Islands region, and $0.6 million in the Florida region. The increase in the Puerto Rico region was primarily related to the funding of certain operational reserve accounts of the Puerto Rico Electric Power Authority to operate Puerto Rico’s electric grid, as well as increases in the balance of transactional deposit accounts of certain municipalities in connection with the American Rescue Plan Act (“ARPA”) funding for states and local governments. The increase in the Virgin Islands region was also driven by ARPA federal funds received by the central government in the second quarter.

• A $557.7 million increase in total deposits, excluding brokered deposits and government deposits, consisting of increases of $392.8 million in the Puerto Rico region, $131.4 million in the Florida region, and $33.5 million in the Virgin Islands region. On a deposit type basis, there were increases of $440.5 million in demand deposits and $200.6 million in savings deposits, reflecting increases across all regions, partially offset by an $83.3 million decrease in retail CDs.

Partially offset by:

• A $120.0 million decrease related to the repayment at maturity of FHLB advances that had an average cost of 2.05%.

• A $25.0 million decrease in brokered deposits, reflecting maturities of approximately $24.5 million of brokered CDs, with an all-in cost of 2.29%, that were paid off during the second quarter, and a $0.5 million decrease in the balance of non-maturity brokered money market deposit accounts maintained by a deposit broker.

Total stockholders’ equity amounted to $2.2 billion as of June 30, 2021, a decrease of $15.5 million from March 31, 2021. The decrease was driven by the repurchase of 7.96 million of shares of common stock for a total purchase price of approximately $100 million, as well as common and preferred stock dividends declared in the second quarter totaling $15.7 million. These variances were partially offset by earnings generated in the second quarter and a $28.5 million increase in the fair value of available-for-sale investment securities recorded as part of Other comprehensive income (loss) in the consolidated statements of financial condition. As of July 21, 2021, the Corporation has purchased approximately $118.5 million worth of common stock under the $300 million stock repurchase program that was established in April 2021.

As of June 30, 2021, capital ratios exceeded the required regulatory levels for bank holding companies and well-capitalized banks. The Corporation’s preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios under the Basel III rules were 17.34%, 17.64%, 20.38% and 10.51%, respectively, as of June 30, 2021, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 17.68%, 17.99%, 20.73%, and 11.36%, respectively, as of March 31, 2021.

Meanwhile, the preliminary estimated common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of our banking subsidiary, FirstBank Puerto Rico, were 16.92%, 18.65%, 19.91%, and 11.12%, respectively, as of June 30, 2021, compared to common equity tier 1 capital, tier 1 capital, total capital and leverage ratios of 16.41%, 18.99%, 20.24% and 12.00%, respectively, as of March 31, 2021.

Tangible Common Equity

The Corporation’s tangible common equity ratio decreased to 9.84% as of June 30, 2021, compared to 10.90% as of March 31, 2021.

The following table presents a reconciliation of the Corporation’s tangible common equity and tangible assets over the last five quarters to the most comparable GAAP items:

Exposure to Puerto Rico Government

As of June 30, 2021, the Corporation had $388.7 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, compared to $391.1 million as of March 31, 2021. As of June 30, 2021, approximately $201.3 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $132.9 million consisted of municipal revenue or special obligation bonds. The Corporation’s total direct exposure to the Puerto Rico government also included $13.3 million in loans extended to an affiliate of a public corporation, $37.4 million in loans to an agency of the Puerto Rico central government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.8 million (fair value of $2.9 million as of June 30, 2021), included as part of the Corporation’s available-for-sale investment securities portfolio. This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages and had an unrealized loss of $0.8 million as of June 30, 2021, of which $0.3 million is due to credit deterioration and was charged against earnings through an ACL during 2020.

The aforementioned exposure to municipalities in Puerto Rico included $190.0 million of financing arrangements with Puerto Rico municipalities that were issued in bond form but underwritten as loans with features that are typically found in commercial loans. These bonds are accounted for as held-to-maturity investment securities. As of June 30, 2021, the ACL for these securities was $10.7 million, compared to $8.9 million as of March 31, 2021.

As of June 30, 2021, the Corporation had $2.9 billion of public sector deposits in Puerto Rico, compared to $2.0 billion as of March 31, 2021. Approximately 20% of the public sector deposits as of June 30, 2021 was from municipalities and municipal agencies in Puerto Rico and 80% was from public corporations, the Puerto Rico central government and agencies, and U.S. federal government agencies in Puerto Rico.

Conference Call / Webcast Information

First BanCorp.’s senior management will host an earnings conference call and live webcast on Friday, July 23, 2021, at 10:00 a.m. (Eastern Time). The call may be accessed via a live Internet webcast through the investor relations section of the Corporation’s web site: www.1firstbank.com or through a dial-in telephone number at (877) 506-6537 or (412) 380–2001 for international callers. The Corporation recommends that listeners go to the web site at least 15 minutes prior to the call to download and install any necessary software. Following the webcast presentation, a question and answer session will be made available to research analysts and institutional investors. A replay of the webcast will be archived in the investor relations section of First BanCorp.’s website, www.1firstbank.com, until July 23, 2022. A telephone replay will be available one hour after the end of the conference call through August 22, 2021 at (877) 344-7529 or (412) 317-0088 for international callers. The replay access code is 10158452.

Safe Harbor

This press release may contain “forward-looking statements” concerning the Corporation’s future economic, operational and financial performance. The words or phrases “expect,” “anticipate,” “intend,” “should,” “would,” “believe” and similar expressions are meant to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by such sections. The Corporation cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date hereof, and advises readers that any such forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, including, but not limited to, the following, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements: uncertainties relating to the impact of the COVID-19 pandemic, including additional new variants of the virus, such as the Delta variant, and the public availability and efficacy of the various vaccines and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that the COVID-19 pandemic may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements; risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to the COVID-19 pandemic and the Corporation’s participation in any such responses or programs, such as the SBA PPP established by the CARES Act of 2020, including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs; risks, uncertainties and other factors related to the Corporation’s acquisition of BSPR, including the risk that costs, expenses, and the use of resources associated with the acquisition may be higher than expected, the risks that the Corporation’s integration of procedures, personnel and systems, such as the Corporation’s internal control over financial reporting, of BSPR into FirstBank is not effective, thus risking the economic success resulting from the transaction and the risk that the Corporation may not realize, either fully or on a timely basis, the cost savings and any other synergies from the acquisition that the Corporation expected, because of deposit attrition, customer loss and/or revenue loss following the acquisition; uncertainty as to the ultimate outcomes of actions taken, or those that may be taken, by the Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to address the Commonwealth of Puerto Rico’s financial situation, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico; the impact that a resumption of the slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products; uncertainty as to the availability of wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances and brokered CDs; the effect of a resumption of deteriorating economic conditions in the real estate markets and the consumer and commercial sectors and their impact on the credit quality of the Corporation’s loans and other assets, which have contributed and may continue to contribute to, among other things, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures; the impact of changes in accounting standards or assumptions in applying those standards, including the continuing impact of the COVID-19 pandemic on forecasts of economic variables considered for the determination of the ACL required by the CECL accounting standard; the ability of FirstBank to realize the benefits of its net deferred tax assets; the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation; adverse changes in general economic conditions in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets; uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate beginning at the end of 2021; an adverse change in the Corporation’s ability to attract new clients and retain existing ones; the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio are determined to be credit-related, resulting in additional charges to the provision for credit losses on the Corporation’s remaining $3.8 million exposure to the Puerto Rico government’s debt securities held as part of the available-for-sale securities portfolio; uncertainty about legislative, tax or regulatory changes that affect financial services companies in Puerto Rico, the U.S., and the U.S. and British Virgin Islands, including as a result of the change in the political landscape resulting from the 2020 elections in the U.S. and Puerto Rico, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results; changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Federal Reserve Board, the New York FED, the Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies, and regulators in Puerto Rico and the U.S. and British Virgin Islands; the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate; the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, the occurrence of any of which may result in misuse or misappropriation of confidential or proprietary information and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation; the risk that the FDIC may increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expenses; the impact on the Corporation’s results of operations and financial condition of business acquisitions, such as the acquisition of BSPR, and dispositions; a need to recognize impairments on the Corporation’s financial instruments, goodwill and other intangible assets relating to business acquisitions, including as a result of the COVID-19 pandemic; the effect of changes in the interest rate environment on the Corporation’s businesses, business practices and results of operations; the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of FirstBank and preclude the Corporation’s Board of Directors from declaring dividends; uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels and compliance with applicable laws, regulations, and related requirements; and general competitive factors and industry consolidation. The Corporation does not undertake, and specifically disclaims any obligation, to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.

Basis of Presentation

Use of Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. Non-GAAP financial measures are used when management believes they will be helpful to an investor’s understanding of the Corporation’s results of operations or financial position. Where non-GAAP financial measures are used, the most comparable GAAP financial measure, as well as the reconciliation of the non-GAAP financial measure to the most comparable GAAP financial measure, can be found in the text or in the tables in or attached to this earnings release. Any analysis of these non-GAAP financial measures should be used only in conjunction with results presented 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 equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management uses and believe that many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with 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 disclosure 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.

Adjusted Pre-Tax, Pre-Provision Income

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes, such as the hurricanes that affected the Corporation’s service areas in 2017, or health epidemics, such as the COVID-19 pandemic in 2020 and 2021. Adjusted pre-tax, pre-provision income, as defined by management, represents income before income taxes adjusted to exclude the provisions for credit losses on loans, finance leases and debt securities and any gains or losses on sales of investment securities. In addition, from time to time, earnings are also adjusted for certain items regarded as Special Items, such as merger and restructuring costs in connection with the acquisition of BSPR and related integration and restructuring efforts, costs incurred in connection with the COVID-19 pandemic response efforts, and hurricane-related insurance recoveries, because management believes these items are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

Net Interest Income, Excluding Valuations, and on a Tax-Equivalent Basis

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and 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 changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. 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 management believes facilitates comparison of results to the results of peers.

The following table reconciles net interest income in accordance with GAAP to net interest income excluding valuations, and net interest income on a tax-equivalent basis for the second and first quarters of 2021, the second quarter of 2020 and the six-month period ended June 30, 2021 and 2020. The table also reconciles net interest spread and net interest margin to these items excluding valuations, and on a tax-equivalent basis.

Financial measures adjusted to exclude the effect of Special Items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts.

To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income and non-interest expenses, and the components of each, to exclude items that management identifies as Special Items because management believes they are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts. This press release includes the following non-GAAP financial measures for the second and first quarters of 2021 and the second quarter of 2020 that reflect the described items that were excluded for one of those reasons:

• Adjusted net income – The adjusted net income amounts for the second and first quarters of 2021 and the second quarter of 2020 reflect the following exclusions:

- Merger and restructuring costs of $11.0 million, $11.3 million, and $2.9 million recorded in the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively, related to transaction costs and restructuring initiatives in connection with the acquisition of BSPR.

- COVID-19 pandemic-related expenses of $1.1 million, $1.2 million and $3.0 million in the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively.

- Loss of $0.2 million on the sales of U.S. agencies MBS recorded in the second quarter of 2020.

- Benefit of $5.0 million recorded in the second quarter of 2020 resulting from the final settlement of the Corporation’s business interruption insurance claim related to lost profits caused by Hurricanes Irma and Maria.

- The tax-related effects of all of the pre-tax items mentioned in the above bullets as follows:

• Tax benefit of $4.1 million, $4.2 million and $1.1 million in the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively, related to merger and restructuring costs in connection with the acquisition of BSPR (calculated based on the statutory tax rate of 37.5%).

• Tax benefit of $0.4 million, $0.5 million, and $1.1 million in the second quarter of 2021, first quarter of 2021, and second quarter of 2020, respectively, in connection with COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of 37.5%).

• Tax expense of $1.9 million in the second quarter of 2020 related to the benefit of hurricane-related insurance recoveries (calculated based on the statutory tax rate of 37.5%).

• No tax benefit was recorded for the loss on sales of U.S. agencies MBS in the second quarter of 2020. Those sales were recorded at the tax-exempt international banking entity subsidiary level.

• Adjusted non-interest expenses – The following tables reconcile for the second quarter of 2021 and first quarter of 2021 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes the relevant Special Items identified above:

  (In thousands)
  Second Quarter 2021		Non-Interest Expenses (GAAP)				Merger and Restructuring Costs			COVID-19 Pandemic- Related Expenses			Adjusted (Non-GAAP)
  Non-interest expenses		$	130,172			$	11,047		$	1,105		$	118,020
  Employees' compensation and benefits			49,714				-			10			49,704
  Occupancy and equipment			24,116				-			992			23,124
  Business promotion			3,225				-			4			3,221
  Professional service fees			16,764				-			-			16,764
  Taxes, other than income taxes			5,576				-			97			5,479
  Insurance and supervisory fees			4,282				-			-			4,282
  Net loss on other real estate owned operations			(139	)			-			-			(139	)
  Merger and restrucuring costs			11,047				11,047			-			-
  Other non-interest expenses			15,587				-			2			15,585
  (In thousands)
  First Quarter 2021		Non-Interest Expenses (GAAP)				Merger and Restructuring Costs			COVID-19 Pandemic- Related Expenses			Adjusted (Non-GAAP)
  Non-interest expenses		$	133,301			$	11,267		$	1,209		$	120,825
  Employees' compensation and benefits			50,842				-			27			50,815
  Occupancy and equipment			24,242				-			1,039			23,203
  Business promotion			2,970				-			18			2,952
  Professional service fees			17,701				-			-			17,701
  Taxes, other than income taxes			6,199				-			125			6,074
  Insurance and supervisory fees			4,350				-			-			4,350
  Net loss on other real estate owned operations			1,898				-			-			1,898
  Merger and restrucuring costs			11,267				11,267			-			-
  Other non-interest expenses			13,832				-			-			13,832

• ACL on loans and finance leases to adjusted total loans held for investment ratio - The following table reconciles the ratio of the ACL on loans and finance leases to adjusted total loans held for investment, excluding SBA PPP loans, as of June 30, 2021 and March 31, 2021:

  			Allowance for credit losses for loans and finance leases to Loans Held for Investment (GAAP to Non-GAAP reconciliation)
  			As of June 30, 2021
  (In thousands)			Allowance for Credit Losses for Loans and Finance Leases				Loans Held for Investment
  Allowance for credit losses for loans and finance leases and loans held for investment (GAAP)			$	324,958			$	11,387,594
  Less:
  SBA PPP loans				-				349,261
  Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)			$	324,958			$	11,038,333
  Allowance for credit losses for loans and finance leases to loans held for investment (GAAP)				2.85	%
  Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)				2.94	%
  			Allowance for credit losses for loans and finance leases to Loans Held for Investment (GAAP to Non-GAAP reconciliation)
  			As of March 31, 2021
  (In thousands)			Allowance for Credit Losses for Loans and Finance Leases				Loans Held for Investment
  Allowance for credit losses for loans and finance leases and loans held for investment (GAAP)			$	358,936			$	11,641,859
  Less:
  SBA PPP loans				-				430,493
  Allowance for credit losses for loans and finance leases and adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)			$	358,936			$	11,211,366
  Allowance for credit losses for loans and finance leases to loans held for investment (GAAP)				3.08	%
  Allowance for credit losses for loans and finance leases to adjusted loans held for investment, excluding SBA PPP loans (Non-GAAP)				3.20	%

Management believes that the presentation of adjusted net income, adjusted non-interest expenses and adjustments to the various components of non-interest expenses, and the ratio of allowance for credit losses to adjusted total loans held for investment enhances the ability of analysts and investors to analyze trends in the Corporation’s business and understand the performance of the Corporation. In addition, the Corporation may utilize these non-GAAP financial measures as guides in its budgeting and long-term planning process.