First BanCorp
First BanCorp
11/06/2026 | Press release | Distributed by Public on 11/06/2026 10:32
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ("MD&A")
The following MD&A relates to the accompanying unaudited consolidated financial statements of First BanCorp. (the
"Corporation," "we," "us," "our," or "First BanCorp.") and should be read in conjunction with such financial statements and the notes
thereto, and our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the "2025 Annual Report on Form 10-
K"). This section also presents certain financial measures that are not based on generally accepted accounting principles in the United
States of America ("GAAP"). See "Non-GAAP Financial Measures and Reconciliations" below for information about why non-
GAAP financial measures are presented, reconciliations of non-GAAP financial measures to the most comparable GAAP financial
measures, and references to non-GAAP financial measures reconciliations presented in other sections.
EXECUTIVE SUMMARY
First BanCorp. is a diversified financial holding company headquartered in San Juan, Puerto Rico, offering a full range of financial
products to consumers and commercial customers through various subsidiaries. First BanCorp. is the holding company of FirstBank
Puerto Rico ("FirstBank" or the "Bank") and FirstBank Insurance Agency. Through its wholly -owned subsidiaries, the Corporation
operates in Puerto Rico, the United States Virgin Islands ("USVI"), the British Virgin Islands ("BVI"), and the state of Florida,
concentrating on commercial banking, residential mortgage loans, credit cards, personal loans, small loans, auto loans and leases, and
insurance agency activities.
Recent Developments
Economy and Market Update
Economic conditions in Puerto Rico remained stable throughout the third quarter of 2026, supported by ongoing reconstruction
activity and encouraging reshoring trends. Puerto Rico's unemployment rate stood at approximately 6.2% in September 2026,
compared with 5.8% in June 2026. Despite the increase in the unemployment rate, employment levels remained relatively stable.
In the United States, economic activity remained resilient during the third quarter of 2026, although labor market conditions
continued to moderate. The U.S. unemployment rate was 4.2% in September 2026, flat when compared to June 2026. Inflation
remained elevated, with Consumer Price Index increasing 3.7% year-over-year in September 2026, compared with 3.4% in August
2026. On September 16, 2026, the Federal Reserve (the "FED") increased the federal funds target range by 25 basis points ("bps") to a
range of 3.75% to 4.00%, noting that economic activity was expanding at a solid pace while inflation remained elevated. The FED
indicated that the action was intended to support a timelier return of inflation to its 2% objective. The most recent FED meeting was
held on October 28, 2026 and resulted in no additional increases to the federal funds target range despite continued inflationary
pressures. The FED continues to evaluate economic readings in order to determine if additional rate increases are merited.
Against this economic backdrop, the Corporation concluded the third quarter with another quarter of strong core performance,
supported by healthy balance sheet trends, stable credit quality and continued profitability. Loan growth was broad-based across the
Corporation's markets, particularly in the commercial segment, with total loans increasing at a 3.3% annualized linked-quarter rate,
while core deposits increased at a 3.6% annualized linked-quarter rate. Management continues to see a strong year-end loan pipeline
and remains focused on selective growth, maintaining strong profitability and driving operating leverage. Looking ahead, management
expects net interest margin to remain relatively stable in the fourth quarter of 2026, as the benefits from loan and securities repricing
and reinvestment are expected to help offset continued funding cost pressures. The Corporation's strong balance sheet and disciplined
approach to growth and risk management position it well to navigate the evolving economic and interest rate environment while
continuing to capitalize on opportunities across its markets.
Capital Deployment Actions
In the third quarter of 2026, the Corporation delivered approximately $80.4 million in the form of capital deployment actions that
included $50.0 million in repurchases of common stock and $30.4 million in common stock dividends declared.
From October 1, 2026 through November 2, 2026, the Corporation repurchased an additional 1.5 million shares of common stock
for a total cost of approximately $41.8 million, of which 1.4 million shares with a total cost of approximately $38.3 million, completed
the 2025 stock repurchase program.
On October 21, 2026, the Corporation's Board of Directors declared a quarterly cash dividend of $0.25 per common share, which
represents an increase of $0.05 per common share, or a 25% increase, compared to its most recent quarterly dividend paid on
September 11, 2026. The dividend is payable on December 11, 2026 to shareholders of record at the close of business on November
27, 2026.
On October 21, 2026, the Corporation announced that its Board of Directors approved a new stock repurchase program, under
which the Corporation may repurchase up to an additional $350 million of its outstanding common stock, which it expects to execute
throughout 2027, subject to market conditions.
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.
Overview of Results of Operations
The Corporation's results of operations depend primarily on its net interest income, which is the difference between the interest
income earned on its interest-earning assets, including investment securities and loans, and the interest expense incurred on its
interest-bearing liabilities, including deposits and borrowings. Net interest income is affected by various factors, including the
following: (i) the interest rate environment; (ii) the volumes, mix, and composition of interest-earning assets, and interest-bearing
liabilities; and (iii) the repricing characteristics of these assets and liabilities.
For the quarter and nine-month period ended September 30, 2026, the Corporation had net income of $96.1 million ($0.63 per
diluted common share) and $281.0 million ($1.82 per diluted common share), respectively, compared to $100.5 million ($0.63 per
diluted common share) and $257.8 million ($1.59 per diluted common share), respectively, for the comparable periods in 2025. Other
relevant selected financial indicators for the periods presented are included below:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
Key Performance Indicators:
(1)
Return on Average Assets
(2)
1.98
%
2.10
%
1.96
%
1.81
%
Return on Average Common Equity
(3)
19.46
21.36
18.96
19.07
Efficiency Ratio
(4)
50.06
50.22
49.09
49.92
(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 September 30, 2026, compared to the third
quarter of 2025, include the following:
●
Net interest income increased by $9.6 million to $227.5 million for the third quarter of 2026, compared to $217.9 million for
the third quarter of 2025. Net interest margin for the third quarter of 2026 increased by 16 bps to 4.73%, driven by the
deployment of cash flows from lower-yielding investment securities to higher-yielding assets, and a decrease in the cost of
interest-bearing liabilities due to the effect of lower interest rates on deposits and repayments of borrowings. These factors
were partially offset by the downward repricing of variable-rate commercial loans. 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 third quarter
of 2026 decreased by $3.0 million to $14.6 million, primarily reflecting a $2.6 million reduction in the provision for
consumer loans and finance leases due to lower net charge-offs and delinquency levels, partially offset by a lower benefit
from improvements in the projection of the unemployment rate, as well as a $1.1 million reduction in the provision for
commercial and construction loans, mainly due to higher provision in the third quarter of 2025 related to commercial and
industrial ("C&I") loan growth.
Net charge-offs decreased by $1.7 million to $18.2 million, or an annualized 0.55% of average loans, for the third quarter of
2026, compared to $19.9 million, or an annualized 0.62% of average loans, for the same period in 2025, mostly reflecting a
$2.4 million reduction in consumer loans and finance leases net charge -offs across all major portfolio classes. See "Results of
Operations - Provision for Credit Losses" and "Risk Management" below for analyses of the ACL and non-performing assets
and related ratios.
●
Non-interest income increased by $1.8 million to $32.6 million for the third quarter of 2026, primarily reflecting a $0.9
million increase in card and processing income from higher transactional volumes and a $0.4 million increase in revenues
from mortgage banking activities from higher realized gains of residential mortgage loans in the secondary market. See
"Results of Operations - Non-Interest Income" below for additional information.
●
Non-interest expenses increased by $5.3 million to $130.2 million for the third quarter of 2026. Excluding a $2.3 million
benefit in payroll taxes related to the employee retention credit ("ERC"), non-interest expenses increased by $3.0 million,
including a $2.2 million increase in employees' compensation and benefits expenses, driven by annual salary merit increases
and the filling of previously vacant positions. See "Results of Operations - Non-Interest Expenses" below for additional
information.
●
Income tax expense increased by $13.5 million to $19.2 million for the third quarter of 2026 , primarily reflecting a $16.6
million one-time reversal in the third quarter of 2025 of a valuation allowance on deferred tax assets primarily associated
with net operating loss ("NOL") carryforwards at the holding company level and higher pre-tax income, partially offset by a
lower estimated annual effective tax rate. The Corporation's annual effective tax rate, excluding discrete items, decreased to
20.5% from 22.2% primarily due to a higher proportion of exempt to taxable income and higher than previously forecasted
business activities with preferential tax treatment under the Puerto Rico Internal Revenue Code of 2011, as amended (the "PR
Tax Code"). See "Income Taxes" below and Note 13 - "Income Taxes" to the unaudited consolidated financial statements
herein for additional information.
●
As of September 30, 2026, total assets were approximately $19.3 billion, an increase of $117.4 million from December 31,
2025, primarily reflecting growth in commercial loans and investment securities supported by deposit growth and the
deployment of cash, partially offset by cash outflows resulting from capital deployment actions and net repayments of
borrowings.
●
As of September 30, 2026, total liabilities were $17.4 billion, an increase of $208.8 million from December 31, 2025, driven
by a $297.2 million increase in core deposits, partially offset by net repayments of borrowings. See "Risk Management -
Liquidity Risk" below for additional information about the Corporation's funding sources and strategy.
●
As of September 30, 2026, the Corporation's total stockholders' equity was $1.9 billion, a decrease of $91.4 million from
December 31, 2025, driven by $150.0 million in common stock repurchases, a $133.3 million decrease in the fair value of
available-for-sale debt securities, and $92.9 million, or $0.60 per common share, in common stock dividends declared,
partially offset by net income generated in the first nine months of 2026. The Corporation's CET1 capital, tier 1 capital, total
capital, and leverage ratios were 16.91%, 16.91%, 18.16%, and 11.71%, respectively, as of September 30, 2026, compared to
CET1 capital, tier 1 capital, total capital, and leverage ratios of 16.76%, 16.76%, 18.01%, and 11.58%, respectively, as of
December 31, 2025. See "Risk Management - Capital" below for additional information.
●
Total loan production, including purchases, refinancings, renewals, and draws from existing revolving and non-revolving
commitments, increased by $108.2 million to $1.5 billion for the quarter ended September 30, 2026, as compared to the third
quarter of 2025, primarily driven by an increase in commercial and construction loans. See "Results of Operations - Loan
Production" below for additional information.
●
Total non-performing assets remained flat at $114.1 million as of September 30, 2026, compared to December 31, 2025,
reflecting decreases of $1.9 million in the other real estate owned ("OREO") portfolio balance and $1.7 million in other
repossessed property resulting from sales of repossessed automobiles, partially offset by a $3.6 million increase in nonaccrual
loans. The increase in nonaccrual loans primarily reflected the migration of a $14.8 million C&I relationship in the Florida
region to nonaccrual status during the second quarter of 2026, which was largely offset by repayments on a C&I loan in the
Puerto Rico region in the food retail industry and decreases in nonaccrual residential mortgage loans and nonaccrual
consumer loans, mainly in auto loans. See "Risk Management - Nonaccrual Loans and Non-Performing Assets" below for
additional information.
●
Adversely classified commercial and construction loans were $103.0 million as of September 30, 2026, an increase of $21.6
million from December 31, 2025, primarily reflecting the downgrades and migration to nonaccrual status of the
aforementioned $14.8 million C&I relationship in the Florida region and a $13.1 million participated C&I loan in the Florida
region that is part of the Shared National Credit ("SNC") program.
NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS
The Corporation has included in this Quarterly Report on Form 10-Q 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.
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 Expenses, Adjusted Income Tax Expense, and Adjusted Earnings Per Share
To supplement the Corporation's financial statements presented in accordance with GAAP, the Corporation uses, and believes that
investors benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income, non-interest expenses,
income tax expense, and earnings per share to exclude items that management believes are not reflective of core operating
performance ("Special Items"). The financial results for the third quarter of 2026 did not include any significant Special Items. The
financial results for the nine-month period ended September 30, 2026, and for the quarter and nine-month periods ended September
30, 2025, included the following Special Items:
Nine-Month Period Ended September 30, 2026
Federal Deposit Insurance Corporation ("FDIC") Special Assessment Reversal
-
A benefit of $0.1 million ($57 thousand after-tax, calculated based on the statutory tax rate of 37.5%) was recorded for the
nine-month period ended September 30, 2026 following receipt of the FDIC assessment invoice, paid on March 30, 2026,
which reduced the quarterly special assessment rate for the eighth and final collection period from 3.36 bps to 2.97 bps. Any
future offsets or one-time final shortfall special assessment collection, if any, will be communicated by the FDIC through
future invoices. The FDIC deposit special assessment is reflected in the consolidated statements of income as part of "FDIC
deposit insurance" expenses.
Quarter and Nine-Month Period Ended September 30, 2025
Enactment of Act 65-2025
-
On July 17, 2025, the Government of Puerto Rico enacted Act 65-2025 which, among other things, allows domestic limited
liability companies owned by legal entities to elect to be treated as disregarded entities for tax purposes. As a result of this
change, during the third quarter of 2025, the Corporation reversed approximately $16.6 million in valuation allowance related
to deferred tax assets primarily associated with NOL carryforwards at the holding company level.
Employee Retention Credit ("ERC")
-
During the third quarter of 2025, the Corporation recognized a $2.3 million ERC, net of $0.3 million in related commissions.
This amount is reflected in the consolidated statements of income as part of "employees' compensation and benefits"
expenses. This credit was established under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act to support
businesses that retained employees during the COVID-19 pandemic. The credit recorded during the third quarter of 2025 is
tax exempt for Puerto Rico tax purposes.
The following table shows net income, for the third quarter of 2026, and reconciles, for the third quarter of 2025 and nine-month
periods ended September 30, 2026 and 2025, net income to adjusted net income and adjusted earnings per share, which are non-
GAAP financial measures that exclude the Special Items identified above:
Quarter Ended September 30,
Nine-Month Period Ended
September 30,
2026
2025
2026
2025
(In thousands)
Net income, as reported (GAAP)
$
96,115
$
100,526
$
281,047
$
257,765
Adjustments:
Employee retention credit
-
(2,358)
-
(2,358)
FDIC special assessment reversal
-
-
(92)
-
Income tax impact related to the enactment of Act 65-2025
-
(16,553)
-
(16,553)
Income tax impact of adjustment
(1)
-
-
-
Adjusted net income (non-GAAP)
$
96,115
$
81,615
$
280,990
$
238,854
Weighted-average diluted shares outstanding
151,950
160,087
154,056
161,770
Earnings per share - diluted (GAAP)
$
0.63
$
0.63
$
1.82
$
1.59
Adjusted earnings per share - diluted (non-GAAP)
$
0.63
$
0.51
$
1.82
$
1.48
(1)
See "Adjusted Net Income, Adjusted Non-Interest Expenses, Adjusted Income Tax Expense, and Adjusted Earnings Per Share" above for the individual tax impact related to the above
adjustment, which was based on the Puerto Rico statutory tax rate of 37.5%.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the excess of interest earned by First BanCorp. on its interest-earning assets over the interest incurred on its
interest-bearing liabilities. First BanCorp.'s net interest income is subject to interest rate risk due to the repricing and maturity
mismatch of the Corporation's assets and liabilities. In addition, variable sources of interest income, such as loan fees, periodic
dividends, and collection of interest on nonaccrual loans, can fluctuate from period to period. Net interest income for the quarter and
nine-month period ended September 30, 2026 was $227.5 million and $677.6 million, respectively, compared to $217.9 million and
$646.2 million for the comparable periods in 2025, respectively. On a tax-equivalent basis, net interest income for the quarter and
nine-month period ended September 30, 2026 was $241.9 million and $718.1 million, respectively, compared to $226.2 million and
$667.8 million for the comparable periods in 2025, respectively.
The following tables include a detailed analysis of net interest income for the indicated periods. Part I presents average volumes
(based on the average daily balance) and rates on an adjusted tax-equivalent basis and Part II presents, also on an adjusted tax-
equivalent basis, the extent to which changes in interest rates and changes in the volume of interest-related assets and liabilities have
affected the Corporation's net interest income. For each category of interest-earning assets and interest-bearing liabilities, the tables
provide information on changes in (i) volume (changes in volume multiplied by prior period rates), and (ii) rate (changes in rate
multiplied by prior period volumes). The Corporation has allocated rate-volume variances (changes in rate multiplied by changes in
volume) to either the changes in volume or the changes in rate based upon the effect of each factor on the combined totals.
Net interest income on an adjusted tax-equivalent basis is a non-GAAP financial measure. For the definition of this non-GAAP
financial measure, refer to the discussion in "Non-GAAP Financial Measures and Reconciliations" above.
Part I
Average volume
Interest income
(1)
/ expense
Average rate
(1)
Quarter ended September 30,
2026
2025
2026
2025
2026
2025
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
522,173
$
871,290
$
4,904
$
9,695
3.73
%
4.41
%
Government obligations
(2)
1,316,809
1,838,314
11,880
9,779
3.58
%
2.11
%
Mortgage-backed securities ("MBS")
3,943,328
3,281,983
33,800
18,801
3.40
%
2.27
%
Federal Home Loan Bank ("FHLB") stock
21,322
25,777
6.96
%
7.62
%
Other investments
23,198
20,362
2.45
%
2.40
%
Total investments
(3)
5,826,830
6,037,726
51,101
38,893
3.48
%
2.56
%
Residential mortgage loans
2,941,226
2,873,549
43,403
42,203
5.85
%
5.83
%
Construction loans
210,168
250,280
5,295
6,058
10.00
%
9.60
%
C&I and commercial mortgage loans
6,464,509
6,014,997
108,758
104,631
6.67
%
6.90
%
Consumer loans and finance leases
3,648,193
3,737,413
96,659
99,202
10.51
%
10.53
%
Total loans
(4)(5)
13,264,096
12,876,239
254,115
252,094
7.60
%
7.77
%
Total interest-earning assets
$
19,090,926
$
18,913,965
$
305,216
$
290,987
6.34
%
6.10
%
Tax-equivalent adjustment
(14,371)
(8,244)
Interest income - GAAP
$
290,845
$
282,743
6.04
%
5.93
%
Interest-bearing liabilities:
Time deposits
$
3,692,961
$
3,352,163
$
30,622
$
28,590
3.29
%
3.38
%
Brokered certificates of deposit ("CDs")
626,673
581,946
6,422
6,414
4.07
%
4.37
%
Other interest-bearing deposits
7,126,862
7,421,017
23,972
26,341
1.33
%
1.41
%
Advances from the FHLB
200,000
313,152
2,155
3,472
4.27
%
4.40
%
Other borrowings
14,405
4.05
%
4.63
%
Total interest-bearing liabilities
$
11,660,901
$
11,669,135
$
63,318
$
64,827
2.15
%
2.20
%
Net interest income/margin - non-GAAP
(1)
$
241,898
$
226,160
5.03
%
4.74
%
Net interest income/margin - GAAP
$
227,527
$
217,916
4.73
%
4.57
%
Net interest spread - non-GAAP
(1)
4.19
%
3.90
%
Net interest spread - GAAP
3.89
%
3.73
%
Part I
Average volume
Interest income
(1)
/ expense
Average rate
(1)
Nine-Month Period Ended September 30,
2026
2025
2026
2025
2026
2025
(Dollars in thousands)
Interest-earning assets:
Money market and other short-term investments
$
559,790
$
1,016,762
$
15,503
$
33,797
3.70
%
4.44
%
Government obligations
(2)
1,388,552
1,882,541
38,282
24,268
3.69
%
1.72
%
MBS
3,807,384
3,293,288
91,625
54,277
3.22
%
2.20
%
FHLB stock
22,631
28,159
1,295
1,930
7.65
%
9.16
%
Other investments
22,207
20,289
2.52
%
3.58
%
Total investments
(3)
5,800,564
6,241,039
147,124
114,816
3.39
%
2.46
%
Residential mortgage loans
2,925,951
2,856,813
130,348
125,361
5.96
%
5.87
%
Construction loans
216,134
242,893
15,865
17,493
9.81
%
9.63
%
C&I and commercial mortgage loans
6,332,261
5,905,687
317,108
305,145
6.70
%
6.91
%
Consumer loans and finance leases
3,663,019
3,746,016
288,476
296,803
10.53
%
10.59
%
Total loans
(4)(5)
13,137,365
12,751,409
751,797
744,802
7.65
%
7.81
%
Total interest-earning assets - non-GAAP
(1)
$
18,937,929
$
18,992,448
$
898,921
$
859,618
6.35
%
6.05
%
Tax-equivalent adjustment
(40,517)
(21,620)
Interest income - GAAP
$
858,404
$
837,998
6.06
%
5.90
%
Interest-bearing liabilities:
Time deposits
$
3,578,461
$
3,198,226
$
88,279
$
80,805
3.30
%
3.38
%
Brokered CDs
570,644
518,195
17,595
17,366
4.12
%
4.48
%
Other interest-bearing deposits
7,093,393
7,591,571
67,266
80,309
1.27
%
1.41
%
Advances from the FHLB
234,176
366,703
7,503
12,180
4.28
%
4.44
%
Other borrowings
4,855
21,199
1,166
4.05
%
7.35
%
Total interest-bearing liabilities - GAAP
$
11,481,529
$
11,695,894
$
180,790
$
191,826
2.11
%
2.19
%
Net interest income / margin - non-GAAP
(1)
$
718,131
$
667,792
5.07
%
4.70
%
Net interest income / margin - GAAP
$
677,614
$
646,172
4.78
%
4.55
%
Net interest spread - non-GAAP
(1)
4.24
%
3.86
%
Net interest spread - GAAP
3.95
%
3.71
%
(1)
On an adjusted tax-equivalent basis. The Corporation estimated the adjusted tax-equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax
rate of 37.5% and adding to it the cost of interest-bearing liabilities. The tax-equivalent adjustment recognizes the income tax savings when comparing taxable and tax-exempt assets.
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.
Therefore, management believes these measures provide useful information to investors by allowing them to make peer comparisons. See "Non-GAAP Financial Measures and
Reconciliations" above for additional information.
(2)
Government obligations include debt issued by government-sponsored agencies.
(3)
Unrealized gains and losses on available-for-sale debt securities are excluded from the average volumes.
(4)
Average loan balances include the average of nonaccrual loans.
(5)
Interest income on loans includes $3.9 million and $3.8 million for the quarters ended September 30, 2026 and 2025, respectively, and $11.6 million and $12.9 million for the nine-month
periods ended September 30, 2026 and 2025, respectively, of income from prepayment penalties and late fees related to the Corporation's loan portfolio.
Part II
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026 Compared to 2025
2026 Compared to 2025
Variance due to:
Variance due to:
Volume
Rate
Total
Volume
Rate
Total
(In thousands)
Interest income on interest-earning assets:
Money market and other short-term investments
$
(3,456)
$
(1,335)
$
(4,791)
$
(13,364)
$
(4,930)
$
(18,294)
Government obligations
(3,700)
5,801
2,101
(10,040)
24,054
14,014
MBS
4,331
10,668
14,999
9,462
27,886
37,348
FHLB stock
(81)
(40)
(121)
(345)
(290)
(635)
Other investments
(169)
(125)
Total investments
(2,889)
15,097
12,208
(14,243)
46,551
32,308
Residential mortgage loans
1,200
3,065
1,922
4,987
Construction loans
(986)
(763)
(1,950)
(1,628)
C&I and commercial mortgage loans
7,645
(3,518)
4,127
21,746
(9,783)
11,963
Consumer loans and finance leases
(2,546)
(2,543)
(7,924)
(403)
(8,327)
Total loans
5,112
(3,091)
2,021
14,937
(7,942)
6,995
Total interest income
$
2,223
$
12,006
$
14,229
$
$
38,609
$
39,303
Interest expense on interest-bearing liabilities:
Time deposits
$
2,852
$
(820)
$
2,032
$
9,508
$
(2,034)
$
7,474
Brokered CDs
(464)
1,692
(1,463)
Other interest-bearing deposits
(1,262)
(1,107)
(2,369)
(6,727)
(6,316)
(13,043)
Advances from the FHLB
(1,222)
(95)
(1,317)
(4,260)
(417)
(4,677)
Other borrowings
-
(1,019)
-
(1,019)
Total interest expense
(2,486)
(1,509)
(806)
(10,230)
(11,036)
Change in net interest income
$
1,246
$
14,492
$
15,738
$
1,500
$
48,839
$
50,339
Net interest income amounted to $227.5 million for the third quarter of 2026 and $677.6 million for the nine-month period ended
September 30, 2026, increases of $9.6 million and $31.4 million, respectively, compared to the corresponding periods in 2025. The
increases in net interest income consisted of:
●
Higher interest income on interest-earning assets of $8.1 million and $20.4 million, respectively, consisting of:
o
A net increase in interest income on investment securities and interest-bearing cash balances of $7.4 million and $17.2
million, respectively, primarily driven by:
-
An increase in interest income on debt securities of $12.3 million and $36.2 million, respectively, mainly due to
yield improvements of 88 bps and 92 bps, resulting from purchases of higher-yielding available-for-sale debt
securities replacing maturities of lower-yielding debt securities.
Partially offset by:
-
A decrease in interest income from interest-bearing cash balances of $4.8 million and $18.3 million, respectively,
primarily reflecting $3.5 million and $13.4 million from reductions in average balances of $349.1 million and
$457.0 million, respectively, primarily cash maintained at the FED, with the remainder attributable to a reduction of
the federal funds rate.
o
An increase in interest income on loans of $0.7 million and $3.2 million, respectively , a net effect of:
-
A
net increase in interest income on commercial and construction loans of $2.1 million and $6.5 million,
respectively, reflecting $6.7 million and $19.9 million from higher average balances of $409.4 million and $399.8
million, respectively, partially offset by $4.6 million and $13.4 million from the downward repricing of variable-rate
loans due to lower interest rates.
As of September 30, 2026, approximately 49% of the Corporation's commercial and construction loans were tied to
variable rates, including 30% to Secured Overnight Financing Rate ("SOFR") of 3 months or less, 11% to the Prime
rate index, and 8% to other indexes. Compared to the corresponding periods in 2025, the average one-month SOFR,
three-month SOFR and Prime rate index decreased 56 bps, 37 bps and 67 bps, respectively, during the third quarter
of 2026, and 63 bps, 54 bps and 72 bps, respectively, during the first nine months of 2026.
-
An increase in interest income on residential mortgage loans of $1.2 million and $5.0 million, respectively, mainly
due to higher average balances.
Partially offset by:
-
A decrease in interest income on consumer loans and finance leases of $2.6 million and $8.3 million, respectively,
primarily due to lower average balances.
●
Lower interest expense on interest-bearing liabilities of $1.5 million and $11.0 million, respectively, consisting of:
o
A
decrease in interest expense on borrowings of $1.2 million and $5.7 million, respectively, primarily due to lower
average balances of FHLB advances.
o
A
net decrease in interest expense on interest-bearing deposits of $0.3 million and $5.3 million, respectively, primarily
driven by:
-
A
decrease in interest expense on interest-bearing checking and saving accounts of $2.4 million and $13.0 million,
respectively, reflecting lower average balances and interest rates paid. The average cost decreased 8 bps and 14 bps
to 1.33% and 1.27%, respectively, mainly due to a decrease in the cost of government deposits. Excluding
government deposits, the average cost decreased to 0.69% and 0.67%, respectively, from 0.72% and 0.73% for the
corresponding periods in 2025.
Partially offset by:
-
An increase in interest expense on non-brokered time deposits of $2.0 million and $7.5 million, respectively,
primarily reflecting $2.8 million and $9.5 million from higher average balances of $340.8 million and $380.2
million, respectively, partially offset by lower rates paid on new issuances and renewals .
Net interest margin increased 16 bps to 4.73% for the third quarter of 2026 and 23 bps to 4.78% for the first nine months of 2026,
compared to 4.57% and 4.55%, respectively, for the corresponding periods in 2025. The increases in the net interest margin mostly
reflected the deployment of cash flows from lower-yielding investment securities to higher-yielding assets, and a decrease in the cost
of interest-bearing liabilities due to the effect of lower interest rates on deposits and repayments of borrowings, partially offset by the
downward repricing of variable-rate commercial loans.
Provision for Credit Losses
The provision for credit losses consists of provisions for credit losses on loans and finance leases, unfunded loan commitments, as
well as the debt securities portfolio. The principal changes in the provision for credit losses by main categories follow:
Provision for credit losses for loans and finance leases
The provision for credit losses for loans and finance leases was $14.9 million for the third quarter of 2026, compared to $18.3
million for the same period in 2025. The $3.4 million decrease primarily reflected a $2.6 million reduction in the provision for
consumer loans and finance leases, driven by lower net charge -offs and delinquency levels, partially offset by a lower benefit from
improvements in the projection of the unemployment rate. The decrease also reflected a $1.1 million reduction in the provision for
commercial and construction loans, from $1.6 million in the third quarter of 2025 to $0.5 million in the third quarter of 2026, mainly
due to C&I loan growth in the third quarter of 2025.
The provision for credit losses for loans and finance leases was $48.0 million for the first nine months of 2026, compared to $63.5
million for the same period in 2025. The $15.5 million decrease primarily reflected an $8.8 million favorable variance in the provision
for commercial and construction loans, from an expense of $8.0 million in the first nine months of 2025 to a net benefit of $0.8
million in the first nine months of 2026. The expense recorded during the first nine months of 2025 was mainly due to C&I loan
growth, a deterioration in the economic outlook of the commercial real estate ("CRE") property performance and forecasted CRE
price index, and updated historical prepayment experience. The decrease also reflected a $6.8 million reduction in the provision for
consumer loans and finance leases, driven by lower net charge-offs, after considering the impact of $2.4 million in recoveries from the
bulk sale of fully charged-off consumer loans and finance leases that took place in the first quarter of 2025, and the aforementioned
factors.
Provision for credit losses for unfunded loan commitments and debt securities
The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit for the
third quarter and first nine months of 2026 was a net benefit of $0.1 million and an expense of $1.5 million, respectively, compared to
a net benefit of $0.8 million and $0.5 million, respectively, for the same periods in 2025. The provision expense recorded for the first
nine months of 2026 was driven by renewals of existing C&I lines of credit.
The provision for credit losses for held-to-maturity and available-for-sale debt securities for the third quarter and first nine months
of 2026 was a net benefit of $0.1 million and $0.2 million, respectively, compared to an expense of $79 thousand and $34 thousand,
respectively, for the same periods in 2025.
Non-Interest Income
Non-interest income amounted to $32.6 million for the third quarter of 2026, compared to $30.8 million for the same period in
2025. The $1.8 million increase in non-interest income was primarily due to:
●
A $0.9 million increase in card and processing income mainly due to higher transactional volumes.
●
A $0.4 million increase in revenues from mortgage banking activities, driven by an increase in the net realized gain on sales
of residential mortgage loans in the secondary market. For the quarters ended September 30, 2026 and 2025, net realized
gains of $1.9 million and $1.6 million, respectively, were recognized as a result of Government National Mortgage
Association ("GNMA") securitization transactions and whole loan sales to U.S. government-sponsored entities ("GSEs")
amounting to $48.3 million and $36.0 million, respectively.
Non-interest income for the nine-month period ended September 30, 2026 amounted to $106.0 million, compared to $97.5 million
for the same period in 2025. The $8.5 million increase in non-interest income was primarily due to:
●
A $3.7 million increase in other non-interest income, driven by a $2.9 million increase related to higher realized gains from
purchased income tax credits and a $0.6 million gain recognized during the second quarter of 2026 from the sale of a fixed
asset in the Florida region.
●
A $1.8 million increase in card and processing income mainly due to higher transactional volumes.
●
A $1.6 million increase in revenues from mortgage banking activities, driven by an increase in the net realized gain on sales
of residential mortgage loans in the secondary market. During the first nine months of 2026 and 2025, net realized gains of
$6.4 million and $4.8 million, respectively, were recognized as a result of securitization transactions and whole loan sales to
U.S. GSEs amounting to $132.0 million and $129.0 million, respectively.
●
A $1.0 million increase in insurance commission income.
Non-Interest Expenses
Non-interest expenses for the third quarter of 2026 amounted to $130.2 million, an increase of $5.3 million, compared to $124.9
million for the same period in 2025. The increase in non-interest expenses was primarily due to:
●
A $4.5 million increase in employees' compensation and benefits expenses. Excluding the effect of the aforementioned
$2.3 million ERC recognized during the third quarter of 2025, adjusted employees' and benefits expenses increased by
$2.2 million, driven by annual salary merit increases and the filling of previously vacant positions. See "Non-GAAP
Financial Measures and Reconciliations" above for additional information related to the ERC Special Item.
●
A $1.6 million increase in credit and debit card processing expenses, mainly due to higher transactional volumes.
●
A $1.0 million increase in other non-interest expenses, mainly due to a $1.4 million increase in charges for operational and
fraud losses, partially offset by a $0.6 million decrease in the amortization of core deposit intangible assets related to non-
interest-bearing checking accounts from the Banco Santander Puerto Rico acquisition, which were fully amortized in 2025.
The increase in charges for operational and fraud losses was primarily driven by an additional $2.8 million estimated
liability in connection with an adverse court ruling involving a commercial OREO property in the U.S. Virgin Islands
during the third quarter of 2026, partially offset by a $0.6 million reserve recorded in the third quarter of 2025 related to
the same property and higher charges for fraud losses for the third quarter of 2025. See Note 23 - "Regulatory Matters,
Commitments and Contingencies" to the audited consolidated financial statements included in the 2025 Annual Report on
Form 10-K for additional information regarding the ongoing litigation related to the aforementioned commercial OREO
property in the U.S. Virgin Islands.
Partially offset by:
●
A $1.8 million favorable variance in net (gain) loss on OREO operations, driven by the valuation adjustment of $2.8
million recorded during the third quarter of 2025 in connection with the aforementioned commercial OREO property in the
USVI, partially offset by a decrease in net realized gains on sales of residential OREO properties.
The efficiency ratio for the third quarter of 2026 was 50.06%, compared to 50.22% for the third quarter of 2025.
Non-interest expenses for the nine-month period ended September 30, 2026 amounted to $384.7 million, an increase of $13.4
million, compared to $371.3 million for the same period in 2025 . The increase in non-interest expenses was primarily due to:
●
An $11.1 million increase in employees' compensation and benefits expenses. Excluding the effect of the aforementioned
$2.3 million ERC recognized during the third quarter of 2025, adjusted employees' and benefits expenses increased by
$8.8 million, driven by annual salary merit increases, the filling of previously vacant positions, a $1.2 million increase in
payroll taxes and benefits, and a $1.1 million increase in bonus incentives, which includes $0.8 million in stock-based
compensation expense. See "Non-GAAP Financial Measures and Reconciliations" above for additional information
related to the ERC Special Item.
●
A $4.6 million increase in credit and debit card processing expenses, mainly due to higher transactional volumes.
●
A $2.5 million increase in professional service fees, mainly due to an increase in collections, appraisals and other credit-
related fees; legal fees; and outsourcing technology fees.
●
A $1.6 million increase in business promotion expenses, driven by higher marketing efforts.
Partially offset by:
●
A $4.3 million decrease in other non-interest expenses, mainly due to a $2.6 million decrease in the amortization of core
deposit intangible assets related to non-interest-bearing checking accounts from the Banco Santander Puerto Rico
acquisition, which were fully amortized in 2025 and a $1.2 million decrease in charges for operational and fraud losses,
driven by the aforementioned factors.
●
A $1.9 million favorable variance in net (gain) loss on OREO operations, driven by the aforementioned valuation
adjustment of $2.8 million recorded during the third quarter of 2025, partially offset by a decrease in net realized gains on
sales of residential OREO properties.
The efficiency ratio for the nine-month period ended September 30, 2026 was 49.09%, compared to 49.92% for the same period in
2025.
Income Taxes
For the quarter and nine-month period ended September 30, 2026, the Corporation recorded an income tax expense of $19.2 million
and $68.7 million, respectively, compared to an income tax expense of $5.7 million and $51.6 million, respectively, for the same
periods in 2025. The increase in income tax expense was driven by the aforementioned one-time reversal of approximately $16.6
million in valuation allowance during the third quarter of 2025 and higher pre-tax income, partially offset by a lower estimated annual
effective tax rate mostly related to a higher proportion of exempt to taxable income and higher than previously forecasted business
activities with preferential tax treatment under the PR Tax Code. For the year, the Corporation's annual effective tax rate, excluding
discrete items, was estimated at 20.5% for the first nine months of 2026, compared to 22.2% for the comparable period in 2025. See
Note 13 - "Income Taxes" to the unaudited consolidated financial statements herein for additional information.
As of September 30, 2026, the Corporation had a net deferred tax asset of $135.0 million, net of a valuation allowance of $88.3
million, compared to a net deferred tax asset of $149.0 million, net of a valuation allowance of $75.0 million, as of December 31,
2025. The decrease in the net deferred tax asset was mainly related to the usage of alternative minimum tax credits, the reversal of the
deferred tax asset following the change from a valuation adjustment to a permanent write-off of a commercial OREO property in the
U.S. Virgin Islands region, and changes in the ACL.
Assets
The Corporation's total assets were $19.3 billion as of September 30, 2026, an increase of $117.4 million from December 31, 2025.
The increase was primarily driven by growth in commercial loans and investment securities supported by deposit growth and the
deployment of cash, partially offset by cash outflows resulting from capital deployment actions and the net repayment of borrowings.
Loans Receivable, including Loans Held for Sale
As of September 30, 2026, the Corporation's total loan portfolio before the ACL amounted to $13.4 billion, an increase of $239.0
million compared to December 31, 2025. The increase was primarily driven by a $273.9 million increase in commercial and
construction loans, including a $152.4 million increase in the Florida region, mainly attributable to purchases of participated C&I
loans, and a $94.0 million increase in the Puerto Rico region. The growth in the Puerto Rico region was mainly in C&I loans, driven
by a $112.1 million increased exposure due to the aforementioned refinancings during the second quarter of 2026 of a participated
loan related to a public-private partnership for toll roads infrastructure improvement and a participated municipal loan (including the
conversion of a municipal bond), partially offset by payoffs and paydowns.
As of September 30, 2026, the Corporation's loans held-for-investment portfolio was comprised of commercial and construction
loans (52%), consumer loans and finance leases (26%), and residential real estate loans (22%). Of the total gross loan portfolio held
for investment of $13.4 billion as of September 30, 2026, the Corporation had credit risk concentration of approximately 76% in the
Puerto Rico region, 20% in the United States region (mainly in the state of Florida), and 4% in the Virgin Islands region, as shown in
the following table:
As of September 30, 2026
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,260,645
$
143,100
$
540,199
$
2,943,944
Construction loans
202,593
11,970
3,124
217,687
Commercial mortgage loans
1,751,933
71,026
796,434
2,619,393
C&I loans
2,427,411
203,165
1,314,424
3,945,000
Total commercial loans
4,381,937
286,161
2,113,982
6,782,080
Consumer loans and finance leases
3,569,862
62,427
6,187
3,638,476
Total loans held for investment, gross
$
10,212,444
$
491,688
$
2,660,368
$
13,364,500
Loans held for sale
16,545
-
-
16,545
Total loans, gross
$
10,228,989
$
491,688
$
2,660,368
$
13,381,045
As of December 31, 2025
Puerto Rico
Virgin Islands
United States
Total
(In thousands)
Residential mortgage loans
$
2,227,053
$
150,551
$
530,698
$
2,908,302
Construction loans
249,466
14,174
1,928
265,568
Commercial mortgage loans
1,690,176
73,751
790,325
2,554,252
C&I loans
2,348,274
170,728
1,169,356
3,688,358
Total commercial loans
4,287,916
258,653
1,961,609
6,508,178
Consumer loans and finance leases
3,636,072
66,947
5,857
3,708,876
Total loans held for investment, gross
$
10,151,041
$
476,151
$
2,498,164
$
13,125,356
Loans held for sale
16,697
-
-
16,697
Total loans, gross
$
10,167,738
$
476,151
$
2,498,164
$
13,142,053
See "Risk Management - Exposure to Puerto Rico Government" and "Risk Management - Exposure to USVI Government" below
for information on the Corporation's credit exposure to PR and USVI government entities.
As of September 30, 2026, the Corporation's total commercial mortgage loan exposure amounted to $2.6 billion, or 20% of the
total loan portfolio. The $1.7 billion exposure in the Puerto Rico region was comprised mainly of 38% in the retail industry, 24% in
office real estate, and 19% in the hotel industry. The $0.8 billion exposure in the Florida region was comprised mainly of 34% in the
retail industry, 18% in the hotel industry, and 6% in office real estate. Of the Corporation's total commercial mortgage loan exposure
of $2.6 billion, $722.4 million matures within the next 12 months and has a weighted-average interest rate of approximately 5.55%.
Commercial mortgage loan exposure in the office real estate industry, which matures within the next 12 months, amounted to $133.5
million and has a weighted-average interest rate of approximately 5.47 %.
As of September 30, 2026 and December 31, 2025, the Corporation's total exposure to SNC loans (including unused
commitments) amounted to $1.2 billion and $1.1 billion, respectively. As of September 30, 2026, approximately $396.4 million of the
SNC exposure was attributable to the Puerto Rico region and $797.3 million to the Florida region.
Loan Production
First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation may
supplement its residential mortgage originations with wholesale servicing released mortgage loan purchases from mortgage bankers.
The Corporation manages its construction and commercial loan originations through centralized units and most of its originations
come from existing customers, as well as through referrals and direct solicitations. Auto loans and finance leases originations rely
primarily on relationships with auto dealers and dedicated sales professionals who serve selected locations to facilitate originations.
The following table provides a breakdown of First BanCorp.'s loan production, including purchases, refinancings, renewals and
draws from existing revolving and non-revolving commitments by geographic segment, for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
(In thousands)
Puerto Rico:
Residential mortgage
$
116,301
$
111,065
$
324,771
$
310,651
Construction
22,497
30,645
70,752
82,643
Commercial mortgage
96,910
50,101
238,509
151,025
C&I
440,206
494,719
1,522,286
1,340,793
Consumer
366,954
362,907
1,093,887
1,115,566
Total loan production
$
1,042,868
$
1,049,437
$
3,250,205
$
3,000,678
Virgin Islands:
Residential mortgage
$
$
1,314
$
1,693
$
4,847
Construction
-
1,286
11,384
Commercial mortgage
-
1,221
9,192
C&I
26,906
18,940
208,191
77,326
Consumer
6,384
8,032
19,289
22,110
Total loan production
$
33,959
$
29,572
$
230,956
$
124,859
Florida:
Residential mortgage
$
18,819
$
19,223
$
58,684
$
56,693
Construction
3,022
1,232
25,505
Commercial mortgage
90,451
96,729
184,261
175,518
C&I
292,594
172,679
718,534
576,249
Consumer
1,822
Total loan production
$
402,173
$
291,807
$
963,559
$
835,787
Total:
Residential mortgage
$
135,764
$
131,602
$
385,148
$
372,191
Construction
22,707
34,953
72,546
119,532
Commercial mortgage
187,386
146,830
423,991
335,735
C&I
759,706
686,338
2,449,011
1,994,368
Consumer
373,437
371,093
1,114,024
1,139,498
Total loan production
$
1,479,000
$
1,370,816
$
4,444,720
$
3,961,324
Commercial and construction loan originations (excluding government loans) for the quarter and nine-month period ended
September 30, 2026 amounted to $929.9 million and $2.6 billion, respectively, compared to $785.5 million and $2.3 billion,
respectively, for the same periods in 2025. Originations in the Florida region increased by $110.8 million and $126.8 million for the
quarter and nine-month period ended September 30, 2026, respectively, primarily driven by new loan participations. The increase for
the nine-month period ended September 30, 2026 also reflected a $160.5 million increase in the Puerto Rico region driven by the
aforementioned refinancing of a participated loan for toll roads infrastructure improvement during the second quarter of 2026.
Government loan originations for the quarter and nine-month period ended September 30, 2026 amounted to $39.9 million and
$373.0 million, respectively, compared to $82.7 million and $148.3 million, respectively, for the same periods in 2025. The decrease
for the third quarter of 2026, was driven by multiple originations to municipalities in Puerto Rico during the third quarter of 2025. For
the first nine months of 2026, the increase was mainly related to the higher utilization of a line of credit in the Virgin Islands region
and the aforementioned refinancing of a participated municipal loan in the Puerto Rico region during the second quarter of 2026.
Originations of auto loans (including finance leases) for the quarter and nine-month period ended September 30, 2026 amounted to
$208.9 million and $632.6 million, respectively, compared to $211.3 million and $668.3 million, respectively, for the comparable
periods in 2025. Other consumer loan originations, other than credit cards, for the quarter and nine-month period ended September 30,
2026 amounted to $63.2 million and $182.6 million, respectively, compared to $55.7 million and $156.8 million, respectively, for the
comparable periods in 2025. Most of the decrease in auto loan originations for the first nine months
of 2026, as compared with the
same period in 2025, was in the Puerto Rico region. The utilization activity on the outstanding credit card portfolio for the quarter and
nine-month period ended September 30, 2026 amounted to $101.3 million and $298.8 million, respectively, compared to $104.2
million and $314.4 million, respectively, for the comparable periods in 2025.
Investment Activities
As part of its liquidity, revenue diversification, and interest rate risk management strategies, First BanCorp. maintains a debt
securities portfolio classified as available for sale or held to maturity.
Substantially all of the Corporation's available-for-sale debt securities portfolio was invested in U.S. Treasury securities, U.S.
GSEs' obligations, and fixed-rate GSEs' MBS. The Corporation's total available-for-sale debt securities portfolio as of September 30,
2026 amounted to $4.7 billion, a $164.7 million increase from December 31, 2025. The increase was driven by $2.3 billion in
purchases, of which $1.1 billion were U.S. agencies' MBS with an average yield of 5.05%; and $1.0 billion were U.S. Treasury bills
with an average yield of 3.73%. These factors were partially offset by $1.4 billion in maturities, $568.7 million in principal
repayments and a $133.3 million decrease in fair value attributable to changes in market interest rates. As of September 30, 2026, the
Corporation had a net unrealized loss on available-for-sale debt securities of $480.5 million. This net unrealized loss is primarily
attributable to instruments on books carrying a lower interest rate than market rates. The Corporation expects that this unrealized loss
will reverse over time and it is likely that it will not be required to sell the securities before their anticipated recovery. The Corporation
expects the portfolio will continue to decrease and the accumulated other comprehensive loss will decrease accordingly, excluding the
impact of market interest rates and purchases.
Held-to-maturity debt securities include fixed-rate GSEs' MBS with a carrying value of $157.1 million (fair value of $145.5
million) as of September 30, 2026, compared to $184.4 million as of December 31, 2025. The decrease in GSEs' MBS was driven by
$27.4 million in principal repayments. Held-to-maturity debt securities also include $60.7 million as of September 30, 2026, compared
to $80.9 million as of December 31, 2025, of financing arrangements with the government issued in bond form, which the Corporation
accounts for as securities, but which were underwritten as loans with features that are typically found in commercial loans. The
decrease in Puerto Rico municipal bonds was driven by $22.6 million in principal repayments. As of September 30, 2026,
approximately 68% of the Corporation's government bonds consisted of obligations issued by three of the largest municipalities in
Puerto Rico.
As of September 30, 2026, cash inflows expected to be received during the next 12 months from maturities and expected
prepayments of the debt securities portfolio (excluding U.S. Treasury securities) amounted to approximately $0.9 billion, of which
$252 million are expected to be received during the remainder of 2026 and have a weighted-average yield of 2.23%. These inflows are
expected to be redeployed to fund loan growth, reinvested into higher-yielding securities, or used to repay maturing brokered CDs.
See Note 2 - "Debt Securities" for information and details about the Corporation's available-for-sale debt securities portfolio.
See "Risk Management - Exposure to Puerto Rico Government" below for information and details about the Corporation's total
direct exposure to the Puerto Rico government, including municipalities, and "Risk Management - Credit Risk Management" below
and Note 2 - "Debt Securities" for the ACL of the exposure to government bonds.
The carrying values of debt securities as of September 30, 2026 and December 31, 2025 by contractual maturity (excluding MBS)
and weighted-average yield are shown below:
September 30, 2026
December 31, 2025
Weighted-Average
Yield %
Carrying
Amount
Weighted-Average
Yield %
Carrying
Amount
(Dollars in thousands)
U.S government and agencies obligations:
Due within one year
2.49
$
678,187
2.54
$
895,052
After 1 to 5 years
2.80
452,393
1.45
483,916
After 5 to 10 years
4.75
14,401
4.75
14,985
After 10 years
4.01
6,005
3.97
6,501
2.65
1,150,986
(1)
2.19
1,400,454
Puerto Rico government obligation:
After 10 years
(2)
-
1,579
-
1,620
MBS:
Residential MBS:
Federal Home Loan Mortgage Corporation ("FHLMC")
1.74
777,067
1.72
901,779
GNMA
3.03
226,775
2.50
196,569
Federal National Mortgage Association ("FNMA")
2.01
1,009,831
1.90
1,138,925
U.S. Agencies collateralized mortgage obligations ("CMOs")
4.50
1,389,535
3.94
819,807
Private Label MBS
6.38
2,769
5.92
3,266
Commercial MBS
3.13
317,116
2.35
276,007
Total MBS
2.99
3,723,093
2.41
3,336,353
Puerto Rico municipal bonds:
Due within one year
7.03
17,483
4.94
1,044
After 1 to 5 years
6.98
26,655
7.05
53,265
After 5 to 10 years
6.51
7,016
4.78
10,376
After 10 years
7.25
9,520
7.46
14,870
6.98
60,674
6.81
79,555
Other
4.50
6.87
1,346
ACL on held-to-maturity debt securities
(356)
(733)
Total debt securities
2.96
$
4,936,076
2.41
$
4,818,595
(1)
Includes approximately $587.2 million in callable debt securities with an average yield of 2.22%, of which approximately 59% were purchased at a discount. See "Risk Management" below
for further analysis of the effects of changing interest rates on the Corporation's net interest income and the Corporation's interest risk management strategies. Also, refer to Note 2 - "Debt
Securities" for additional information regarding the Corporation's debt securities portfolio.
(2)
Consists of a residential pass-through MBS issued by the Puerto Rico Housing Finance Authority ("PRHFA") that is collateralized by certain second mortgages originated under a program
launched by the Puerto Rico government in 2010 and is in nonaccrual status based on the delinquency status of the underlying second mortgage loans collateral.
RISK MANAGEMENT
General
Risks are inherent in virtually all aspects of the Corporation's business activities and operations. Consequently, effective risk
management is fundamental to the success of the Corporation. The primary goals of risk management are to ensure that the
Corporation's risk-taking activities are consistent with the Corporation's objectives and risk tolerance, and that there is an appropriate
balance between risks and rewards to maximize stockholder value.
The Corporation has in place a risk management framework to monitor, evaluate and manage the principal risks assumed in
conducting its activities. First BanCorp's business is subject to eleven broad categories of risks: (i) liquidity risk; (ii) interest rate risk;
(iii) market risk; (iv) credit risk; (v) operational risk; (vi) legal and regulatory risk; (vii) reputational risk; (viii) model risk; (ix) capital
risk; (x) strategic risk; and (xi) information technology risk. First BanCorp. has adopted policies and procedures designed to identify
and manage the risks to which the Corporation is exposed.
Liquidity Risk and Capital Adequacy
Liquidity risk involves the ongoing ability to accommodate liability maturities and deposit withdrawals, fund asset growth and
business operations, and meet contractual obligations through unconstrained access to funding at reasonable market rates. Liquidity
management involves forecasting funding requirements and maintaining sufficient capacity to meet liquidity needs and
accommodate fluctuations in asset and liability levels due to changes in the Corporation's business operations or unanticipated
events.
The Corporation manages liquidity at two levels. The first is the liquidity of the parent company, or First BanCorp., which is the
holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary,
FirstBank.
The Asset and Liability Committee of the Corporation's Board of Directors is responsible for overseeing management's
establishment of the Corporation's liquidity policy, as well as approving operating and contingency procedures and monitoring
liquidity on an ongoing basis. The Management's Investment and Asset Liability Committee ("MIALCO"), which reports to the
Board's Asset and Liability Committee, uses measures of liquidity developed by management that involve the use of several
assumptions to review the Corporation's liquidity position on a monthly basis. The MIALCO oversees liquidity management,
interest rate risk, market risk, and other related matters.
The MIALCO is composed of senior management officers, including the Corporation's Chief Executive Officer ("CEO"), the
Chief Financial Officer ("CFO"), the Chief Risk Officer ("CRO"), the Treasurer, the Chief Consumer Officer and Corporate Chief
of Staff, the Corporate Strategic and Business Development Director, the Treasury and Investments Risk Manager, the Financial
Planning and Asset and Liability Management ("ALM") Director, and the Chief Operating Officer ("COO"). The Treasury and
Investments Division is responsible for planning and executing the Corporation's funding activities and strategy, monitoring
liquidity availability daily, and reviewing liquidity measures on a weekly basis. The Investments Accounting and Operations area of
the Corporate Controller's Department is responsible for calculating the liquidity measurements used by the Treasury and
Investment Division to review the Corporation's liquidity position on a weekly basis. The Financial Planning and ALM Division is
responsible for operating the liquidity and interest rate risk models.
To ensure adequate liquidity through the full range of potential operating environments and market conditions, the Corporation
conducts its liquidity management and business activities in a manner that is intended to preserve and enhance funding stability,
flexibility, and diversity. Key components of this operating strategy include a strong focus on the continued development of
customer-based funding, the maintenance of direct relationships with wholesale market funding providers, and the maintenance of
the ability to liquidate certain assets when, and if, requirements warrant.
The Corporation develops and maintains contingency funding plans. These plans evaluate the Corporation's liquidity position
under various operating circumstances and are designed to help ensure that the Corporation will be able to operate through periods
of stress when access to normal sources of funds is constrained. The plans project funding requirements during a potential period of
stress, specify and quantify sources of liquidity, outline actions and procedures for effectively managing liquidity through a period of
stress, and define roles and responsibilities for the Corporation's employees. Under the contingency funding plans, the Corporation
stresses the balance sheet and the liquidity position to critical levels that mimic difficulties in generating funds or even maintaining
the current funding position of the Corporation and the Bank and are designed to help ensure the ability of the Corporation and the
Bank to honor their respective commitments. The Corporation has established liquidity triggers that the MIALCO monitors in order
to maintain the ordinary funding of the banking business. The MIALCO has developed contingency funding plans for the following
three scenarios: a credit rating downgrade, an economic cycle downturn event, and a concentration event. The Board's Asset and
Liability Committee reviews and approves these plans on an annual basis.
Liquidity Risk Management
The Corporation manages its liquidity in a proactive manner and in an effort to maintain a sound liquidity position. It uses multiple
measures to monitor its liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. Cash and cash
equivalents amounted to $462.7 million as of September 30, 2026, compared to $658.6 million as of December 31, 2025. When
adding $2.1 billion of free high-quality liquid securities that could be liquidated or pledged within one day (which includes assets such
as U.S. government and GSEs' obligations), the total core liquidity amounted to $2.6 billion as of September 30, 2026, or 13.40% of
total assets, compared to $2.6 billion, or 13.54% of total assets as of December 31, 2025.
In addition to the aforementioned $2.6 billion in cash and free high quality liquid assets, the Corporation had $1.1 billion available
for credit with the FHLB based on the value of loans and securities collateral pledged with the FHLB. As such, the basic liquidity ratio
(which adds such available secured lines of credit to the core liquidity) was approximately 19.15% of total assets as of September 30,
2026, compared to 19.39% of total assets as of December 31, 2025.
Further, the Corporation also maintains borrowing capacity at the FED Discount Window and had approximately $2.5 billion
available for funding under the FED's Borrower-in-Custody ("BIC") Program as of September 30, 2026, compared to $2.6 billion as
of December 31, 2025 as an additional source of liquidity. Total loans pledged to the FED BIC Program amounted to $3.3 billion as of
September 30, 2026, compared to $3.4 billion as of December 31, 2025. The Corporation does not rely on uncommitted inter-bank
lines of credit (federal funds lines) to fund its operations. In the aggregate, as of September 30, 2026, the Corporation had $6.2 billion
available to meet liquidity needs, or 128% of estimated uninsured deposits, excluding fully collateralized government deposits,
compared to $6.3 billion or 132%, respectively, as of December 31, 2025.
Liquidity at the Bank level is highly dependent on bank deposits, which fund 88.2% of the Bank's assets (or 85.0% excluding
brokered CDs). In addition, as further discussed below, the Corporation maintains a diversified base of readily available wholesale
funding sources, including advances from the FHLB through pledged borrowing capacity, securities sold under agreements to
repurchase, and access to brokered CDs. Funding through wholesale funding may continue to increase the overall cost of funding for
the Corporation and adversely affect the net interest margin.
Commitments to extend credit and standby letters of credit
As a provider of financial services, the Corporation routinely enters into commitments with off-balance sheet risk to meet the
financial needs of its customers. These financial instruments may include loan commitments and standby letters of credit. These
commitments are subject to the same credit policies and approval processes used for on-balance sheet instruments. These
instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements
of financial condition. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Since certain commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. For most of the commercial lines of credit, the
Corporation has the option to reevaluate the agreement prior to additional disbursements. There have been no significant or
unexpected draws on existing commitments. In the case of credit cards and personal lines of credit, the Corporation can cancel the
unused credit facility at any time and without cause.
The following table summarizes commitments to extend credit and standby letters of credit as of the indicated dates:
September 30, 2026
December 31, 2025
(In thousands)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit:
Construction undisbursed funds
$
196,104
$
191,879
Unused credit card lines
772,057
760,531
Unused personal lines of credit
32,971
34,932
Commercial lines of credit
1,229,314
1,146,541
Letters of credit:
Commercial letters of credit
53,037
32,252
Standby letters of credit
21,463
21,430
The Corporation engages in the ordinary course of business in other financial transactions that are not recorded on the balance
sheet or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the
transaction and, thus, affect the Corporation's liquidity position. These transactions are designed to (i) meet the financial needs of
customers, (ii) manage the Corporation's credit, market and liquidity risks, (iii) diversify the Corporation's funding sources, and (iv)
optimize capital.
In addition to the aforementioned off-balance sheet debt obligations and unfunded commitments to extend credit, the Corporation
has obligations and commitments to make future payments under contracts, amounting to approximately $4.7 billion as of
September 30, 2026. Our material cash requirements comprise primarily of contractual obligations to make future payments related
to time deposits, long-term borrowings, and operating lease obligations.
We
also have other contractual cash obligations related to
certain binding agreements we have entered into for services including outsourcing of technology services, security, advertising and
other services which are not material to our liquidity needs.
We
currently anticipate that our available funds, credit facilities, and
cash flows from operations will be sufficient to meet our operational cash needs and support loan growth and capital plan execution
for the foreseeable future.
Off-balance sheet transactions are continuously monitored to consider their potential impact to our liquidity position and changes
are applied to the balance between sources and uses of funds, as deemed appropriate, to maintain a sound liquidity position.
Sources of Funding
The Corporation utilizes different sources of funding to help ensure that adequate levels of liquidity are available when needed.
Diversification of funding sources is of great importance to protect the Corporation's liquidity from market disruptions. The
principal sources of short-term funding are deposits, including brokered CDs. Additional funding is provided by securities sold
under agreements to repurchase and lines of credit with the FHLB. In addition, the Corporation also maintains as additional sources
borrowing capacity at the FED's BIC Program , as discussed above.
The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation may also sell mortgage loans as
a supplementary source of funding and obtain long-term funding through the issuance of notes and long-term brokered CDs.
While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation's available
borrowing capacity and efforts to grow core deposits will be adequate to provide the necessary funding for the Corporation's business
plans in the next 12 months and beyond.
Retail and commercial core deposits -
The Corporation's deposit products include regular savings accounts, demand deposit
accounts, money market accounts, and retail CDs. As of September 30, 2026 and December 31, 2025, the Corporation's core deposits,
which exclude government deposits and brokered CDs, totaled $13.4 billion and $13.1 billion, respectively. The $297.2 million
increase in such deposits was driven by increases of $199.4 million in the Puerto Rico region and $107.5 million in the Florida region.
By deposit type, the increase consisted of a $351.4 million increase in interest-bearing deposits, of which $250.0 million was in the
Puerto Rico region, and $102.2 million was in the Florida region, partially offset by a $54.2 million decrease in non-interest-bearing
deposits.
Government deposits (fully collateralized)
- As of September 30, 2026, the Corporation had $2.6 billion of Puerto Rico public
sector deposits ($2.4 billion in transactional accounts and $168.4 million in time deposits), compared to $2.5 billion as of December
31, 2025. Government deposits are insured by the FDIC up to the applicable limits and the uninsured portions are fully collateralized.
Approximately 22% of the public sector deposits as of September 30, 2026 were from municipalities and municipal agencies in Puerto
Rico and 78% were from public corporations, the central government and its agencies, and U.S. federal government agencies in Puerto
Rico.
The uninsured portions of government deposits were collateralized by securities and loans with an amortized cost of $3.0 billion as
of each of September 30, 2026 and December 31, 2025, and an estimated market value of $2.7 billion and $2.8 billion as of September
30, 2026 and December 31, 2025, respectively. In addition to securities and loans, the Corporation used letters of credit issued by the
FHLB as pledges for a portion of public deposits. As of September 30, 2026, outstanding letters of credit amounted to $225.0 million
and $20 .0 million for the Virgin Islands and Puerto Rico, respectively, while as of December 31, 2025, outstanding letters of credit
amounted to $225.0 million for the Virgin Islands only.
Estimate of Uninsured Deposits -
As of each of September 30, 2026 and December 31, 2025, the estimated amounts of uninsured
deposits totaled $7.5 billion, including government deposits, generally representing the portion of deposits that exceed the FDIC
insurance limit of $250,000 and amounts in any other uninsured deposit account. As of each of September 30, 2026 and December 31,
2025, the uninsured portion of fully collateralized government deposits amounted to $2.7 billion. Excluding fully collateralized
government deposits, the estimated amounts of uninsured deposits amounted to $4.8 billion as of each of September 30, 2026 and
December 31, 2025, which represents 29.59% and 29.79% of total deposits (excluding brokered CDs), respectively .
The estimated amount of uninsured deposits is calculated based on the same methodologies and assumptions used for our bank
regulatory reporting requirements adjusted for cash held by wholly-owned subsidiaries at the Bank.
The following table presents by contractual maturities the amount of U.S. time deposits in excess of FDIC insurance limits (over
$250,000) and other time deposits that are otherwise uninsured as of September 30, 2026:
(In thousands)
3 months or
less
3 months to
6 months
6 months to
1 year
Over 1 year
Total
U.S. time deposits in excess of FDIC insurance limits
$
425,290
$
357,974
$
269,346
$
224,692
$
1,277,302
Other uninsured time deposits
$
29,222
$
7,517
$
12,684
$
5,002
$
54,425
Brokered CDs
- Total brokered CDs increased by $6.6 million to $600.2 million as of September 30, 2026. The increase mainly
reflects $334.8 million of new issuances with original average maturities of approximately 0.8 years and an all-in cost of 4.01%,
partially offset by maturing brokered CDs amounting to $328.4 million with an all-in cost of 4.28% that were paid off during the first
nine months of 2026.
The average remaining term to maturity of the brokered CDs outstanding as of September 30, 2026 was approximately 0.8 years.
The future use of brokered CDs will depend on multiple factors including excess liquidity at each of the regions, future cash needs
and any tax implications. Also, depending on lending or other investment opportunities available, cash inflows from repayments of
investment securities may be used as well to repay brokered CDs. Brokered CDs are insured by the FDIC up to regulatory limits and
can be obtained faster than regular retail deposits.
The following table presents the remaining contractual maturities and weighted-average interest rates of brokered CDs as of
September 30, 2026:
Total
Weighted-average
interest rate %
(In thousands)
Three months or less
$
135,706
3.90
Over three months to six months
136,997
3.90
Over six months to one year
248,243
3.90
Over one year to two years
36,348
3.96
Over two years to three years
27,422
4.44
Over four years to five years
5,956
4.63
Over five years
9,532
4.60
Total
$
600,204
3.94
Refer to "Net Interest Income" above for information about average balances of interest-bearing deposits and the average interest
rate paid on such deposits for the quarters and nine-month periods ended September 30, 2026 and 2025.
Borrowings
As of September 30, 2026, total borrowings amounted to $223.8 million, compared to $290.0 million as of December 31, 2025.
Advances from the FHLB -
The Bank is a member of the FHLB system and obtains advances to fund its operations under a
collateral agreement with the FHLB that requires the Bank to maintain qualifying mortgages and/or investments as collateral for
advances taken. As of September 30, 2026 and December 31, 2025, the total outstanding balance of long-term fixed-rate FHLB
advances was $200.0 million and $290.0 million, respectively. Of the $200.0 million in FHLB advances as of September 30, 2026,
$100.0 million were pledged with investment securities and $100.0 million were pledged with mortgage loans. As of September 30,
2026, the Corporation had $1.1 billion available for additional credit on FHLB lines of credit based on collateral pledged at the FHLB
of New York.
The following table presents the remaining contractual maturities and weighted-average interest rates of advances from the FHLB
as of September 30, 2026:
Total
Weighted-average
interest rate %
(In thousands)
Over one year to two years
$
200,000
4.25
(1) Average remaining term to maturity of 1.14 years.
Securities sold under agreements to repurchase -
From time to time, the Corporation enters into repurchase agreements as an
additional source of funding. As of September 30, 2026, the Corporation had a $23.8 million short-term fixed-rate repurchase
agreement maturing in December 2026. There were no outstanding repurchase agreements as of December 31, 2025.
When the Corporation enters into repurchase agreements, as is the case with derivative contracts, the Corporation is required to
pledge cash or qualifying securities to meet margin requirements. To the extent that the value of securities previously pledged as
collateral declines due to changes in interest rates, a liquidity crisis or any other factor, the Corporation is required to deposit
additional cash or securities to meet its margin requirements, thereby adversely affecting its liquidity. Given the quality of the
collateral pledged, the Corporation has not experienced margin calls from counterparties arising from credit-quality-related write-
downs in valuations.
FED Discount Window
- The Corporation participates in the BIC Program of the FED. Through the BIC Program, a broad range of
loans may be pledged as collateral for borrowings through the FED Discount Window. As previously mentioned, as of September 30,
2026, the Corporation had approximately $2.5 billion fully available for funding under the FED's Discount Window based on
collateral pledged at the FED.
Effect of Credit Ratings on Access to Liquidity
The Corporation's liquidity is contingent upon its ability to obtain deposits and other external sources of funding to finance its
operations. The Corporation's current credit ratings and any downgrade in credit ratings can hinder the Corporation's access to new
forms of external funding and/or cause external funding to be more expensive, which could, in turn, adversely affect its results of
operations.
The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit rating downgrades.
Furthermore, given the Corporation's non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume
to credit ratings, the liquidity of the Corporation has not been affected in any material way by downgrades. The Corporation's ability
to access new non-deposit sources of funding, however, could be adversely affected by credit downgrades.
As of the date hereof, the Corporation's long-term issuer credit ratings are BBB- from Fitch and BBB from Kroll Bond Rating
Agency ("KBRA"), both of which are considered investment grade. As of the date hereof, FirstBank's long-term issuer credit ratings
are BBB- from Fitch, and BBB+ from KBRA, both of which are also considered investment grade. The Corporation's credit ratings
are dependent on a number of factors, both quantitative and qualitative, and are subject to change at any time. The disclosure of credit
ratings is not a recommendation to buy, sell or hold the Corporation's securities. Each rating should be evaluated independently of any
other rating.
Cash Flows
Cash and cash equivalents were $462.7 million as of September 30, 2026, a decrease of $195.9 million when compared to
December 31, 2025. The following discussion highlights the major activities and transactions that affected the Corporation's cash
flows during the first nine months of 2026 and 2025:
Cash Flows from Operating Activities
First BanCorp.'s operating assets and liabilities vary significantly in the normal course of business due to the amount and timing of
cash flows. Management believes that cash flows from operations, available cash balances, and the Corporation's ability to generate
cash through short and long-term borrowings will be sufficient to fund the Corporation's operating liquidity needs for the foreseeable
future.
For the first nine months of 2026 and 2025, net cash provided by operating activities was $318.3 million and $341.3 million,
respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for
non-cash items such as depreciation and amortization, deferred income tax expense (benefit) and the provision for credit losses, as
well as cash generated from sales and repayments of loans held for sale.
Cash Flows from Investing Activities
The Corporation's investing activities primarily relate to originating loans to be held for investment, as well as purchasing, selling,
and repaying available-for-sale and held-to-maturity debt securities. For the nine -month period ended September 30, 2026 , net cash
used in investing activities was $524.5 million, primarily due to purchases of U.S. agencies MBS and U.S. Treasury securities and net
disbursements on loans held for investment, partially offset by maturities of U.S. Treasury securities and U.S. agencies debentures and
principal repayments of U.S. agencies MBS and debentures, as well as proceeds from sales of repossessed assets.
For the nine-month period ended September 30, 2025, net cash used in investing activities was $96.5 million, primarily due to
purchases of U.S. Treasury securities and U.S. agencies MBS and net disbursements on loans held for investment during the first nine
months of 2025, partially offset by maturities of U.S. agencies debentures and U.S. Treasury securities and principal repayments of
U.S. agencies MBS and debentures, proceeds from sales of repossessed assets, and proceeds from the bulk sale of fully charged-off
consumer loans and finance leases.
Cash Flows from Financing Activities
The Corporation's financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance
and/or repayment of long-term borrowings, the issuance of equity instruments, return of capital, and activities related to its short -term
funding. For the nine-month period ended September 30, 2026, net cash provided by financing activities was $10.2 million, mainly
reflecting an increase in total deposits. This increase was partially offset by capital returned to stockholders and a $66.2 million net
decrease in borrowings, reflecting the repayment at maturity of long-term FHLB advances totaling $90.0 million, partially offset by a
new $23.8 million short-term repurchase agreement.
For the nine-month period ended September 30, 2025, net cash used in financing activities was $504.6 million, mainly reflecting
the repayments of long-term borrowings, consisting of $180.0 million in FHLB advances and the redemption of junior subordinated
debentures, capital returned to stockholders, and a decrease in total deposits.
Capital
As of September 30, 2026, the Corporation's stockholders' equity was $1.9 billion, a decrease of $91.4 million from December 31,
2025. The decrease was driven by capital actions and other equity changes during the nine-month period ended September 30, 2026,
including $150.0 million in common stock repurchases , a $133.3 million decrease in the fair value of available-for-sale debt securities
due to changes in market interest rates recognized as part of accumulated other comprehensive loss in the consolidated statements of
financial condition, and $92.9 million, or $0.60 per common share, in common stock dividends declared, partially offset by net
income generated during the period.
On October 21, 2026, the Corporation's Board of Directors declared a quarterly cash dividend of $0.25 per common share, which
represents an increase of $0.05 per common share, or a 25% increase, compared to its most recent quarterly dividend paid on
September 11, 2026. The dividend is payable on December 11, 2026 to shareholders of record at the close of business on November
27, 2026. The Corporation intends to continue to pay quarterly dividends on common stock. However, the Corporation's common
stock dividends, including the declaration, timing, and amount, remain subject to consideration and approval by the Corporation's
Board of Directors at the relevant times.
On October 22, 2025, the Corporation announced that its Board of Directors approved a stock repurchase program authorizing up to
$200 million of its outstanding common stock, which it expects to execute through the end of the fourth quarter of 2026. The
Corporation repurchased approximately 6.1 million shares of common stock for a total cost of $150.0 million during the first nine
months of 2026 under this program. As of September 30, 2026, approximately $38.3 million remained available for future repurchases
under the $200 million authorization. Furthermore, on October 21, 2026, the Corporation announced that its Board of Directors
approved a new stock repurchase program authorizing up to $350 million of its outstanding common stock, which it expects to
execute throughout 2027, subject to market conditions. From October 1, 2026 through November 2, 2026, the Corporation
repurchased an additional 1.5 million shares of common stock for a total cost of approximately $41.8 million, of which 1.4 million
shares with a total cost of approximately $38.3 million, completed the 2025 stock repurchase program. For more information, see Part
II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds," and Note 10 - "Stockholders' Equity," of this Quarterly
Report on Form 10-Q.
The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures generally used by
the financial community to evaluate capital adequacy. Tangible common equity is total common equity less goodwill and other
intangible assets. Tangible assets are total assets less the previously mentioned intangible assets. See "Non-GAAP Financial Measures
and Reconciliations" above for additional information.
The following table presents a reconciliation of the Corporation's tangible common equity and tangible assets, non-GAAP
financial measures, to total common equity and total assets, respectively, as of the indicated dates:
September 30, 2026
December 31, 2025
(In thousands, except ratios and per share information)
Total common equity - GAAP
$
1,875,484
$
1,966,865
Goodwill
(38,611)
(38,611)
Other intangible assets
(2,804)
(3,458)
Tangible common equity - non-GAAP
$
1,834,069
$
1,924,796
Total assets - GAAP
$
19,250,334
$
19,132,892
Goodwill
(38,611)
(38,611)
Other intangible assets
(2,804)
(3,458)
Tangible assets - non -GAAP
$
19,208,919
$
19,090,823
Common shares outstanding
150,921
156,619
Tangible common equity ratio - non-GAAP
9.55%
10.08%
Tangible book value per common share - non-GAAP
$
12.15
$
12.29
See Note 18 - "Regulatory Matters, Commitments and Contingencies" to the unaudited consolidated financial statements herein for
the regulatory capital positions of the Corporation and FirstBank as of September 30, 2026 and December 31, 2025, respectively.
The Puerto Rico Banking Law of 1933, as amended (the "Puerto Rico Banking Law"), requires that a minimum of 10% of
FirstBank's net income for the year be transferred to a legal surplus reserve until such surplus equals the total of paid-in-capital on
common and preferred stock. Amounts transferred to the legal surplus reserve from retained earnings are not available for distribution
to the Corporation without the prior consent of the Puerto Rico Commissioner of Financial Institutions. The Puerto Rico Banking Law
provides that, when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over
receipts must be charged against the undistributed profits of the bank, and the balance, if any, must be charged against the legal
surplus reserve, as a reduction thereof. If the legal surplus reserve is not sufficient to cover such balance in whole or in part, the
outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the legal
surplus reserve to an amount of at least 20% of the original capital contributed. FirstBank's legal surplus reserve, included as part of
retained earnings in the Corporation's consolidated statements of financial condition, amounted to $262.5 million as of each of
September 30, 2026 and December 31, 2025. There were no transfers to the legal surplus reserve during the first nine months of 2026.
Interest Rate Risk Management
First BanCorp. manages its asset/liability position to limit the effects of changes in interest rates on net interest income and to
maintain stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk and monitors, among
other things, current and expected conditions in global financial markets, competition and prevailing rates in the local deposit market,
liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative
funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory
issues which may be pertinent to these areas. The MIALCO approves funding decisions in light of the Corporation's overall strategies
and objectives.
On at least a quarterly basis, the Corporation performs a consolidated net interest income simulation analysis to estimate the potential
change in future earnings from projected changes in interest rates. These simulations are carried out over a one-to-five-year time
horizon. The rate scenarios considered in these simulations reflect gradual upward or downward interest rate movements in the yield
curve, for gradual (ramp) parallel shifts in the yield curve of 200 and 300 bps during a twelve-month period, or immediate upward or
downward changes in interest rate movements of 200 bps, for interest rate shock scenarios. The Corporation carries out the
simulations in two ways:
(1)
Using a static balance sheet, as the Corporation had on the simulation date, and
(2)
Using a dynamic balance sheet based on recent patterns and current strategies.
The balance sheet is divided into groups of assets and liabilities by maturity or repricing structure and their corresponding interest
yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future
funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors, which may
be important in projecting net interest income.
The Corporation uses a simulation model to project future movements in the Corporation's balance sheet and income statement.
The starting point of the projections corresponds to the actual values on the balance sheet on the simulation date. These simulations
are highly complex and are based on many assumptions that are intended to reflect the general behavior of the balance sheet
components over the modeled periods. It is unlikely that actual events will match these assumptions in all cases. For this reason, the
results of these forward-looking computations are only approximations of the sensitivity of net interest income to changes in market
interest rates. Several benchmark and market rate curves were used in the modeling process, primarily, SOFR curve, Prime Rate, U.S.
Treasury yield curve, FHLB rates, and brokered CDs rates.
As of September 30, 2026, the Corporation forecasted the 12-month net interest income assuming September 30, 2026 interest rate
curves remain constant. Then, net interest income was estimated under rising and falling rates scenarios. For the rising rate scenario, a
gradual (ramp) and immediate (shock) parallel upward shift of the yield curve is assumed during the first twelve months (the "+300
ramp", "+200 ramp" and "+200 shock" scenarios). Conversely, for the falling rate scenario, a gradual (ramp) and immediate (shock)
parallel downward shift of the yield curve is assumed during the first twelve months (the "-300 ramp", "-200 ramp" and "-200 shock"
scenarios).
The SOFR curve for September 30, 2026, as compared with December 31, 2025, reflects an increase of 65 bps on average in the
short-term sector of the curve, or between one to twelve months; an increase of 141 bps in the medium -term sector of the curve, or
between 2 to 5 years; and an increase of 109 bps in the long-term sector of the curve, or over 5-year maturities. A similar change in
market rates was observed in the Constant Maturity Treasury yield curve with an increase of 65 bps in the short-term sector of the
curve, an increase of 141 bps in the medium-term sector of the curve, and an increase of 93 bps in the long-term sector of the curve.
The following table presents the results of the static simulations as of September 30, 2026 and December 31, 2025. Consistent with
prior years, these exclude non-cash changes in the fair value of derivatives:
Net Interest Income Risk
(% Change Projected for the next 12 months)
September 30, 2026
December 31, 2025
Gradual Change in Interest Rates:
+ 300 bps ramp
1.86
%
3.57
%
+ 200 bps ramp
1.25
%
2.42
%
- 300 bps ramp
-3.09
%
-5.13
%
- 200 bps ramp
-2.09
%
-3.42
%
Immediate Change in Interest Rates:
+ 200 bps shock
3.41
%
4.31
%
- 200 bps shock
-6.58
%
-8.01
%
The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk by managing its
asset composition while maintaining a sound liquidity position. See "Risk Management - Liquidity Risk Management" above for
liquidity ratios.
As of September 30, 2026 and December 31, 2025, the net interest income simulations show that the Corporation continues to have
an asset sensitive position for the next twelve months under a static balance sheet simulation.
Under gradual rising and falling rate scenarios, the net interest income simulation reflects reduced interest rate sensitivity compared
to December 31, 2025. This change primarily reflected a shift in the reinvestment strategy from short-term U.S. government
obligations to longer-term, fixed rate MBS, as well as a lower interest-earning cash position. In addition, there was greater sensitivity
on the liabilities side primarily due to higher balances in certain non-maturity government deposits, increased non-maturity deposit
betas, and increased sensitivity from the brokered CDs portfolio.
Under the static simulation, the Corporation assumes that maturing instruments are replaced with similar instruments at the
repricing rate upon maturity. The Corporation's results may vary significantly from the ones presented above under alternative balance
sheet compositions, such as a dynamic balance sheet scenario which, for example, would assume that cash flows from the investment
securities portfolio and loan repayments could be redeployed into higher yielding alternatives.
Credit Risk Management
First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance-sheet instruments,
principally loan commitments. Loans receivable represents loans that First BanCorp. holds for investment and, therefore, First
BanCorp. is at risk for the term of the loan. Loan commitments represent commitments to extend credit, subject to specific conditions,
for specific amounts and maturities. These commitments may expose the Corporation to credit risk and are subject to the same review
and approval process as for loans made by the Bank. See "Risk Management - Liquidity Risk" above for further details. The
Corporation manages its credit risk through its credit policy, underwriting, monitoring of loan concentrations and related credit
quality, counterparty credit risk, economic and market conditions, and legislative or regulatory mandates. The Corporation also
performs independent loan review and quality control procedures, statistical analysis, comprehensive financial analysis, established
management committees, and employs proactive collection and loss mitigation efforts. Furthermore, personnel performing structured
loan workout functions are responsible for mitigating defaults and minimizing losses upon default within each region and for each
business segment. In the case of the C&I, commercial mortgage and construction loan portfolios, the Special Asset Group ("SAG")
focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs,
and sales of OREO. In addition to the management of the resolution process for problem loans, the SAG oversees collection efforts for
all loans to prevent migration to the nonaccrual and/or adversely classified status. The SAG utilizes relationship officers, collection
specialists and attorneys.
The Corporation may also have risk of default in the securities portfolio. The securities held by the Corporation are principally
fixed-rate U.S. agencies MBS and U.S. Treasury and agencies securities. Thus, a substantial portion of these instruments is backed by
mortgages, a guarantee of a U.S. GSE or the full faith and credit of the U.S. government.
Management, consisting of the Corporation's Chief Operating Officer, Chief Lending Officer, Credit Risk Director, Loan Review
Manager, and other senior executives , has the primary responsibility for setting strategies to achieve the Corporation's credit risk goals
and objectives. Management has documented these goals and objectives in the Corporation's Credit Policy.
Allowance for Credit Losses and Non-Performing Assets
Allowance for Credit Losses for Loans and Finance Leases
The ACL for loans and finance leases represents the estimate of the level of reserves appropriate to absorb expected credit losses
over the estimated life of the loans. The amount of the allowance is determined using relevant available information, from internal and
external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience
is a significant input for the estimation of expected credit losses, as well as adjustments to historical loss information made for
differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level,
or term. Additionally, the Corporation's assessment involves evaluating key factors, which include credit and macroeconomic
indicators, such as changes in unemployment rates, property values, and other relevant factors to account for current and forecasted
market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses. Such
factors are subject to regular review and may change to reflect updated performance trends and expectations. The process includes
judgments and quantitative elements that may be subject to significant change. Further, the Corporation periodically considers the
need for qualitative reserves to the ACL. Qualitative adjustments may be related to and include, but are not limited to, factors such as
the following: (i) management's assessment of economic forecasts used in the model and how those forecasts align with
management's overall evaluation of current and expected economic conditions; (ii) organization specific risks such as credit
concentrations, collateral specific risks, nature and size of the portfolio and external factors that may ultimately impact credit quality ;
and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies, among others. The
ACL for loans and finance leases is reviewed at least on a quarterly basis as part of the Corporation's continued evaluation of its asset
quality.
The Corporation generally applies probability weights to the baseline and alternative downside economic scenarios to estimate the
ACL with the baseline scenario carrying the highest weight. The scenarios that are chosen each quarter and the weighting given to
each scenario for the different loan portfolio categories depend on a variety of factors including recent economic events, leading
national and regional economic indicators, and industry trends. As of September 30, 2026 and December 31, 2025, the Corporation
applied 100% probability to the baseline scenario for the commercial mortgage and construction loan portfolios since certain
macroeconomic variables associated with CRE property performance and the CRE price index, particularly in the Puerto Rico region,
are expected to continue to perform in a more favorable manner than the alternative downside economic scenario. The economic
scenarios used in the ACL determination contained assumptions related to economic uncertainties associated with geopolitical
instability, the CRE price index, unemployment rate, inflation levels, and expected future interest rate adjustments in the Federal
Reserve Board's funds rate.
As of September 30, 2026, the Corporation's ACL model considered the following assumptions for key economic variables in the
probability-weighted economic scenarios:
●
CRE price index at the national level with an average projected appreciation of 3.52% for the remainder of 2026 and 2.61%
for the year 2027, compared to an average projected appreciation of 0.02% for the remainder of 2026, and an average
projected appreciation of 1.72% for the year 2027 as of December 31, 2025.
●
Regional House Price Index forecast in Puerto Rico (purchase only prices) is expected to increase by 3.04% for the next two
years as of September 30, 2026, compared to an increase of 2.72% for the next two years projection as of December 31,
2025. For the Florida region, the House Price Index forecast as of September 30, 2026 and December 31, 2025 was projected
to decrease by 0.47% and 0.23%, respectively, for the first two years of the projection.
●
Average regional unemployment rate in Puerto Rico is forecasted at 6.06% for the remainder of 2026 and 6.51% for the year
2027, compared to 6.62% for the remainder of 2026 and 6.42% for the year 2027 as of December 31, 2025. For the Florida
region and the U.S. mainland, average unemployment rate is forecasted at 4.79% and 4.59%, respectively, for the remainder
of 2026, and 5.44% and 5.50%, respectively, for the year 2027, compared to 5.25% and 5.70%, respectively, for the
remainder of 2026, and 4.71% and 5.18%, respectively, for the year 2027, as of December 31, 2025.
●
Annualized change in GDP in the U.S. mainland of 1.87% for the remainder of 2026 and 1.27% for the year 2027, compared
to 1.04% for the remainder of 2026 and 1.63% for the year 2027, as of December 31, 2025.
It is difficult to estimate how potential changes in one factor or input might affect the overall ACL because management considers a
wide variety of factors and inputs in estimating the ACL. Changes in the factors and inputs considered may not occur at the same rate
and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent,
such that improvement in one factor or input may offset deterioration in others. However, to demonstrate the sensitivity of credit loss
estimates to macroeconomic forecasts as of September 30, 2026, management compared the modeled estimates under the probability-
weighted economic scenarios against a more adverse scenario. Such scenario incorporates an additional adverse scenario and
decreases the weight applied to the baseline scenario. Under this more adverse scenario, as an example, average unemployment rate
for the Puerto Rico region increases to 6.29% for the remainder of 2026, compared to 6.06% for the same period on the probability-
weighted economic scenario projections.
To demonstrate the sensitivity to key economic parameters used in the calculation of the ACL at September 30, 2026, management
calculated the difference between the quantitative ACL and this more adverse scenario. Excluding consideration of qualitative
adjustments, this sensitivity analysis would result in a hypothetical increase in the ACL of approximately $31 million at September 30,
2026. This analysis relates only to the modeled credit loss estimates and is not intended to estimate changes in the overall ACL as it
does not reflect any potential changes in other adjustments to the qualitative calculation, which would also be influenced by the
judgment management applies to the modeled lifetime loss estimates to reflect the uncertainty and imprecision of these estimates
based on current circumstances and conditions. Recognizing that forecasts of macroeconomic conditions are inherently uncertain,
particularly in light of recent economic conditions and challenges, which continue to evolve, management believes that its process to
consider the available information and associated risks and uncertainties is appropriately governed and that its estimates of expected
credit losses were reasonable and appropriate for the period ended September 30, 2026.
As of September 30, 2026, the ACL for loans and finance leases was $241.7 million, a decrease of $7.3 million from $249.0 million
as of December 31, 2025. The decrease was mainly related to a $4.9 million reduction in the ACL for consumer loans and finance
leases, driven by lower delinquency levels in the unsecured loan portfolios and improvements in macroeconomic variables in the
secured loan portfolios, partially offset by higher reserves in the auto loan portfolio due to updated loss expectations based on recent
portfolio performance. In addition, the ACL for commercial and construction loans decreased by $2.0 million, driven by an
improvement in the projection of certain macroeconomic variables, partially offset by loan growth and changes in the financial
information of certain borrowers. Also, the ACL for residential mortgage loans decreased by $0.4 million, driven by updated historical
loss experience used for determining the ACL, resulting in a downward revision of estimated loss severities and lower reserve levels,
as well as improvements in the projection of the unemployment rate and the House Price Index, partially offset by loan growth.
The ratio of the ACL for loans and finance leases to total loans held for investment decreased to 1.81% as of September 30, 2026,
compared to 1.90% as of December 31, 2025. An explanation for the change for each portfolio follows:
●
The ACL to total loans ratio for the residential mortgage loan portfolio decreased from 1.41% as of December 31, 2025 to
1.38% as of September 30, 2026, driven by the aforementioned factors.
●
The ACL to total loans ratio for the construction loan portfolio decreased from 2.14% as of December 31, 2025 to 1.07%
as of September 30, 2026, mainly due to several conversions of construction loans with a higher loss rate to the
commercial mortgage loan portfolio.
●
The ACL to total loans ratio for the commercial mortgage loan portfolio decreased from 0.93% as of December 31, 2025
to 0.79% as of September 30, 2026, driven by improved financial performance of certain borrowers and the
aforementioned improvement in the projection of certain macroeconomic variables, partially offset by the loan conversions
mentioned above.
●
The ACL to total loans ratio for the C&I loan portfolio increased from 1.12% as of December 31, 2025 to 1.17% as of
September 30, 2026, driven by changes in the financial information of certain borrowers, partially offset by the
aforementioned improvement in the projection of certain macroeconomic variables.
●
The ACL to total loans ratio for the consumer loan portfolio decreased from 3.70% as of December 31, 2025 to 3.63% as
of September 30, 2026, driven by the aforementioned factors.
The ratio of the total ACL for loans and finance leases to nonaccrual loans held for investment was 251.22% as of September 30,
2026, compared to 269.05% as of December 31, 2025.
See "Results of Operations - Provision for Credit Losses" above and Note 4 - "Allowance for Credit Losses for Loans and Finance
Leases" above for additional information.
The following table presents the activity in the ACL on loans and finance leases for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
(Dollars in thousands)
ACL for loans and finance leases, beginning of period
$
245,039
$
248,578
$
249,037
$
243,942
Provision for credit losses - (benefit) expense:
Residential mortgage
(1,900)
(2,208)
(358)
(411)
Construction
(53)
(3,422)
1,196
Commercial mortgage
(2,731)
2,503
(2,690)
2,711
C&I
3,240
(1,397)
5,351
4,091
Consumer loans and finance leases
16,321
18,876
49,124
55,901
Total provision for credit losses - expense
14,877
18,270
48,005
63,488
Charge-offs:
Residential mortgage
(373)
(459)
(1,032)
(979)
Commercial mortgage
(193)
-
(755)
-
C&I
(228)
(173)
(948)
(316)
Consumer loans and finance leases
(23,349)
(24,553)
(70,800)
(76,629)
Total charge-offs
(24,143)
(25,185)
(73,535)
(77,924)
Recoveries:
Residential mortgage
1,017
1,008
Construction
Commercial mortgage
C&I
1,045
Consumer loans and finance leases
5,560
4,341
16,649
14,883
(1)
Total recoveries
5,900
5,327
18,166
17,484
Net charge-offs
(18,243)
(19,858)
(55,369)
(60,440)
ACL for loans and finance leases, end of period
$
241,673
$
246,990
$
241,673
$
246,990
ACL for loans and finance leases to period-end total loans held for investment
1.81%
1.89%
1.81%
1.89%
Net charge-offs to average loans outstanding during the period
0.55%
0.62%
0.56%
0.63%
(2)
Provision for credit losses - expense for loans and finance leases to net charge-offs
during the period
0.82x
0.92x
0.87x
1.05x
(1)
Includes recoveries totaling $2.4 million associated with the bulk sale of fully charged-off consumer loans and finance leases.
(2)
The recoveries associated with the aforementioned bulk sale reduced the ratio of total net charge-off to related average loans by 3 bps.
The following tables set forth information concerning the composition of the Corporation's loan portfolio and related ACL by loan
category, and the percentage of loan balances in each category to the total of such loans as of the indicated dates:
As of September 30, 2026
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I
Loans
Consumer Loans
and Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
Amortized cost of loans
$
2,943,944
$
217,687
$
2,619,393
$
3,945,000
$
3,638,476
$
13,364,500
Percent of loans in each category to total loans
%
%
%
%
%
%
Allowance for credit losses
$
40,698
$
2,334
$
20,617
$
46,005
$
132,019
$
241,673
Allowance for credit losses to amortized cost
1.38
%
1.07
%
0.79
%
1.17
%
3.63
%
1.81
%
As of December 31, 2025
Residential
Mortgage
Loans
Commercial
Mortgage
Loans
C&I
Loans
Consumer Loans
and Finance
Leases
Construction
Loans
(Dollars in thousands)
Total
Total loans held for investment:
Amortized cost of loans
$
2,908,302
$
265,568
$
2,554,252
$
3,688,358
$
3,708,876
$
13,125,356
Percent of loans in each category to total loans
%
%
%
%
%
%
Allowance for credit losses
$
41,071
$
5,672
$
23,832
$
41,416
$
137,046
$
249,037
Allowance for credit losses to amortized cost
1.41
%
2.14
%
0.93
%
1.12
%
3.70
%
1.90
%
Allowance for Credit Losses for Unfunded Loan Commitments
The Corporation estimates expected credit losses over the contractual period in 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 September 30, 2026, the ACL for off-balance sheet
credit exposures increased by $1.5 million to $4.5 million, when compared to December 31, 202 5, primarily driven by renewals of
existing C&I lines of credit.
Allowance for Credit Losses for Debt Securities
As of September 30, 2026, the ACL for debt securities was $1.2 million, of which $0.3 million was related to Puerto Rico
municipal bonds classified as held-to-maturity, compared to $1.5 million and $0.7 million, respectively, as of December 31, 2025.
Nonaccrual Loans and Non-Performing Assets
Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale for which the
recognition of interest income was discontinued when the loan became 90 days past due or earlier if the full and timely collection of
interest or principal is uncertain), foreclosed real estate and other repossessed properties (generally repossessed automobiles), and non-
performing investment securities, if any. See Note 1 - "Nature of Business and Summary of Significant Accounting Policies" to the
audited consolidated financial statements included in the 2025 Annual Report on Form 10-K for information on the policies followed
by the Corporation to classify loans in nonaccrual status or 90 days and still accruing.
The following table shows non-performing assets by geographic segment as of the indicated dates:
September 30, 2026
December 31, 2025
(In thousands)
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage
$
12,376
$
12,637
Construction
4,439
4,581
Commercial mortgage
1,208
1,913
C&I
23,678
27,211
Consumer loans and finance leases
18,148
20,891
Total nonaccrual loans held for investment
59,849
67,233
OREO
5,552
6,661
Other repossessed property
10,587
12,216
Other assets
(1)
1,579
1,620
Total non-performing assets
$
77,567
$
87,730
Past due loans 90 days and still accruing
$
23,394
$
30,643
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage
$
4,867
$
5,407
Construction
1,021
Commercial mortgage
5,418
6,469
C&I
Consumer loans
Total nonaccrual loans held for investment
12,323
14,004
OREO
Other repossessed property
Total non-performing assets
$
12,546
$
15,038
Past due loans 90 days and still accruing
$
$
1,270
United States:
Nonaccrual loans held for investment:
Residential mortgage
$
6,701
$
11,125
Commercial mortgage
1,802
-
C&I
15,371
Consumer loans
Total nonaccrual loans held for investment
24,027
11,326
Total non-performing assets
$
24,027
$
11,326
Past due loans 90 days and still accruing
$
$
-
Total:
Nonaccrual loans held for investment:
Residential mortgage
$
23,944
$
29,169
Construction
5,460
5,536
Commercial mortgage
8,428
8,382
C&I
39,777
28,042
Consumer loans and finance leases
18,590
21,434
Total nonaccrual loans held for investment
96,199
92,563
OREO
5,629
7,522
Other repossessed property
10,733
12,389
Other assets
(1)
1,579
1,620
Total non-performing assets
$
114,140
$
114,094
Past due loans 90 days and still accruing
(2) (3) (4) (5)
$
24,331
$
31,913
Non-performing assets to total assets
0.59%
0.60%
Nonaccrual loans held for investment to total loans held for investment
0.72%
0.71%
ACL for loans and finance leases
$
241,673
$
249,037
ACL for loans and finance leases to total nonaccrual loans held for investment
251.22%
269.05%
ACL for loans and finance leases to total nonaccrual loans held for investment, excluding residential real estate loans
334.47%
392.84%
(1)
Residential pass-through MBS issued by the PRHFA held as part of the available-for-sale debt securities portfolio.
(2)
Includes purchased credit deteriorated ("PCD") loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election to treat each pool as a
single asset, both at the time of adoption of current expected credit loss ("CECL") methodology on January 1, 2020 and on an ongoing basis for credit loss measurement. These loans will continue to
be excluded from nonaccrual loan statistics as long as the Corporation can reasonably estimate the timing and amount of cash flows expected to be collected on the loan pools. The portion of such
loans contractually past due 90 days or more amounted to $3.0 million and $4.8 million as of September 30, 2026 and December 31, 2025, respectively.
(3)
Includes Federal Housing Authority ("FHA")/U.S. Department of Veterans Affairs ("VA") government-guaranteed residential mortgage loans as loans past due 90 days and still accruing as opposed
to nonaccrual loans. The Corporation continues accruing interest on these loans until they have passed the 15 months delinquency mark, taking into consideration the FHA interest curtailment
process. These balances include $3.7 million and $4.1 million of FHA government guaranteed residential mortgage loans that were over 15 months delinquent as of September 30, 2026 and
December 31, 2025, respectively.
(4)
These include rebooked loans, which were previously pooled into GNMA securities, amounting to $5.2 million and $6.7 million as of September 30, 2026 and December 31, 2025, respectively.
Under the GNMA program, the Corporation has the option but not the obligation to repurchase loans that meet GNMA's specified delinquency criteria. For accounting purposes, the loans subject to
the repurchase option are required to be reflected on the financial statements with an offsetting liability.
(5)
Includes credit cards that continue accruing interest until charged-off at 180 days delinquent.
Total non-performing assets remained flat at $114.1 million as of September 30, 2026, compared to December 31, 2025, reflecting
decreases of $1.9 million in the OREO portfolio balance and $1.7 million in other repossessed property resulting from sales of
repossessed automobiles, partially offset by a $3.6 million increase in nonaccrual loans. The increase in nonaccrual loans was
primarily attributable to an $11.7 million increase in commercial and construction loans, driven by the migration of a $14.8 million
C&I relationship in the Florida region to nonaccrual status during the second quarter of 2026, partially offset by $2.8 million in
repayments on a C&I loan in the Puerto Rico region in the food retail industry, and $0.8 million in charge-offs of a commercial
mortgage loan in the Virgin Islands region during the first nine months of 2026. Meanwhile, nonaccrual residential mortgage loans
decreased by $5.2 million and nonaccrual consumer loans decreased by $2.9 million, mainly in auto loans.
The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated
periods:
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended September 30, 2026
Beginning balance
$
5,463
$
7,067
$
41,053
$
53,583
Plus:
Additions to nonaccrual
-
1,834
2,323
Less:
Loans returned to accrual status
-
(177)
(1)
(178)
Nonaccrual loans charge-offs
-
(193)
(104)
(297)
Loan collections
(3)
(103)
(1,660)
(1,766)
Ending balance
$
5,460
$
8,428
$
39,777
$
53,665
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Quarter Ended September 30, 2025
Beginning balance
$
5,718
$
22,905
$
20,349
$
48,972
Plus:
Additions to nonaccrual
-
Less:
Loans returned to accrual status
(118)
(853)
(228)
(1,199)
Nonaccrual loans charge-offs
-
-
(137)
(137)
Loan collections
(9)
(770)
(468)
(1,247)
Ending balance
$
5,591
$
21,437
$
19,650
$
46,678
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Nine-Month Period Ended September 30, 2026
Beginning balance
$
5,536
$
8,382
$
28,042
$
41,960
Plus:
Additions to nonaccrual
1,898
16,631
(1)
18,595
Less:
Loans returned to accrual status
-
(242)
(1)
(243)
Nonaccrual loans transferred to OREO
-
-
(199)
(199)
Nonaccrual loans charge-offs
-
(755)
(402)
(1,157)
Loan collections
(142)
(855)
(4,294)
(5,291)
Ending balance
$
5,460
$
8,428
$
39,777
$
53,665
(1)
Includes the aforementioned inflow to nonaccrual status of a $14.8 million relationship in the Florida region.
Construction
Commercial
Mortgage
C&I
Total
(In thousands)
Nine-Month Period Ended September 30, 2025
Beginning balance
$
1,365
$
10,851
$
20,514
$
32,730
Plus:
Additions to nonaccrual
4,371
(1)
13,439
(1)
1,523
19,333
Less:
Loans returned to accrual status
(118)
(1,202)
(393)
(1,713)
Nonaccrual loans transferred to OREO
-
(54)
(203)
(257)
Nonaccrual loans charge-offs
-
-
(184)
(184)
Loan collections
(27)
(1,597)
(1,607)
(3,231)
Ending balance
$
5,591
$
21,437
$
19,650
$
46,678
(1)
Include inflows to nonaccrual status of a $12.6 million commercial mortgage loan in the Florida region and a $4.3 million construction loan in the Puerto Rico region.
The following table presents the activity of residential nonaccrual loans held for investment for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
(In thousands)
Beginning balance
$
23,410
$
30,790
$
29,169
$
31,949
Plus:
Additions to nonaccrual
3,800
3,131
9,995
12,613
Less:
Loans returned to accrual status
(2,567)
(3,721)
(7,298)
(10,325)
Nonaccrual loans transferred to OREO
-
(243)
(1,153)
(1,158)
Nonaccrual loans charge-offs
(80)
(26)
(272)
(63)
Loan collections
(619)
(1,065)
(6,497)
(4,150)
Ending balance
$
23,944
$
28,866
$
23,944
$
28,866
The amount of nonaccrual consumer loans, including finance leases, decreased by $2.9 million to $18.6 million as of September 30,
2026, mainly in auto loans. The inflows of nonaccrual consumer loans during the nine-month period ended September 30, 2026
amounted to $81.0 million, compared to inflows of $78.1 million for the same period in 2025.
As of September 30, 2026, approximately $28.0 million, or 29%, of the loans placed in nonaccrual status, mainly commercial and
residential mortgage loans, were current, or had delinquencies of less than 90 days in their interest payments. Collections on
nonaccrual loans are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.
During the nine-month period ended September 30, 2026, interest income of approximately $1.1 million related to nonaccrual
commercial and construction loans with a carrying value of $41.1 million as of September 30, 2026 was applied against the related
principal balances under the cost-recovery method.
Total loans in early delinquency (
i.e.
, 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $155.5
million as of September 30, 2026, an increase of $10.5 million, compared to $145.0 million as of December 31, 2025. The increase in
early delinquency consisted of an $11.1 million increase in commercial and construction loans, driven by an $8.3 million matured
construction loan for which the Corporation received full repayment after September 30, 2026, and a $1.2 million matured commercial
mortgage relationship in the process of renewal for which the Corporation continues to receive payments from the borrower. In
addition, the increase reflected a $2.9 million increase in residential mortgage loans, partially offset by a $3.5 million decrease in
consumer loans, mainly in the auto loan and credit cards portfolio.
In addition, the Corporation provides homeownership preservation assistance to its customers through a loss mitigation
program. Depending upon the nature of a borrower's financial condition, restructurings or loan modifications through this program are
provided, as well as other modifications of individual C&I, commercial mortgage, construction, and residential mortgage loans. For
the nine-month period ended September 30, 2026, loans modified to borrowers experiencing financial difficulty had an amortized cost
basis of $11.8 million, compared to $39.5 million for the same period in 2025, which included $30.2 million related to a commercial
mortgage loan in the Puerto Rico region that had been previously modified during 2023 and reported as a financial difficulty
modification. See Note 3 - "Loans Held for Investment" for additional information and statistics about the Corporation's modified
loans.
The following tables show the composition of the OREO portfolio as of September 30, 2026 and December 31, 2025, as well as
the activity of the OREO portfolio by geographic area during the nine -month period ended September 30, 2026:
OREO Composition by Region
As of September 30, 2026
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
4,509
$
$
-
$
4,586
Construction
-
-
Commercial
-
-
$
5,552
$
$
-
$
5,629
As of December 31, 2025
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Residential
$
5,663
$
$
-
$
6,524
Construction
-
-
Commercial
-
-
$
6,661
$
$
-
$
7,522
OREO Activity by Region
Nine-Month Period Ended September 30, 2026
(In thousands)
Puerto Rico
Virgin Islands
Florida
Consolidated
Beginning balance
$
6,661
$
$
-
$
7,522
Additions
3,905
-
4,817
Sales
(4,793)
(784)
(879)
(6,456)
Subsequent measurement adjustments
(1)
-
-
(1)
Other adjustments
(220)
-
(33)
(253)
Ending balance
$
5,552
$
$
-
$
5,629
The following table presents information about the OREO inventory and related gains and losses for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
(Dollars in thousands)
OREO
OREO activity (number of properties):
Beginning property inventory
Properties acquired
Properties disposed
(18)
(32)
(62)
(96)
Ending property inventory
Average holding period (in days)
Residential
Construction
2,127
1,837
2,127
1,837
Commercial
(1)
4,212
4,212
Total average holding period (in days)
1,644
1,644
OREO operations (gain) loss:
Market adjustments and net (gains) losses on sale:
Residential
$
(911)
$
(1,461)
$
(3,014)
$
(3,722)
Construction
(24)
-
(62)
(71)
Commercial
(66)
2,241
(2)
(95)
2,442
(2)
Total net (gain) loss
(1,001)
(3,171)
(1,351)
Other OREO operations expenses
Net (gain) loss on OREO operations
$
(766)
$
1,033
$
(2,545)
$
(687)
(1)
The decrease in the average holding period reflects the loss of possession of an OREO property in the U.S. Virgin Islands that was repossessed in 2012, following an unfavorable legal
outcome. See Note 23 - "Regulatory Matters, Commitments and Contingencies" to the audited consolidated financial statements included in the 2025 Annual Report on Form 10-K for
additional information.
(2)
During the third quarter of 2025, the Corporation recorded the aforementioned $2.8 million valuation adjustment in connection with the litigation involving the aforementioned
commercial OREO property in the Virgin Islands region.
Net Charge-offs and Total Credit Losses
Net charge-offs totaled $18.2 million for the third quarter of 2026, or an annualized 0.55% of average loans, compared to $19.9
million, or an annualized 0.62% of average loans, for the third quarter of 2025. The $1.7 million decrease for the third quarter of 2026
primarily reflected a $2.4 million reduction in consumer loans and finance leases net charge -offs across all major portfolio classes. For
the first nine months of 2026, net charge-offs totaled $55.4 million, or an annualized 0.56% of average loans, compared to $60.4
million, or an annualized 0.63% of average loans, for the same period in 2025. The $5.0 million decrease for the nine-month period
was driven by a $7.6 million reduction in consumer loans and finance leases net charge -offs across all major portfolio classes, after
considering the impact of the aforementioned $2.4 million in recoveries related to the bulk sale during the first quarter of 2025. This
decrease was partially offset by a $0.9 million reduction in C&I recoveries and $0.8 million in charge-offs on a nonaccrual
commercial mortgage loan in the Virgin Islands region during the first nine months of 2026.
The following table presents net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
Residential mortgage
0.02
%
(0.00)
%
0.00
%
(0.00)
%
Construction
(0.11)
%
(0.50)
%
(0.05)
%
(0.19)
%
Commercial mortgage
0.02
%
(0.02)
%
0.03
%
(0.01)
%
C&I
0.02
%
0.01
%
0.03
%
(0.03)
%
Consumer loans and finance leases
1.95
%
2.16
%
1.97
%
2.20
%
(1)
Total loans
0.55
%
0.62
%
0.56
%
0.63
%
(1)
(1)
Includes $2.4 million in recoveries associated with the bulk sale of fully charged-off consumer loans and finance leases, which reduced the ratios of consumer loans and finance leases and total net charge-offs to
related average loans by 8 bps and 3 bps, respectively.
The following table presents net charge-offs (recoveries) to average loans held in various portfolios by geographic segment for the
indicated periods:
Quarter Ended September 30,
Nine-Month Period Ended September 30,
2026
2025
2026
2025
PUERTO RICO:
Residential mortgage
0.02
%
(0.01)
%
(0.02)
%
(0.00)
%
Commercial mortgage
-
%
(0.00)
%
(0.01)
%
(0.00)
%
C&I
0.02
%
0.02
%
0.04
%
(0.04)
%
Consumer loans and finance leases
1.95
%
2.17
%
1.98
%
2.21
%
(1)
Total loans
0.70
%
0.80
%
0.71
%
0.81
%
(1)
VIRGIN ISLANDS:
Residential mortgage
0.20
%
-
%
0.07
%
-
%
Commercial mortgage
0.88
%
(0.61)
%
1.20
%
(0.34)
%
C&I
0.16
%
-
%
0.06
%
0.02
%
Consumer loans and finance leases
2.12
%
2.22
%
1.58
%
1.64
%
Total loans
0.53
%
0.23
%
0.43
%
0.20
%
FLORIDA:
Residential mortgage
0.00
%
0.00
%
0.06
%
(0.00)
%
Construction
(7.88)
%
(4.50)
%
(4.37)
%
(1.24)
%
C&I
(0.00)
%
(0.00)
%
(0.00)
%
(0.00)
%
Consumer loans and finance leases
(0.34)
%
(0.61)
%
(0.60)
%
(0.44)
%
Total loans
(0.01)
%
(0.05)
%
0.01
%
(0.02)
%
(1)
The recoveries associated with the aforementioned bulk sale reduced the ratios of consumer loans and finance leases and total net charge-offs to related average loans by 9 bps and 3 bps, respectively.
Operational Risk
The Corporation is exposed to operational risk arising from the processes involved in delivering banking and financial products, as
well as from external factors such as market conditions, cybersecurity threats, and legal or regulatory developments. These risks can
result in operational or reputational loss. To manage them, the Corporation maintains and continually enhances internal controls,
policies, and procedures designed to identify, assess, and manage operational risks across the organization and to provide reasonable
assurance that operations function within established limits.
Operational risk is categorized as business-specific or corporate-wide. Enterprise Risk Management partners with business units to
ensure consistent policies and assessments for business-specific risks. Corporate -wide risks, including information security, business
continuity, and legal and compliance risk, are managed through specialized groups, such as Legal, Information Security, Corporate
Compliance, Operations, and Enterprise Risk Management. These groups assist the lines of business in the development and
implementation of risk management practices specific to the needs of the business groups.
Legal and Compliance Risk
Legal and compliance risk arises from potential noncompliance with laws and regulations, adverse legal judgments, or
unenforceable counterparty obligations. The Corporation operates in highly regulated jurisdictions and continues to strengthen its
procedures to comply with applicable legal and regulatory requirements. The General Counsel, reporting to the CEO, oversees
enterprise-wide compliance and manages the Corporation's compliance risk assessment process. Compliance officers embedded in
major business areas report directly to the Corporate Compliance Group.
Concentration Risk
The Corporation's operations are geographically concentrated in Puerto Rico, its main market. Of the total gross loan portfolio held
for investment of $13.4 billion as of September 30, 2026, the Corporation had credit risk of approximately 76% in the Puerto Rico
region, 20% in the United States region, and 4% in the Virgin Islands region.
Update on the Puerto Rico Fiscal and Economic Situation
A significant portion of the Corporation's business and credit exposure is concentrated in the Commonwealth of Puerto Rico, which
has faced prolonged economic and fiscal challenges. See "Risk Management - Exposure to Puerto Rico Government" below. Since
declaring bankruptcy and benefitting from the enactment of the federal Puerto Rico Oversight, Management , and Economic Stability
Act ("PROMESA") in 2016, the Government of Puerto Rico has made progress on fiscal matters primarily by restructuring a large
portion of its outstanding public debt and identifying funding sources for its underfunded pension system.
Economic Indicators
In October 2025, the Puerto Rico Planning Board ("PRPB") reported in its preliminary estimates that real gross national product
("GNP") grew by 0.4% in fiscal year 2025, marking the fifth consecutive year of positive economic growth, driven by personal
consumption and fixed investments in both construction and machinery and equipment. The latest PRPB's baseline projections reflect
0.3% real GNP growth in fiscal year 2026 and 0.2% in fiscal year 2027.
There are other indicators that gauge economic activity and are published with greater frequency, for example, the Economic
Development Bank for Puerto Rico's Economic Activity Index ("EDB-EAI"). Although not a direct measure of Puerto Rico's real
GNP, the EDB-EAI is correlated to Puerto Rico's real GNP. During the 12-month period ended on August 31, 2026, the EDB-EAI
averaged 127.3, down by 0.5% on a year-over-year basis, primarily reflecting reductions in gasoline consumption and cement bags
sold. For August 2026, estimates showed that the EDB-EAI stood at 128.6, representing a 0.1% increase on a year-over-year basis.
Labor market trends remain stable. Data published by the Bureau of Labor Statistics showed that non-farm payrolls in Puerto Rico
increased by 0.2% during the nine-month period ended September 30, 2026 versus the comparable figure in 2025, partially offset by
payrolls in the public sector as these decreased by 2.0% year-over-year. Key industries driving private-sector payroll growth include
Leisure & Hospitality with a year-over-year increase of 5.0% and Education & Health Services with a positive variance of 2.2%. The
unemployment rate remained stable, at 6.2% in September 2026.
Fiscal Plan
On June 6, 2025, the PROMESA oversight board certified a revised 2024 Fiscal Plan for Puerto Rico for the purpose of including
the currently anticipated fiscal performance and updated Fiscal Year 2025 revenue forecast based on the most recent available data on
revenue collections. The Fiscal Plan intends to serve as a roadmap to promote economic growth and achieve long-term fiscal stability.
The original 2024 Fiscal Plan outlines the Commonwealth's financial condition, key fiscal risks, and the actions required to achieve
long-term fiscal responsibility and access to credit markets. It identifies priority areas such as improved economic and revenue
forecasting, adoption of budget best practices, enhanced government service delivery, and strengthened financial reporting, along with
initiatives to support economic growth through human capital development, tax reform, and infrastructure improvements. The original
2024 Fiscal Plan also incorporates updated macroeconomic projections, including modest near-term GNP growth followed by slight
declines, and anticipates stable population levels supported by positive net migration. In addition, it reflects the significant role of
federal disaster relief, COVID-19 recovery funds, and Bipartisan Infrastructure Law funding in supporting Puerto Rico's
reconstruction and economic outlook.
Debt Restructuring
Over 80% of Puerto Rico's outstanding debt has been restructured to date. Key actions include the 2022 central government Plan of
Adjustment, which exchanged more than $33 billion of existing bonds and other claims for about $7 billion in new bonds, reducing
debt service by more than $50 billion. Also, the restructurings of the Puerto Rico Sales Tax Financing Corporation ("COFINA"), the
Highways and Transportation Authority ("HTA"), and the Puerto Rico Aqueducts and Sewers Authority ("PRASA") are expected to
yield savings of approximately $17.5 billion, $3.0 billion, and $400 million, respectively, in future debt service payments.
The remaining major restructuring is that of the Puerto Rico Electric Power Authority ("PREPA"). Litigation related to PREPA
bonds remains largely stayed. On March 28, 2025, the PROMESA oversight board filed its fifth amended plan of adjustment, which
would reduce PREPA's debt almost 80%, to the equivalent of $2.6 billion in cash or bonds, excluding pension liabilities. It also
incorporates several amendments to the previous structure, including a Rate Reduction Fund to support PREPA's pensions, and the
elimination of the Legacy Charge contemplated in the previous versions of the plan of adjustment to repay the significantly reduced
debt.
Other Developments
Puerto Rico gained momentum as a hub for reshoring, particularly in the manufacturing sector. During 2025, the Government
announced 17 companies with expansion projects representing over $2 billion in committed capital investments and over 4,000 jobs to
be created over the short-to-medium term. This reflects part of the Government's policy efforts to prioritize growth -oriented initiatives
that are critical to sustaining long-term economic growth and competitiveness.
Infrastructure reconstruction continues to advance, particularly in the aftermath of Hurricane Maria in 2017. As of October 20,
2026, 5,897 projects had already been completed under FEMA's Public Assistance Permanent Work programs while 23,369 projects
were active across different stages of execution for a total cost of $13.6 billion, equivalent to approximately 35% of the agency's
$38.7 billion obligation, according to the Central Office for Recovery, Reconstruction and Resiliency ("COR3").
On June 19, 2026, the PROMESA oversight board certified the $33.6 billion fiscal year 2027 Budget for the Commonwealth of
Puerto Rico compliant with the Fiscal Plan and consisting of the $13.2 billion general fund budget, the $5.5 billion special revenue
fund budget, and the $14.9 billion federal fund budget. Total expenditure of $33.6 billion remained relatively flat from the previous
year's budget, reflecting stable tax collections and uncertainty around the Government's future revenue. According to the oversight
board, the 2027 budget prepares the Government for the ongoing uncertainty of federal funding and rising Medicaid costs associated
with increases to contracts with healthcare providers. More than two-thirds of the budgeted expenditures go to health, education,
public safety, housing and government pensions. Also, the 2027 budget includes funding for infrastructure investments such as road
repairs, and to improve care services for disabled adults and seniors, and childcare services. The fiscal year 2027 Budget, which
started on July 1, 2026, is the second consecutive budget developed jointly by the administration of the Governor of Puerto Rico, the
Legislative Assembly and the oversight board.
Exposure to Puerto Rico Government
As of September 30, 2026, the Corporation had $355.5 million of direct exposure to the Puerto Rico government, its municipalities
and public corporations, an increase of $57.7 million from $297.8 million as of December 31, 2025, mainly due to the aforementioned
refinancing of a participated municipal loan in the Puerto Rico region during the second quarter of 2026. The exposure consisted
primarily of $272.4 million in municipal loans and obligations supported by assigned property tax revenues, generally backed by the
municipalities' good faith, credit, and unlimited taxing power, and $27.1 million supported by one or more specific sources of
municipal revenues. The remaining exposure included $8.5 million in a loan to an affiliate of the Puerto Rico Electric Power
Authority, $44.9 million in loans to a Puerto Rico public corporation, and a PRHFA residential pass-through MBS with an amortized
cost of $2.6 million.
The following table details the Corporation's total direct exposure to Puerto Rico government obligations according to their
maturities:
As of September 30, 2026
Investment
Portfolio
(Amortized cost)
Loans
Total
Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years
$
2,567
$
-
$
2,567
Total Puerto Rico Housing Finance Authority
2,567
-
2,567
Public corporation of the Puerto Rico government:
Due within one year
-
28,861
28,861
After 1 to 5 years
-
16,007
16,007
Total public corporation of the Puerto Rico government
-
44,868
44,868
Affiliate of the Puerto Rico Electric Power Authority:
After 1 to 5 years
-
8,550
8,550
Total Puerto Rico government affiliate
-
8,550
8,550
Total Puerto Rico public corporations and government affiliate
-
53,418
53,418
Municipalities:
Due within one year
17,483
-
17,483
After 1 to 5 years
26,655
85,972
112,627
After 5 to 10 years
7,016
152,834
159,850
After 10 years
9,520
-
9,520
Total Municipalities
60,674
238,806
299,480
Total Direct Government Exposure
$
63,241
$
292,224
$
355,465
Also, as of September 30, 2026, the outstanding balance of construction loans funded through conduit financing structures to
support the federal programs of Low-Income Housing Tax Credit combined with other federal programs amounted to $78.4 million,
compared to $92.4 million as of December 31, 2025. The main objective of these programs is to spur development in new or
rehabilitated and affordable rental housing. PRHFA, as program subrecipient and conduct issuer, issues tax-exempt obligations which
are acquired by private financial institutions and are required to co-underwrite with PRHFA a mirror construction loan agreement for
the specific project loan to which the Corporation will serve as ultimate lender, but where the PRHFA will be the lender of record. The
total amount of unfunded loan commitments related to these loans as of September 30, 2026 was $27.7 million.
In addition, as of September 30, 2026, the Corporation had $63.6 million in exposure to residential mortgage loans that are
guaranteed by the PRHFA, a governmental instrumentality that has been designated as a covered entity under PROMESA (December
31, 2025 - $67.1 million). Residential mortgage loans guaranteed by the PRHFA are secured by the underlying properties and the
guarantees serve to cover shortfalls in collateral in the event of a borrower default. The Puerto Rico government guarantees up to $75
million of the principal for all loans under the mortgage loan insurance program. According to the most recently released audited
financial statements of the PRHFA, as of June 30, 2025, the PRHFA's mortgage loans insurance program covered loans in an
aggregate amount of approximately $346 million. The regulations adopted by the PRHFA require the establishment of adequate
reserves to guarantee the solvency of the mortgage loans insurance program; as of June 30, 2025, PRHFA was in compliance with the
regulations. As of June 30, 2025, the most recent date as of which information is available, the PRHFA had a liability of
approximately $0.4 million as an estimate of the losses inherent in the portfolio.
As of September 30, 2026 and December 31, 2025, the Corporation had $2.6 billion and $2.5 billion, respectively, of public sector
deposits in Puerto Rico. Approximately 22% of the public sector deposits as of September 30, 2026 were from municipalities and
municipal agencies in Puerto Rico and 78% were from public corporations, the Puerto Rico central government and agencies, and U.S.
federal government agencies in Puerto Rico.
Exposure to USVI Government
The Corporation has operations in the USVI and has credit exposure to USVI government entities.
For many years, the USVI has been experiencing several fiscal and economic challenges that have deteriorated the overall financial
and economic conditions in the area. On June 17, 2024, the United States Bureau of Economic Analysis (the "BEA") released its
estimates of GDP for 2022. According to the BEA, the USVI's real GDP decreased 1.3% in 2022 after increasing 3.7% in 2021. The
decrease in real GDP reflected declines in exports, private fixed investment, government spending, and personal consumption
expenditures. These negative variances were partly offset by an increase in inventory investment, while imports, a subtraction item in
the calculation of GDP, decreased. The annual publication of BEA's GDP statistics for the USVI is made possible through funding by
the Office of Insular Affairs ("OIA") of the U.S. Department of the Interior. OIA has paused funding of this work to conduct an
exploratory assessment of territorial source data with the goal of informing how to strategically invest in and support the USVI's
economic statistics into the future. Without funding, BEA is pausing the production of GDP statistics for the USVI. When funding and
improved data sources become available, BEA plans to resume production of these statistics.
Over the past four years, the USVI has been recovering from the adverse impact caused by COVID-19 and has continued to make
progress on its rebuilding efforts related to Hurricanes Irma and Maria, which occurred in September 2017. According to data
published by FEMA, there were over $20.0 billion in obligated disaster recovery funds for the USVI as of July 31, 2026. During the 7-
month period ended July 31, 2026, over $409 million were disbursed in the territory, representing a year-over-year increase of 28%
primarily due to an increase in FEMA's Public Assistance program-related disbursements.
Finally, PROMESA does not apply to the USVI and, as such, there is currently no federal legislation permitting the restructuring of
the debts of the USVI and its public corporations and instrumentalities. To the extent that the fiscal condition of the USVI government
deteriorates again, the U.S. Congress or the government of the USVI may enact legislation allowing for the restructuring of the
financial obligations of the USVI government entities or imposing a stay on creditor remedies, including by making PROMESA
applicable to the USVI.
As of September 30, 2026 and December 31, 2025, the Corporation had $165.0 million and $138.7 million, respectively, in loans to
USVI public corporations. As of September 30, 2026, approximately $50.0 million were fully collateralized by cash balances held at
the Bank, $30.0 million were supported by a utility public corporation general fund, and $85.0 million were supported by one or more
specific sources of revenues. As of September 30, 2026, all loans were currently performing and up to date on principal and interest
payments.
First BanCorp published this content on November 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 06, 2026 at 16:32 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]