First BanCorp. (FBP) 10-Q 2021 Q1 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

COMMISSION FILE NUMBER 001-14793

First BanCorp.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Puerto Rico	66-0561882
(State or other jurisdiction of incorporation or organization)	(I.R.S Employer Identification No.)
1519 Ponce de León Avenue, Stop 23 Santurce, Puerto Rico (Address of principal executive offices)	00908 (Zip Code)
(787) 729-8200
(Registrant’s telephone number, including area code)
Not applicable (Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($0.10 par value)	FBP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☑	Accelerated filer☐
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock: 215,614,509 shares outstanding as of May 3, 2021.

FIRST BANCORP.

INDEX PAGE

PART I. FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements:
Consolidated Statements of Financial Condition (Unaudited) as of March 31, 2021 and December 31, 2020	6
Consolidated Statements of Income (Unaudited) – Quarters ended March 31, 2021 and 2020	7
Consolidated Statements of Comprehensive (Loss) Income (Unaudited) – Quarters ended March 31, 2021 and 2020	8
Consolidated Statements of Cash Flows (Unaudited) – Quarters ended March 31, 2021 and 2020	9
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) – Quarters ended March 31, 2021 and 2020	10
Notes to Consolidated Financial Statements (Unaudited)	11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	108
Item 3. Quantitative and Qualitative Disclosures About Market Risk	182
Item 4. Controls and Procedures	182
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	183
Item 1A. Risk Factors	183
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	184
Item 3. Defaults Upon Senior Securities	185
Item 4. Mine Safety Disclosures	185
Item 5. Other Information	185
Item 6. Exhibits	185
SIGNATURES

2

Forward Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the safe harbor created by such sections. When used in this Form 10-Q or future filings by First BanCorp. (the “Corporation,” “we,” “us,” or “our”) with the U.S. Securities and Exchange Commission (the “SEC”), in the Corporation’s press releases or in other public or stockholder communications made by the Corporation, or in oral statements made on behalf of the Corporation by, or with the approval of, an authorized executive officer, the words or phrases “would,” “intends,” “will,” “expect,” “should,” “anticipate,” “look forward,” “believes,” and other terms of similar meaning or import in connection with any discussion of future operating, financial or other performance are meant to identify “forward-looking statements.”

The Corporation cautions readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and advises readers that these forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, estimates, and assumptions by us that are difficult to predict. Various factors, some of which are beyond our control, could cause actual results to differ materially from those expressed in, or implied by, such forward-looking statements.

Factors that could cause results to differ from those expressed in the Corporation’s forward-looking statements include, but are not limited to, risks described or referenced in “Risk Factor Summary” and in Part I, Item 1A., “Risk Factors,” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Annual Report on Form 10-K”) and the following:

 uncertainties relating to the impact of the COVID-19 pandemic, including recent increases in, and any additional waves of, COVID-19 cases, additional new variants of the virus, and the public availability and efficacy of the various vaccines and treatments for the disease, on the Corporation’s business, operations, employees, credit quality, financial condition and net income, including because of uncertainties as to the extent and duration of the pandemic and the impact of the pandemic on consumer spending, borrowing and saving habits, the underemployment and unemployment rates, which can adversely affect repayment patterns, the Puerto Rico economy and the global economy, as well as the risk that COVID-19 may exacerbate any other factor that could cause our actual results to differ materially from those expressed in or implied by any forward-looking statements;

 risks related to the effect on the Corporation and its customers of governmental, regulatory, or central bank responses to COVID-19 and the Corporation’s participation in any such responses or programs, such as the Paycheck Protection Program established by the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act of 2020”), including any judgments, claims, damages, penalties, fines or reputational damage resulting from claims or challenges against the Corporation by governments, regulators, customers or otherwise, relating to the Corporation’s participation in any such responses or programs;

 risks, uncertainties and other factors related to the Corporation’s acquisition of Banco Santander Puerto Rico (“BSPR”), including the risk that costs, expenses, and the use of resources associated with the acquisition may be higher than expected, the risks that the Corporation’s integration of procedures, personnel and systems, such as the Corporation’s internal control over financial reporting, of BSPR into FirstBank are not effective, thus risking the economic success resulting from the transaction and the risk that the Corporation may not realize, either fully or on a timely basis, the cost savings and any other synergies from the acquisition that the Corporation expected, because of deposit attrition, customer loss and/or revenue loss following the acquisition;

 uncertainty as to the ultimate outcomes of actions taken, or those that may be taken, by the Puerto Rico government, or the oversight board established by the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) to address the Commonwealth of Puerto Rico’s financial situation, including a court-supervised debt restructuring process similar to U.S. bankruptcy protection undertaken pursuant to Title III of PROMESA, the designation by the PROMESA oversight board of Puerto Rico municipalities as instrumentalities covered under PROMESA, the effects of measures included in the Puerto Rico government fiscal plan, or any revisions to it, on our clients and loan portfolios, and any potential impact from future economic or political developments in Puerto Rico;

 the impact that a resumption of the slowing economy and increased unemployment or underemployment may have on the performance of our loan and lease portfolio, the market price of our investment securities, the availability of sources of funding and the demand for our products;

 uncertainty as to the availability of wholesale funding sources, such as securities sold under agreements to repurchase, FHLB advances and brokered certificates of deposit (“brokered CDs”);

3

 the effect of a resumption of deteriorating economic conditions in the real estate markets and the consumer and commercial sectors and their impact on the credit quality of the Corporation’s loans and other assets, which have contributed and may continue to contribute to, among other things, higher than targeted levels of non-performing assets, charge-offs and provisions for credit losses, and may subject the Corporation to further risk from loan defaults and foreclosures;

 the impact of changes in accounting standards or assumptions in applying those standards, including the continuing impact of the COVID-19 pandemic on forecast economic variables considered for the determination of the allowance for credit losses (“ACL”) required by the current expected credit losses (“CECL”) accounting standard;

 the ability of FirstBank to realize the benefits of its net deferred tax assets;

 the ability of FirstBank to generate sufficient cash flow to make dividend payments to the Corporation;

 adverse changes in general economic conditions in Puerto Rico, the United States (“U.S.”), the U.S. Virgin Islands (the “USVI”), and the British Virgin Islands (the “BVI”), including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, including as a result of the COVID-19 pandemic, which may further reduce interest margins, affect funding sources and demand for all of the Corporation’s products and services, and reduce the Corporation’s revenues and earnings and the value of the Corporation’s assets;

 uncertainty related to the effect of the discontinuation of the London Interbank Offered Rate (“LIBOR”) beginning at the end of 2021;

 an adverse change in the Corporation’s ability to attract new clients and retain existing ones;

 the risk that additional portions of the unrealized losses in the Corporation’s investment portfolio are determined to be credit-related, including additional charges to the provision for credit losses on the Corporation’s remaining $3.9 million exposure to the Puerto Rico government’s debt securities held as part of the available-for-sale securities portfolio;

 uncertainty about legislative, tax or regulatory changes that affect financial services companies in Puerto Rico, the U.S. and the USVI and BVI, including as a result of the change in the political landscape resulting from the 2020 elections in the U.S. and Puerto Rico, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results;

 changes in the fiscal and monetary policies and regulations of the U.S. federal government and the Puerto Rico and other governments, including those determined by the Board of the Governors of the Federal Reserve System (the “Federal Reserve Board”), the Federal Reserve Bank of New York (the “New York FED” or “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”), government-sponsored housing agencies, and regulators in Puerto Rico, and the USVI and BVI;

 the risk of possible failure or circumvention of the Corporation’s internal controls and procedures and the risk that the Corporation’s risk management policies may not be adequate;

 the Corporation’s ability to identify and prevent cyber-security incidents, such as data security breaches, malware, “denial of service” attacks, “hacking” and identity theft, and the occurrence of any of which may result in misuse or misappropriation of confidential or proprietary information, and could result in the disruption or damage to our systems, increased costs and losses or an adverse effect to our reputation;

 the risk that the FDIC may increase the deposit insurance premium and/or require special assessments to replenish its insurance fund, causing an additional increase in the Corporation’s non-interest expenses;

 the impact on the Corporation’s results of operations and financial condition of business acquisitions, such as the acquisition of BSPR, and dispositions;

4

 a need to recognize impairments on the Corporation’s financial instruments, goodwill and other intangible assets relating to business acquisitions, including as a result of the COVID-19 pandemic;

 the effect of changes in the interest rate environment on the Corporation’s businesses, business practices and results of operations;

 the risk that the impact of the occurrence of any of these uncertainties on the Corporation’s capital would preclude further growth of the Bank and preclude the Corporation’s Board of Directors from declaring dividends;

 uncertainty as to whether FirstBank will be able to continue to satisfy its regulators regarding, among other things, its asset quality, liquidity plans, maintenance of capital levels and compliance with applicable laws, regulations, and related requirements; and

 general competitive factors and industry consolidation.

The Corporation does not undertake, and specifically disclaims any obligation, to update any “forward-looking statements” to reflect occurrences or unanticipated events or circumstances after the date of such statements, except as required by the federal securities laws.

5

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	March 31, 2021		December 31, 2020
(In thousands, except for share information)
ASSETS
Cash and due from banks	$	1,515,232	$	1,433,261
Money market investments:
Time deposits with other financial institutions		300		300
Other short-term investments		2,632		60,272
Total money market investments		2,932		60,572
Investment securities available for sale, at fair value:
Securities pledged with creditors’ right to repledge		336,380		341,789
Other investment securities available for sale		5,070,410		4,305,230
Total investment securities available for sale, at fair value (amortized cost 2021-
$5,443,424; 2020 - $4,584,851; allowance for credit losses (“ACL”) of $1,183 as of March 31, 2021
and $1,310 as of December 31, 2020)		5,406,790		4,647,019
Investment securities held to maturity, at amortized cost, net of allowance for credit losses
of $8,869 as of March 31, 2021 and $8,845 December 31, 2020 (fair value 2021 -
$178,314; 2020 $173,806)		180,811		180,643
Equity securities		41,558		37,588
Loans, net of allowance for credit losses of $358,936
(2020 - $385,887)		11,282,923		11,391,402
Loans held for sale, at lower of cost or market		56,070		50,289
Total loans, net		11,338,993		11,441,691
Premises and equipment, net		154,684		158,209
Other real estate owned (“OREO”)		79,207		83,060
Accrued interest receivable on loans and investments		61,511		69,505
Deferred tax asset, net		306,373		329,261
Goodwill		38,611		38,632
Intangible assets		38,387		40,893
Other assets		248,645		272,737
Total assets	$	19,413,734	$	18,793,071
LIABILITIES
Non-interest-bearing deposits	$	5,026,468	$	4,546,123
Interest-bearing deposits		10,983,968		10,771,260
Total deposits		16,010,436		15,317,383
Securities sold under agreements to repurchase		300,000		300,000
Advances from the Federal Home Loan Bank (“FHLB”)		440,000		440,000
Other borrowings		183,762		183,762
Accounts payable and other liabilities		259,111		276,747
Total liabilities		17,193,309		16,517,892
STOCKHOLDERSʼ EQUITY
Preferred stock, authorized, 50,000,000 shares:
Non-cumulative Perpetual Monthly Income Preferred Stock:
22,004,000 shares issued, 1,444,146 shares outstanding, aggregate liquidation value of $36,104		36,104		36,104
Common stock, $0.10 par value, authorized, 2,000,000,000 shares;
223,630,957 shares issued (2020 - 223,034,348 shares issues)		22,363		22,303
Less: Treasury stock (at par value)		(500)		(480)
Common stock outstanding, 218,628,862 shares outstanding (2020 - 218,235,064 shares outstanding)		21,863		21,823
Additional paid-in capital		945,476		946,476
Retained earnings, includes legal surplus reserve of $109,338		1,260,456		1,215,321
Accumulated other comprehensive (loss) income, net of tax $7,590 as of each March 31, 2021
and December 31, 2020		(43,474)		55,455
Total stockholdersʼ equity		2,220,425		2,275,179
Total liabilities and stockholdersʼ equity	$	19,413,734	$	18,793,071
The accompanying notes are an integral part of these statements.

6

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Quarter Ended
	March 31,2021		March 31,2020
(In thousands, except per share information)
Interest and dividend income:
Loans	$	179,973	$	147,126
Investment securities		14,320		15,876
Money market investments and interest-bearing cash accounts		349		2,262
Total interest and dividend income	194,642		165,264
Interest expense:
Deposits		12,342		19,654
Loans payable		0		3
Securities sold under agreements to repurchase		2,278		1,918
Advances from FHLB		2,463		3,008
Other borrowings		1,294		2,032
Total interest expense	18,377		26,615
Net interest income		176,265		138,649
Provision for credit losses - (benefit) expense:
Loans and finance leases		(14,443)		74,045
Unfunded loan commitments		(706)		1,819
Debt securities		(103)		1,502
Provision for credit losses - (benefit) expense		(15,252)		77,366
Net interest income after provision for credit losses	191,517		61,283
Non-interest income:
Service charges and fees on deposit accounts		8,304		5,957
Mortgage banking activities		7,273		3,788
Net gain on sales of investment securities		0		8,247
Insurance commission income		5,241		4,582
Other non-interest income		10,138		7,626
Total non-interest income	30,956		30,200
Non-interest expenses:
Employees' compensation and benefits		50,842		42,859
Occupancy and equipment		24,242		15,127
Business promotion		2,970		3,622
Professional fees		17,701		11,793
Taxes, other than income taxes		6,199		3,880
Federal Deposit Insurance Corporation ("FDIC") deposit insurance		1,988		1,522
Net loss on OREO and OREO expenses		1,898		1,188
Credit and debit card processing expenses		4,278		3,950
Communications		2,462		1,877
Merger and restructuring costs		11,267		845
Other non-interest expenses		9,454		5,521
Total non-interest expenses	133,301		92,184
Income (loss) before income taxes		89,172		(701)
Income tax expense (benefit)		28,022		(2,967)
Net income	$	61,150	$	2,266
Net income attributable to common stockholders	$	60,481	$	1,597
Net income per common share:
Basic	$	0.28	$	0.01
Diluted	$	0.28	$	0.01
The accompanying notes are an integral part of these statements.

7

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)

	Quarter Ended
		March 31,		March 31,
	2021			2020
(In thousands)
Net income	$	61,150	$	2,266
Other comprehensive (loss) income, net of tax:
Debt securities:
Unrealized gain (loss) on debt securities for which credit losses has been recognized		447		(176)
Reclassification adjustment for credit losses - (benefit) expense on debt securities included in net income		(127)		368
Reclassification adjustment for net gain included in net income on sales of available-for-sale debt
securities with no credit losses previously recognized		0		(8,247)
All other unrealized holding (losses) gains on available-for-sale debt securities		(99,249)		50,407
Other comprehensive (loss) income for the period, net of tax		(98,929)		42,352
Total comprehensive (loss) income	$	(37,779)	$	44,618
The accompanying notes are an integral part of these statements.

8

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Quarter Ended
	March 31,2021		March 31,2020
(In thousands)
Cash flows from operating activities:
Net income	$	61,150	$	2,266
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,808		4,486
Amortization of intangible assets		2,954		713
Provision for credit losses - (benefit) expense		(15,252)		77,366
Deferred income tax expense (benefit)		23,044		(11,654)
Stock-based compensation		1,415		1,142
Gain on sales of investment securities		0		(8,247)
Unrealized gain on derivative instruments		(1,617)		(17)
Net (gain) loss on disposals or sales of premises and equipment and other assets		(26)		15
Net gain on sales of loans		(4,371)		(2,538)
Net amortization/accretion of premiums, discounts, and deferred loan fees and costs		(5,774)		(1,369)
Originations and purchases of loans held for sale		(144,910)		(62,989)
Sales and repayments of loans held for sale		155,573		92,586
Amortization of broker placement fees		73		158
Net amortization/accretion of premiums and discounts on investment securities		9,435		1,307
Decrease (increase) in accrued interest receivable		7,981		(197)
(Decrease) increase in accrued interest payable		(174)		523
Decrease in other assets		18,569		6,400
Decrease in other liabilities		(2,200)		(8,419)
Net cash provided by operating activities		112,678		91,532
Cash flows from investing activities:
Net repayments (disbursements) on loans held for investment		98,926		(68,997)
Proceeds from sales of loans held for investment		13,985		3,610
Proceeds from sales of repossessed assets		11,583		8,966
Purchases of available-for-sale securities		(1,413,370)		(147,801)
Proceeds from principal repayments and maturities of available-for-sale securities		531,096		104,188
Proceeds from principal repayments and maturities of held-to-maturity securities		142		141
Additions to premises and equipment		(3,318)		(4,375)
Proceeds from sales of premises and equipment and other assets		245		0
Net purchases of other investment securities		(4,000)		(1,352)
Payment related to previous acquisition		(3,382)		0
Net cash used in investing activities		(768,093)		(105,620)
Cash flows from financing activities:
Net increase in deposits		697,974		214,408
Net increase in short-term borrowings		0		55,000
Proceeds from long-term reverse repurchase agreements		0		200,000
Repurchase of outstanding common stock		(2,375)		(198)
Dividends paid on common stock		(15,184)		(10,837)
Dividends paid on preferred stock		(669)		(669)
Net cash provided by financing activities		679,746		457,704
Net increase in cash and cash equivalents		24,331		443,616
Cash and cash equivalents at beginning of period		1,493,833		644,099
Cash and cash equivalents at end of period	$	1,518,164	$	1,087,715
Cash and cash equivalents include:
Cash and due from banks	$	1,515,232	$	990,007
Money market instruments		2,932		97,708
	$	1,518,164	$	1,087,715
The accompanying notes are an integral part of these statements.

9

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

	Quarter Ended
	March 31,		March 31,
	2021		2020
(In thousands)
Preferred Stock	$	36,104	$	36,104
Common Stock Outstanding:
Balance at beginning of period		21,823		21,736
Common stock withheld for taxes		(19)		(5)
Restricted stock grants		30		85
Vesting of performance shares unit		30		0
Restricted stock forfeited		(1)		0
Balance at end of period		21,863		21,816
Additional Paid-In-Capital:
Balance at beginning of period		946,476		941,652
Stock-based compensation expense		1,415		1,142
Common stock withheld for taxes		(2,356)		(193)
Restricted stock grants		(30)		(85)
Vesting of performance shares unit		(30)		0
Restricted stock forfeited		1		0
Balance at end of period		945,476		942,516
Retained Earnings:
Balance at beginning of period		1,215,321		1,221,817
Impact of adoption of Accounting Standards Codification ("ASC" or "Codification")
Topic 326, "Financial Instruments - Credit Losses" ("ASC 326" or "CECL")				(62,322)
Balance at beginning of period (as adjusted for impact of adoption of ASC 326)				1,159,495
Net income		61,150		2,266
Dividends on common stock (2021 - $ 0.07 per share; 2020 - $ 0.05 per share)		(15,346)		(10,893)
Dividends on preferred stock		(669)		(669)
Balance at end of period		1,260,456		1,150,199
Accumulated Other Comprehensive (Loss) Income, net of tax:
Balance at beginning of period		55,455		6,764
Other comprehensive (loss) income, net of tax		(98,929)		42,352
Balance at end of period		(43,474)		49,116
Total stockholdersʼ equity	$	2,220,425	$	2,199,751
The accompanying notes are an integral part of these statements.

10

FIRST BANCORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The Consolidated Financial Statements (unaudited) of First BanCorp. (the “Corporation”) have been prepared in conformity with the accounting policies stated in the Corporation’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2020 (the “audited consolidated financial statements”) included in the 2020 Annual Report on Form 10-K. Certain information and note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted from these statements pursuant to the rules and regulations of the SEC and, accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements, which are included in the 2020 Annual Report on Form 10-K. All adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the statement of financial position, results of operations and cash flows for the interim periods have been reflected. All significant intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for the quarter ended March 31, 2021 are not necessarily indicative of the results to be expected for the entire year.

Adoption of New Accounting Requirements

Income Tax Simplification

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles and the accounting related to areas such as franchise taxes, step-up in tax basis, goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. For public business entities, the standard took effect for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years. The adoption of this guidance during the first quarter of 2021 did not have an effect on the Corporation’s consolidated financial statements.

Accounting for Equity Securities and Certain Derivatives

In January 2020, the FASB issued new guidance to clarify the accounting for equity securities under ASC Topic 321, “Investments – Equity Securities” (“ASC 321”); investments accounted for under the equity method of accounting in ASC Topic 323, “Investments – Equity Method and Joint Ventures”; and the accounting for certain forward contracts and purchased options accounted for under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The guidance clarifies that an entity should consider observable transactions that result in either applying or discontinuing the equity method of accounting for the purpose of applying the measurement alternative provided by ASC 321, which allows certain equity securities without a readily determinable fair value to be measured at cost, less any impairment. When an entity accounts for an investment in equity securities under the measurement alternative and is required to transition to the equity method of accounting because of an observable transaction, it should remeasure the investment at fair value immediately before applying the equity method of accounting. Likewise, when an entity accounts for an investment in equity securities under the equity method of accounting and is required to transition to ASC 321 because of an observable transaction, it should remeasure the investment at fair value immediately after discontinuing the equity method of accounting. These amendments align the accounting for equity securities under the measurement alternative with that of other equity securities accounted for under ASC 321, reducing diversity in accounting outcomes. The guidance also clarifies that, when determining the accounting for nonderivative forward contracts and purchased options, an entity should not consider whether the underlying securities would be accounted for under the equity method or fair value option upon settlement or exercise. These instruments will not fail to meet the scope of ASC 815-10 solely because the securities would be accounted for under the equity method upon settlement of the contract or exercise of the option. For public business entities, the standard took effect for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years. The adoption of this guidance during the first quarter of 2021 did not have an effect on the Corporation’s consolidated financial statements.

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NOTE 2 – BUSINESS COMBINATION

Effective as of September 1, 2020, the Corporation completed its previously announced acquisition of Banco Santander Puerto Rico (“BSPR”). The Corporation accounted for the acquisition as a business combination in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”). Accordingly, the Corporation recorded the assets and liabilities assumed, as of the date of the acquisition, at their respective fair values and allocated to goodwill the excess of the purchase price consideration over the fair value of the net assets acquired. The determination of fair value requires management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Fair value estimates related to the acquired assets and liabilities are subject to adjustment for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. Since the acquisition, the Corporation has made a net adjustment to goodwill of approximately $4.2 million, substantially all recorded in the fourth quarter of 2020 and primarily related to post-closing purchase price adjustments to account for differences between BSPR’s actual excess capital at closing date compared to the BSPR’s excess capital amount used for the preliminary closing statement at acquisition date. Management does not anticipate additional adjustments to the acquisition date valuation amounts presented herein.

12

The following table summarizes the purchase price consideration and estimated fair values of assets acquired and liabilities assumed from BSPR as of September 1, 2020 under the acquisition method of accounting:
	Fair Value as Originally		Measurement Period		Fair Value as
(In thousands)	Recorded		Adjustments		Remeasured
Total purchase price consideration	$	1,277,626	$	3,382	$	1,281,008
Fair value of assets acquired:
Cash and cash equivalents	$	1,684,252	$	0	$	1,684,252
Investment securities		1,167,225		0		1,167,225
Loans:
Residential mortgage loans		807,637		540		808,177
Commercial mortgage loans		740,919		122		741,041
Commercial and Industrial (“C&I”) loans		752,154		(390)		751,764
Consumer loans		214,206		(488)		213,718
Loans, net		2,514,916		(216)		2,514,700
Premises and equipment, net		12,499		0		12,499
Intangible assets		39,232		448		39,680
Other assets		144,008		(195)		143,813
Total assets and identifiable
intangible assets acquired		5,562,132		37		5,562,169
Fair value of liabilities assumed:
Deposits	$	4,194,940	$	0	$	4,194,940
Other liabilities		95,869		865		96,734
Total liabilities assumed		4,290,809		865		4,291,674
Fair value of net assets and identifiable
intangible assets acquired		1,271,323		(828)		1,270,495
Goodwill	$	6,303	$	4,210	$	10,513

Goodwill recognized in this transaction is not deductible for income tax purposes. For a description of the methods used to determine the fair values of significant identifiable assets and liabilities assumed, see Note 2 - Business Combination in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K.

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Merger and Restructuring Costs

Upon completion of the acquisition, the Corporation began to integrate BSPR’s operations into FirstBank’s operations. Over the next several months, the Corporation expects to refine the integration process, which the Corporation expects to complete during the second and third quarters of 2021. The Corporation completed the conversions of the commercial, consumer and credit card loans systems during the first four months of 2021 but Management is still in the process of assessing personnel, technology systems, service contracts and other key factors to determine the most beneficial structure for the combined company. Certain decisions arising from these assessments may involve changes in information systems, cancellations of existing contracts and other actions. To the extent there are costs associated with these actions, the costs will be recognized based on the nature and timing of these integration actions. Most acquisition and restructuring costs are expensed, as incurred. The Corporation recognized cumulative acquisition expenses of $49.2 million through March 31, 2021, of which $11.3 million and $0.8 million were incurred during the first quarters of 2021 and 2020, respectively. Acquisition, integration, and restructuring expenses were included in merger and restructuring costs in the consolidated statements of income, and consisted primarily of legal fees, severance and personnel-related costs, valuation services, systems conversion, and other integration efforts, as well as accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan.

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NOTE 3 – EARNINGS PER COMMON SHARE

	The calculations of earnings per common share for the quarters ended March 31,2021 and 2020 are as follows:
		Quarter Ended
		March 31,		March 31,
		2021		2020
(In thousands, except per share information)
Net income		$	61,150	$	2,266
Less: Preferred stock dividends			(669)		(669)
Net income attributable to common stockholders		$	60,481	$	1,597
Weighted-Average Shares:
	Average common shares outstanding		217,033		216,785
	Average potential dilutive common shares		1,244		529
	Average common shares outstanding-assuming dilution		218,277		217,314
Earnings per common share:
	Basic	$	0.28	$	0.01
	Diluted	$	0.28	$	0.01

Earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares issued and outstanding. Net income attributable to common stockholders represents net income adjusted for any preferred stock dividends, including any dividends declared but not yet paid, and any cumulative dividends related to the current dividend period that have not been declared as of the end of the period. Basic weighted-average common shares outstanding exclude unvested shares of restricted stock that do not contain non-forfeitable dividend rights.

Potential dilutive common shares consist of unvested shares of restricted stock that do not contain non-forfeitable dividend rights using the treasury stock method. This method assumes that proceeds equal to the amount of compensation cost attributable to future services is used to repurchase shares on the open market at the average market price for the period. The difference between the number of potential dilutive shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Unvested shares of restricted stock outstanding during the period that result in lower potential dilutive shares issued than shares purchased under the treasury stock method are not included in the computation of dilutive earnings per share since their inclusion would have an antidilutive effect on earnings per share. Potential dilutive common shares also include performance units that do not contain non-forfeitable dividend rights if the performance condition is met as of the end of the reporting period.

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NOTE 4 – STOCK-BASED COMPENSATION

On May 24, 2016, the Corporation’s stockholders approved the amendment and restatement of the First BanCorp. Omnibus Incentive Plan, as amended (the “Omnibus Plan”), to, among other things, increase the number of shares of common stock reserved for issuance under the Omnibus Plan, extend the term of the Omnibus Plan to May 24, 2026 and re-approve the material terms of the performance goals under the Omnibus Plan for purposes of the then-effective Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. The Omnibus Plan provides for equity-based and non equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, other stock-based awards and cash-based awards. The Omnibus Plan authorizes the issuance of up to 14,169,807 shares of common stock, subject to adjustments for stock splits, reorganizations and other similar events. As of March 31, 2021, 5,081,833 authorized shares of common stock were available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, based on the recommendation of the Corporation’s Compensation and Benefits Committee, has the power and authority to determine those eligible to receive awards and to establish the terms and conditions of any awards, subject to various limits and vesting restrictions that apply to individual and aggregate awards.

Restricted Stock

Under the Omnibus Plan, the Corporation may grant restricted stock to plan participants, subject to forfeiture upon the occurrence of certain events until the dates specified in the participant’s award agreement. While the restricted stock is subject to forfeiture and does not contain non-forfeitable dividend rights, participants may exercise full voting rights with respect to the shares of restricted stock granted to them. The restricted stock granted under the Omnibus Plan is typically subject to a vesting period. During the first quarter of 2021, the Corporation awarded to an independent director 3,552 shares of restricted stock that are subject to one-year vesting from the date of grant. In addition, during the first quarter of 2021, the Corporation awarded 288,649 shares of restricted stock to employees; fifty percent (50%) of those shares vest on the two-year anniversary of the grant date and the remaining 50% vest on the three-year anniversary of the grant date. Included in those 288,649 shares of restricted stock were 19,271 shares granted to retirement-eligible employees. The total expense determined for the restricted stock awarded to retirement-eligible employees was charged against earnings as of the grant date. During the first quarter of 2020, the Corporation awarded 851,673 shares of restricted stock to employees; fifty percent (50%) of those shares vest on the two-year anniversary of the grant date and the remaining 50% vest on the three-year anniversary of the grant date. Included in those 851,673 shares of restricted stock were 47,194 shares granted to retirement-eligible employees. The fair value of the shares of restricted stock granted in the first quarter of 2021 and 2020 was based on the market price of the Corporation’s outstanding common stock on the date of the respective grant.

	The following table summarizes the restricted stock activity in the first quarter of 2021 under the Omnibus Plan:
		Quarter Ended
		March 31, 2021
		Number of
		shares of		Weighted-Average
		restricted		Grant Date
		stock		Fair Value
Unvested shares outstanding at beginning of period		1,320,723	$	5.74
Granted		292,201		11.26
Forfeited		(8,340)		5.98
Vested		(285,342)		8.41
Unvested shares outstanding as of March 31, 2021		1,319,242	$	6.38

For the quarters ended March 31, 2021 and 2020, the Corporation recognized $0.9 million and $0.8 million, respectively, of stock-based compensation expense related to restricted stock awards. As of March 31, 2021, there was $5.4 million of total unrecognized compensation cost related to unvested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost was 1.9 years as of March 31, 2021.

Stock-based compensation accounting guidance requires the Corporation to reverse compensation expense for any awards that are forfeited due to employee or director turnover. Quarterly changes in the estimated forfeiture rate may have a significant effect on stock-based compensation, as the Corporation recognizes the effect of adjusting the rate for all expense amortization in the period in which the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, an adjustment is made to increase the estimated forfeiture rate, which will result in a decrease in the expense recognized in the financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, an adjustment is made to decrease the estimated forfeiture rate, which will result in an increase in the expense recognized in the financial statements.

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Performance Units

Under the Omnibus Plan, the Corporation may award performance units to Omnibus Plan participants. During the first quarter of 2021, the Corporation granted 160,485 units to executives, with each unit representing the value of one share of the Corporation’s common stock. The performance units granted in 2021 are for the performance period beginning January 1, 2021 and ending on December 31, 2023 and are subject to three-year requisite service periods. These awards do not contain non-forfeitable rights to dividend equivalent amounts and can only be settled in shares of the Corporation’s common stock. The performance units will vest based on the achievement of a pre-established tangible book value per share target as of December 31, 2023. All of the performance units will vest if performance is at the pre-established performance target level or above. However, the participants may vest with respect to 50% of the awards to the extent that performance is below the target but at 80% of the pre-established performance target level (the “80% minimum threshold”), which is measured based upon the growth in the tangible book value during the performance cycle. If performance is between the 80% minimum threshold and the pre-established performance target level, the participants will vest on a proportional amount. No performance units will vest if performance is below the 80% minimum threshold. During the first quarter ended March 31, 2021, the Corporation issued 304,408 shares of common stock related to performance units granted in 2018 that met the pre-established target and vested in the first quarter.

During the first quarter of 2020 and 2019, the Corporation awarded 502,307 and 200,053 performance units to executives, respectively. The performance units are subject to three-year requisite service periods and a pre-established performance target level as describe above.

The following table summarizes the performance units activity in the first quarter of 2021 under the Omnibus Plan:

	Three-Month Period Ended
(Number of units)	March 31, 2021
Performance units at beginning of year	1,006,768
Additions	160,485
Vested	(304,408)
Performance units at March 31, 2021	862,845

The fair values of the performance units awarded were based on the market price of the Corporation’s outstanding common stock on the respective date of the grant. For the quarters ended March 31, 2021 and 2020, the Corporation recognized $0.5 million and $0.3 million, respectively, of stock-based compensation expense related to performance units. As of March 31, 2021, there was $3.9 million of total unrecognized compensation cost related to unvested performance units that the Corporation expects to recognize over the next three years. The total amount of compensation expense recognized reflects management’s assessment of the probability that the pre-established performance goal will be achieved. The Corporation will recognize a cumulative adjustment to compensation expense in the then-current period to reflect any changes in the probability of achievement of the performance goals.

Shares withheld

During the quarter ended March 31, 2021, the Corporation withheld 194,471 shares (first quarter of 2020 –50,285 shares) of the restricted stock and performance units that vested during such period to cover the officers’ payroll and income tax withholding liabilities; these shares are held as treasury shares. The Corporation paid in cash any fractional share of salary stock to which an officer was entitled. In the consolidated financial statements, the Corporation treats shares withheld for tax purposes as common stock repurchases.

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NOTE 5 – INVESTMENT SECURITIES

Investment Securities Available for Sale

The amortized cost, gross unrealized gains and losses recorded in other comprehensive income (loss), ACL, estimated fair value, and weighted-average yield of investment securities available for sale by contractual maturities as of March 31, 2021 were as follows:

		March 31, 2021
		Amortized cost		Gross						Fair value
				Unrealized								Weighted-
				Gains		Losses			ACL			average yield %
(Dollars in thousands)
U.S. Treasury securities:
After 1 to 5 years		$	7,482	$	0	$	16	$	0	$	7,466	0.22
U.S. government-sponsored
agencies' obligations:
Due within one year			17,890		171		0		0		18,061	2.00
After 1 to 5 years			751,657		562		8,181		0		744,038	0.57
After 5 to 10 years			623,758		299		15,065		0		608,992	0.84
After 10 years			20,882		0		148		0		20,734	0.65
Puerto Rico government
obligations:
After 10 years (1)			3,926		0		789		308		2,829	6.97
United States and Puerto
Rico government
obligations			1,425,595		1,032		24,199		308		1,402,120	0.72
Mortgage-backed securities ("MBS"):
Freddie Mac ("FHLMC") certificates:
	Due within one year		67		7		0		0		74	4.85
After 5 to 10 years			60,565		2,334		0		0		62,899	2.15
After 10 years			1,347,232		7,516		24,020		0		1,330,728	1.21
			1,407,864		9,857		24,020		0		1,393,701	1.25
Ginnie Mae ("GNMA") certificates:
Due within one year			1		0		0		0		1	1.63
After 1 to 5 years			23,917		1,026		0		0		24,943	2.91
After 5 to 10 years			36,984		228		195		0		37,017	0.35
After 10 years			504,084		12,743		1,670		0		515,157	1.11
			564,986		13,997		1,865		0		577,118	1.14
Fannie Mae ("FNMA") certificates:
After 1 to 5 years			24,800		717		0		0		25,517	2.81
After 5 to 10 years			133,177		4,015		546		0		136,646	1.84
After 10 years			1,471,162		14,726		22,097		0		1,463,791	1.35
			1,629,139		19,458		22,643		0		1,625,954	1.41
Collateralized mortgage obligations
issued or guaranteed by the FHLMC,
FNMA and GNMA:
After 1 to 5 years			446		0		1		0		445	0.78
After 5 to 10 years			40,922		128		336		0		40,714	1.10
After 10 years			362,100		733		5,042		0		357,791	1.45
			403,468		861		5,379		0		398,950	1.41
Private label:
After 10 years			11,722		0		2,550		875		8,297	2.20
Total MBS			4,017,179		44,173		56,457		875		4,004,020	1.32
Other:
After 1 to 5 years			650		0		0		0		650	2.90
Total investment securities
available for sale		$	5,443,424	$	45,205	$	80,656	$	1,183	$	5,406,790	1.16
__________

(1) 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.

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The amortized cost, gross unrealized gains and losses recorded in other comprehensive income (loss), ACL, estimated fair value, and weighted-average yield of investment securities available for sale by contractual maturities as of December 31, 2020 were as follows:

		December 31, 2020
		Amortized cost		Gross						Fair value
				Unrealized								Weighted-
				Gains		Losses		ACL				average yield%
(Dollars in thousands)
U.S. Treasury securities:
	Due within one year	$	7,498	$	9	$	0	$	0	$	7,507	1.65
U.S. government-sponsored
agencies' obligations:
	Due within one year		24,413		273		0		0		24,686	1.95
	After 1 to 5 years		691,668		911		290		0		692,289	0.57
	After 5 to 10 years		441,454		821		347		0		441,928	0.83
	After 10 years		21,413		0		149		0		21,264	0.65
Puerto Rico government
obligations:
	After 10 years (1)		3,987		0		780		308		2,899	6.97
United States and Puerto
Rico government
obligations			1,190,433		2,014		1,566		308		1,190,573	0.72
MBS:
FHLMC certificates:
	After 1 to 5 years		75		8		0		0		83	4.86
	After 5 to 10 years		60,773		2,850		0		0		63,623	2.15
	After 10 years		1,070,984		15,340		159		0		1,086,165	1.38
			1,131,832		18,198		159		0		1,149,871	1.42
GNMA certificates:
	Due within one year		1		0		0		0		1	1.93
	After 1 to 5 years		26,918		1,080		0		0		27,998	2.91
	After 5 to 10 years		40,727		128		69		0		40,786	0.42
	After 10 years		614,584		16,271		148		0		630,707	1.27
			682,230		17,479		217		0		699,492	1.29
FNMA certificates:
	After 1 to 5 years		24,812		891		0		0		25,703	2.81
	After 5 to 10 years		110,832		5,783		0		0		116,615	2.13
	After 10 years		1,154,707		23,459		203		0		1,177,963	1.53
			1,290,351		30,133		203		0		1,320,281	1.61
Collateralized mortgage obligations issued
	or guaranteed by the FHLMC,
	FNMA and GNMA:
	After 1 to 5 years		538		0		1		0		537	0.81
	After 5 to 10 years		18,438		152		0		0		18,590	0.80
	After 10 years		258,069		1,019		491		0		258,597	1.56
			277,045		1,171		492		0		277,724	1.51
Private label
	After 10 years		12,310		0		2,880		1,002		8,428	2.25
Total MBS			3,393,768		66,981		3,951		1,002		3,455,796	1.47
Other
	After 1 to 5 years		650		0		0		0		650	2.94
Total investment securities
	available for sale	$	4,584,851	$	68,995	$	5,517	$	1,310	$	4,647,019	1.28

(1) Consists of a residential pass-through MBS issued by the PRHFA that is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010.

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Maturities of MBS are based on the period of final contractual maturity. Expected maturities of investments might differ from contractual maturities because they may be subject to prepayments and/or call options. The weighted-average yield on investment securities available for sale is based on amortized cost and, therefore, does not give effect to changes in fair value. The net unrealized gain or loss on securities available for sale is presented as part of other comprehensive income (loss).

The following tables show the fair value and gross unrealized losses of the Corporation’s available-for-sale investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of March 31, 2021 and December 31, 2020. The tables also include debt securities for which an ACL was recorded.

	As of March 31, 2021
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(In thousands)
Debt securities:
Puerto Rico-government obligations	$	0	$	0	$	2,829	$	789	$	2,829	$	789
U.S. Treasury and U.S. government
agenciesʼ obligations		1,234,071		23,236		27,332		174		1,261,403		23,410
MBS:
FNMA		1,138,051		22,643		0		0		1,138,051		22,643
FHLMC		1,025,221		24,020		0		0		1,025,221		24,020
GNMA		116,960		1,865		0		0		116,960		1,865
Collateralized mortgage obligations
issued or guaranteed by
the FHLMC, FNMA and GNMA		285,821		5,278		9,300		101		295,121		5,379
Private label MBS		0		0		8,297		2,550		8,297		2,550
	$	3,800,124	$	77,042	$	47,758	$	3,614	$	3,847,882	$	80,656
	As of December 31, 2020
	Less than 12 months				12 months or more				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(In thousands)
Debt securities:
Puerto Rico-government obligations	$	0	$	0	$	2,899	$	780	$	2,899	$	780
U.S. Treasury and U.S. government
agenciesʼ obligations		425,155		621		23,377		165		448,532		786
MBS:
FNMA		93,509		203		0		0		93,509		203
FHLMC		89,292		159		0		0		89,292		159
GNMA		70,504		217		0		0		70,504		217
Collateralized mortgage
obligations issued or guaranteed
by the FHLMC, FNMA and GNMA		104,500		410		9,761		82		114,261		492
Private label MBS		0		0		8,428		2,880		8,428		2,880
	$	782,960	$	1,610	$	44,465	$	3,907	$	827,425	$	5,517

20

During the first quarter of 2020, the Corporation sold approximately $275.6 million of U.S. agencies MBS and recognized a gain of approximately $8.2 million. These sales settled in April 2020. The $8.2 million was realized at the tax-exempt international banking entity subsidiary, which had no income tax expense recorded during the quarter ended March 31, 2020. There were no sales of securities available for sale during the first quarter of 2021.

Assessment for Credit Losses

Debt securities issued by U.S. government agencies, U.S. government-sponsored entities (“GSEs”), and the U.S. Treasury, including notes and MBS, accounted for approximately 99% of the total available-for-sale portfolio as of March 31, 2021, and the Corporation expects no credit losses, given the explicit and implicit guarantees provided by the U.S. federal government. Because the decline in fair value is attributable to changes in interest rates, and not credit quality, and because the Corporation does not have the intent to sell these U.S. government and agencies debt securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Corporation does not consider impairments on these securities to be credit related as of March 31, 2021. The Corporation’s credit loss assessment was concentrated mainly on private label MBS, and on Puerto Rico government debt securities, for which credit losses are evaluated on a quarterly basis. The Corporation considered the following factors in determining whether a credit loss existed and the period over which the debt security was expected to recover:

 Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the financial condition of the issuer, credit ratings, the failure of the issuer to make scheduled principal or interest payments, recent legislation and government actions affecting the issuer’s industry, and actions taken by the issuer to deal with the present economic climate;

 Changes in the near term prospects of the underlying collateral for a security, if any, such as changes in default rates, loss severity given a default, and significant changes in prepayment assumptions; and

 The level of cash flows generated from the underlying collateral, if any, supporting the principal and interest payments of the debt securities.

The Corporation’s available-for-sale MBS portfolio includes private label MBS with a fair value of $8.3 million, which had unrealized losses of approximately $3.4 million as of March 31, 2021, of which $0.9 million is due to credit deterioration and is part of the ACL. The interest rate on these private-label MBS is variable, tied to 3-month LIBOR and limited to the weighted-average coupon on the underlying collateral. The underlying collateral is fixed-rate, single-family residential mortgage loans in the United State with original FICO scores over 700 and moderate loan-to-value ratios (under 80%), as well as moderate delinquency levels. As of March 31, 2021, the Corporation did not have the intent to sell these securities and determined that it is likely that it will not be required to sell the securities before anticipated recovery. The Corporation determined the ACL for private label MBS based on a risk-adjusted discounted cash flow methodology that considers the structure and terms of the instruments. The Corporation utilized probability of default (“PDs”) and loss given default (“LGDs”) that considered, among other things, historical payment performance, loan-to value attributes and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates and the housing price index. Under this approach, all future cash flows (interest and principal) from the underlying collateral loans, adjusted by prepayments and the PDs and LGDs, were discounted at the effective interest rate as of the reporting date. Significant assumptions in the valuation of the private label MBS were as follows:

	As of			As of
	March 31, 2021			December 31, 2020
	Weighted	Range		Weighted	Range
	Average	Minimum	Maximum	Average	Minimum	Maximum
Discount rate	12.9%	12.9%	12.9%	12.2%	12.2%	12.2%
Prepayment rate	13.6%	0.7%	21.9%	12.1%	1.2%	18.8%
Projected Cumulative Loss Rate	7.7%	0.1%	17.8%	10.2%	2.6%	22.3%

21

The Corporation evaluates if a credit loss exists, primarily by monitoring adverse variances in the present value of expected cash flows. As of March 31, 2021, the ACL for these private label MBS was $0.9 million, relatively flat compared to $1.0 million as of December 31, 2020.

As of March 31, 2021, the Corporation’s available-for-sale investment securities portfolio also included a residential pass-through MBS issued by the PRHFA, collateralized by certain second mortgages, with a fair value of $2.8 million, which had an unrealized loss of approximately $1.1 million. Approximately $0.3 million of the unrealized losses was due to credit deterioration and is part of the ACL. The underlying second mortgage loans were originated under a program launched by the Puerto Rico government in 2010. This residential pass-through MBS was structured as a zero-coupon bond for the first ten years (up to July 2019). The underlying source of payment on this residential pass-through MBS is second mortgage loans in Puerto Rico. PRHFA, not the Puerto Rico government, provides a guarantee in the event of default and subsequent foreclosure of the properties underlying the second mortgage loans. The Corporation determined the ACL on this instrument based on a risk-adjusted discounted cash flow methodology that considered the structure and terms of the underlying collateral. The Corporation utilized PDs and LGDs that considered, among other things, historical payment performance, loan-to value attributes and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates, the housing price index and expected recovery from the PRHFA guarantee. Under this approach, all future cash flows (interest and principal) from the underlying collateral loans, adjusted by prepayments and the PDs and LGDs, were discounted at the internal rate of return as of the reporting date and compared to the amortized cost. In the event that the second mortgage loans default and the collateral is insufficient to satisfy the outstanding balance of this residential pass-through MBS, PRHFA’s ability to honor its insurance will depend on, among other factors, the financial condition of PRHFA at the time such obligation becomes due and payable. Further deterioration of the Puerto Rico economy or fiscal health of the PRHFA could impact the value of these securities, resulting in additional losses to the Corporation. As of March 31, 2021, the Corporation did not have the intent to sell this security and determined that it was likely that it will not be required to sell the security before its anticipated recovery. Accrued interest receivable on available-for-sale debt securities totaled $9.6 million as of March 31, 2021 ($8.5 million as of December 31, 2020) and is excluded from the estimate of credit losses.

The following table presents a rollforward by major security type for the quarter ended March 31, 2021 and 2020 of the ACL on debt securities available-for-sale:

	Quarter Ended March 31, 2021
	Private label		Puerto Rico Government
	MBS		Obligations		Total
(In thousands)
Beginning Balance	$	1,002	$	308	$	1,310
Release for securities for which previous expected
credit losses were recognized (provision for credit losses - benefit)		(127)		0		(127)
ACL on debt securities available-for-sale	$	875		308		1,183
	Quarter Ended March 31, 2020
	Private label		Puerto Rico Government
	MBS		Obligations		Total
(In thousands)
Beginning Balance	$	0	$	0	$	0
Impact of adopting CECL		0		0		0
Addition for securities for which previous expected
credit losses were recognized (provision for credit losses - expense)		368		0		368
ACL on debt securities available-for-sale	$	368		0		368

22

Investments Held to Maturity

The amortized cost, gross unrecognized gains and losses, estimated fair value, ACL, weighted-average yield and contractual maturities of investment securities held to maturity as of March 31, 2021 and December 31, 2020 were as follows:

		March 31, 2021
		Amortized cost						Fair value
				Gross Unrecognized						ACL
												Weighted - average yield %
(Dollars in thousands)				Gains		Losses
Puerto Rico municipal bonds:
	Due within one year	$	2,968	$	3	$	26	$	2,945	$	52	5.38
	After 1 to 5 years		14,843		659		136		15,366		601	2.57
	After 5 to 10 years		88,564		1,603		1,568		88,599		3,967	4.65
	After 10 years		83,305		0		11,901		71,404		4,249	3.57
Total investment securities
	held to maturity	$	189,680	$	2,265	$	13,631	$	178,314	$	8,869	4.03

		December 31, 2020
		Amortized cost						Fair value
				Gross Unrecognized
												Weighted - average yield %
(Dollars in thousands)				Gains		Losses				ACL
Puerto Rico municipal bonds:
	Due within one year	$	556	$	7	$	0	$	563	$	0	5.41
	After 1 to 5 years		17,297		561		305		17,553		576	3.00
	After 5 to 10 years		88,394		1,388		3,146		86,636		4,401	4.66
	After 10 years		83,241		0		14,187		69,054		3,868	3.57
Total investment securities
	held to maturity	$	189,488	$	1,956	$	17,638	$	173,806	$	8,845	4.03

23

The following tables show the Corporation’s held-to-maturity investments’ fair value and gross unrecognized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrecognized loss position, as of March 31, 2021 and December 31, 2020, including debt securities for which an ACL was recorded.

	As of March 31, 2021
	Less than 12 months				12 months or more				Total
			Unrecognized				Unrecognized				Unrecognized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(In thousands)
Debt securities:
Puerto Rico municipal bonds	$	24,566	$	1,002	$	116,302	$	12,629	$	140,868	$	13,631
	As of December 31, 2020
	Less than 12 months				12 months or more				Total
			Unrecognized				Unrecognized				Unrecognized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
(In thousands)
Debt securities:
Puerto Rico municipal bonds	$	28,252	$	1,611	$	116,216	$	16,027	$	144,468	$	17,638

The Corporation determines the ACL of Puerto Rico municipal bonds based on the product of a cumulative PD and LGD, and the amortized cost basis of the bonds over their remaining expected life, as described in Note 1 – Nature of Business and Summary of Significant Accounting Policies in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K.

The Corporation performs periodic credit quality reviews on these issuers. All of the Puerto Rico municipal bonds were current as to scheduled contractual payments as of March 31, 2021. The Puerto Rico municipal bonds had an ACL of $8.9 million as of March 31, 2021, relatively flat compared to $8.8 million as of December 31, 2020. According to the Corporation’s policy, accrued interest receivable on held-to-maturity debt securities, totaled $1.8 million as of March 31, 2021 ($3.6 million as of December 31, 2020), was excluded from the estimate of credit losses.

24

The following table presents the activity in the ACL for debt securities held-to-maturity by major security type for the quarters ended March 31, 2021 and 2020, respectively:

	Quarter Ended March 31,
	2021		2020
	Puerto Rico		Puerto Rico
	Municipal Bonds		Municipal Bonds
(In thousands)
Beginning balance	$	8,845	$	0
Impact of adopting CECL		-		8,134
Addition for securities for which no previous expected
credit losses were recognized (provision for credit losses)		0		1,134
Addition for securities for which previous expected
credit losses were recognized (provision for credit losses)		24		0
	$	8,869	$	9,268

During the second quarter of 2019, the oversight board established by PROMESA announced the designation of Puerto Rico’s 78 municipalities as covered instrumentalities under PROMESA. Meanwhile, the latest fiscal plan certified by the PROMESA oversight board did not contemplate a restructuring of the debt of Puerto Rico’s municipalities but contemplates assistance to municipalities through the launch of three municipal incentive funds. Furthermore, municipalities may be affected by the negative economic and other effects resulting from expense, revenue or cash management measures taken by the Puerto Rico government to address its fiscal problems, or measures included in fiscal plans of other government entities, and, more recently, by the effect of the COVID-19 pandemic on the Puerto Rico and global economy. Given the uncertain effect of the negative fiscal situation of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to be taken, by other government entities in response to the COVID-19 pandemic on municipalities, the Corporation cannot be certain whether future charges to the ACL on these securities will be required.

From time to time, the Corporation has securities held to maturity with an original maturity of three months or less that are considered cash and cash equivalents and are classified as money market investments in the consolidated statements of financial condition. As of March 31, 2021 and December 31, 2020, the Corporation had 0 outstanding securities held to maturity that were classified as cash and cash equivalents.

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Credit Quality Indicators:

The held-to-maturity investment securities portfolio consisted of financing arrangements with Puerto Rico municipalities issued in bond form, which are accounted for as securities, but are underwritten as loans with features that are typically found in commercial loans. Accordingly, the Corporation monitors the credit quality of Puerto Rico municipal bonds held-to-maturity through the use of internal credit-risk ratings, which are generally updated on a quarterly basis. The Corporation considers a debt security held-to-maturity as a criticized asset if its risk rating is Special Mention, Substandard, Doubtful or Loss. Puerto Rico municipal bonds that do not meet the criteria for classification as criticized assets are considered to be pass-rated securities. The asset categories are defined below:

Pass – Assets classified as pass have a well-defined primary source of repayment, with no apparent risk, strong financial position, minimal operating risk, profitability, liquidity and strong capitalization.

Special Mention – Special Mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position at some future date. Special Mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.

Substandard – Substandard assets are inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful – Doubtful classifications have all of the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable, based on currently known facts, conditions and values. A Doubtful classification may be appropriate in cases where significant risk exposures are perceived, but loss cannot be determined because of specific reasonable pending factors, which may strengthen the credit in the near term.

Loss – Assets classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this asset even though partial recovery may occur in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.

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The Corporation periodically reviews its assets to evaluate if they are properly classified, and to determine impairment, if any. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor.

The Corporation has a Loan Review Group that reports directly to the Corporation’s Risk Management Committee and administratively to the Chief Risk Officer. The Loan Review Group performs annual comprehensive credit process reviews of the Bank’s commercial loan portfolios, including the above-mentioned Puerto Rico municipal bonds accounted for as held-to-maturity securities. This group evaluates the credit risk profile of portfolios, including the assessment of the risk rating representative of the current credit quality of the assets, and the evaluation of collateral documentation, if applicable. The monitoring performed by this group contributes to the assessment of compliance with credit policies and underwriting standards, the determination of the current level of credit risk, the evaluation of the effectiveness of the credit management process and the identification of any deficiency that may arise in the credit-granting process. Based on its findings, the Loan Review Group recommends corrective actions, if necessary, that help in maintaining a sound credit process. The Loan Review Group reports the results of the credit process reviews to the Risk Management Committee.

27

The following table summarizes the amortized cost of the Puerto Rico municipal bonds, which are the Corporation’s only debt securities held-to-maturity, as of March 31, 2021 and December 31, 2020 aggregated by credit quality indicator:

	Held to Maturity
	Puerto Rico Municipal Bonds
	March 31,		December 31
(In thousands)	2021		2020
Risk Ratings:
Pass	$	189,680	$	189,488
Criticized:
Special Mention		0		0
Substandard		0		0
Doubtful		0		0
Loss		0		0
Total	$	189,680	$	189,488

NaN held-to-maturity debt securities were on nonaccrual status, 90 days past due and still accruing, or past due as of March 31, 2021 and December 31, 2020. A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement.

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NOTE 6 – EQUITY SECURITIES

Institutions that are members of the FHLB system are required to maintain a minimum investment in FHLB stock. Such minimum investment is calculated as a percentage of aggregate outstanding mortgages, and the FHLB requires an additional investment that is calculated as a percentage of total FHLB advances, letters of credit, and the collateralized portion of outstanding interest-rate swaps. The stock is capital stock issued at $100 par value. Both stock and cash dividends may be received on FHLB stock.

As of each of March 31, 2021 and December 31, 2020, the Corporation had investments in FHLB stock carried at a cost of $31.2 million. Dividend income from FHLB stock for the quarters ended March 31, 2021 and 2020 was $0.4 million and $0.6 million, respectively.

The FHLB of New York issued the shares of FHLB stock owned by the Corporation. The FHLB of New York is part of the Federal Home Loan Bank System, a national wholesale banking network of 11 regional, stockholder-owned congressionally chartered banks. The FHLBs are all privately capitalized and operated by their member stockholders. The system is supervised by the Federal Housing Finance Agency, which requires that the FHLBs operate in a financially safe and sound manner, remain adequately capitalized and able to raise funds in the capital markets, and carry out their housing finance mission.

As of March 31, 2021 and December 31, 2020, the Corporation owned other equity securities with a readily determinable fair value of approximately $5.4 million and $1.5 million, respectively. During the first quarter of 2021, the Corporation recognized a marked-to-market loss of $31 thousand associated with these securities ($27 thousand marked-to-market gain in the first quarter of 2020), which was recorded as part of other non-interest income in the consolidated statements of income. In addition, the Corporation had other equity securities that do not have a readily-determinable fair value. The carrying value of such securities as of each of March 31, 2021 and December 31, 2020 was $4.9 million.

NOTE 7 – LOANS HELD FOR INVESTMENT

The following provides information about the loan portfolio held for investment as of the indicated dates:

	As of March 31,		As of December 31,
	2021		2020
(In thousands)
Residential mortgage loans, mainly secured by first mortgages	$	3,395,081	$	3,521,954
Construction loans		190,996		212,500
Commercial mortgage loans		2,216,887		2,230,602
C&I loans (1) (2) (3)		3,182,706		3,202,590
Consumer loans		2,656,189		2,609,643
Loans held for investment (4)		11,641,859		11,777,289
ACL on loans and finance leases		(358,936)		(385,887)
Loans held for investment, net	$	11,282,923	$	11,391,402

(1)During the first quarter of 2021, three criticized commercial loan participations totaling $28.2 million were transferred to held for sale. These transfers resulted in charge-offs of $0.7 million in the first quarter of 2021. One of these participations amounting to $14.3 million was sold prior to the end of the first quarter and a second one amounting to $9.7 million was sold in early April 2021.

(2)As of March 31, 2021 and December 31, 2020, includes $430.5 million and $406.0 million, respectively, of Small Business Administration (‘SBA”) Paycheck Protection Program (“SBA PPP”) loans.

(3)As of each of March 31, 2021 and December 31, 2020, includes $1.0 billion of commercial loans that were secured by real estate but were not dependent upon the real estate for repayment.

(4)Includes accretable fair value net purchase discounts of $44.6 million and $48.0 million as of March 31, 2021 and December 31, 2020, respectively.

29

The following tables present by portfolio classes the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of March 31, 2021 and the interest income recognized on nonaccrual loans for the quarters ended March 31, 2021 and 2020:
		As of March 31, 2021								Quarter Ended March 31, 2021		Quarter Ended March 31, 2020
Puerto Rico and Virgin Islands region		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans (2)		Loans Past Due 90 days or more and Still Accruing (3)		Interest Income Recognized on Nonaccrual Loans		Interest Income Recognized on Nonaccrual Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	98,957	$	0	$	0
	Conventional residential mortgage loans		13,735		104,067		117,802		38,615		312		294
Construction loans			4,703		1,675		6,378		600		15		20
Commercial mortgage loans			13,248		15,300		28,548		2,993		50		74
C&I loans			13,176		5,416		18,592		11,498		17		32
Consumer Loans:
Auto loans			1		8,901		8,902		0		22		50
Finance leases			0		967		967		0		1		11
Personal loans			0		1,327		1,327		0		28		19
Credit cards			0		0		0		6,682		0		0
Other consumer loans			0		2,942		2,942		2		0		5
Total loans held for investment (1)		$	44,863	$	140,595	$	185,458	$	159,347	$	445	$	505

(1)Nonaccrual loans exclude $367.0 million of troubled debt restructuring (“TDR”) loans that were in compliance with modified terms and in accrual status as of March 31, 2021.

(2)Excludes purchases with credit deterioration (“PCD”) loans previously accounted for under ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC Subtopic 310-30”) for which the Corporation made the accounting policy election for maintaining pools of loans accounted for under ASC Subtopic 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2021 was $128.4 million.

(3) These include rebooked loans, which were previously pooled into GNMA securities, amounting to $17.2 million as of March 31, 2021. 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. During the quarter ended March 31, 2021, the Corporation repurchased, pursuant to the aforementioned repurchase option, $0.3 million of loans previously sold to GNMA.

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		As of March 31, 2021								Quarter Ended March 31, 2021		Quarter Ended March 31, 2020
Florida region		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans		Loans Past Due 90 days or more and Still Accruing		Interest Income Recognized on Nonaccrual Loans		Interest Income Recognized on Nonaccrual Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	250	$	0	$	0
	Conventional residential mortgage loans		2,704		11,833		14,537		0		64		83
Construction loans			0		0		0		0		0		0
Commercial mortgage loans			0		0		0		0		0		0
C&I loans			536		0		536		0		18		19
Consumer Loans:
Auto loans			0		34		34		0		0		2
Finance leases			0		0		0		0		0		0
Personal loans			0		0		0		0		0		2
Credit cards			0		0		0		0		0		0
Other consumer loans			0		536		536		0		5		4
Total loans held for investment (1)		$	3,240	$	12,403	$	15,643	$	250	$	87	$	110

(1)Nonaccrual loans exclude $6.8 million of TDR loans that were in compliance with modified terms and in accrual status as of March 31, 2021.

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		As of March 31, 2021								Quarter Ended March 31, 2021		Quarter Ended March 31, 2020
Total		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans (2)		Loans Past Due 90 days or more and Still Accruing (3)		Interest Income Recognized on Nonaccrual Loans		Interest Income Recognized on Nonaccrual Loans
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	99,207	$	0	$	0
	Conventional residential mortgage loans		16,439		115,900		132,339		38,615		376		377
Construction loans			4,703		1,675		6,378		600		15		20
Commercial mortgage loans			13,248		15,300		28,548		2,993		50		74
C&I loans			13,712		5,416		19,128		11,498		35		51
Consumer Loans:
Auto loans			1		8,935		8,936		0		22		52
Finance leases			0		967		967		0		1		11
Personal loans			0		1,327		1,327		0		28		21
Credit cards			0		0		0		6,682		0		0
Other consumer loans			0		3,478		3,478		2		5		9
Total loans held for investment (1)		$	48,103	$	152,998	$	201,101	$	159,597	$	532	$	615

(1)Nonaccrual loans exclude $373.8 million of TDR loans that were in compliance with modified terms and in accrual status as of March 31, 2021.

(2)Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2021 was $128.4 million.

(3)These include rebooked loans, which were previously pooled into GNMA securities, amounting to $17.2 million as of March 31, 2021. 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. During the quarter ended March 31, 2021, the Corporation repurchased, pursuant to the aforementioned repurchase option, $0.3 million of loans previously sold to GNMA.

32

The following tables present by portfolio classes the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more still accruing as of December 31, 2020:
		As of December 31, 2020
Puerto Rico and Virgin Islands region		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans (2)		Loans Past Due 90 days or more and Still Accruing (3)
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	98,993
	Conventional residential mortgage loans		12,418		98,527		110,945		38,834
Construction loans			4,546		8,425		12,971		0
Commercial mortgage loans			11,777		17,834		29,611		3,252
C&I loans			14,824		5,496		20,320		2,246
Consumer Loans:
Auto loans			26		8,638		8,664		0
Finance leases			0		1,466		1,466		0
Personal loans			0		1,623		1,623		0
Credit cards			0		0		0		1,520
Other consumer loans			0		3,682		3,682		0
Total loans held for investment (1)		$	43,591	$	145,691	$	189,282	$	144,845

(1)Nonaccrual loans exclude $386.7 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2020.

(2)Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election for maintaining pools of loans accounted for under ASC Subtopic 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of December 31, 2020 was $130.9 million.

(3)These include rebooked loans, which were previously pooled into GNMA securities, amounting to $10.7 million as of December 31, 2020. 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.

33

		As of December 31, 2020
Florida region		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans		Loans Past Due 90 days or more and Still Accruing
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	250
	Conventional residential mortgage loans		2,584		11,838		14,422		0
Construction loans			0		0		0		0
Commercial mortgage loans			0		0		0		0
C&I loans			561		0		561		0
Consumer Loans:
Auto loans			0		223		223		0
Finance leases			0		0		0		0
Personal loans			0		0		0		0
Credit cards			0		0		0		0
Other consumer loans			0		601		601		0
Total loans held for investment (1)		$	3,145	$	12,662	$	15,807	$	250

(1)Nonaccrual loans exclude $6.6 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2020.

34

		As of December 31, 2020
Total		Nonaccrual Loans with No ACL		Nonaccrual Loans with ACL		Total Nonaccrual Loans (2)		Loans Past Due 90 days or more and Still Accruing (3)
(In thousands)
Residential mortgage loans, mainly secured
by first mortgages:
	FHA\VA government-guaranteed	$	0	$	0	$	0	$	99,243
	Conventional residential mortgage loans		15,002		110,365		125,367		38,834
Construction loans			4,546		8,425		12,971		0
Commercial mortgage loans			11,777		17,834		29,611		3,252
C&I loans			15,385		5,496		20,881		2,246
Consumer Loans:
Auto loans			26		8,861		8,887		0
Finance leases			0		1,466		1,466		0
Personal loans			0		1,623		1,623		0
Credit cards			0		0		0		1,520
Other consumer loans			0		4,283		4,283		0
Total loans held for investment (1)		$	46,736	$	158,353	$	205,089	$	145,095

(1)Nonaccrual loans exclude $393.3 million of TDR loans that were in compliance with modified terms and in accrual status as of December 31, 2020.

(2)Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of December 31, 2020 was $130.9 million.

(3)These include rebooked loans, which were previously pooled into GNMA securities, amounting to $10.7 million as of December 31, 2020. 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.

When a loan is placed on nonaccrual status, any accrued but uncollected interest income is reversed and charged against interest income and amortization of any net deferred fees is suspended. The amount of accrued interest reversed against interest income totaled $1.0 million for the first quarter of 2021 ($0.5 million for the first quarter of 2020).

As of March 31, 2021, the recorded investment on residential mortgage loans collateralized by residential real estate property that were in the process of foreclosure amounted to $169.8 million, including $58.7 million of loans insured by the FHA or guaranteed by the VA, and $18.6 million of PCD loans acquired prior to the adoption, on January 1, 2020, of CECL and for which the Corporation made the accounting policy election of maintaining pools of loans previously accounted for under ASC 310-30 as “units of account.” The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent, in accordance with the requirements of the Consumer Financial Protection Bureau (“CFPB”). Foreclosure procedures and timelines vary depending on whether the property is located in a judicial or non-judicial state. Judicial states (i.e., Puerto Rico, Florida and the USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (i.e., the BVI) is processed without court intervention. Foreclosure timelines vary according to local jurisdiction law and investor guidelines. Occasionally, foreclosures may be delayed due to, among other reasons, mandatory mediations, bankruptcy, court delays and title issues.

35

The Corporation’s aging of the loan portfolio held for investment by portfolio classes as of March 31, 2021 is as follows:
As of March 31, 2021
Puerto Rico and Virgin Islands region	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2) (3)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2) (3) (4)	$	0	$	2,236	$	98,957	$	101,193	$	53,560	$	154,753
Conventional residential mortgage loans (4)		0		41,520		156,417		197,937		2,551,202		2,749,139
Commercial loans:
Construction loans (4)		2,582		0		6,978		9,560		59,725		69,285
Commercial mortgage loans (4)		1,613		34,340		31,541		67,494		1,758,251		1,825,745
C&I loans		7,563		6,974		30,090		44,627		2,179,386		2,224,013
Consumer loans:
Auto loans		19,243		2,999		8,902		31,144		1,309,522		1,340,666
Finance leases		4,637		478		967		6,082		487,538		493,620
Personal loans		3,252		1,399		1,327		5,978		351,411		357,389
Credit cards		2,853		1,879		6,682		11,414		294,959		306,373
Other consumer loans		2,061		1,002		2,944		6,007		128,729		134,736
Total loans held for investment	$	43,804	$	92,827	$	344,805	$	481,436	$	9,174,283	$	9,655,719

(1) Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $58.3 million of residential mortgage loans insured by the FHA that were over 15 months delinquent.

(3)As of March 31, 2021, includes $17.2 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.

(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2021 amounted to $4.5 million, $79.9 million, $3.3 million, and $0.1 million, respectively.

36

As of March 31, 2021
Florida region	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2)	$	0	$	0	$	250	$	250	$	631	$	881
Conventional residential mortgage loans (3)		0		4,072		14,537		18,609		471,699		490,308
Commercial loans:
Construction loans		0		0		0		0		121,711		121,711
Commercial mortgage loans (3)		0		0		0		0		391,142		391,142
C&I loans		868		1,367		536		2,771		955,922		958,693
Consumer loans:
Auto loans		328		159		34		521		14,805		15,326
Finance leases		0		0		0		0		0		0
Personal loans		0		0		0		0		156		156
Credit cards		0		0		0		0		0		0
Other consumer loans		23		0		536		559		7,364		7,923
Total loans held for investment	$	1,219	$	5,598	$	15,893	$	22,710	$	1,963,430	$	1,986,140

(1)Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans).

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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. NaN residential mortgage loans insured by the FHA in the Florida region were over 15 months delinquent as of March 31, 2021.

(3)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. Conventional residential mortgage loans and commercial mortgage loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2021 amounted to $10.7 million and $0.2 million, respectively.

37

As of March 31, 2021
Total	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2) (3)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2) (3) (4)	$	0	$	2,236	$	99,207	$	101,443	$	54,191	$	155,634
Conventional residential mortgage loans (4)		0		45,592		170,954		216,546		3,022,901		3,239,447
Commercial loans:
Construction loans (4)		2,582		0		6,978		9,560		181,436		190,996
Commercial mortgage loans (4)		1,613		34,340		31,541		67,494		2,149,393		2,216,887
C&I loans		8,431		8,341		30,626		47,398		3,135,308		3,182,706
Consumer loans:
Auto loans		19,571		3,158		8,936		31,665		1,324,327		1,355,992
Finance leases		4,637		478		967		6,082		487,538		493,620
Personal loans		3,252		1,399		1,327		5,978		351,567		357,545
Credit cards		2,853		1,879		6,682		11,414		294,959		306,373
Other consumer loans		2,084		1,002		3,480		6,566		136,093		142,659
Total loans held for investment	$	45,023	$	98,425	$	360,698	$	504,146	$	11,137,713	$	11,641,859

(1)Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $58.3 million of residential mortgage loans insured by the FHA that were over 15 months delinquent.

(3)As of March 31, 2021, includes $17.2 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.

(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of March 31, 2021 amounted to $4.5 million, $90.6 million, $3.5 million, and $0.1 million, respectively.

38

The Corporation’s aging of the loan portfolio held for investment by portfolio classes as of December 31, 2020 is as follows:
As of December 31, 2020
Puerto Rico and Virgin Islands region	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2) (3)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2) (3) (4)	$	0	$	2,223	$	98,993	$	101,216	$	48,348	$	149,564
Conventional residential mortgage loans (4)		0		61,040		149,779		210,819		2,641,820		2,852,639
Commercial loans:
Construction loans (4)		0		19		12,971		12,990		72,026		85,016
Commercial mortgage loans (4)		5,071		6,588		32,863		44,522		1,808,702		1,853,224
C&I loans		3,283		10,692		22,566		36,541		2,228,190		2,264,731
Consumer loans:
Auto loans		24,025		5,992		8,664		38,681		1,239,445		1,278,126
Finance leases		5,059		1,086		1,466		7,611		465,378		472,989
Personal loans		4,034		1,981		1,623		7,638		364,373		372,011
Credit cards		3,528		5,842		1,518		10,888		308,936		319,824
Other consumer loans		2,143		993		3,684		6,820		133,162		139,982
Total loans held for investment	$	47,143	$	96,456	$	334,127	$	477,726	$	9,310,380	$	9,788,106

(1)Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $57.9 million of residential mortgage loans insured by the FHA that were over 15 months delinquent.

(3)As of December 31, 2020, includes $10.7 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.

(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, conventional residential mortgage loans, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2020 amounted to $5.9 million, $105.2 million, $5.0 million, and $0.1 million, respectively.

39

As of December 31, 2020
Florida region	30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2) (3)	$	0	$	0	$	250	$	250	$	920	$	1,170
Conventional residential mortgage loans (3)		0		3,237		14,422		17,659		500,922		518,581
Commercial loans:
Construction loans		0		0		0		0		127,484		127,484
Commercial mortgage loans		0		0		0		0		377,378		377,378
C&I loans		218		0		561		779		937,080		937,859
Consumer loans:
Auto loans		710		297		223		1,230		17,068		18,298
Finance leases		0		0		0		0		0		0
Personal loans		0		0		0		0		157		157
Credit cards		0		0		0		0		0		0
Other consumer loans		58		0		601		659		7,597		8,256
Total loans held for investment	$	986	$	3,534	$	16,057	$	20,577	$	1,968,606	$	1,989,183

(1) Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans).

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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. NaN residential mortgage loans insured by the FHA in the Florida region were over 15 months delinquent.

(3)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans and conventional residential mortgage loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2020 amounted to $0.2 million and $6.6 million, respectively.

40

	��
As of December 31, 2020
Total		30-59 Days Past Due		60-89 Days Past Due		90 days or more Past Due (1) (2) (3)		Total Past Due		Current		Total loans held for investment
(In thousands)
Residential mortgage loans, mainly secured by first mortgages:
FHA/VA government-guaranteed loans (2) (3) (4)		$	0	$	2,223	$	99,243	$	101,466	$	49,268	$	150,734
Conventional residential mortgage loans (4)			0		64,277		164,201		228,478		3,142,742		3,371,220
Commercial loans:
Construction loans (4)			0		19		12,971		12,990		199,510		212,500
Commercial mortgage loans (4)			5,071		6,588		32,863		44,522		2,186,080		2,230,602
C&I loans			3,501		10,692		23,127		37,320		3,165,270		3,202,590
Consumer loans:
Auto loans			24,735		6,289		8,887		39,911		1,256,513		1,296,424
Finance leases			5,059		1,086		1,466		7,611		465,378		472,989
Personal loans			4,034		1,981		1,623		7,638		364,530		372,168
Credit cards			3,528		5,842		1,518		10,888		308,936		319,824
Other consumer loans			2,201		993		4,285		7,479		140,759		148,238
Total loans held for investment		$	48,129	$	99,990	$	350,184	$	498,303	$	11,278,986	$	11,777,289

(1)Includes nonaccrual loans and accruing loans that were contractually delinquent 90 days or more (i.e., FHA/VA guaranteed loans and credit cards). Credit card loans continue to accrue finance charges and fees until charged-off at 180 days.

(2)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as past-due loans 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $57.9 million of residential mortgage loans insured by the FHA that were over 15 months delinquent.

(3)As of December 31, 2020, includes $10.7 million of defaulted loans collateralizing GNMA securities for which the Corporation has an unconditional option (but not an obligation) to repurchase the defaulted loans.

(4)According to the Corporation's delinquency policy and consistent with the instructions for the preparation of the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) required by the Federal Reserve Board, residential mortgage, commercial mortgage, and construction loans are considered past due when the borrower is in arrears on two or more monthly payments. FHA/VA government-guaranteed loans, other residential mortgage loans, commercial mortgage loans, and construction loans past due 30-59 days, but less than two payments in arrears, as of December 31, 2020 amounted to $6.1 million, $111.8 million, $5.0 million, and $0.1 million respectively.

41

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes non-homogeneous loans, such as commercial mortgage, commercial and industrial, and construction loans individually to classify the loans’ credit risk. As mentioned above, the Corporation periodically reviews its commercial and construction loans to evaluate if they are properly classified. The frequency of these reviews will depend on the amount of the aggregate outstanding debt, and the risk rating classification of the obligor. In addition, during the renewal and annual review process of applicable credit facilities, the Corporation evaluates the corresponding loan grades. The Corporation uses the same definition for risk ratings as those described for Puerto Rico municipal bonds accounted for as held-to-maturity securities, as discussed in Note 5 – Investment Securities, above.

For residential mortgage and consumer loans, the Corporation also evaluates credit quality based on credit scores and loan-to-value ratios, if applicable.

Based on the most recent analysis performed, the amortized cost of commercial and construction loans by portfolio classes and by origination year based on the internal credit-risk category as of March 31, 2021 and the amortized cost of commercial and construction loans by portfolio classes based on the internal credit-risk category as of December 31, 2020 was as follows:

	As of March 31, 2021
Puerto Rico and Virgin Islands region	Term Loans																As of December 31, 2020
	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
CONSTRUCTION
Risk Ratings:
Pass	$	413	$	13,128	$	39,238	$	1,722	$	345	$	4,735	$	0	$	59,581	$	68,836
Criticized:
Special Mention		0		0		773		0		0		0		0		773		776
Substandard		0		0		0		4,719		0		4,212		0		8,931		15,404
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total construction loans	$	413	$	13,128	$	40,011	$	6,441	$	345	$	8,947	$	0	$	69,285	$	85,016
COMMERCIAL MORTGAGE
Risk Ratings:
Pass	$	7,551	$	378,746	$	254,532	$	191,156	$	176,815	$	442,414	$	517	$	1,451,731	$	1,511,827
Criticized:
Special Mention		3,893		10,940		88,216		51,964		119,255		22,328		0		296,596		292,736
Substandard		380		9		0		20,833		6,512		49,684		0		77,418		48,661
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial mortgage loans	$	11,824	$	389,695	$	342,748	$	263,953	$	302,582	$	514,426	$	517	$	1,825,745	$	1,853,224
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass	$	148,061	$	427,172	$	359,390	$	228,155	$	207,773	$	244,150	$	465,973	$	2,080,674	$	2,155,226
Criticized:
Special Mention		0		0		1,553		0		827		48,745		13,744		64,869		59,421
Substandard		774		1,972		14,747		2,631		18,359		32,753		7,234		78,470		50,084
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	148,835	$	429,144	$	375,690	$	230,786	$	226,959	$	325,648	$	486,951	$	2,224,013	$	2,264,731
(1) Excludes accrued interest receivable.

42

					As of March 31, 2021
					Term Loans												As of December 31, 2020
Florida region					Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
CONSTRUCTION
Risk Ratings:
Pass	$	366	$	65,034	$	16,313	$	39,998	$	0	$	0	$	0	$	121,711	$	127,484
Criticized:
Special Mention		0		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total construction loans	$	366	$	65,034	$	16,313	$	39,998	$	0	$	0	$	0	$	121,711	$	127,484
COMMERCIAL MORTGAGE
Risk Ratings:
Pass	$	17,785	$	47,927	$	80,398	$	50,093	$	49,676	$	46,019	$	15,992	$	307,890	$	291,627
Criticized:
Special Mention		0		16,806		24,130		6,782		5,351		27,911		1,950		82,930		85,427
Substandard		0		0		0		0		0		322		0		322		324
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial mortgage loans	$	17,785	$	64,733	$	104,528	$	56,875	$	55,027	$	74,252	$	17,942	$	391,142	$	377,378
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass	$	79,107	$	172,942	$	269,070	$	87,128	$	73,201	$	53,469	$	135,154	$	870,071	$	823,124
Criticized:
Special Mention		0		3,002		47,317		12,147		0		0		0		62,466		73,974
Substandard		0		24,157		0		0		0		1,664		335		26,156		40,761
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	79,107	$	200,101	$	316,387	$	99,275	$	73,201	$	55,133	$	135,489	$	958,693	$	937,859
(1) Excludes accrued interest receivable.

43

	As of March 31, 2021
Total	Term Loans																As of December 31, 2020
	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
CONSTRUCTION
Risk Ratings:
Pass	$	779	$	78,162	$	55,551	$	41,720	$	345	$	4,735	$	0	$	181,292	$	196,320
Criticized:
Special Mention		0		0		773		0		0		0		0		773		776
Substandard		0		0		0		4,719		0		4,212		0		8,931		15,404
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total construction loans	$	779	$	78,162	$	56,324	$	46,439	$	345	$	8,947	$	0	$	190,996	$	212,500
COMMERCIAL MORTGAGE
Risk Ratings:
Pass	$	25,336	$	426,673	$	334,930	$	241,249	$	226,491	$	488,433	$	16,509	$	1,759,621	$	1,803,454
Criticized:
Special Mention		3,893		27,746		112,346		58,746		124,606		50,239		1,950		379,526		378,163
Substandard		380		9		0		20,833		6,512		50,006		0		77,740		48,985
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial mortgage loans	$	29,609	$	454,428	$	447,276	$	320,828	$	357,609	$	588,678	$	18,459	$	2,216,887	$	2,230,602
COMMERCIAL AND INDUSTRIAL
Risk Ratings:
Pass	$	227,168	$	600,114	$	628,460	$	315,283	$	280,974	$	297,619	$	601,127	$	2,950,745	$	2,978,350
Criticized:
Special Mention		0		3,002		48,870		12,147		827		48,745		13,744		127,335		133,395
Substandard		774		26,129		14,747		2,631		18,359		34,417		7,569		104,626		90,845
Doubtful		0		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0		0
Total commercial and industrial loans	$	227,942	$	629,245	$	692,077	$	330,061	$	300,160	$	380,781	$	622,440	$	3,182,706	$	3,202,590
(1) Excludes accrued interest receivable.

44

The following table presents the amortized cost of residential mortgage loans by origination year based on original loan-to-value-ratio (LTV) and original credit scores as of March 31, 2021 and the amortized cost in residential mortgage loans by original LTV and original credit scores as of December 31, 2020:

	As of March 31, 2021																As of December 31, 2020
	Term Loans
RESIDENTIAL MORTGAGES	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
Puerto Rico and Virgin Islands region:
FHA/VA government-guaranteed loans	$	0	$	260	$	771	$	2,809	$	5,139	$	145,774	$	0	$	154,753	$	149,564
Conventional residential mortgage loans:
Original LTV:
Less than or equal to 90 percent		12,057		37,740		59,217		91,367		62,453		1,692,678		0		1,955,512		2,029,177
Greater than 90 percent but less than
or equal to 100 percent		0		1,508		6,696		7,541		5,355		675,467		0		696,567		725,049
Greater than 100 percent		497		0		936		5,416		2,591		87,620		0		97,060		98,413
Total residential mortgages in
Puerto Rico and Virgin Islands region	$	12,554	$	39,508	$	67,620	$	107,133	$	75,538	$	2,601,539	$	0	$	2,903,892	$	3,002,203
Florida region:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0	$	881	$	0	$	881	$	1,170
Conventional residential mortgage loans:
Original LTV:
Less than or equal to 90 percent		8,791		37,401		47,886		56,693		80,839		241,325		0		472,935		497,410
Greater than 90 percent but less than
or equal to 100 percent		1,241		4,180		1,919		2,658		4,054		3,321		0		17,373		21,171
Greater than 100 percent		0		0		0		0		0		0		0		0		0
Total residential mortgages in Florida region	$	10,032	$	41,581	$	49,805	$	59,351	$	84,893	$	245,527	$	0	$	491,189	$	519,751
Total:
FHA/VA government-guaranteed loans	$	0	$	260	$	771	$	2,809	$	5,139	$	146,655	$	0	$	155,634	$	150,734
Conventional residential mortgage loans:
Original LTV:
Less than or equal to 90 percent		20,848		75,141		107,103		148,060		143,292		1,934,003		0		2,428,447		2,526,587
Greater than 90 percent but less than
or equal to 100 percent		1,241		5,688		8,615		10,199		9,409		678,788		0		713,940		746,220
Greater than 100 percent		497		0		936		5,416		2,591		87,620		0		97,060		98,413
Total residential mortgages	$	22,586	$	81,089	$	117,425	$	166,484	$	160,431	$	2,847,066	$	0	$	3,395,081	$	3,521,954
(1) Excludes accrued interest receivable.

45

	As of March 31, 2021																As of December 31, 2020
	Term Loans
RESIDENTIAL MORTGAGES	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
Puerto Rico and Virgin Islands region:
FHA/VA government-guaranteed loans	$	0	$	260	$	771	$	2,809	$	5,139	$	145,774	$	0	$	154,753	$	149,564
Conventional residential mortgage loans:
Original FICO Score:
Less than 620		0		44		77		462		54		316,742		0		317,379		326,190
Greater than or equal to 620
and less than 680		2,083		2,136		3,562		8,300		6,759		504,205		0		527,045		541,309
Greater than or equal to 680
and less than 740		2,123		14,879		23,888		36,474		24,156		712,150		0		813,670		841,797
Greater than or equal to 740		8,348		22,189		39,322		59,088		39,430		922,668		0		1,091,045		1,143,343
Total residential mortgages in
Puerto Rico and Virgin Islands region	$	12,554	$	39,508	$	67,620	$	107,133	$	75,538	$	2,601,539	$	0	$	2,903,892	$	3,002,203
Florida region:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0	$	881	$	0	$	881	$	1,170
Conventional residential mortgage loans:
Original FICO Score:
Less than 620		0		0		0		2,071		0		520		0		2,591		3,330
Greater than or equal to 620
and less than 680		2,778		3,584		5,041		3,416		7,904		25,124		0		47,847		48,420
Greater than or equal to 680
and less than 740		3,059		11,636		14,094		13,608		26,851		59,204		0		128,452		139,197
Greater than or equal to 740		4,195		26,361		30,670		40,256		50,138		159,798		0		311,418		327,634
Total residential mortgages in Florida region	$	10,032	$	41,581	$	49,805	$	59,351	$	84,893	$	245,527	$	0	$	491,189	$	519,751
Total:
FHA/VA government-guaranteed loans	$	0	$	260	$	771	$	2,809	$	5,139	$	146,655	$	0	$	155,634	$	150,734
Conventional residential mortgage loans:
Original FICO Score:
Less than 620		0		44		77		2,533		54		317,262		0		319,970		329,520
Greater than or equal to 620
and less than 680		4,861		5,720		8,603		11,716		14,663		529,329		0		574,892		589,729
Greater than or equal to 680
and less than 740		5,182		26,515		37,982		50,082		51,007		771,354		0		942,122		980,994
Greater than or equal to 740		12,543		48,550		69,992		99,344		89,568		1,082,466		0		1,402,463		1,470,977
Total residential mortgages	$	22,586	$	81,089	$	117,425	$	166,484	$	160,431	$	2,847,066	$	0	$	3,395,081	$	3,521,954
(1) Excludes accrued interest receivable.

46

The following table present the amortized cost of consumer loans by origination year based on original credit scores as of March 31, 2021 and the amortized cost of consumer loans based on original credit scores as of December 31, 2020:

CONSUMER	As of March 31, 2021
	Term Loans																As of December 31, 2020
Puerto Rico and Virgin Islands region	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
Auto loans
Original FICO score:
Less than 620	$	41,287	$	39,951	$	42,714	$	21,462	$	9,474	$	9,562	$	0	$	164,450	$	135,006
Greater than or equal to 620
and less than 680		34,590		127,583		132,815		81,162		33,377		23,228		0		432,755		430,434
Greater than or equal to 680
and less than 740		38,936		130,222		117,051		67,544		29,534		19,722		0		403,009		392,871
Greater than or equal to 740		42,991		123,163		89,965		44,546		23,269		16,518		0		340,452		319,815
Total auto loans	$	157,804	$	420,919	$	382,545	$	214,714	$	95,654	$	69,030	$	0	$	1,340,666	$	1,278,126
Finance leases
Original FICO score:
Less than 620	$	8,787	$	2,984	$	4,991	$	3,781	$	1,621	$	618	$	0	$	22,782	$	15,182
Greater than or equal to 620
and less than 680		8,224		28,293		33,814		25,372		10,490		5,483		0		111,676		111,180
Greater than or equal to 680
and less than 740		17,024		52,349		55,348		43,384		16,343		12,083		0		196,531		191,846
Greater than or equal to 740		16,695		48,613		47,522		31,033		8,307		10,461		0		162,631		154,781
Total finance leases	$	50,730	$	132,239	$	141,675	$	103,570	$	36,761	$	28,645	$	0	$	493,620	$	472,989
Personal loans
Original FICO score:
Less than 620	$	19,204	$	1,580	$	2,298	$	1,842	$	1,117	$	2,768	$	0	$	28,809	$	10,950
Greater than or equal to 620
and less than 680		175		8,934		21,898		8,609		3,275		2,050		0		44,941		49,665
Greater than or equal to 680
and less than 740		1,378		32,805		58,978		27,256		14,108		11,546		0		146,071		160,480
Greater than or equal to 740		1,309		28,723		50,926		28,111		14,129		10,705		0		133,903		146,622
Unscorable		0		631		1,625		567		362		480		0		3,665		4,294
Total personal loans	$	22,066	$	72,673	$	135,725	$	66,385	$	32,991	$	27,549	$	0	$	357,389	$	372,011
Credit cards
Original FICO score:
Less than 620	$	0	$	0	$	0	$	0	$	0	$	0	$	12,476	$	12,476	$	12,978
Greater than or equal to 620
and less than 680		0		0		0		0		0		0		59,348		59,348		60,961
Greater than or equal to 680
and less than 740		0		0		0		0		0		0		133,621		133,621		137,563
Greater than or equal to 740		0		0		0		0		0		0		99,828		99,828		103,938
Unscorable		0		0		0		0		0		0		1,100		1,100		4,384
Total credit cards	$	0	$	0	$	0	$	0	$	0	$	0	$	306,373	$	306,373	$	319,824
Other consumer loans
Original FICO score:
Less than 620	$	1,670	$	4,122	$	8,890	$	2,373	$	1,406	$	2,198	$	2,913	$	23,572	$	23,740
Greater than or equal to 620
and less than 680		6,783		14,859		19,994		6,095		3,049		6,303		1,415		58,498		61,667
Greater than or equal to 680
and less than 740		4,834		12,229		11,135		4,254		1,793		2,301		2,395		38,941		38,602
Greater than or equal to 740		1,315		3,786		3,120		992		471		202		1,217		11,103		11,535
Unscorable		0		0		0		0		0		0		2,622		2,622		4,438
Total other consumer loans	$	14,602	$	34,996	$	43,139	$	13,714	$	6,719	$	11,004	$	10,562	$	134,736	$	139,982
Total consumer loans in Puerto Rico and Virgin
Islands region	$	245,202	$	660,827	$	703,084	$	398,383	$	172,125	$	136,228	$	316,935	$	2,632,784	$	2,582,932
(1) Excludes accrued interest receivable.

47

CONSUMER	As of March 31, 2021
	Term Loans																As of December 31, 2020
Florida region	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
Auto loans
Original FICO score:
Less than 620	$	0	$	0	$	35	$	674	$	617	$	553	$	0	$	1,879	$	2,269
Greater than or equal to 620
and less than 680		0		0		399		3,288		2,577		1,278		0		7,542		9,042
Greater than or equal to 680
and less than 740		0		0		312		2,406		1,114		466		0		4,298		5,094
Greater than or equal to 740		0		0		206		1,097		239		65		0		1,607		1,893
Total auto loans	$	0	$	0	$	952	$	7,465	$	4,547	$	2,362	$	0	$	15,326	$	18,298
Finance leases
Original FICO score:
Less than 620	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Greater than or equal to 620
and less than 680		0		0		0		0		0		0		0		0		0
Greater than or equal to 680
and less than 740		0		0		0		0		0		0		0		0		0
Greater than or equal to 740		0		0		0		0		0		0		0		0		0
Total finance leases	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Personal loans
Original FICO score:
Less than 620	$	10	$	28	$	4	$	0	$	0	$	0	$	0	$	42	$	107
Greater than or equal to 620
and less than 680		0		7		0		0		0		0		0		7		8
Greater than or equal to 680
and less than 740		0		0		33		0		0		0		0		33		38
Greater than or equal to 740		0		74		0		0		0		0		0		74		4
Total personal loans	$	10	$	109	$	37	$	0	$	0	$	0	$	0	$	156	$	157
Credit cards
Original FICO score:
Less than 620	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Greater than or equal to 620
and less than 680		0		0		0		0		0		0		0		0		0
Greater than or equal to 680
and less than 740		0		0		0		0		0		0		0		0		0
Greater than or equal to 740		0		0		0		0		0		0		0		0		0
Total credit cards	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Other consumer loans
Original FICO score:
Less than 620	$	0	$	0	$	0	$	0	$	0	$	0	$	66	$	66	$	164
Greater than or equal to 620
and less than 680		0		187		0		0		0		628		67		882		1,023
Greater than or equal to 680
and less than 740		0		177		0		42		49		1,340		481		2,089		2,180
Greater than or equal to 740		0		130		0		0		24		2,622		2,110		4,886		4,889
Total other consumer loans	$	0	$	494	$	0	$	42	$	73	$	4,590	$	2,724	$	7,923	$	8,256
Total consumer loans in Florida region	$	10	$	603	$	989	$	7,507	$	4,620	$	6,952	$	2,724	$	23,405	$	26,711
(1) Excludes accrued interest receivable.

48

CONSUMER	As of March 31, 2021
	Term Loans																As of December 31, 2020
Total	Amortized Cost Basis by Origination Year (1)
(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		Total
Auto loans
Original FICO score:
Less than 620	$	41,287	$	39,951	$	42,749	$	22,136	$	10,091	$	10,115	$	0	$	166,329	$	137,275
Greater than or equal to 620
and less than 680		34,590		127,583		133,214		84,450		35,954		24,506		0		440,297		439,476
Greater than or equal to 680
and less than 740		38,936		130,222		117,363		69,950		30,648		20,188		0		407,307		397,965
Greater than or equal to 740		42,991		123,163		90,171		45,643		23,508		16,583		0		342,059		321,708
Total auto loans	$	157,804	$	420,919	$	383,497	$	222,179	$	100,201	$	71,392	$	0	$	1,355,992	$	1,296,424
Finance leases
Original FICO score:
Less than 620	$	8,787	$	2,984	$	4,991	$	3,781	$	1,621	$	618	$	0	$	22,782	$	15,182
Greater than or equal to 620
and less than 680		8,224		28,293		33,814		25,372		10,490		5,483		0		111,676		111,180
Greater than or equal to 680
and less than 740		17,024		52,349		55,348		43,384		16,343		12,083		0		196,531		191,846
Greater than or equal to 740		16,695		48,613		47,522		31,033		8,307		10,461		0		162,631		154,781
Total finance leases	$	50,730	$	132,239	$	141,675	$	103,570	$	36,761	$	28,645	$	0	$	493,620	$	472,989
Personal loans
Original FICO score:
Less than 620	$	19,214	$	1,608	$	2,302	$	1,842	$	1,117	$	2,768	$	0	$	28,851	$	11,057
Greater than or equal to 620
and less than 680		175		8,941		21,898		8,609		3,275		2,050		0		44,948		49,673
Greater than or equal to 680
and less than 740		1,378		32,805		59,011		27,256		14,108		11,546		0		146,104		160,518
Greater than or equal to 740		1,309		28,797		50,926		28,111		14,129		10,705		0		133,977		146,626
Unscorable		0		631		1,625		567		362		480		0		3,665		4,294
Total personal loans	$	22,076	$	72,782	$	135,762	$	66,385	$	32,991	$	27,549	$	0	$	357,545	$	372,168
Credit cards
Original FICO score:
Less than 620	$	0	$	0	$	0	$	0	$	0	$	0	$	12,476	$	12,476	$	12,978
Greater than or equal to 620
and less than 680		0		0		0		0		0		0		59,348		59,348		60,961
Greater than or equal to 680
and less than 740		0		0		0		0		0		0		133,621		133,621		137,563
Greater than or equal to 740		0		0		0		0		0		0		99,828		99,828		103,938
Unscorable		0		0		0		0		0		0		1,100		1,100		4,384
Total credit cards	$	0	$	0	$	0	$	0	$	0	$	0	$	306,373	$	306,373	$	319,824
Other consumer loans
Original FICO score:
Less than 620	$	1,670	$	4,122	$	8,890	$	2,373	$	1,406	$	2,198	$	2,979	$	23,638	$	23,904
Greater than or equal to 620
and less than 680		6,783		15,046		19,994		6,095		3,049		6,931		1,482		59,380		62,690
Greater than or equal to 680
and less than 740		4,834		12,406		11,135		4,296		1,842		3,641		2,876		41,030		40,782
Greater than or equal to 740		1,315		3,916		3,120		992		495		2,824		3,327		15,989		16,424
Unscorable		0		0		0		0		0		0		2,622		2,622		4,438
Total other consumer loans	$	14,602	$	35,490	$	43,139	$	13,756	$	6,792	$	15,594	$	13,286	$	142,659	$	148,238
Total consumer loans	$	245,212	$	661,430	$	704,073	$	405,890	$	176,745	$	143,180	$	319,659	$	2,656,189	$	2,609,643
(1) Excludes accrued interest receivable.

49

Accrued interest receivable on loans totaled $50.1 million as of March 31, 2021 ($57.2 million as of December 31, 2020), was reported as part of accrued interest receivable on loans and investment securities in the consolidated statements of financial condition, and is excluded from the estimate of credit losses.

The following tables present information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of March 31, 2021 and December 31, 2020:

March 31,2021
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Puerto Rico and Virgin Islands region	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		98,839		7,546		8,584		107,423		7,546
Commercial loans:
Construction loans		0		0		5,899		5,899		0
Commercial mortgage loans		18,806		1,863		46,595		65,401		1,863
C&I loans		21,671		607		23,223		44,894		607
Consumer loans:
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		145		1		0		145		1
Credit cards		0		0		0		0		0
Other consumer loans		978		151		0		978		151
	$	140,439	$	10,168	$	84,301	$	224,740	$	10,168

December 31, 2020
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Puerto Rico and Virgin Islands region	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		100,950		9,582		7,145		108,095		9,582
Commercial loans:
Construction loans		6,036		500		6,125		12,161		500
Commercial mortgage loans		17,882		1,923		49,241		67,123		1,923
C&I loans		21,933		880		24,728		46,661		880
Consumer loans:
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		146		2		0		146		2
Credit cards		0		0		0		0		0
Other consumer loans		857		113		0		857		113
	$	147,804	$	13,000	$	87,239	$	235,043	$	13,000

50

March 31,2021
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Florida region	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		6,740		727		2,524		9,264		727
Commercial loans:
Construction loans		0		0		0		0		0
Commercial mortgage loans		0		0		2,311		2,311		0
C&I loans		0		0		536		536		0
Consumer loans:
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		0		0		0		0		0
Credit cards		0		0		0		0		0
Other consumer loans		174		34		0		174		34
	$	6,914	$	761	$	5,371	$	12,285	$	761

December 31, 2020
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Florida region	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		6,224		988		2,400		8,624		988
Commercial loans:
Construction loans		0		0		0		0		0
Commercial mortgage loans		0		0		2,327		2,327		0
C&I loans		0		0		561		561		0
Consumer loans:
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		0		0		0		0		0
Credit cards		0		0		0		0		0
Other consumer loans		248		83		0		248		83
	$	6,472	$	1,071	$	5,288	$	11,760	$	1,071

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March 31,2021
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Total	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		105,579		8,273		11,108		116,687		8,273
Commercial loans:
Construction loans		0		0		5,899		5,899		0
Commercial mortgage loans		18,806		1,863		48,906		67,712		1,863
C&I loans		21,671		607		23,759		45,430		607
Consumer loans:								-		-
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		145		1		0		145		1
Credit cards		0		0		0		0		0
Other consumer loans		1,152		185		0		1,152		185
	$	147,353	$	10,929	$	89,672	$	237,025	$	10,929

December 31, 2020
		Collateral Dependent Loans - With Specific Allowance			Collateral Dependent Loans - With No Related Specific Allowance		Collateral Dependent Loans - Total
Total	Amortized Cost		Related Specific Allowance		Amortized Cost		Amortized Cost		Related Specific Allowance
(In thousands)
Residential mortgage loans:
FHA/VA government-guaranteed loans	$	0	$	0	$	0	$	0	$	0
Conventional residential mortgage loans		107,174		10,570		9,545		116,719		10,570
Commercial loans:
Construction loans		6,036		500		6,125		12,161		500
Commercial mortgage loans		17,882		1,923		51,568		69,450		1,923
C&I loans		21,933		880		25,289		47,222		880
Consumer loans:
Auto loans		0		0		0		0		0
Finance leases		0		0		0		0		0
Personal loans		146		2		0		146		2
Credit cards		0		0		0		0		0
Other consumer loans		1,105		196		0		1,105		196
	$	154,276	$	14,071	$	92,527	$	246,803	$	14,071

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The underlying collateral for residential mortgage and consumer collateral dependent loans consisted of single-family residential properties, and for commercial and construction loans consisted primarily of office buildings, multifamily residential properties, and retail establishments. The weighted-average loan-to-value coverage for collateral dependent loans as of March 31, 2021 was 79%. There were no significant changes in the extent to which collateral secured the Corporation’s collateral dependent financial assets during the first quarter of 2021.

Purchases and Sales of Loans

In the ordinary course of business, the Corporation sells residential mortgage loans (originated or purchased) to GNMA and GSEs, such as FNMA and FHLMC, which generally securitize the transferred loans into MBS for sale into the secondary market. During the first quarter of 2021, the Corporation sold $56.1 million of FHA/VA mortgage loans to GNMA, which packaged them into MBS, compared to sales of $60.9 million for the first quarter of 2020. Also, during the first quarter of 2021, the Corporation sold approximately $95.4 million of performing residential mortgage loans to FNMA and FHLMC, compared to sales of $32.8 million for the first quarter of 2020. The Corporation’s continuing involvement with the loans that it sells consists primarily of servicing the loans. In addition, the Corporation agrees to repurchase loans if it breaches any of the representations and warranties included in the sale agreement. These representations and warranties are consistent with the GSEs’ selling and servicing guidelines (i.e., ensuring that the mortgage was properly underwritten according to established guidelines).

For loans sold to GNMA, the Corporation holds an option to repurchase individual delinquent loans issued on or after January 1, 2003 when the borrower fails to make any payment for three consecutive months. This option gives the Corporation the ability, but not the obligation, to repurchase the delinquent loans at par without prior authorization from GNMA.

Under ASC Topic 860, “Transfer and Servicing,” once the Corporation has the unilateral ability to repurchase the delinquent loan, it is considered to have regained effective control over the loan and is required to recognize the loan and a corresponding repurchase liability on the balance sheet regardless of the Corporation’s intent to repurchase the loan. As of March 31, 2021 and December 31, 2020, rebooked GNMA delinquent loans that were included in the residential mortgage loan portfolio amounted to $17.2 million and $10.7 million, respectively.

During the first quarter of 2021 and 2020, the Corporation repurchased, pursuant to the aforementioned repurchase option, $0.3 million and $5.2 million, respectively, of loans previously sold to GNMA. The principal balance of these loans is fully guaranteed and the risk of loss related to the repurchased loans is generally limited to the difference between the delinquent interest payment advanced to GNMA, which is computed at the loan’s interest rate, and the interest payments reimbursed by FHA, which are computed at a pre-determined debenture rate. Repurchases of GNMA loans allow the Corporation, among other things, to maintain acceptable delinquency rates on outstanding GNMA pools and remain as a seller and servicer in good standing with GNMA. On May 14, 2020, in response to the national emergency declared by the U.S. President related to the COVID-19 pandemic, GNMA announced a temporary relief that excludes any new borrower delinquencies, occurring on or after April 2020, from the calculation of delinquency and default ratios established in the GNMA MBS guide. This exclusion was extended automatically to issuers that were compliant with GNMA delinquency rate thresholds as reflected by their April 2020 investor accounting report, reflecting March 2020 servicing data. The exemptions and delinquent loan exclusions will automatically expire on January 31, 2022, unless earlier rescinded or extended by GNMA, or the end of the national emergency, whichever comes earlier. Historically, losses for violations of representations and warranties, and on optional repurchases of GNMA delinquent loans, have been immaterial and no provision has been made at the time of sale.

Loan sales to FNMA and FHLMC are without recourse in relation to the future performance of the loans. The Corporation repurchased at par loans previously sold to FNMA and FHLMC in the amount of $0.3 million and $41 thousand during the first quarter of 2021 and 2020, respectively. The Corporation’s risk of loss with respect to these loans is also minimal as these repurchased loans are generally performing loans with documentation deficiencies.

During the first quarter of 2021, three criticized commercial loan participations totaling $28.2 million were transferred to held for sale. These transfers resulted in charge-offs of $0.7 million in the first quarter of 2021. One of these participations amounting to $14.3 million was sold prior to the end of the first quarter and a second one amounting to $9.7 million was sold in April 2021.

In addition, during the first quarter of 2021, the Corporation purchased a commercial and industrial loan participation in the Florida region of $15.1 million.

53

Loan Portfolio Concentration

The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, FirstBank, also lends in the USVI and BVI markets and in the United States (principally in the state of Florida). Of the total gross loans held for investment portfolio of $11.6 billion as of March 31, 2021, credit risk concentration was approximately 79% in Puerto Rico, 17% in the United States, and 4% in the USVI and BVI.

As of March 31, 2021, the Corporation had $197.5 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $201.3 million as of December 31, 2020. As of March 31, 2021, approximately $107.2 million consisted of loans extended to municipalities in Puerto Rico that are supported by assigned property tax revenues, and $37.4 million of municipal special obligation bonds. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of budgetary subsidies provided by the Puerto Rico central government. These municipalities are required by law to levy special property taxes in such amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. Late in 2015, the Government Development Bank for Puerto Rico (“GDB”) and the Municipal Revenue Collection Center (“CRIM”) signed and perfected a deed of trust. Through this deed, the Puerto Rico Fiscal Agency and Financial Advisory Authority, as fiduciary, is bound to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another commercial depository financial institution in Puerto Rico. In addition to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of March 31, 2021 included $13.5 million in loans granted to an affiliate of Puerto Rico Electric Power Authority (“PREPA”) and $39.4 million in loans to an agency of the Puerto Rico central government.

In addition, as of March 31, 2021, the Corporation had $103.8 million in exposure to residential mortgage loans that are guaranteed by the PRHFA, compared to $106.5 million as of December 31, 2020. 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, 2017, the PRHFA’s mortgage loans insurance program covered loans in an aggregate amount of approximately $571 million. The regulations adopted by the PRHFA, requires the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance program. As of June 30, 2017, the most recent date as of which information is available, the PRHFA had an unrestricted deficit of approximately $6.9 million with respect to required reserves for the mortgage loan insurance program.

The Corporation also has credit exposure to USVI government entities. As of March 31, 2021, the Corporation had $62.2 million in loans to USVI government instrumentalities and public corporations, compared to $61.8 million as of December 31, 2020. Of the amount outstanding as of March 31, 2021, public corporations of the USVI owed approximately $39.0 million and an independent instrumentality of the USVI government owed approximately $23.2 million. As of March 31, 2021, all loans were currently performing and up to date on principal and interest payments.

The Corporation cannot predict at this time the ultimate effect on the Puerto Rico economy, the Corporation’s clients, and the Corporation’s financial condition and results of operations of the financial problems of the Commonwealth of Puerto Rico, the uncertainty about the ultimate outcomes of the debt restructuring process, and the various legislative and other measures adopted and to be adopted by the Puerto Rico government and the PROMESA oversight board in response to such fiscal situation.

54

Troubled Debt Restructurings

The Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines. Depending upon the nature of a borrower’s financial condition, restructurings or loan modifications through this program, as well as other restructurings of individual C&I, commercial mortgage, construction, and residential mortgage loans, fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include, among others, the extension of the maturity of the loan and modifications of the loan rate. As of March 31, 2021, the Corporation’s total TDR loans held for investment of $460.2 million consisted of $306.5 million of residential mortgage loans, $69.9 million of C&I loans, $61.4 million of commercial mortgage loans, $3.4 million of construction loans, and $19.0 million of consumer loans. As of March 31, 2021, the Corporation has committed to lend up to additional $24 thousand on these loans.

The Corporation’s loss mitigation programs for residential mortgage and consumer loans can provide for one or a combination of the following: movement of interest past due to the end of the loan; extension of the loan term; deferral of principal payments; and reduction of interest rates either permanently or for a period of up to six years (increasing back in step-up rates). Additionally, in certain cases, the restructuring may provide for the forgiveness of contractually-due principal or interest. Uncollected interest is added to the principal at the end of the loan term at the time of the restructuring and not recognized as income until collected or when the loan is paid off. These programs are available only to those borrowers who have defaulted, or are likely to default, permanently on their loans and would lose their homes in a foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, the property is foreclosed.

Prior to permanently modifying a loan, the Corporation may enter into trial modifications with certain borrowers. Trial modifications generally represent a six-month period during which the borrower makes monthly payments under the anticipated modified payment terms prior to a formal modification. Upon successful completion of a trial modification, the Corporation and the borrower enter into a permanent modification. TDR loans that are participating in or that have been offered a binding trial modification are classified as TDRs when the trial offer is made and continue to be classified as TDRs regardless of whether the borrower enters into a permanent modification. As of March 31, 2021, the Corporation included as TDRs $0.8 million of residential mortgage loans that were participating in or had been offered a trial modification.

For the commercial real estate, commercial and industrial, and construction loan portfolios, at the time of a restructuring, the Corporation determines, on a loan-by-loan basis, whether a concession was granted for economic or legal reasons related to the borrower’s financial difficulty. Concessions granted for loans in these portfolios could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond the original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that are considered to be concessions. The Corporation mitigates loan defaults for these loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of loans in these portfolios. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the Corporation’s 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, the Corporation extends, renews, and restructures loans with satisfactory credit profiles. Many commercial loan facilities are structured as lines of credit, which generally have one-year terms and, therefore, require annual renewals. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, and timing of completion of projects, and other factors. If the borrower is not deemed to have financial difficulties, extensions, renewals, and restructurings are done in the normal course of business and not considered to be concessions, and the loans continue to be recorded as performing.

Under the provisions of the Coronavirus Aid, Relief and Economic Security (the “CARES”) Act of 2020, as amended by the Consolidated Appropriations Act, 2021 enacted on December 27, 2020, financial institutions may permit loan modifications for borrowers affected by the COVID-19 pandemic through January 1, 2022 without categorizing the modifications as TDRs, as long as the loan meets certain conditions, including the requirement that the loan was not more than 30 days past due as of December 31, 2019. As of March 31, 2021, commercial loans totaling $324.1 million, or 2.78% of the balance of the total loan portfolio held for investment, were permanently modified under the provisions of Section 4013 of the CARES Act of 2020, as amended by Division N, Title V, Section 541 of the Consolidated Appropriations Act. These permanent modifications on commercial loans were primarily related to borrowers in industries with longer expected recovery times, mostly hospitality, retail and entertainment industries. With respect to temporary deferred repayment arrangements established in 2020 to assist borrowers affected by the COVID-19 pandemic, as of March 31, 2021, all loans previously modified under such programs have completed their deferral period.

55

Selected information on the Corporation’s TDR loans held for investment based on the amortized cost by loan class and modification type is summarized in the following tables as of the indicated dates:

	As of March 31, 2021
Puerto Rico and Virgin Islands region	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	17,330	$	11,037	$	207,653	$	0	$	222	$	66,338	$	302,580
Construction loans		20		1,641		1,509		0		0		182		3,352
Commercial mortgage loans		1,487		732		33,765		0		16,297		6,573		58,854
C&I loans		232		2,530		14,157		0		17,647		35,149		69,715
Consumer loans:
Auto loans		0		386		4,191		0		0		6,233		10,810
Finance leases		0		5		486		0		0		617		1,108
Personal loans		56		8		490		0		0		250		804
Credit cards		0		0		2,474		14		0		0		2,488
Other consumer loans		1,231		1,047		327		191		0		340		3,136
Total TDRs in Puerto Rico and Virgin Islands region	$	20,356	$	17,386	$	265,052	$	205	$	34,166	$	115,682	$	452,847

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

	As of December 31, 2020
Puerto Rico and Virgin Islands region	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	17,740	$	11,125	$	211,155	$	0	$	223	$	66,694	$	306,937
Construction loans		21		1,700		1,516		0		0		186		3,423
Commercial mortgage loans		1,491		1,380		35,714		0		16,473		6,765		61,823
C&I loans		238		12,267		14,119		0		17,890		35,744		80,258
Consumer loans:
Auto loans		0		474		4,863		0		0		6,112		11,449
Finance leases		0		15		588		0		0		541		1,144
Personal loans		58		9		571		0		0		286		924
Credit cards		0		0		2,342		16		0		0		2,358
Other consumer loans		1,602		991		572		193		0		343		3,701
Total TDRs in Puerto Rico and Virgin Island region	$	21,150	$	27,961	$	271,440	$	209	$	34,586	$	116,671	$	472,017

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

56

	As of March 31, 2021
Florida region	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	968	$	398	$	2,567	$	0	$	0	$	20	$	3,953
Construction loans		0		0		0		0		0		0		0
Commercial mortgage loans		0		829		1,762		0		0		0		2,591
C&I loans		0		0		0		0		0		201		201
Consumer loans:
Auto loans		0		50		13		0		0		0		63
Finance leases		0		0		0		0		0		0		0
Personal loans		0		0		0		0		0		0		0
Credit cards		0		0		0		0		0		0		0
Other consumer loans		0		0		169		0		0		380		549
Total TDRs in Florida Region	$	968	$	1,277	$	4,511	$	0	$	0	$	601	$	7,357

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

	As of December 31, 2020
Florida region	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	989	$	401	$	2,257	$	0	$	0	$	22	$	3,669
Construction loans		0		0		0		0		0		0		0
Commercial mortgage loans		0		834		1,781		0		0		0		2,615
C&I loans		0		0		0		0		0		224		224
Consumer loans:
Auto loans		0		55		15		0		0		0		70
Finance leases		0		0		0		0		0		0		0
Personal loans		0		0		0		0		0		0		0
Credit cards		0		0		0		0		0		0		0
Other consumer loans		37		0		172		0		0		392		601
Total TDRs in Florida region	$	1,026	$	1,290	$	4,225	$	0	$	0	$	638	$	7,179

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

57

	As of March 31, 2021
Total	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	18,298	$	11,435	$	210,220	$	0	$	222	$	66,358	$	306,533
Construction loans		20		1,641		1,509		0		0		182		3,352
Commercial mortgage loans		1,487		1,561		35,527		0		16,297		6,573		61,445
C&I loans		232		2,530		14,157		0		17,647		35,350		69,916
Consumer loans:
Auto loans		0		436		4,204		0		0		6,233		10,873
Finance leases		0		5		486		0		0		617		1,108
Personal loans		56		8		490		0		0		250		804
Credit cards		0		0		2,474		14		0		0		2,488
Other consumer loans		1,231		1,047		496		191		0		720		3,685
Total TDRs	$	21,324	$	18,663	$	269,563	$	205	$	34,166	$	116,283	$	460,204

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

	As of December 31, 2020
Total	Interest rate below market		Maturity or term extension		Combination of reduction in interest rate and extension of maturity		Forgiveness of principal and/or interest		Forbearance Agreement		Other (1)		Total
(In thousands)
TDRs:
Conventional residential mortgage loans	$	18,729	$	11,526	$	213,412	$	0	$	223	$	66,716	$	310,606
Construction loans		21		1,700		1,516		0		0		186		3,423
Commercial mortgage loans		1,491		2,214		37,495		0		16,473		6,765		64,438
C&I loans		238		12,267		14,119		0		17,890		35,968		80,482
Consumer loans:
Auto loans		0		529		4,878		0		0		6,112		11,519
Finance leases		0		15		588		0		0		541		1,144
Personal loans		58		9		571		0		0		286		924
Credit cards		0		0		2,342		16		0		0		2,358
Other consumer loans		1,639		991		744		193		0		735		4,302
Total TDRs	$	22,176	$	29,251	$	275,665	$	209	$	34,586	$	117,309	$	479,196

(1)Other concessions granted by the Corporation include deferral of principal and/or interest payments for a period longer than what would be considered insignificant, payment plans under judicial stipulation, or a combination of two or more of the concessions listed in the table. Amounts included in Other that represent a combination of concessions are excluded from the amounts reported in the column for such individual concessions.

58

The following table presents the Corporation's TDR loans held for investment activity for the indicated periods:
	Quarter Ended
	March 31, 2021		March 31, 2020
(In thousands)
Beginning balance of TDRs	$	479,196	$	487,997
New TDRs		3,019		23,125
Increases to existing TDRs		34		103
Charge-offs post-modification		(2,909)		(2,337)
Foreclosures		(866)		(1,611)
Removed from TDR classification		(6,023)		0
Paid-off, partial payments and other		(12,247)		(9,982)
Ending balance of TDRs	$	460,204	$	497,295

TDR loans are classified as either accrual or nonaccrual loans. Loans in accrual status may remain in accrual status when their contractual terms have been modified in a TDR if the loans had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, a loan on nonaccrual status and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can, and are likely to, continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a nonaccrual loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs. A TDR loan that specifies an interest rate that at the time of the restructuring is greater than or equal to the rate the Corporation is willing to accept for a new loan with comparable risk may not be reported as a TDR loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. During the quarter ended March 31, 2021, the Corporation removed $6.0 million in loans from the TDR classification as the borrower was no longer experiencing financial difficulties, and the outstanding loans are at market terms and did not contain any concession to the borrower. The Corporation did not remove any loans from the TDR classification during the first quarter of 2020.

59

The following tables provide a breakdown of the TDR loans held for investment by those in accrual and nonaccrual status as of the indicated dates:
March 31, 2021	Puerto Rico and
	Virgin Islands region						Florida region						Total
	Accrual		Nonaccrual		Total TDRs		Accrual		Nonaccrual		Total TDRs		Accrual		Nonaccrual (1)		Total TDRs
(In thousands)
Conventional residential mortgage loans	$	245,273	$	57,307	$	302,580	$	3,648	$	305	$	3,953	$	248,921	$	57,612	$	306,533
Construction loans		2,589		763		3,352		0		0		0		2,589		763		3,352
Commercial mortgage loans		42,042		16,812		58,854		2,591		0		2,591		44,633		16,812		61,445
C&I loans		64,126		5,589		69,715		0		201		201		64,126		5,790		69,916
Consumer loans:
Auto loans		5,790		5,020		10,810		63		0		63		5,853		5,020		10,873
Finance leases		1,092		16		1,108		0		0		0		1,092		16		1,108
Personal loans		804		0		804		0		0		0		804		0		804
Credit Cards		2,488		0		2,488		0		0		0		2,488		0		2,488
Other consumer loans		2,751		385		3,136		549		0		549		3,300		385		3,685
Total TDRs	$	366,955	$	85,892	$	452,847	$	6,851	$	506	$	7,357	$	373,806	$	86,398	$	460,204

(1)Included in nonaccrual loans are $7.1 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.

December 31, 2020	Puerto Rico and
	Virgin Islands region						Florida region						Total
	Accrual		Nonaccrual		Total TDRs		Accrual		Nonaccrual		Total TDRs		Accrual		Nonaccrual (1)		Total TDRs
(In thousands)
Conventional residential mortgage loans	$	253,421	$	53,516	$	306,937	$	3,358	$	311	$	3,669	$	256,779	$	53,827	$	310,606
Construction loans		2,480		943		3,423		0		0		0		2,480		943		3,423
Commercial mortgage loans		43,012		18,811		61,823		2,615		0		2,615		45,627		18,811		64,438
C&I loans		73,649		6,609		80,258		0		224		224		73,649		6,833		80,482
Consumer loans:
Auto loans		6,481		4,968		11,449		70		0		70		6,551		4,968		11,519
Finance leases		1,125		19		1,144		0		0		0		1,125		19		1,144
Personal loans		920		4		924		0		0		0		920		4		924
Credit Cards		2,358		0		2,358		0		0		0		2,358		0		2,358
Other consumer loans		3,274		427		3,701		564		37		601		3,838		464		4,302
Total TDRs	$	386,720	$	85,297	$	472,017	$	6,607	$	572	$	7,179	$	393,327	$	85,869	$	479,196

(1)Included in nonaccrual loans are $5.9 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.

60

TDR loans exclude restructured residential mortgage loans that are government-guaranteed (e.g., FHA/VA loans) totaling $59.8 million as of March 31, 2021 (compared with $58.7 million as of December 31, 2020). The Corporation excludes FHA/VA guaranteed loans from TDR loan statistics given that, in the event that the borrower defaults on the loan, the principal and interest (at the specified debenture rate) are guaranteed by the U.S. government; therefore, the risk of loss on these types of loans is very low.

Loan modifications that are considered TDR loans completed during the first quarter of 2021 and 2020 were as follows:
Quarter Ended March 31, 2021
	Puerto Rico and Virgin Islands region					Florida region					Total
	Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost		Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost		Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans	10	$	1,046	$	945	1	$	321	$	321	11	$	1,367	$	1,266
Construction loans	0		0		0	0		0		0	0		0		0
Commercial mortgage loans	2		165		165	0		0		0	2		165		165
C&I loans	0		0		0	0		0		0	0		0		0
Consumer loans:
Auto loans	45		818		815	0		0		0	45		818		815
Finance leases	13		189		188	0		0		0	13		189		188
Personal loans	6		26		26	0		0		0	6		26		26
Credit Cards	65		434		434	0		0		0	65		434		434
Other consumer loans	30		125		125	0		0		0	30		125		125
Total TDRs	171	$	2,803	$	2,698	1	$	321	$	321	172	$	3,124	$	3,019

Quarter Ended March 31, 2020
	Puerto Rico and Virgin Islands region					Florida					Total
	Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost		Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost		Number of contracts	Pre-modification Amortized Cost		Post-modification Amortized Cost
(Dollars in thousands)
TDRs:
Conventional residential mortgage loans	32	$	3,124	$	2,560	0	$	0	$	0	32	$	3,124	$	2,560
Construction loans	0		0		0	0		0		0	0		0		0
Commercial mortgage loans	2		75		81	0		0		0	2		75		81
C&I loans	3		18,386		18,386	0		0		0	3		18,386		18,386
Consumer loans:
Auto loans	81		1,241		1,235	0		0		0	81		1,241		1,235
Finance leases	21		284		284	0		0		0	21		284		284
Personal loans	13		113		111	0		0		0	13		113		111
Credit Cards	57		280		280	0		0		0	57		280		280
Other consumer loans	64		180		188	0		0		0	64		180		188
Total TDRs	273	$	23,683	$	23,125	0	$	0	$	0	273	$	23,683	$	23,125

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a nonaccrual loan. Recidivism on a modified loan occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. The Corporation considers a loan to have defaulted if the borrower has failed to make payments of either principal, interest, or both for a period of 90 days or more.

61

Loan modifications considered TDR loans that defaulted during the quarters ended March 31, 2021 and 2020, and had become TDR loans during the 12-months preceding the default date, were as follows:
	Quarter ended March 31,
	2021			2020
Puerto Rico and Virgin Islands region	Number of contracts	Amortized Cost		Number of contracts	Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans	2	$	178	6	$	1,889
Construction loans	0		0	0		0
Commercial mortgage loans	0		0	0		0
C&I loans	0		0	1		35
Consumer loans:
Auto loans	29		557	10		176
Finance leases	0		0	1		5
Personal loans	0		0	1		7
Credit cards	1		7	5		14
Other consumer loans	7		33	29		108
Total Puerto Rico and Virgin Islands region	39	$	775	53	$	2,234

	Quarter ended March 31,
	2021			2020
Florida region	Number of contracts	Amortized Cost		Number of contracts	Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans	0	$	0	0	$	0
Construction loans	0		0	0		0
Commercial mortgage loans	0		0	0		0
C&I loans	0		0	0		0
Consumer loans:
Auto loans	0		0	0		0
Finance leases	0		0	0		0
Personal loans	0		0	0		0
Credit cards	0		0	0		0
Other consumer loans	0		0	0		0
Total in Florida region	0	$	0	0	$	0

	Quarter ended March 31,
	2021			2020
Total	Number of contracts	Amortized Cost		Number of contracts	Amortized Cost
(Dollars in thousands)
Conventional residential mortgage loans	2	$	178	6	$	1,889
Construction loans	0		0	0		0
Commercial mortgage loans	0		0	0		0
C&I loans	0		0	1		35
Consumer loans:
Auto loans	29		557	10		176
Finance leases	0		0	1		5
Personal loans	0		0	1		7
Credit cards	1		7	5		14
Other consumer loans	7		33	29		108
Total	39	$	775	53	$	2,234

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For certain TDR loans, the Corporation splits the loans into two new notes, A and B Notes. The A Note is restructured to comply with the Corporation’s lending standards at current market rates, and is tailored to suit the customer’s ability to make timely interest and principal payments. The B Note includes the granting of the concession to the borrower and varies by situation. The B Note is fully charged off but the borrower’s obligation is not forgiven, and payments that are collected are accounted for as recoveries of previously charged-off amounts. A partial charge-off may be recorded if the B Note is collateral dependent and the source of repayment is independent of the A Note. At the time of the restructuring, the A Note is identified and classified as a TDR loan. In general, the loan performs for at least six months according to the modified terms, the A Note may be returned to accrual status. The borrower’s payment performance prior to the restructuring is included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring. In the periods following the calendar year in which a loan is restructured, the A Note may no longer be reported as a TDR loan if it is in accrual status, is in compliance with its modified terms, and yields a market rate (as determined and documented at the time of the restructuring).

The following table provides additional information about the activity of this type of loan restructuring, and the effect on the allowance for credit losses in the first quarter of 2021 and 2020:

	Quarter ended								Quarter ended
	March 31, 2021								March 31, 2020
(In thousands)	Commercial Mortgage loans		Commercial and Industrial loans		Construction loans		Total		Commercial Mortgage loans		Commercial and Industrial loans		Construction loans		Total
Beginning balance of A/B Notes	$	16,475	$	27,050	$	1,562	$	45,087	$	22,749	$	26,596	$	1,883	$	51,228
Paid-off and partial payments		(77)		(2)		(43)		(122)		(97)		(200)		(25)		(322)
Charge-offs		(100)		0		0		(100)		0		0		0		0
Ending balance of A/B Notes	$	16,298	$	27,048	$	1,519	$	44,865	$	22,652	$	26,396	$	1,858	$	50,906
	Quarter ended								Quarter ended
	March 31, 2021								March 31, 2020
(In thousands)	Commercial Mortgage loans		Commercial and Industrial loans		Construction loans		Total		Commercial Mortgage loans		Commercial and Industrial loans		Construction loans		Total
ACL at the beginning of the
period for A/B Notes	$	0	$	401	$	0	$	401	$	3,516	$	14	$	0	$	3,530
Impact of adopting CECL		0		0		0		0		(415)		89		0		(326)
Provision for credit losses-
expense (benefit)		100		(401)		0		(301)		15		(102)		0		(87)
Net loan loss charge-offs		(100)		0		0		(100)		0		0		0		0
ACL at the end of the
period for A/B Notes	$	0	$	0	$	0	$	0	$	3,116	$	1	$	0	$	3,117

Approximately $38.4 million of the balance of loans restructured using the A/B Note restructure workout strategy were in accrual status as of March 31, 2021.

63

NOTE 8 – ALLOWANCE FOR CREDIT LOSSES FOR LOANS AND FINANCE LEASES

The following table presents the activity in the ACL on loans and finance leases by portfolio segment for the indicated periods:
Quarter ended March 31, 2021	Residential Mortgage Loans		Construction Loans		Commercial Mortgage Loans		Commercial & Industrial Loans		Consumer Loans		Total
(In thousands)
Allowance for credit losses:
Beginning balance	$	120,311	$	5,380	$	109,342	$	37,944	$	112,910	$	385,887
Provision for credit losses - (benefit) expense		(4,175)		(456)		(8,820)		(5,312)		4,320		(14,443)
Charge-offs		(2,825)		(45)		(794)		(809)		(11,761)		(16,234)
Recoveries		733		36		54		264		2,639		3,726
Ending balance	$	114,044	$	4,915	$	99,782	$	32,087	$	108,108	$	358,936

Quarter ended March 31, 2020	Residential Mortgage Loans		Construction Loans		Commercial Mortgage Loans		Commercial & Industrial Loans		Consumer Loans		Total
(In thousands)
Allowance for credit losses:
Beginning balance, prior to adoption of CECL	$	44,806	$	2,370	$	39,194	$	15,198	$	53,571	$	155,139
Impact of adopting CECL		49,837		797		(19,306)		14,731		35,106		81,165
Provision for credit losses		16,218		2,062		14,167		8,391		33,207		74,045
Charge-offs		(4,435)		(3)		(128)		(125)		(15,504)		(20,195)
Recoveries		656		27		44		115		1,778		2,620
Ending balance	$	107,082	$	5,253	$	33,971	$	38,310	$	108,158	$	292,774

The Corporation estimates the ACL following the methodologies described in Note 1 – Basis of Presentation and Significant Accounting Policies, in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K, for each portfolio segment. As of March 31, 2021, the ACL for loans and finance leases was $358.9 million, down $27.0 million from December 31, 2020, driven by positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated, including unemployment rates and gross domestic product (“GDP”). The ACL net reserve release for commercial and construction loans was $15.9 million in the first quarter of 2021, primarily reflecting an improvement in the outlook of macroeconomic variables, including improvements in unemployment rate forecasts, and the overall decline in the size of these portfolios. In addition, there was an ACL net reserve releases of $6.3 million for residential mortgage loans and a $4.8 million decrease in the ACL for consumer loans. The net reserve release for residential mortgage loans was also driven by improved macroeconomic variables, such as unemployment rate forecasts, and the overall portfolio decrease. The net reserve release for consumer loans consisted of net charge-offs of $9.1 million, primarily taken on personal loans and credit card loans, partially offset by charges to the provision of $4.3 million recorded in the first quarter to account for the increase in the size of the portfolio of auto loans and finance leases and deterioration in credit card loans delinquency trends. For those loans where the ACL was determined based on a discounted cash flow model, the change in the ACL due to the passage of time is recorded as part of the provision for credit losses.

64

The tables below present the ACL related to loans and finance leases and the carrying value of loans by portfolio segment as of March 31, 2021 and December 31, 2020:
As of March 31, 2021	Residential Mortgage Loans						Commercial Mortgage Loans			Commercial and Industrial Loans (1)			Consumer Loans
				Construction Loans
(Dollars in thousands)																Total
Total loans held for investment:
Amortized cost of loans	$	3,395,081		$	190,996		$	2,216,887		$	3,182,706		$	2,656,189		$	11,641,859
Allowance for credit losses		114,044			4,915			99,782			32,087			108,108			358,936
Allowance for credit losses to
amortized cost		3.36	%		2.57	%		4.50	%		1.01	%		4.07	%		3.08	%

As of December 31, 2020	Residential Mortgage Loans					Commercial Mortgage Loans			Commercial and Industrial Loans (1)			Consumer Loans
				Construction Loans
(Dollars in thousands)															Total
Total loans held for investment:
Amortized cost of loans	$	3,521,954		$	212,500	$	2,230,602		$	3,202,590		$	2,609,643		$	11,777,289
Allowance for credit losses		120,311			5,380		109,342			37,944			112,910			385,887
Allowance for credit losses to
amortized cost		3.42	%		2.53	%	4.90	%		1.18	%		4.33	%		3.28	%

(1)As of March 31, 2021 and December 31, 2020, includes $430.5 million and $406.0 million of SBA PPP loans, respectively, which require no ACL as these loans are 100% guaranteed by the SBA.

In addition, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, such as unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The Corporation estimates the ACL for these off-balance sheet exposures following the methodology described in Note 1 – Nature of Business and Summary of Significant Accounting Policies, in the audited consolidated financial statements, which are included in the 2020 Annual Report on Form 10-K. As of March 31, 2021, the ACL for off-balance sheet credit exposures was $4.4 million, down $0.7 million from $5.1 million as of December 31, 2020. The decrease was mainly in connection with a construction loan commitment due to improvements in the outlook of macroeconomic variables.

The following table presents the activity in the ACL for unfunded loan commitments and standby letters of credit for the quarters ended March 31, 2021 and 2020:

	Quarter ended
	March 31, 2021		March 31, 2020
(In thousands)
Beginning balance	$	5,105	$	0
Impact of adopting CECL		-		3,922
Provision for credit losses - (benefit) expense		(706)		1,819
Ending balance	$	4,399	$	5,741

65

NOTE 9 – LOANS HELD FOR SALE

The Corporation’s loans held-for-sale portfolio as of the dates indicated was composed of:

	March 31, 2021		December 31, 2020
(In thousands)
Residential mortgage loans	$	42,645	$	50,289
Commercial and Industrial loans (1)		13,425		0
Total	$	56,070	$	50,289

(1)During the first quarter of 2021, three criticized commercial loan participations totaling $28.2 million were transferred to held for sale. These transfers resulted in charge-offs of $0.7 million in the first quarter of 2021. One of these participations amounting to $14.3 million was sold prior to the end of the first quarter and a second one amounting to $9.7 million was sold in early April 2021.

NOTE 10 – OTHER REAL ESTATE OWNED

The following table presents the OREO inventory as of the dates indicated:
	March 31,			December 31,
	2021		2020
(In thousands)
OREO
OREO balances, carrying value:
Residential (1)	$	31,642	$	32,418
Commercial		41,338		44,356
Construction		6,227		6,286
Total	$	79,207	$	83,060

(1)Excludes $17.7 million and $18.6 million as of March 31, 2021 and December 31, 2020, respectively, of foreclosures that meet the conditions of ASC Subtopic 310-40 “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure,” and are presented as a receivable as part of other assets in the consolidated statements of financial condition.

66

NOTE 11 – LEASES

The Corporation accounts for its leases in accordance with ASC 842 “Leases” (“ASC Topic 842”), which it adopted on January 1, 2019. ASC Topic 842 requires the Corporation to record liabilities for future lease obligations as well as assets representing the right to use the underlying lease asset. The Corporation’s operating leases are primarily related to the Corporation’s branches and leased commercial space for automated teller machines (“ATMs”). Our leases mainly have terms ranging from two years to thirty years, some of which include options to extend the leases for up to seven years. Liabilities to make future lease payments are recorded in accounts payable and other liabilities, while right-of-use (“ROU”) assets are recorded in other assets in the Corporation’s consolidated statements of financial condition. As of March 31, 2021 and December 31, 2020, the Corporation did not have a lease that qualifies as a finance lease.

Operating lease cost for the quarter ended March 31, 2021 and 2020 amounted to $5.0 million and $2.6 million, respectively, recorded in occupancy and equipment in the consolidated statement of income.

Supplemental balance sheet information related to leases as of the indicated dates was as follows:
	March 31,		December 31,
	2021		2020
(In thousands)
ROU asset	$	98,808	$	103,186
Operating lease liability	$	102,177	$	106,502
Operating lease weighted-average remaining lease term (in years)		8.3		8.5
Operating lease weighted-average discount rate		2.26%		2.25%

Generally, the Corporation cannot practically determine the interest rate implicit in the lease. Therefore, the Corporation uses its incremental borrowing rate as the discount rate for the lease.

Supplemental cash flow information related to leases for the indicated periods was as follows:
	Quarter Ended
	March 31,
	2021		2020
(In thousands)
Operating cash flow from operating leases (1)	$	4,889	$	2,550
ROU assets obtained in exchange for operating lease liabilities (2)		0		274

(1) Represents cash paid for amounts included in the measurement of operating lease liabilities.

(2)Represents non-cash activity and, accordingly, is not reflected in the consolidated statements of cash flows.

Maturities under lease liabilities as of March 31, 2021, were as follows:
	Amount
(In thousands)
2021	$	14,172
2022		17,945
2023		16,018
2024		14,507
2025		13,363
2026 and later years		37,784
Total lease payments		113,789
Less: imputed interest		(11,612)
Total present value of lease liability	$	102,177

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NOTE 12 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

One of the market risks facing the Corporation is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of the Corporation’s assets or liabilities and will adversely affect the Corporation’s net interest income from its loan and investment portfolios. The overall objective of the Corporation’s interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates.

The Corporation designates a derivative as a fair value hedge, cash flow hedge or economic undesignated hedge when it enters into the derivative contract. As of March 31, 2021 and December 31, 2020, all derivatives held by the Corporation were considered economic undesignated hedges. The Corporation records these undesignated hedges at fair value with the resulting gain or loss recognized in current earnings.

The following summarizes the principal derivative activities used by the Corporation in managing interest rate risk:

Interest rate cap agreements - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value of the interest rate cap increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates.

Forward Contracts - Forward contracts are primarily sales of to-be-announced (“TBA”) MBS that will settle over the standard delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net settlement provision and no market mechanism to facilitate net settlement and that provide for delivery of a security within the time frame generally established by regulations or conventions in the market place or exchange in which the transaction is being executed. The forward sales are considered derivative instruments that need to be marked to market. The Corporation uses these securities to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. The Corporation also reports as forward contracts the mandatory mortgage loan sales commitments that it enters into with GSEs that require or permit net settlement via a pair-off transaction or the payment of a pair-off fee. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.

Interest Rate Lock Commitments - Interest rate lock commitments are agreements under which the Corporation agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Under the agreement, the Corporation commits to lend funds to a potential borrower, generally on a fixed rate basis, regardless of whether interest rates change in the market.

Interest rate swaps – The Corporation acquired interest rate swaps as a result of the acquisition of BSPR. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreements acquired from BSPR consist of the Corporation offering borrower-facing derivative products using a “back-to-back” structure in which the borrower-facing derivative transaction is paired with an identical, offsetting transaction with an approved dealer-counterparty. By using a back-to-back trading structure, both the commercial borrower and the Corporation are largely insulated from market risk and volatility. The agreements set the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. The fair values of these swaps are recorded as components of other assets or accounts payable and other liabilities in the Corporation’s consolidated statements of financial condition. Changes in the fair values of interest rate swaps, which occur due to changes in interest rates, are recorded in the consolidated statements of income as a component of interest income on loans.

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To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. In these transactions, the Corporation generally participates as a buyer in one of the agreements and as a seller in the other agreement under the same terms and conditions.

In addition, the Corporation enters into certain contracts with embedded derivatives that do not require separate accounting as these are clearly and closely related to the economic characteristics of the host contract. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging derivative instrument.

The following table summarizes the notional amounts of all derivative instruments as of the indicated dates:
	Notional Amounts (1)
	As of		As of
	March 31,		December 31,
(In thousands)	2021		2020
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements	$	15,047	$	15,864
Written interest rate cap agreements		14,500		14,500
Purchased interest rate cap agreements		14,500		14,500
Interest rate lock commitments		25,278		19,931
Forward Contracts:
Sale of TBA GNMA MBS pools		42,000		42,000
Forward loan sales commitments		20,188		19,998
	$	131,513	$	126,793

(1) Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.

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The following table summarizes for derivative instruments their fair values and location in the consolidated statements of financial condition as of the indicated dates:
	Asset Derivatives					Liability Derivatives
	Statement of	March 31,		December 31,			March 31,		December 31,
	Financial	2021		2020			2021		2020
	Condition Location	Fair Value		Fair Value		Statement of Financial Condition Location	Fair Value		Fair Value
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements	Other assets	$	1,314	$	1,622	Accounts payable and other liabilities	$	1,306	$	1,639
Written interest rate cap agreements	Other assets		0		0	Accounts payable and other liabilities		6		1
Purchased interest rate cap agreements	Other assets		6		1	Accounts payable and other liabilities		0		0
Interest rate lock commitments	Other assets		725		737	Accounts payable and other liabilities		0		0
Forward Contracts:
Sales of TBA GNMA MBS pools	Other assets		204		102	Accounts payable and other liabilities		44		280
Forward loan sales commitments	Other assets		20		20	Accounts payable and other liabilities		0		0
		$	2,269	$	2,482		$	1,356	$	1,920

The following table summarizes the effect of derivative instruments on the consolidated statements of income for the indicated periods:
		Gain (or Loss)
	Location of Unrealized Gain (Loss)		Quarter Ended
	on Derivative Recognized in	March 31,
	Statements of Income	2021		2020
(In thousands)
Undesignated economic hedges:
Interest rate contracts:
Interest rate swap agreements	Interest income - Loans	$	25	$	0
Interest rate lock commitments	Mortgage Banking Activities		(244)		(91)
Forward contracts:
Sales of TBA GNMA MBS pools	Mortgage Banking Activities		352		(665)
Total gain (loss) on derivatives		$	133	$	(756)

Derivative instruments are subject to market risk. As is the case with investment securities, the market value of derivative instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations for rates in the future.

As of March 31, 2021, the Corporation had not entered into any derivative instrument containing credit-risk-related contingent features.

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NOTE 13 – OFFSETTING OF ASSETS AND LIABILITIES

The Corporation enters into master agreements with counterparties, primarily related to derivatives and repurchase agreements, that may allow for netting of exposures in the event of default. In an event of default, each party has a right of set-off against the other party for amounts owed under the related agreement and any other amount or obligation owed with respect to any other agreement or transaction between them. The following tables present information about contracts subject to offsetting provisions related to financial assets and liabilities as well as derivative assets and liabilities, as of the indicated dates:

Offsetting of Financial Assets and Derivative Assets
As of March 31, 2021
							Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amounts of Assets Presented in the Statement of Financial Condition
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition
							Financial Instruments		Cash Collateral
											Net Amount
(In thousands)
Description
Derivatives	$	210	$	0	$	210	$	0	$	(210)	$	0
As of December 31, 2020
							Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amounts of Assets Presented in the Statement of Financial Condition
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition
							Financial Instruments		Cash Collateral
											Net Amount
(In thousands)
Description
Derivatives	$	89	$	0	$	89	$	0	$	(89)	$	0

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Offsetting of Financial Liabilities and Derivative Liabilities
As of March 31, 2021
							Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amounts of Liabilities Presented in the Statement of Financial Condition
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition
							Financial Instruments		Cash Collateral
(In thousands)											Net Amount
Description
Derivatives	$	1,350	$	0	$	1,350	$	(1,350)	$	0	$	0
Securities sold under agreements to repurchase		300,000		0		300,000		(300,000)		0		0
Total	$	301,350	$	0	$	301,350	$	(301,350)	$	0	$	0
As of December 31, 2020
							Gross Amounts Not Offset in the Statement of Financial Condition
					Net Amounts of Liabilities Presented in the Statement of Financial Condition
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition
							Financial Instruments		Cash Collateral
											Net Amount
(In thousands)
Description
Derivatives	$	1,919	$	0	$	1,919	$	(1,919)	$	0	$	0
Securities sold under agreements to repurchase		300,000		0		300,000		(300,000)		0		0
Total	$	301,919	$	0	$	301,919	$	(301,919)	$	0	$	0

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NOTE 14 – GOODWILL AND OTHER INTANGIBLES

Goodwill as of each March 31, 2021 and December 31, 2020 amounted to $38.6 million, recognized as part of Other assets in the consolidated statements of financial condition. As of March 31, 2021, the Corporation’s goodwill includes $28.1 million related to the United States (Florida) reporting unit and $10.5 million recorded in connection with the acquisition of BSPR on September 1, 2020. The Corporation’s policy is to assess goodwill and other intangibles for impairment on an annual basis during the fourth quarter of each year, and more frequently if events or circumstances lead management to believe that the values of goodwill or other intangibles may be impaired. During the fourth quarter of 2020, as part of its annual evaluation, the Corporation bypassed the qualitative assessment and proceeded directly to perform quantitative analyses to test for impairment the goodwill of the Florida reporting unit. Based on analyses under both the market and discounted cash flow approaches, the estimated fair value of the Florida reporting unit well exceeded the carrying amount of the entity, including goodwill as of the evaluation date (October 1). During the first quarter of 2021, the Corporation evaluated whether there have been any triggering event to accelerate the impairment analysis. The Corporation determined that there have been no significant events since the last annual assessment for the Florida reporting unit and the date on which the Corporation completed the acquisition of BSPR that could indicate potential goodwill impairment on reporting units for which the goodwill is allocated. As a result, no impartment charges for goodwill were recorded during the first quarter of 2021.

The changes in the carrying amount of goodwill attributable to operating segments are reflected in the following table. The adjustments for 2020 and 2021 are measurement period adjustments, primarily related to post closing purchase price adjustments to account for differences between BSPR’s actual excess capital at closing date compared to the BSPR’s excess capital amount used for the preliminary closing statement at acquisition date.

	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate Banking		United States Operations		Total
(In thousands)
Goodwill, January 1, 2020	$	0	$	0	$	0	$	28,098	$	28,098
Merger and acquisitions		574		794		4,935		0		6,303
Adjustments		385		533		3,313		0		4,231
Goodwill, December 31, 2020	$	959	$	1,327	$	8,248	$	28,098	$	38,632
Adjustments		53		74		(148)		0		(21)
Goodwill, March 31, 2021	$	1,012	$	1,401	$	8,100	$	28,098	$	38,611

The Corporation had other intangible assets of $38.4 million as of March 31, 2021, consisting of $34.3 million in core deposit intangibles, $3.8 million in purchased credit card relationship intangibles, and $0.3 million in insurance customer relationship intangibles.

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The following table shows the gross amount and accumulated amortization of the Corporation’s other intangible assets as of the indicated dates:

	As of		As of
	March 31,		December 31,
	2021		2020
(Dollars in thousands)
Core deposit intangible:
Gross amount	$	87,544	$	87,096
Accumulated amortization (1)		(53,205)		(51,254)
Net carrying amount	$	34,339	$	35,842
Remaining amortization period (in years)		8.7		9.0
Purchased credit card relationship intangible:
Gross amount	$	28,265	$	28,265
Accumulated amortization (2)		(24,497)		(23,532)
Net carrying amount	$	3,768	$	4,733
Remaining amortization period (in years)		2.4		2.7
Insurance customer relationship intangible:
Gross amount	$	1,067	$	1,067
Accumulated amortization (3)		(787)		(749)
Net carrying amount	$	280	$	318
Remaining amortization period (in years)		1.8		2.1

(1)For the quarters ended March 31, 2021 and 2020, the amortization expense of core deposit intangibles amounted to $2.0 million and $0.2 million, respectively.

(2)For the quarters ended March 31, 2021 and 2020, the amortization expense of the purchased credit card relationship intangible amounted to $1.0 million and $0.5 million, respectively.

(3)For each of the quarters ended March 31, 2021 and 2020, the amortization expense of the insurance customer relationship intangible amounted to $38 thousand.

The Corporation amortizes core deposit intangibles and customer relationship intangibles based on the projected useful lives of the related deposits in the case of core deposit intangibles, and over the projected useful lives of the related client relationships in the case of customer relationship intangibles. As mentioned above, the Corporation analyzes core deposit intangibles and customer relationship intangibles annually for impairment, or sooner if events and circumstances indicate possible impairment. Factors that may suggest impairment include customer attrition and run-off. Management is unaware of any events and/or circumstances that would indicate a possible impairment to the core deposit intangibles or customer relationship intangibles as of March 31, 2021.

The estimated aggregate annual amortization expense related to the intangible assets for future periods is as follows as of March 31, 2021:
		Amount
(In thousands)
2021	$	8,452
2022		8,816
2023		7,736
2024		6,416
2025		3,509
2026 and after		3,458

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NOTE 15 – NON-CONSOLIDATED VARIABLE INTEREST ENTITIES (“VIE”) AND SERVICING ASSETS

The Corporation transfers residential mortgage loans in sale or securitization transactions in which it has continuing involvement, including servicing responsibilities and guarantee arrangements. All such transfers have been accounted for as sales as required by applicable accounting guidance.

When evaluating the need to consolidate counterparties to which the Corporation has transferred assets, or with which the Corporation has entered into other transactions, the Corporation first determines if the counterparty is an entity for which a variable interest exists. If no scope exception is applicable and a variable interest exists, the Corporation then evaluates whether it is the primary beneficiary of the VIE and whether the entity should be consolidated or not.

Below is a summary of transactions with VIEs for which the Corporation has retained some level of continuing involvement:

Trust-Preferred Securities

In 2004, FBP Statutory Trust I, a financing trust that is wholly owned by the Corporation, sold to institutional investors $100 million of its variable-rate trust-preferred securities (“TRuPs”). FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.1 million of FBP Statutory Trust I variable-rate common securities, to purchase $103.1 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. Also in 2004, FBP Statutory Trust II, a financing trust that is wholly owned by the Corporation, sold to institutional investors $125 million of its variable-rate TRuPs. FBP Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.9 million of FBP Statutory Trust II variable-rate common securities, to purchase $128.9 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. The debentures, net of related issuance costs, are presented in the Corporation’s consolidated statements of financial condition as other borrowings. The variable-rate TRuPs are fully and unconditionally guaranteed by the Corporation. The Junior Subordinated Deferrable Debentures issued by the Corporation in April 2004 and September 2004 mature on June 17, 2034 and September 20, 2034, respectively; however, under certain circumstances, the maturity of Junior Subordinated Deferrable Debentures may be shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs).

The Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated certain TRuPs from Tier 1 Capital; however, these instruments may remain in Tier 2 capital until the instruments are redeemed or mature. Under the indentures, the Corporation has the right, from time to time, and without causing an event of default, to defer payments of interest on the Junior Subordinated Deferrable Debentures by extending the interest payment period at any time and from time to time during the term of the subordinated debentures for up to twenty consecutive quarterly periods. As of March 31, 2021, the Corporation was current on all interest payments due on its subordinated debt.

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Private Label MBS

During 2004 and 2005, an unaffiliated party, referred to in this subsection as the seller, established a series of statutory trusts to effect the securitization of mortgage loans and the sale of trust certificates (“private label MBS”). The seller initially provided the servicing for a fee, which is senior to the obligations to pay private label MBS holders. The seller then entered into a sales agreement through which it sold and issued the private label MBS in favor of the Corporation’s banking subsidiary. Currently, the Bank is the sole owner of the private label MBS; the servicing of the underlying residential mortgages that generate the principal and interest cash flows is performed by another third party, which receives a servicing fee. These private label MBS are variable-rate securities indexed to 90-day LIBOR plus a spread. The principal payments from the underlying loans are remitted to a paying agent (servicer), who then remits interest to the Bank. Interest income is shared to a certain extent with the FDIC, which has an interest only strip (“IO”) tied to the cash flows of the underlying loans and is entitled to receive the excess of the interest income less a servicing fee over the variable rate income that the Bank earns on the securities. This IO is limited to the weighted-average coupon on the securities. The FDIC became the owner of the IO upon its intervention of the seller, a failed financial institution. No recourse agreement exists, and the Bank, as the sole holder of the securities, absorbs all risks from losses on non-accruing loans and repossessed collateral. As of March 31, 2021, the amortized cost and fair value of these private label MBS amounted to $11.7 million and $8.3 million, respectively, with a weighted-average yield of 2.20%, which is included as part of the Corporation’s available-for-sale investment securities portfolio. As described in Note 5 – Investment Securities, above, the ACL on these private label MBS amounted to $0.9 million as of March 31, 2021.

Investment in unconsolidated entity

On February 16, 2011, FirstBank sold an asset portfolio consisting of performing and nonaccrual construction, commercial mortgage and commercial and industrial loans with an aggregate book value of $269.3 million to CPG/GS, an entity organized under the laws of the Commonwealth of Puerto Rico and majority owned by PRLP Ventures LLC (“PRLP”), a company created by Goldman, Sachs & Co. and Caribbean Property Group. In connection with the sale, the Corporation received $88.5 million in cash and a 35% interest in CPG/GS, and made a loan in the amount of $136.1 million representing seller financing provided by FirstBank. The loan was refinanced and consolidated with other outstanding loans of CPG/GS in the second quarter of 2018 and was paid in full in October 2019. FirstBank’s equity interest in CPG/GS is accounted for under the equity method. FirstBank recorded a loss on its interest in CPG/GS in 2014 that reduced to zero the carrying amount of the Bank’s investment in CPG/GS. No negative investment needs to be reported as the Bank has no legal obligation or commitment to provide further financial support to this entity; thus, no further losses have been or will be recorded on this investment.

CPG/GS used cash proceeds of the aforementioned seller-financed loan to cover operating expenses and debt service payments, including those related to the loan that was paid off in October 2019. FirstBank will not receive any return on its equity interest until PRLP receives an aggregate amount equivalent to its initial investment and a priority return of at least 12%, which has not occurred, resulting in FirstBank’s interest in CPG/GS being subordinate to PRLP’s interest. CPG/GS will then begin to make payments pro rata to PRLP and FirstBank, 35% and 65%, respectively, until FirstBank has achieved a 12% return on its invested capital and the aggregate amount of distributions is equal to FirstBank’s capital contributions to CPG/GS.

The Bank has determined that CPG/GS is a VIE in which the Bank is not the primary beneficiary. In determining the primary beneficiary of CPG/GS, the Bank considered applicable guidance that requires the Bank to qualitatively assess the determination of whether it is the primary beneficiary (or consolidator) of CPG/GS based on whether it has both the power to direct the activities of CPG/GS that most significantly affect the entity’s economic performance and the obligation to absorb losses of, or the right to receive benefits from, CPG/GS that could potentially be significant to the VIE. The Bank determined that it does not have the power to direct the activities that most significantly impact the economic performance of CPG/GS as it does not have the right to manage or influence the loan portfolio, foreclosure proceedings, or the construction and sale of the property; therefore, the Bank concluded that it is not the primary beneficiary of CPG/GS.

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Servicing Assets (MSRs)

The Corporation typically transfers first lien residential mortgage loans in conjunction with GNMA securitization transactions in which the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities issued through these transactions are guaranteed by GNMA and, under seller/servicer agreements, the Corporation is required to service the loans in accordance with the issuers’ servicing guidelines and standards. As of March 31, 2021, the Corporation serviced loans securitized through GNMA with a principal balance of $2.1 billion. Also, certain conventional conforming loans are sold to FNMA or FHLMC with servicing retained. The Corporation recognizes as separate assets the rights to service loans for others, whether those servicing assets are originated or purchased. MSRs are included as part of other assets in the consolidated statements of financial condition.

The changes in MSRs are shown below for the indicated periods:
	Quarter ended
	March 31,		March 31,
	2021		2020
(In thousands)
Balance at beginning of period	$	33,071	$	26,762
Capitalization of servicing assets		1,350		904
Amortization		(1,637)		(1,009)
Temporary impairment recoveries (charges), net		7		(138)
Other (1)		(81)		(35)
Balance at end of period	$	32,710	$	26,484
(1) Amount represents adjustments related to the repurchase of loans serviced for others.

Impairment charges are recognized through a valuation allowance for each individual stratum of servicing assets. The valuation allowance is adjusted to reflect the amount, if any, by which the cost basis of the servicing asset for a given stratum of loans being serviced exceeds its fair value. Any fair value in excess of the cost basis of the servicing asset for a given stratum is not recognized.

Changes in the impairment allowance were as follows for the indicated periods:
	Quarter ended
	March 31,		March 31,
	2021		2020
(In thousands)
Balance at beginning of period	$	202	$	73
Temporary impairment charges		0		138
OTTI of servicing assets		0		(77)
Recoveries		(7)		0
Balance at end of period	$	195	$	134

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The components of net servicing income, included as part of mortgage banking activities in the consolidated statements of income, are shown below for the indicated periods:

	Quarter ended
	March 31,		March 31,
	2021		2020
(In thousands)
Servicing fees	$	2,915	$	2,134
Late charges and prepayment penalties		239		150
Adjustment for loans repurchased		(81)		(35)
Servicing income, gross		3,073		2,249
Amortization and impairment of servicing assets		(1,630)		(1,147)
Servicing income, net	$	1,443	$	1,102

The Corporation’s MSRs are subject to prepayment and interest rate risks. As of March 31, 2021, fair values of the Corporation’s servicing assets were based on a valuation model that incorporates market-driven assumptions regarding discount rates and mortgage prepayment rates, adjusted by the particular characteristics of the Corporation’s servicing portfolio. The Corporation used constant prepayment rate assumptions for the Corporation’s servicing assets for the government-guaranteed mortgage loans of 6.3% and 6.2% for the quarters ended March 31, 2021 and 2020, respectively. For conventional conforming mortgage loans, the Corporation used 6.8% and 6.9% for the quarters ended March 31, 2021 and 2020, respectively, and, for the conventional non-conforming mortgage loans, the Corporation used 8.6% and 8.7% for the quarters ended March 31, 2021 and 2020, respectively. Discount rate assumptions used were 12% for government-guaranteed mortgage loans and 10% for conventional conforming mortgage loans for each of the quarters ended March 31, 2021 and 2020. For conventional non-conforming mortgage loans the discount assumption used was 13.7% and 14.3% for the quarters ended March 31, 2021 and 2020, respectively.

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The weighted-averages of the key economic assumptions that the Corporation used in its valuation model and the sensitivity of the current fair value to immediate 10% and 20% adverse changes in those assumptions for mortgage loans as of March 31, 2021 and December 31, 2020 were as follows:

	March 31,		December 31,
	2021		2020
(In thousands)
Carrying amount of servicing assets	$	32,710	$	33,071
Fair value	$	40,695	$	40,294
Weighted-average expected life (in years)		8.00		7.86
Constant prepayment rate (weighted-average annual rate)		6.56%		6.73%
Decrease in fair value due to 10% adverse change	$	988	$	1,006
Decrease in fair value due to 20% adverse change	$	1,935	$	1,970
Discount rate (weighted-average annual rate)		11.19%		11.20%
Decrease in fair value due to 10% adverse change	$	1,804	$	1,772
Decrease in fair value due to 20% adverse change	$	3,469	$	3,409

These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship between the change in assumption and the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the MSR is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the sensitivities.

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NOTE 16 – DEPOSITS

The following table summarizes deposit balances as of the dates indicated:
	March 31,			December 31,
	2021		2020
(In thousands)
Type of account:
Non-interest-bearing deposit accounts	$	5,026,468	$	4,546,123
Interest-bearing savings accounts		4,217,030		4,088,969
Interest-bearing checking accounts		3,912,647		3,651,806
Certificates of deposit ("CDs")		2,692,176		2,814,313
Brokered CDs		162,115		216,172
Total	$	16,010,436	$	15,317,383

Brokered CDs mature as follows:
	March 31, 2021
(In thousands)
Three months or less	$	24,511
Over three months to six months		29,121
Over six months to one year		22,831
Over one year to three years		64,967
Over three years to five years		20,685
Total	$	162,115

The following were the components of interest expense on deposits for the indicated periods:
	Quarter Ended
	March 31,			March 31,
	2021			2020
(In thousands)
Interest expense on deposits	$	12,725	$	19,497
Accretion of premium from acquisitions		(456)		(1)
Amortization of broker placement fees		73		158
Interest expense on deposits	$	12,342	$	19,654

NOTE 17 – LOANS PAYABLE

The Corporation participates in the Borrower-in-Custody Program (the “BIC Program”) of the FED. Through the BIC Program, a broad range of loans (including commercial, consumer and residential mortgages) may be pledged as collateral for borrowings through the FED Discount Window. As of March 31, 2021, pledged collateral that is related to this credit facility amounted to $1.7 billion, mainly commercial, consumer and residential mortgage loans, which after a margin haircut represents approximately $1.0 billion of credit availability under this program. With the impacts of COVID-19 on individuals, communities and organizations continuing to evolve, the Federal Reserve has taken several actions to support the economy and financial stability of market participants including, among other things, lowering the target range for the federal funds rate and relaunching large scale asset purchases. The FED Discount Window program provided the opportunity to access a low-rate short-term source of funding in the current highly volatile market environment. There were no outstanding borrowings under the Primary Credit FED Discount Window Program as of March 31, 2021.

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NOTE 18 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Securities sold under agreements to repurchase (repurchase agreements) as of the dates indicated consisted of the following:
	March, 31		December 31,
	2021		2020
(In thousands)
Long-term repurchase agreement (1)	$	300,000	$	300,000

(1)Weighted-average interest rate of 3.35% and 1.77% as of March 31, 2021 and December 31, 2020, respectively. During the first quarter of 2021, the interest rate related to securities sold under agreements to repurchase totaling $200 million changed from a variable rate (3-month LIBOR plus 130 to 132 basis points) to a fixed-rate of 3.90% after the end of a prespecified lockout period. As of March 31, 2021, all of the outstanding securities sold under agreements to repurchase are tied to fixed interest rates.

Repurchase agreements mature as follows as of the indicated date:
		March 31, 2021
	(In thousands)
	Six months to one year	$	100,000
	Over three years to five years		200,000
	Total	$	300,000

As of March 31, 2021 and December 31, 2020, the securities underlying such agreements were delivered to the dealers with which the repurchase agreements were transacted.

Repurchase agreements as of March 31, 2021, grouped by counterparty, were as follows:
	(Dollars in thousands)			Weighted-Average
	Counterparty	Amount		Maturity (In Months)
	JP Morgan Chase	$	100,000	10
	Credit Suisse First Boston		200,000	46
		$	300,000

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NOTE 19 – ADVANCES FROM THE FEDERAL HOME LOAN BANK

The following is a summary of the advances from the FHLB as of the indicated dates:
		March 31,		December 31,
		2021		2020
	(In thousands)
	Long-term Fixed-rate advances from FHLB (1)	$	440,000	$	440,000

(1)Weighted-average interest rate of 2.26%.

Advances from FHLB mature as follows as of the indicated date:
		March 31,
		2021
	(In thousands)
	Within one month	$	70,000
	Over one to three months		50,000
	Over six months to one year		120,000
	Over one year to three years		200,000
	Total	$	440,000

NOTE 20 – OTHER BORROWINGS

Other borrowings, as of the indicated dates, consisted of:

	March 31,		December 31,
	2021		2020
	(In thousands)
Floating rate junior subordinated debentures (FBP Statutory Trust I) (1)	$	65,205	$	65,205
Floating rate junior subordinated debentures (FBP Statutory Trust II) (2)		118,557		118,557
	$	183,762	$	183,762

(1) Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of 2.75% over 3-month LIBOR (2.93% as of March 31, 2021 and 2.98% as of December 31, 2020).

(2) Amount represents junior subordinated interest-bearing debentures due in 2034 with a floating interest rate of 2.50% over 3-month LIBOR (2.69% as of March 31, 2021 and 2.74% as of December 31, 2020).

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NOTE 21 – STOCKHOLDERS’ EQUITY

Common Stock

As of March 31, 2021 and December 31, 2020, the Corporation had 2,000,000,000 authorized shares of common stock with a par value of $0.10 per share. As of March 31, 2021 and December 31, 2020, there were 223,630,957 and 223,034,348 shares issued, respectively, and 218,628,862 and 218,235,064 shares outstanding, respectively. Refer to Note 4 – Stock-Based Compensation, above for information about transactions related to common stock under the Omnibus Plan.

For the quarters ended March 31, 2021 and 2020, total cash dividends declared on shares of common stock amounted to $15.3 million and $10.9 million, respectively. In the first quarter of 2021, the Corporation’s Board of Directors declared cash dividend of $0.07 per common share, which represented $0.02 per common share, or a 40%, increase from the immediate preceding quarter’s dividend level. 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 Directors at the relevant times.

On April 26, 2021, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the Corporation may repurchase up to $300 million of its outstanding stock, commencing in the second quarter of 2021 through June 30, 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified, extended, suspended, or terminated at any time at the Corporation’s discretion and may include the redemption of the $36.1 million in outstanding shares of the Corporation’s Series A through E Noncumulative Perpetual Monthly Income Preferred Stock.

Preferred Stock

The Corporation has 50,000,000 authorized shares of preferred stock with a par value of $1.00, redeemable at the Corporation’s option, subject to certain terms. This stock may be issued in series and the shares of each series have such rights and preferences as are fixed by the Board of Directors when authorizing the issuance of that particular series. As of March 31, 2021, the Corporation had five outstanding series of non-convertible, non-cumulative perpetual monthly income preferred stock: 7.125% non-cumulative perpetual monthly income preferred stock, Series A; 8.35% non-cumulative perpetual monthly income preferred stock, Series B; 7.40% non-cumulative perpetual monthly income preferred stock, Series C; 7.25% non-cumulative perpetual monthly income preferred stock, Series D; and 7.00% non-cumulative perpetual monthly income preferred stock, Series E. The liquidation value per share is $25.

Effective January 17, 2012, the Corporation delisted all of its outstanding series of non-convertible, non-cumulative perpetual monthly income preferred stock from the New York Stock Exchange. The Corporation has not arranged for listing and/or registration on another national securities exchange or for quotation of the Series A through E preferred stock in a quotation medium. The Corporation has continued to pay monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. For each of the quarters ended March 31, 2021 and 2020, total cash dividends declared on shares of preferred stock amounted to $0.7 million. The Corporation intends to continue to make monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. However, the Corporation’s monthly dividend payments on the non-cumulative perpetual monthly income preferred stock, including the declaration, timing and amount, remain subject to consideration and approval by the Corporation’s Board Directors at the relevant times.

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Treasury stock

During the first quarter of 2021 and 2020, the Corporation withheld an aggregate of 194,471 shares and 50,285 shares, respectively, of the restricted stock and performance units that vested during those quarters to cover the officers’ payroll and income tax withholding liabilities; these shares are held as treasury stock. As of March 31, 2021 and December 31, 2020, the Corporation had 5,002,095 and 4,799,284 shares held as treasury stock, respectively.

FirstBank Statutory Reserve (Legal Surplus)

The Banking Law of the Commonwealth of Puerto Rico 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, including for payment as dividends to the stockholders, 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 $109.3 million as of each of March 31, 2021 and December 31, 2020. There were 0 transfers to the legal surplus reserve during the quarter ended March 31, 2021.

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NOTE 22 - INCOME TAXES

Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, FirstBank is treated as a foreign corporation for U.S. and USVI income tax purposes and, accordingly, is generally subject to U.S. and USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a trade or business in those jurisdictions. Any such tax paid in the U.S. and USVI is also creditable against the Corporation’s Puerto Rico tax liability, subject to certain conditions and limitations.

Under the Puerto Rico Internal Revenue Code of 2011, as amended (the “2011 PR Code”), the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the 2011 PR Code, the carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The 2011 PR Code provides a dividend received deduction of 100% on dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and 85% on dividends received from other taxable domestic corporations.

The Corporation has maintained an effective tax rate lower than the maximum statutory rate of 37.5% mainly by investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an international banking entity (“an IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales is exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit of a bank pays income taxes at the corporate standard rates to the extent that the IBE’s net income exceeds 20% of the bank’s total net taxable income.

For the first quarter of 2021, the Corporation recorded an income tax expense of $28.0 million, compared to an income tax benefit of $3.0 million for the same period in 2020. The variance was primarily related to both a higher estimated effective tax rate resulting from higher levels of book taxable income, and higher pre-tax income driven by credit losses reserve releases in the first quarter of 2021, compared to the significant provision recorded in the first quarter of 2020.

For the quarter ended March 31, 2021, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annual estimated effective tax rate, ASC Topic 740-270, “Income Taxes” (“ASC 740-270”), requires the exclusion of legal entities with pre-tax losses from which a tax benefit cannot be recognized. The Corporation’s estimated annual effective tax rate in the first quarter of 2021, excluding entities from which a tax benefit cannot be recognized and discrete items, was 31% compared to 24% for the first quarter of 2020. The estimated annual effective tax rate including all entities for 2021 was 31% (31% excluding discrete items), compared to 26% for the first quarter of 2020 (25% excluding discrete items).

The Corporation’s net deferred tax asset amounted to $306.4 million as of March 31, 2021, net of a valuation allowance of $112.7 million, and management concluded, based upon the assessment of all positive and negative evidence, that it is more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $306.2 million as of March 31, 2021, net of a valuation allowance of $70.7 million, compared to a net deferred tax asset of $329.1 million, net of a valuation allowance of $59.9 million, as of December 31, 2020. The decrease in the deferred tax assets is mainly driven by the aforementioned credit losses reserve release, as well the usage of net operating losses. The increase in the valuation allowance during the first quarter of 2021 was primarily related to the change in the market value of available-for-sale securities. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital loss carryforward, thus, the change in the market value of available-for-sale securities resulted in a change in the deferred tax asset and an equal change in the valuation allowance without having an effect on earnings.

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In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we would have incurred in the absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at each annual taxable period, which is dependent on various factors. For the first quarter of 2021, the Corporation incurred an income tax expense of approximately $1.1 million related to its U.S. operations, compared to $1.0 million for the same period in 2020. The limitation did not impact the USVI operations in the first quarter of 2021 and 2020.

The Corporation accounts for uncertain tax positions under the provisions of ASC Topic 740. The Corporation’s policy is to report interest and penalties related to unrecognized tax benefits in income tax expense. As of March 31, 2021, the Corporation had $0.1 million of accrued interest and penalties related to uncertain tax positions in the amount of $1.0 million that it acquired from BSPR, which, if recognized, would decrease the effective income tax rate in future periods. The amount of unrecognized tax benefits may increase or decrease in the future for various reasons, including adding amounts for current tax year positions, expiration of open income tax returns due to the statute of limitations, changes in management’s judgment about the level of uncertainty, the status of examinations, litigation, and legislative activity, and the addition or elimination of uncertain tax positions. The statute of limitations under the 2011 PR code is four years; the statute of limitations for U.S. and USVI income tax purposes is three years after a tax return is due or filed, whichever is later. The completion of an audit by the taxing authorities or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Corporation’s liability for income taxes. Any such adjustment could be material to the results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to 2017 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2016 remain open to examination.

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NOTE 23 – OTHER COMPREHENSIVE (LOSS) INCOME

The following table presents changes in accumulated other comprehensive (loss) income for the quarters ended March 31, 2021 and 2020:
	Changes in Accumulated Other Comprehensive (Loss) Income by Component (1)
	Quarter ended
	March 31,
	2021			2020
(In thousands)
Unrealized net holding gains (losses) on debt securities
Beginning balance	$	55,725	$	6,764
Other comprehensive (loss) income		(98,929)		42,352
Ending balance	$	(43,204)	$	49,116
Adjustment of pension and postretirement benefit plans:
Beginning balance	$	(270)	$	0
Other comprehensive (loss) income		0		0
Ending balance	$	(270)	$	0
______________________

(1)All amounts presented are net of tax.

The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the quarters ended March 31, 2021 and 2020:
		Reclassifications Out of Accumulated Other Comprehensive (Loss) Income
	Affected Line Item in the Consolidated Statements of Income	Quarter ended
		March 31
		2021			2020
(In thousands)
Unrealized net holding gains (losses) on debt securities
Realized gain on sale of debt securities	Net gain on sale of
	investments	$	0	$	(8,247)
Provision for credit losses - (benefit) expense	Provision for
	credit losses - (benefit) expense		(127)		368
	Total before tax		(127)		(7,879)
	Income tax expense (benefit)		0		0
	Total, net of tax	$	(127)	$	(7,879)

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NOTE 24 – EMPLOYEE BENEFIT PLANS

The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”) and a related complementary post-retirement benefit plan covering medical benefits and life insurance after retirement that it obtained in the BSPR acquisition (the “Postretirement Benefit Plan”) on September 1, 2020. One defined benefit pension plan covers substantially all of BSPR’s former employees who were active before January 1, 2007, while the other defined benefit pension plan covers personnel of an institution previously-acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the Pension Plans is frozen to all participants.

The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting adjustment to accumulated other comprehensive loss pursuant to the ASC Topic 715, Compensation-Retirement Benefits.

The components of net periodic benefit (income) loss for the Pension Plans and Postretirement Benefit Plan are summarized in the following table:

Quarter Ended March 31, 2021	Location	Pension Plans		Postretirement Benefit Plan
(In thousands)
Net periodic benefit (income) loss:
Interest cost	Other expenses		618		2
Estimated return on plan assets	Other expenses		(1,131)		0
Net periodic benefit (income)		$	(513)	$	2

The Corporation does not expect to contribute to the Pension Plans during 2021.

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NOTE 25 – FAIR VALUE

Fair Value Measurement

The FASB authoritative guidance for fair value measurement defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This guidance also establishes a fair value hierarchy for classifying financial instruments. The hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. One of three levels of inputs may be used to measure fair value:

Level 1	Valuations of Level 1 assets and liabilities are obtained from readily-available pricing sources for market transactions involving identical assets or liabilities. Level 1 assets and liabilities include equity securities that trade in an active exchange market, as well as certain U.S. Treasury and other U.S. government and agency securities and corporate debt securities that are traded by dealers or brokers in active markets.
Level 2	Valuations of Level 2 assets and liabilities are based on observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include (i) MBS for which the fair value is estimated based on the value of identical or comparable assets, (ii) debt securities with quoted prices that are traded less frequently than exchange-traded instruments, and (iii) derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.
Level 3	Valuations of Level 3 assets and liabilities are based on unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined by using pricing models for which the determination of fair value requires significant management judgment as to the estimation.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Investment securities available for sale and marketable equity securities held at fair value

The fair value of investment securities was the market value based on quoted market prices (as is the case with U.S. Treasury notes, non-callable U.S. agencies debt securities, and equity securities with readily determinable fair values), when available (Level 1), or, market prices for identical or comparable assets (as is the case with MBS and callable U.S. agency debt securities) that are based on observable market parameters, including benchmark yields, reported trades, quotes from brokers or dealers, issuer spreads, bids, offers and reference data, including market research operations, when available (Level 2). Observable prices in the market already consider the risk of nonperformance. If listed prices or quotes are not available, fair value is based upon discounted cash flow models that use unobservable inputs due to the limited market activity of the instrument, as is the case with certain private label MBS held by the Corporation (Level 3).

Derivative instruments

The fair value of most of the Corporation’s derivative instruments is based on observable market parameters and takes into consideration the credit risk component of paying counterparties, when appropriate. On interest caps, only the seller's credit risk is considered. The Corporation valued the caps using a discounted cash flow approach based on the related LIBOR and swap rate for each cash flow The Corporation valued the interest rate swaps using a discounted cash flow approach based on the related LIBOR and swap forward rate for each cash flow.

The Corporation considers a credit spread for those derivative instruments that are not secured. The cumulative mark-to-market effect of credit risk in the valuation of derivative instruments for the quarters ended March 31, 2021 and 2020 was immaterial.

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Assets and liabilities measured at fair value on a recurring basis are summarized below as of March 31, 2021 and December 31, 2020:
		As of March 31,2021								As of December 31, 2020
		Fair Value Measurements Using								Fair Value Measurements Using
	(In thousands)	Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value		Level 1		Level 2		Level 3		Assets/Liabilities at Fair Value
Assets:
Securities available for sale:
U.S. Treasury Securities		$	7,466	$	0	$	0	$	7,466	$	7,507	$	0	$	0	$	7,507
Noncallable U.S. agencies debt securities			0		189,466		0		189,466		0		173,371		0		173,371
Callable U.S. agencies
debt securities and MBS			0		5,198,082		0		5,198,082		0		4,454,164		0		4,454,164
Puerto Rico government obligations			0		0		2,829		2,829		0		0		2,899		2,899
Private label MBS			0		0		8,297		8,297		0		0		8,428		8,428
Other investments			0		0		650		650		0		0		650		650
Equity securities			5,445		0		0		5,445		1,474		0		0		1,474
Derivatives, included in assets:
Interest rate swap agreements			0		1,314		0		1,314		0		1,622		0		1,622
Purchased interest rate cap agreements			0		6		0		6		0		1		0		1
Forward contracts			0		204		0		204		0		102		0		102
Interest rate lock commitments			0		725		0		725		0		737		0		737
Forward loan sales commitments			0		20		0		20		0		20		0		20
Liabilities:
Derivatives, included in liabilities:
Interest rate swap agreements			0		1,306		0		1,306		0		1,639		0		1,639
Written interest rate cap agreements			0		6		0		6		0		1		0		1
Forward contracts			0		44		0		44		0		280		0		280

The table below presents a reconciliation of the beginning and ending balances of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarters ended March 31, 2021 and 2020:

	Quarter ended March 31,
	2021		2020
Level 3 Instruments Only	Securities		Securities
(In thousands)	Available For Sale(1)		Available For Sale(1)
Beginning balance	$	11,977		14,590
Total gains (losses) (realized/unrealized):
Included in other comprehensive income		321		240
Included in earnings		127		(368)
Principal repayments and amortization		(649)		(693)
Ending balance	$	11,776	$	13,769

(1)Amounts mostly related to private label MBS.

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The tables below present qualitative information for significant assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2021 and December 31, 2020:
	March 31, 2021
					Range		Weighted Average
(In thousands)	Fair Value		Valuation Technique	Unobservable Input	Minimum	Maximum
Investment securities available-for-sale:
Private label MBS	$	8,297	Discounted cash flows	Discount rate	12.9%	12.9%	12.9%
				Prepayment rate	0.7%	21.9%	13.6%
				Projected Cumulative Loss Rate	0.1%	17.8%	7.7%
Puerto Rico government obligations		2,829	Discounted cash flows	Discount rate	7.3%	7.3%	7.3%
				Projected Cumulative Loss Rate	10.1%	10.1%	10.1%

	December 31, 2020
					Range		Weighted
(In thousands)	Fair Value		Valuation Technique	Unobservable Input	Minimum	Maximum	Average
Investment securities available-for-sale:
Private label MBS	$	8,428	Discounted cash flows	Discount rate	12.2%	12.2%	12.2%
				Prepayment rate	1.2%	18.8%	12.1%
				Projected Cumulative Loss Rate	2.6%	22.3%	10.2%
Puerto Rico government obligations		2,899	Discounted cash flows	Discount rate	7.9%	7.9%	7.9%
				Projected Cumulative Loss Rate	12.4%	12.4%	12.4%

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Information about Sensitivity to Changes in Significant Unobservable Inputs

Private label MBS: The significant unobservable inputs in the valuation include probability of default, the loss severity assumption, and prepayment rates. Shifts in those inputs would result in different fair value measurements. Increases in the probability of default, loss severity assumptions, and prepayment rates in isolation would generally result in an adverse effect on the fair value of the instruments. The Corporation modeled meaningful and possible shifts of each input to assess the effect on the fair value estimation.

Puerto Rico Government Obligations: The significant unobservable input used in the fair value measurement is the assumed loss rate of the underlying residential mortgage loans that collateralize these obligations, which are guaranteed by the PRHFA. A significant increase (decrease) in the assumed rate would lead to a (lower) higher fair value estimate. The fair value of these bonds was based on a discounted cash flow methodology that considers the structure and terms of the underlying collateral. The Corporation utilizes PDs and LGDs that consider, among other things, historical payment performance, loan-to-value attributes and relevant current and forward-looking macroeconomic variables, such as regional unemployment rates, the housing price index and the expected recovery of PRHFA guarantee. Under this approach, all future cash flows (interest and principal) from the underlying collateral loans, adjusted by prepayments and the PDs and LGDs derived from the above-described methodology, are discounted at the internal rate of return as of the reporting date and compared to the amortized cost.

The table below summarizes changes in unrealized gains and losses recorded in earnings for the quarters ended March 31, 2021 and 2020 for Level 3 assets and liabilities that were still held at the end of each period:

	Changes in Unrealized Losses
Level 3 Instruments Only	Quarter ended March 31,
(In thousands)	2021		2020
Changes in unrealized losses relating to assets still held at reporting date:
Provision for credit losses - benefit (expense)	$	127	$	(368)

Additionally, fair value is used on a nonrecurring basis to evaluate certain assets in accordance with GAAP. Adjustments to fair value usually result from the application of lower-of-cost or market accounting (e.g., loans held for sale carried at the lower-of-cost or fair value and repossessed assets) or write-downs of individual assets (e.g., goodwill and loans).

As of March 31, 2021, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table:
	Carrying value as of March 31, 2021						Gains (Losses) recorded for the Quarter Ended March 31, 2021
	Level 1		Level 2		Level 3
(In thousands)
Loans receivable (1)	$	0	$	0	$	237,025	$	(1,203)
OREO (2)		0		0		79,207		(2,364)
Loans Held For Sale (3)		0		0		13,425		(360)

(1) Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable.

(2)The Corporation derived the fair values from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio.

(3) Commercial loan participations transferred to held for sale in the first quarter of 2021 and still in inventory at the end of the period. The value of these loans was primarily derived from offers of market participants that the Corporation considered.

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As of March 31, 2020, the Corporation recorded losses or valuation adjustments for assets recognized at fair value on a non-recurring basis as shown in the following table:
	Carrying value as of March 31, 2020						Losses recorded for the Quarter Ended March 31, 2020
	Level 1		Level 2		Level 3
(In thousands)
Loans receivable (1)	$	0	$	0	$	291,856	$	(6,393)
OREO (2)		0		0		99,674		(654)

(1)Consists mainly of collateral dependent commercial and construction loans. The Corporation generally measured losses based on the fair value of the collateral. The Corporation derived the fair values from external appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the collateral (e.g., absorption rates), which are not market observable.

(2)The Corporation derived the fair values from appraisals that took into consideration prices in observed transactions involving similar assets in similar locations but adjusted for specific characteristics and assumptions of the properties (e.g., absorption rates and net operating income of income producing properties), which are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio.

Qualitative information regarding the fair value measurements for Level 3 financial instruments as of March 31, 2021 are as follows:
	March 31, 2021
	Method	Inputs
Loans	Income, Market, Comparable Sales, Discounted Cash Flows	External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors
OREO	Income, Market, Comparable Sales, Discounted Cash Flows	External appraised values; probability weighting of broker price opinions; management assumptions regarding market trends or other relevant factors

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The following tables present the carrying value, estimated fair value and estimated fair value level of the hierarchy of financial instruments as of March 31, 2021 and December 31, 2020:
	Total Carrying Amount in Statement of Financial Condition as of March 31, 2021		Fair Value Estimate as of March 31, 2021		Level 1		Level 2		Level 3
(In thousands)
Assets:
Cash and due from banks and money
market investments (amortized cost)	$	1,518,164	$	1,518,164	$	1,518,164	$	0	$	0
Investment securities available
for sale (fair value)		5,406,790		5,406,790		7,466		5,387,548		11,776
Investment securities held to maturity (amortized cost)		189,680
Less: allowance for credit losses on
held to maturity debt securities		(8,869)
Investment securities held to maturity, net of allowance	$	180,811		178,314		0		0		178,314
Equity Securities (fair value)		41,558		41,558		5,445		36,113		0
Loans held for sale (lower of cost or market)		56,070		57,132		0		43,707		13,425
Loans, held for investment (amortized cost)		11,641,859
Less: allowance for credit losses for loans and finance leases		(358,936)
Loans held for investment, net of allowance	$	11,282,923		11,452,765		0		0		11,452,765
Derivatives, included in assets (fair value)		2,269		2,269		0		2,269		0
Liabilities:
Deposits (amortized cost)		16,010,436		16,052,136		0		16,052,136		0
Securities sold under agreements
to repurchase (amortized cost)		300,000		324,288		0		324,288		0
Advances from FHLB (amortized cost)		440,000		445,387		0		445,387		0
Other borrowings (amortized cost)		183,762		145,581		0		0		145,581
Derivatives, included in liabilities (fair value)		1,356		1,356		0		1,356		0

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	Total Carrying Amount in Statement of Financial Condition as of December 31, 2020		Fair Value Estimate as of December 31, 2020		Level 1		Level 2		Level 3
(In thousands)
Assets:
Cash and due from banks and money
market investments (amortized cost)	$	1,493,833	$	1,493,833	$	1,493,833	$	0	$	0
Investment securities available
for sale (fair value)		4,647,019		4,647,019		7,507		4,627,535		11,977
Investment securities held to maturity (amortized cost)		189,488
Less: allowance for credit losses on
held to maturity securities		(8,845)
Investment securities held to maturity, net of allowance		180,643		173,806		0		0		173,806
Equity securities (fair value)		37,588		37,588		1,474		36,114		0
Loans held for sale (lower of cost or market)		50,289		52,322		0		52,322		0
Loans, held for investment (amortized cost)		11,777,289
Less: allowance for credit losses for loans and finance leases		(385,887)
Loans held for investment, net of allowance	$	11,391,402		11,564,635		0		0		11,564,635
Derivatives, included in assets (fair value)		2,842		2,842		0		2,842		0
Liabilities:
Deposits (amortized cost)		15,317,383		15,363,236		0		15,363,236		0
Securities sold under agreements
to repurchase (amortized cost)		300,000		329,493		0		329,493		0
Advances from FHLB (amortized cost)		440,000		446,703		0		446,703		0
Other borrowings (amortized cost)		183,762		151,645		0		0		151,645
Derivatives, included in liabilities (fair value)		1,920		1,920		0		1,920		0

The short-term nature of certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash due from banks and other short-term assets, such as FHLB stock. Certain assets, the most significant being premises and equipment, mortgage servicing rights, core deposit, and other customer relationship intangibles, are not considered financial instruments and are not included above. Accordingly, this fair value information is not intended to, and does not, represent the Corporation’s underlying value. Many of these assets and liabilities that are subject to the disclosure requirements are not actively traded, requiring management to estimate fair values. These estimates necessarily involve the use of assumptions and judgment about a wide variety of factors, including but not limited to, relevancy of market prices of comparable instruments, expected futures cash flows, and appropriate discount rates.

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NOTE 26 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Revenue Recognition

In accordance with ASC Topic 606, “Revenue from Contracts with Customers” (“ASC Topic 606”), revenues are recognized when control of promised goods or services is transferred to customers and in an amount that reflects the consideration to which the Corporation expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC Topic 606, the Corporation performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract; (iii) determines the transaction price; (iv) allocates the transaction price to the performance obligations in the contract; and (v) recognizes revenue when (or as) the Corporation satisfies a performance obligation. The Corporation only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC Topic 606, the Corporation assesses the goods or services that are promised within each contract, identifies those that contain performance obligations, and assesses whether each promised good or service is distinct. The Corporation then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Disaggregation of Revenue

The following table summarizes the Corporation’s revenue, which includes net interest income on financial instruments and non-interest income, disaggregated by type of service and business segment for the quarters ended March 31, 2021 and 2020:

(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2021:
Net interest income (1)	$	25,240	$	58,483	$	48,981	$	21,583	$	15,023	$	6,955	$	176,265
Non-interest income:
Service charges and fees on
deposit accounts		0		4,476		2,971		0		149		708		8,304
Insurance commissions		0		4,967		0		0		29		245		5,241
Merchant-related income		0		922		256		0		13		204		1,395
Credit and debit card fees		0		5,645		19		0		3		370		6,037
Other service charges and fees		173		865		519		0		458		141		2,156
Not in scope of Topic 606 (1)		6,943		368		132		56		323		1		7,823
Total non-interest income		7,116		17,243		3,897		56		975		1,669		30,956
Total Revenue	$	32,356	$	75,726	$	52,878	$	21,639	$	15,998	$	8,624	$	207,221
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2020:
Net interest income (1)	$	17,058	$	57,744	$	23,581	$	19,875	$	13,785	$	6,606	$	138,649
Non-interest income:
Service charges and fees
deposit accounts		0		3,483		1,564		0		168		742		5,957
Insurance commissions		0		4,376		0		0		4		202		4,582
Merchant-related income		0		750		0		0		0		149		899
Credit and debit card fees		0		4,217		17		0		10		422		4,666
Other service charges and fees		74		617		412		0		418		147		1,668
Not in scope of Topic 606 (1)		3,566		285		18		8,328		231		0		12,428
Total non-interest income		3,640		13,728		2,011		8,328		831		1,662		30,200
Total Revenue	$	20,698	$	71,472	$	25,592	$	28,203	$	14,616	$	8,268	$	168,849

(1) Most of the Corporation’s revenue is not within the scope of ASC Topic 606. The guidance explicitly excludes net interest income from financial assets and liabilities, as well as other non-interest income from loans, leases, investment securities and derivative financial instruments.

96

For the quarters ended March 31, 2021 and 2020, substantially all of the Corporation’s revenue within the scope of ASC Topic 606 was related to performance obligations satisfied at a point in time.

The following is a discussion of revenues under the scope of ASC Topic 606.

Service Charges and Fees on Deposit Accounts

Service charges and fees on deposit accounts relate to fees generated from a variety of deposit products and services rendered to customers. Charges include, but are not limited to, overdraft fees, insufficient fund fees, dormant fees and monthly service charges. Such fees are recognized concurrently with the event on a daily basis or on a monthly basis depending upon the customer’s cycle date. These depository arrangements are considered day-to-day contracts that do not extend beyond the services performed, as customers have the right to terminate these contracts with no penalty or, if any, nonsubstantive penalties.

Insurance Commissions

For insurance commissions, which include regular and contingent commissions paid to the Corporation’s insurance agency, the agreements contain a performance obligation related to the sale/issuance of the policy and ancillary administrative post-issuance support. The performance obligations are satisfied when the policies are issued, and revenue is recognized at that point in time. In addition, contingent commission income may be considered to be constrained, as defined under ASC Topic 606. Contingent commission income is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur or payments are received. For the quarters ended March 31, 2021 and 2020, respectively, the Corporation recognized revenue at the time that payments were confirmed and constraints were released of $3.3 million and $3.1 million, respectively.

Merchant-related Income

For merchant-related income, the determination of which included the consideration of a 2015 sale of merchant contracts that involved sales of point of sale (“POS”) terminals and entry into a marketing alliance under a revenue-sharing agreement, the Corporation concluded that control of the POS terminals and merchant contracts was transferred to the customer at the contract’s inception. With respect to the related revenue-sharing agreement, the Corporation satisfies the marketing alliance performance obligation over the life of the contract, and recognizes the associated transaction price as the entity performs and any constraints over the variable consideration are resolved.

Credit and Debit Card Fees

Credit and debit card fees primarily represent revenues earned from interchange fees and ATM fees. Interchange and network revenues are earned on credit and debit card transactions conducted with payment networks. ATM fees are primarily earned as a result of surcharges assessed to non-FirstBank customers who use a FirstBank ATM. Such fees are generally recognized concurrently with the delivery of services on a daily basis.

Other Fees

Other fees primarily include revenues generated from wire transfers, lockboxes, bank issuances of checks and trust fees recognized from transfer paying agent, retirement plan, and other trustee activities. Revenues are recognized on a recurring basis when the services are rendered.

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Contract Balances

A contract liability is an entity’s obligation to transfer goods or services to a customer in exchange for consideration from the customer. During 2019, the Bank entered into a growth agreement with an international card service association to expand the customer base and enhance product offerings. The contract requires the Bank to either launch a new debit card product by March 30, 2021, or maintain a ratio of over 50% of the portfolio with the related card service association by the end of year 2021. In connection with this agreement, the Corporation recognized a contract liability as the revenue is constrained to the fulfillment of the above conditions. As of March 31, 2021, the Bank has neither launched a new debit card product nor maintained a ratio of over 50% of the portfolio with the related card service association, therefore, no revenue portion has been recognized from this contract. In addition, as discussed above, during 2015, the Bank entered into a long-term strategic marketing alliance under a revenue-sharing agreement with another entity to which the Bank sold its merchant contracts portfolio and related POS terminals. Merchant services are marketed through FirstBank’s branches and offices in Puerto Rico and the Virgin Islands. Under the revenue-sharing agreement, FirstBank shares with this entity revenues generated by the merchant contracts over the term of the 10-year agreement. As of March 31, 2021 and 2020, this contract liability amounted to $2.1 million and $2.4 million, respectively, which will be recognized over the remaining term of the contract. For each of the quarters ended March 31, 2021 and 2020, the Corporation recognized revenue and its contract liabilities decreased by approximately $0.1 million, due to the completion of performance over time. There were no changes in contract liabilities due to changes in transaction price estimates.

A contract asset is the right to consideration for transferred goods or services when the amount is conditioned on something other than the passage of time. As of March 31, 2021 and 2020, there were no contract assets from contracts with customers or contract assets recorded on the Corporation’s consolidated financial statements.

The following table shows the activity of contract liabilities for the quarters ended March 31, 2021 and 2020:

(In thousands)	March 31, 2021		March 31, 2020
Beginning Balance	$	2,151	$	2,476
Less:
Amortizations		(81)		(81)
Ending balance	$	2,070	$	2,395

Other

Except for the contract liabilities noted above, the Corporation did not have any significant performance obligations as of March 31, 2021. The Corporation also did not have any material contract acquisition costs and did not make any significant judgments or estimates in recognizing revenue for financial reporting purposes.

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NOTE 27 – SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

Supplemental statement of cash flows information is as follows for the indicated periods:

	Quarter Ended March 31,
	2021		2020
(In thousands)
Cash paid for:
Interest on borrowings	$	18,934	$	25,935
Income tax		4,484		1,070
Operating cash flow from operating leases		4,889		2,550
Non-cash investing and financing activities:
Additions to OREO		4,521		5,283
Additions to auto and other repossessed assets		11,456		12,785
Capitalization of servicing assets		1,350		904
Loan securitizations		56,135		60,903
Loans held for investment transferred to held for sale		28,283		3,535
ROU assets obtained in exchange for operating lease liabilities		0		274
Unsettled purchases of available-for-sale investment securities		10,071		0
Unsettled sales of available-for-sale investment securities		0		284,201

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NOTE 28 – SEGMENT INFORMATION

Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer, the operating segments are based primarily on the Corporation’s lines of business for its operations in Puerto Rico, the Corporation’s principal market, and by geographic areas for its operations outside of Puerto Rico. As of March 31, 2021, the Corporation had 6 reportable segments: Commercial and Corporate Banking; Mortgage Banking; Consumer (Retail) Banking; Treasury and Investments; United States Operations; and Virgin Islands Operations. Management determined the reportable segments based on the internal structure used to evaluate performance and to assess where to allocate resources. Other factors, such as the Corporation’s organizational chart, nature of the products, distribution channels, and the economic characteristics of the products, were also considered in the determination of the reportable segments.

The Commercial and Corporate Banking segment consists of the Corporation’s lending and other services for large customers represented by specialized and middle-market clients and the public sector. The Commercial and Corporate Banking segment offers commercial loans, including commercial real estate and construction loans, and floor plan financings, as well as other products, such as cash management and business management services. The Mortgage Banking segment consists of the origination, sale, and servicing of a variety of residential mortgage loans. The Mortgage Banking segment also acquires and sells mortgages in the secondary markets. In addition, the Mortgage Banking segment includes mortgage loans purchased from other local banks and mortgage bankers. The Consumer (Retail) Banking segment consists of the Corporation’s consumer lending and deposit-taking activities conducted mainly through its branch network and loan centers. The Treasury and Investments segment is responsible for the Corporation’s investment portfolio and treasury functions that are executed to manage and enhance liquidity. This segment lends funds to the Commercial and Corporate Banking, Mortgage Banking, Consumer (Retail) Banking and United States Operations segments to finance their lending activities and borrows from those segments. The Consumer (Retail) Banking segment also lends funds to other segments. The interest rates charged or credited by Treasury and Investments and the Consumer (Retail) Banking segments are allocated based on market rates. The difference between the allocated interest income or expense and the Corporation’s actual net interest income from centralized management of funding costs is reported in the Treasury and Investments segment. The United States Operations segment consists of all banking activities conducted by FirstBank in the United States mainland, including commercial and retail banking services. The Virgin Islands Operations segment consists of all banking activities conducted by the Corporation in the USVI and BVI, including commercial and retail banking services.

The accounting policies of the segments are the same as those referred to in Note 1 – Nature of Business and Summary of Significant Accounting Policies, in the audited consolidated financial statements, which are included in the 2020 Annual Report on Form 10-K.

The Corporation evaluates the performance of the segments based on net interest income, the provision for credit losses, non-interest income and direct non-interest expenses. The segments are also evaluated based on the average volume of their interest-earning assets less the ACL.

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The following table presents information about the reportable segments for the quarters ended March 31, 2021 and 2020:
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate Banking		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2021:
Interest income	$	37,060	$	65,733	$	51,458	$	12,762	$	20,332	$	7,297	$	194,642
Net (charge) credit for transfer of funds		(11,820)		1,055		(2,477)		14,934		(1,692)		0		0
Interest expense		0		(8,305)		0		(6,113)		(3,617)		(342)		(18,377)
Net interest income		25,240		58,483		48,981		21,583		15,023		6,955		176,265
Provision for credit losses - (benefit) expense		(786)		3,962		(17,179)		(127)		(237)		(885)		(15,252)
Non-interest income		7,116		17,243		3,897		56		975		1,669		30,956
Direct non-interest expenses		7,997		41,091		11,538		1,234		8,294		7,405		77,559
Segment income	$	25,145	$	30,673	$	58,519	$	20,532	$	7,941	$	2,104	$	144,914
Average earning assets	$	2,658,887	$	2,442,174	$	4,029,377	$	6,259,344	$	2,078,660	$	449,532	$	17,917,974
(In thousands)	Mortgage Banking		Consumer (Retail) Banking		Commercial and Corporate Banking		Treasury and Investments		United States Operations		Virgin Islands Operations		Total
For the quarter ended March 31, 2020:
Interest income	$	28,800	$	58,096	$	32,636	$	16,066	$	22,155	$	7,511	$	165,264
Net (charge) credit for transfer of funds		(11,742)		10,030		(9,055)		11,491		(724)		0		0
Interest expense		0		(10,382)		0		(7,682)		(7,646)		(905)		(26,615)
Net interest income		17,058		57,744		23,581		19,875		13,785		6,606		138,649
Provision for credit losses expense		15,201		32,153		19,175		1,502		6,564		2,771		77,366
Non-interest income		3,640		13,728		2,011		8,328		831		1,662		30,200
Direct non-interest expenses		8,499		29,476		7,047		763		8,991		7,435		62,211
Segment (loss) income	$	(3,002)	$	9,843	$	(630)	$	25,938	$	(939)	$	(1,938)	$	29,272
Average earning assets	$	2,012,906	$	2,131,502	$	2,420,069	$	2,877,104	$	1,944,385	$	455,129	$	11,841,095

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The following table presents a reconciliation of the reportable segment financial information to the consolidated totals for the indicated periods:
	Quarter Ended
	March 31,
(In thousands)	2021		2020
Net income:
Total income for segments and other	$	144,914	$	29,272
Other operating expenses (1)		55,742		29,973
Income (loss) before income taxes		89,172		(701)
Income tax expense (benefit)		28,022		(2,967)
Total consolidated net income	$	61,150	$	2,266
Average assets:
Total average earning assets for segments	$	17,917,974	$	11,841,095
Average non-earning assets		1,168,336		912,334
Total consolidated average assets	$	19,086,310	$	12,753,429

(1) Expenses pertaining to corporate administrative functions that support the operating segment, but are not specifically attributable to or managed by any segment, are not included in the reported financial results of the operating segments. The unallocated corporate expenses include certain general and administrative expenses and related depreciation and amortization expenses.

102

NOTE 29 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES

The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the U.S. Federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Corporation’s financial statements and activities. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s and FirstBank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments and adjustment by the regulators with respect to minimum capital requirements, components, risk weightings, and other factors. As of March 31, 2021 and December 31, 2020, the Corporation and FirstBank exceeded the minimum regulatory capital ratios for capital adequacy purposes and FirstBank exceeded the minimum regulatory capital ratios to be considered a well-capitalized institution under the regulatory framework for prompt corrective action. As of March 31, 2021, management does not believe that any condition has changed or event has occurred that would have changed the institution’s status.

The Corporation and FirstBank compute risk-weighted assets using the standardized approach required by the U.S. Basel III capital rules (“Basel III rules”).

The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5% to avoid limitations on both (i) capital distributions (e.g., repurchases of capital instruments, dividends and interest payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines.

Under the Basel III rules, in order to be considered adequately capitalized and not subject to the above described limitations, the Corporation is required to maintain: (i) a minimum Common Equity Tier 1 Capital (“CET1”) capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratio of at least 7%; (ii) a minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%; (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%; and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.

As part of its response to the impact of COVID-19, on March 31, 2020, the agencies issued an interim final rule that provided the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule provides that, at the election of a qualified banking organization, the day 1 impact to retained earnings plus 25% of the change in the ACL (excluding PCD loans) from January 1, 2020 to December 31, 2021 will be delayed for two years and phased-in at 25% per year beginning on January 1, 2022 over a three-year period, resulting in a total transition period of five years. Accordingly, as of March 31, 2021, the capital measures of the Corporation and the Bank exclude the $62.3 million day 1 impact to retained earnings and 25% of the increase in the allowance for credit losses (as defined in the interim final rule) from January 1, 2020 to March 31, 2021. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19 pandemic, although the nature and impact of such measures cannot be predicted at this time.

103

	The regulatory capital positions of the Corporation and FirstBank as of March 31, 2021 and December 31, 2020, which reflect the delay in the effect of CECL on regulatory capital, were as follows:
		Regulatory Requirements
		Actual			For Capital Adequacy Purposes			To be Well-Capitalized Thresholds
		Amount		Ratio	Amount		Ratio	Amount		Ratio
(Dollars in thousands)
As of March 31, 2021
Total Capital (to
Risk-Weighted Assets)
First BanCorp.		$	2,479,823	20.73%	$	956,908	8.0%		N/A	N/A
FirstBank		$	2,421,641	20.24%	$	956,977	8.0%	$	1,196,221	10.0%
CET1 Capital
(to Risk-Weighted Assets)
First BanCorp.		$	2,115,199	17.68%	$	538,261	4.5%		N/A	N/A
FirstBank		$	1,963,360	16.41%	$	538,300	4.5%	$	777,544	6.5%
Tier I Capital (to
Risk-Weighted Assets)
First BanCorp.		$	2,151,302	17.99%	$	717,681	6.0%		N/A	N/A
FirstBank		$	2,271,360	18.99%	$	717,733	6.0%	$	956,977	8.0%
Leverage ratio
First BanCorp.		$	2,151,302	11.36%	$	757,485	4.0%		N/A	N/A
FirstBank		$	2,271,360	12.00%	$	756,898	4.0%	$	946,122	5.0%
As of December 31, 2020
Total Capital (to
Risk-Weighted Assets)
First BanCorp.		$	2,416,682	20.37%	$	948,890	8.0%		N/A	N/A
FirstBank		$	2,360,493	19.91%	$	948,624	8.0%	$	1,185,780	10.0%
CET1 Capital
(to Risk-Weighted Assets)
First BanCorp.		$	2,053,045	17.31%	$	533,751	4.5%		N/A	N/A
FirstBank		$	1,903,251	16.05%	$	533,601	4.5%	$	770,757	6.5%
Tier I Capital (to
Risk-Weighted Assets)
First BanCorp.		$	2,089,149	17.61%	$	711,667	6.0%		N/A	N/A
FirstBank		$	2,211,251	18.65%	$	711,468	6.0%	$	948,624	8.0%
Leverage ratio
First BanCorp.		$	2,089,149	11.26%	$	742,352	4.0%		N/A	N/A
FirstBank		$	2,211,251	11.92%	$	741,841	4.0%	$	927,301	5.0%

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The Corporation enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments may include commitments to extend credit and standby letters of credits. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses. 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. 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. As of March 31, 2021, commitments to extend credit amounted to approximately $2.1 billion, of which $1.2 billion relates to credit card loans. Commercial and financial standby letters of credit amounted to approximately $115.5 million.

As of March 31, 2021, First BanCorp. and its subsidiaries were defendants in various legal proceedings, claims and other loss contingencies arising in the ordinary course of business. On at least a quarterly basis, the Corporation assesses its liabilities and contingencies in connection with threatened and outstanding legal proceedings, claims and other loss contingencies utilizing the latest information available. For legal proceedings, claims and other loss contingencies where it is both probable that the Corporation will incur a loss and the amount can be reasonably estimated, the Corporation establishes an accrual for the loss. Once established, the accrual is adjusted as appropriate to reflect any relevant developments. For legal proceedings, claims and other loss contingencies where a loss is not probable or the amount of the loss cannot be estimated, no accrual is established.

Any estimate involves significant judgment, given the varying stages of the proceedings (including the fact that some of them are currently in preliminary stages), the existence in some of the current proceedings of multiple defendants whose share of liability has yet to be determined, the numerous unresolved issues in the proceedings, and the inherent uncertainty of the various potential outcomes of such proceedings. Accordingly, the Corporation’s estimate will change from time-to-time, and actual losses may be more or less than the current estimate.

While the final outcome of legal proceedings, claims and other loss contingencies is inherently uncertain, based on information currently available, management believes that the final disposition of the Corporation’s legal proceedings, claims and other loss contingencies, to the extent not previously provided for, will not have a material adverse effect on the Corporation’s consolidated financial position as a whole.

If management believes that, based on available information, it is at least reasonably possible that a material loss (or material loss in excess of any accrual) will be incurred in connection with any legal contingencies, the Corporation discloses an estimate of the possible loss or range of loss, either individually or in the aggregate, as appropriate, if such an estimate can be made, or discloses that an estimate cannot be made. Based on the Corporation’s assessment as of March 31, 2021, no such disclosures were necessary.

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NOTE 30 – FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION

The following condensed financial information presents the financial position of First BanCorp. at the holding company level only as of March 31, 2021 and December 31, 2020, and the results of its operations for the quarters ended March 31, 2021 and 2020:

Statements of Financial Condition
(Unaudited)
	As of March 31,		As of December 31,
	2021		2020
(In thousands)
Assets
Cash and due from banks	$	19,433	$	10,909
Money market investments		0		6,211
Other investment securities		285		285
Investment in First Bank Puerto Rico, at equity		2,340,202		2,396,963
Investment in First Bank Insurance Agency, at equity		45,740		41,313
Investment in FBP Statutory Trust I		1,951		1,951
Investment in FBP Statutory Trust II		3,561		3,561
Other assets		1,616		2,023
Total assets	$	2,412,788	$	2,463,216
Liabilities and Stockholders' Equity
Liabilities:
Other borrowings	$	183,762	$	183,762
Accounts payable and other liabilities		8,601		4,275
Total liabilities		192,363		188,037
Stockholders' equity		2,220,425		2,275,179
Total liabilities and stockholders' equity	$	2,412,788	$	2,463,216

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Statements of Income
(Unaudited)
	Quarter Ended
	March 31,		March 31,
	2021		2020
(In thousands)
Income:
Interest income on money market investments	$	16	$	33
Dividend income from banking subsidiaries		18,801		13,629
Other income		38		61
		18,855		13,723
Expense:
Other borrowings		1,294		2,032
Other operating expenses		499		523
		1,793		2,555
Income before income taxes and equity in undistributed
earnings (losses) of subsidiaries		17,062		11,168
Income tax provision		1,129		1,382
Equity in undistributed earnings (losses) of subsidiaries		45,217		(7,520)
Net income	$	61,150	$	2,266
Other comprehensive (loss) income, net of tax		(98,929)		42,352
Comprehensive (loss) income	$	(37,779)	$	44,618

NOTE 31 – SUBSEQUENT EVENTS

Management has reviewed the events occurring through the date of this report, and, other than the discussion of the stock repurchase program approved by the Corporation’s Board of Directors included in Note 21 – Stockholders’ Equity above, there were no subsequent events that require additional disclosure or adjustment to the accompanying financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS (“MD&A”)

SELECTED FINANCIAL DATA
		Quarter ended
(In thousands, except for per share and financial ratios)		March 31,
		2021			2020
Condensed Income Statements:
	Total interest income	$	194,642		$	165,264
	Total interest expense		18,377			26,615
	Net interest income		176,265			138,649
	Provision for credit losses - (benefit) expense		(15,252)			77,366
	Non-interest income		30,956			30,200
	Non-interest expenses		133,301			92,184
	Income (loss) before income taxes		89,172			(701)
	Income tax expense (benefit)		28,022			(2,967)
	Net income		61,150			2,266
	Net income attributable to common stockholders		60,481			1,597
Per Common Share Results:
	Net earnings per share-basic	$	0.28		$	0.01
	Net earnings per share-diluted	$	0.28		$	0.01
	Cash dividends declared	$	0.07		$	0.05
	Average shares outstanding		217,033			216,785
	Average shares outstanding - diluted		218,277			217,314
	Book value per common share	$	9.99		$	9.92
	Tangible book value per common share (1)	$	9.64		$	9.76
Selected Financial Ratios (In Percent):
Profitability:
	Return on Average Assets		1.30	%		0.07	%
	Interest Rate Spread		3.69			4.17
	Net Interest Margin		3.91			4.63
	Interest Rate Spread - tax equivalent basis (2)		3.79			4.36
	Net Interest Margin - tax equivalent basis (2)		4.01			4.82
	Return on Average Total Equity		10.82			0.41
	Return on Average Common Equity		10.88			0.29
	Average Total Equity to Average Total Assets		12.01			17.38
	Tangible common equity ratio (1)		10.90			16.36
	Dividend payout ratio		25.12			678.80
	Efficiency ratio (3)		64.33			54.60
Asset Quality:
	Allowance for credit losses for loans and finance leases to total loans held for investment		3.08	%		3.24	%
	Net charge-offs (annualized) to average loans		0.43			0.78
	Provision for credit losses for loans and finance leases - (benefit) expense to net charge-offs		(115.47)			421.31
	Non-performing assets to total assets		1.47			2.44
	Nonaccrual loans held for investment to total loans held for investment		1.73			2.35
	Allowance for credit losses for loans and finance leases to total nonaccrual loans held for investment		178.49			137.91
	Allowance for credit losses for loans and finance leases to total nonaccrual loans held for investment,
	excluding residential real estate loans		522.00			327.52
Other Information:
	Common Stock Price: End of period	$	11.26		$	5.32
		As of March 31,2021			As of December 31, 2020
Balance Sheet Data:
	Total loans, including loans held for sale	$	11,697,929		$	11,827,578
	Allowance for credit losses for loans and finance leases		358,936			385,887
	Money market and investment securities, net of allowance for credit losses for debt securities		5,632,090			4,925,822
	Goodwill and other intangible assets		76,998			79,525
	Deferred tax asset, net		306,373			329,261
	Total assets		19,413,734			18,793,071
	Deposits		16,010,436			15,317,383
	Borrowings		923,762			923,762
	Total preferred equity		36,104			36,104
	Total common equity		2,227,795			2,183,620
	Accumulated other comprehensive (loss) income, net of tax		(43,474)			55,455
	Total equity		2,220,425			2,275,179
__________________

(1)Non-GAAP financial measures (as defined below). Refer to “Capital” below for additional information about the components and a reconciliation of these measures.

(2)On a tax-equivalent basis and excluding the changes in the fair value of derivative instruments (see “Net Interest Income" below for a reconciliation of these non-GAAP financial measures).

(3)Non-interest expenses to the sum of net interest income and non-interest income.

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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 year ended December 31, 2020 (the “2020 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 (“GAAP”). See “Basis of Presentation” below for information about why the non-GAAP financial measures are being presented and the reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures for which the reconciliation is not presented earlier.

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, finance leases, credit cards, personal loans, small loans, auto loans, and insurance agency activities.

Recent Developments

Stock Repurchase Program

On April 26, 2021, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the Corporation may repurchase up to $300 million of its outstanding stock, commencing in the second quarter of 2021 through June 30, 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program is subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified, extended, suspended, or terminated at any time at the Corporation’s discretion and may include the redemption of the $36.1 million in outstanding shares of the Corporation’s Series A through E Noncumulative Perpetual Monthly Income Preferred Stock.

COVID-19 Pandemic

The COVID-19 pandemic has caused unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in many countries, including in the markets in which the Corporation operates. In response, federal, state and local governments have taken and continue to take actions designed to mitigate the effect of the virus on public health and to address the economic impact from the virus. As the restrictive measures were eased during 2020 and into 2021, based upon positive signs of recovery from the impacts of the COVID-19 pandemic driven by vaccination and government stimulus programs, economic activity has steadily improved. While positive signs exist, new variants of the COVID-19 virus have emerged and a recent increase in cases and hospitalizations related to the COVID-19 pandemic is affecting Puerto Rico, our main market. In response, Puerto Rico’s Governor issued an executive order in early April 2021 that expanded the ongoing overnight curfew and reduced the maximum occupancy for restaurants and other establishments to 30%. However, the latest executive order announced by the Puerto Rico’s Governor on May 6, 2021, modified the curfew back to 12:00 a.m. to 5:00 a.m., two hours later than allowed under the previous order, and maintained the maximum occupancy of restaurants and other establishments at 30%. At the same time, in Puerto Rico, vaccination efforts began in January 2021, starting with first responders, and then including other groups by stages. Early in April 2021, all residents 16 years of age or older were authorized to receive the vaccine. As of May 2, 2021, approximately 1.9 million vaccines of COVID-19 have been administered in Puerto Rico. Approximately 1.1 million of people have received at least one dose of the COVID-19 vaccine and approximately nine hundred thousand people have completed the vaccination process.

The Corporation continues to operate consistently with guidance from federal and local authorities. As of March 31, 2021, branches were fully open with additional health and safety requirements to comply with federal and local health mandates, including, among other things, daily deep cleaning, face mask requirements and strict social distancing measures. The Corporation has limited in-person banking hours, with branches in Puerto Rico operating from 8:30 a.m. to 4:30 p.m. on weekdays and 9:00 a.m. to 1:00 p.m. on Saturdays. The Corporation continues to enhance client awareness of its digital banking offerings, and registered and active users grew by 6% and 9%, respectively, during the first quarter of 2021.

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Our results of operations for the first quarter of 2021 continue to reflect improvement towards pre-pandemic levels. However, we maintain a cautious view of the macroeconomic outlook due to continuing uncertainty regarding the pace of recovery in the economy and uncertainty related to the COVID-19 pandemic, including the emergence of new variants of the virus. Uncertainties associated with the pandemic include the duration of the COVID-19 outbreak and any related infections, including those from new variants of the virus, the effectiveness of COVID-19 vaccines, the impact to our customers, employees and vendors and the impact to the economy as a whole. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act of 2020, as amended by the Consolidated Appropriations Act, 2021, included an allocation of $659 billion for loans to be issued by financial institutions through the SBA PPP. SBA PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years (loans made before June 5, 2020) or five years (loans made on or after June 5, 2020), if not forgiven, in whole or in part. Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the lender or the date that is 10 months after the last day of the covered period if the borrower does not apply for forgiveness within that 10-month period. On December 27, 2020, President Trump signed another COVID-19 relief bill that extended and modified several provisions of the program. This included an additional allocation of $284 billion. The SBA reactivated the program on January 11, 2021. The Corporation is originating additional SBA PPP loans, which will currently extend through May 31, 2021. As of March 31, 2021, the Corporation’s SBA PPP loan portfolio, net of unearned fees of $14.1 million totaled $430.5 million. The unearned fees are accreted into income based on the contractual period of two years or five years, as applicable. Upon SBA forgiveness, unamortized fees are then recognized into interest income. During the first quarter of 2021, the Corporation originated $209.3 million in new SBA PPP loans and received forgiveness remittances of approximately $175.7 million in principal balance of SBA PPP loans originated in 2020. Forgiveness remittances in the first quarter of 2021 resulted in the acceleration of fee income recognition in the amount of $3.2 million.

Total deposits, excluding brokered deposits and government deposits, continue to increase and were $13.3 billion as of March 31, 2021, an increase of $472.3 million from December 31, 2020. Our liquidity levels and capital position remain strong, with capital ratios that are well above regulatory requirements. These robust liquidity and capital levels provide us with significant flexibility to maintain the strength of our balance sheet and return capital to shareholders through share repurchases and dividend payments, subject to regulatory considerations.

Integration of Banco Santander Puerto Rico

The Corporation continues to make progress in integration activities, with the conversions of the commercial, consumer and credit card business systems completed during the first four months of 2021. The Corporation is on track and expects that the full system conversions will be completed by the end of the summer of 2021. In addition, the Corporation consolidated 3 banking branches during the first quarter of 2021 and expects to consolidate 6 to 7 additional banking branches during 2021.

The Corporation continues to make progress in reducing personnel and service contract expenses and completing other business rationalization activities. The total amount of merger and restructuring costs related to the BSPR acquisition is estimated to be approximately $65 million. Cumulative merger and restructuring expenses of $49.2 million have been incurred through March 31, 2020, of which $11.3 million was incurred during the first quarter of 2021. The Corporation anticipates that most of the remainder of the estimated expenses will be incurred in the second and third quarters of 2021. Merger and restructuring costs in the first quarter of 2021 included approximately $4.8 million related to voluntary and involuntary separation programs implemented in the Puerto Rico region. The Corporation anticipates additional charges of approximately $1.7 million in the second quarter of 2021 in connection with the previously announced Employee Voluntary Separation Program (“VSP”) offered to eligible employees in Puerto Rico. The Corporation also estimates that the combined entities will achieve total annual pre-tax savings of approximately $49 million, which are expected to be fully realized during 2022.

Update on Previously Reported Cybersecurity Incident

On October 23, 2020, we experienced a cybersecurity incident that affected certain of the Corporation’s service channels. As a result of the incident and the security protocols that we activated to protect the Corporation’s information and that of its customers, certain bank services were temporarily suspended for our customers. We restored normal operations shortly thereafter and did not experience any material day-to-day impact from the temporary suspension. The investigation into the incident is materially complete and no evidence of misuse of personal information has been identified. We completed regulatory-required notices, in accordance with local laws, related to potential exposure of personal information of affected individuals. We believe that the incident has been contained and we do not expect the incident to have a material impact on our business, operations or financial condition. Nevertheless, there can be no guarantee that we will not experience material adverse effects, such as loss of customer confidence, further disruptions in our operations, or remediation, mitigation, compliance or legal costs.

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Overview of Results of Operations

First BanCorp.'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 interest rate environment; the volumes, mix and composition of interest-earning assets and interest-bearing liabilities; and the re-pricing characteristics of these assets and liabilities. The Corporation's results of operations also depend on the provision for credit losses, non-interest expenses (such as personnel, occupancy, the deposit insurance premium and other costs), non-interest income (mainly service charges and fees on deposits, and insurance income), gains (losses) on sales of investments, gains (losses) on mortgage banking activities, and income taxes.

The Corporation had net income of $61.2 million, or $0.28 per diluted common share, for the quarter ended March 31, 2021, compared to $2.3 million, or $0.01 per diluted common share, for the same period in 2020.

The key drivers of the Corporation’s GAAP financial results for the quarter ended March 31, 2021, compared to the first quarter of 2020, include the following:

 Net interest income for the quarter ended March 31, 2021 was $176.3 million, compared to $138.6 million for the first quarter of 2020. The increase was driven by an increase of $6.2 billion in average interest-earning assets and a decrease in the average cost of deposits, partially offset by the effect of lower market interest rates on loans and investment yields. The increase in average interest-earning assets was primarily related to the acquisition of BSPR effective on September 1, 2020, as well as purchases of investment securities, and higher interest-bearing cash balances. Through 2020 and the first quarter of 2021, the increased liquidity obtained from the growth in total deposits was primarily invested in U.S. agencies investment securities or in interest-bearing deposits maintained at the Federal Reserve Bank of New York (“New York FED”).

The net interest margin decreased 72 basis points to 3.91% for the quarter ended March 31, 2021, compared to 4.63% for the same period in 2020. The decrease was primarily related to the effect of lower market interest rates on U.S. agencies mortgage-backed securities (“MBS”) and debt securities yields, affected by both higher prepayment rates and lower reinvestment yields, as well as in the repricing of variable rate commercial loans and interest-bearing cash balances. In addition, the net interest margin was adversely affected by a higher proportion of low-yielding assets, such as U.S. agencies investment securities and interest-bearing cash balances, to total interest-earning assets, partially offset by the decrease in the average interest rate paid on interest-bearing deposits. See “Net Interest Income” below for additional information.

 The provision for credit losses on loans, finance leases, and debt securities decreased by $92.6 million to a $15.2 million net benefit for the first quarter of 2021, compared to an expense of $77.4 million for the same period in 2020. The variance reflects the effect of reserve releases in the first quarter of 2021, primarily due to positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated. The significant reserve builds in the prior year were due to the deterioration of the macroeconomic outlook as a result of the onset of the COVID-19 pandemic.

Net charge-offs totaled $12.5 million for the first quarter of 2021, or 0.43% of average loans on an annualized basis, compared to $17.6 million, or 0.78% of average loans for the same period in 2020. The decrease consisted of a $4.6 million decline in net charge-offs taken on consumer loans and a $1.7 million decrease in net charge-offs taken on residential mortgage loans, partially offset by an increase of $1.2 million in net charge-offs taken on commercial and construction loans. Approximately $0.7 million of the commercial and construction charge-offs recorded in the first quarter was related to the transfer to held for sale of $28.2 million of criticized commercial loan participations. See “Provision for credit losses” and “Risk Management” below for analyses of the allowance for credit losses (“ACL”) and non-performing assets and related ratios.

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 The Corporation recorded non-interest income of $31.0 million for the first quarter of 2021, compared to $30.2 million for the same period in 2020. The increase was primarily driven by: (i) a $3.5 million increase in revenues from mortgage banking activities, driven by a higher volume of residential mortgage loan originations and sales that reflects, in part, the effect in the prior year of quarantines and lockdowns of non-essential businesses in connection with the COVID-19 pandemic; (ii) a $4.4 million total increase in transactional fees income from service charges and fees on deposits, credit and debit cards and POS interchange fees, and merchant-related activities due to the effect of the BSPR acquisition; and (iii) a $0.7 million increase in insurance commission income driven by a higher volume of loan originations, as compared to the first quarter of 2020. These variances were partially offset by the effect in the first quarter of 2020 of an $8.2 million gain recorded on the sale of approximately $275.6 million of available-for-sale U.S. agencies MBS. See “Non-Interest Income” below for additional information.

 Non-interest expenses for the first quarter of 2021 were $133.3 million, compared to $92.2 million for the same period in 2020. Non-interest expenses for the first quarter of 2021 included $11.3 million of merger and restructuring costs associated with the acquisition and integration of BSPR compared to $0.8 million for the first quarter of 2020. Total non-interest expenses also included $1.2 million of COVID-19 pandemic-related expenses, primarily related to cleaning and security protocols, compared to $0.4 million for the same period a year ago. Further, total non-interest expenses in the first quarter of 2020 included a $1.2 million benefit from hurricane-related insurance recoveries. Adjusted for the above-mentioned costs, total non-interest expenses for the first quarter of 2021 increased by $28.7 million, compared to the same period in 2020, primarily related to incremental expenses associated with operations, personnel, and branches acquired from BSPR. See “Non-Interest Expenses” below for additional information.

 For the first quarter of 2021, the Corporation recorded an income tax expense of $28.0 million, compared to an income tax benefit of $3.0 million for the same period in 2020. The variance was primarily related to higher pre-tax income, as well as a higher estimated effective tax rate resulting from higher level of taxable income. As of March 31, 2021, the Corporation had deferred tax assets of $306.4 million (net of a valuation allowance of $112.7 million, including a valuation allowance of $70.7 million against the deferred tax assets of the Corporation’s banking subsidiary, FirstBank), compared to net deferred tax assets of $329.3 million as of December 31, 2020. See “Income Taxes” below for additional information.

 As of March 31, 2021, total assets were $19.4 billion, an increase of $620.7 million from December 31, 2020. The increase was primarily related to a $763.9 million increase in investment securities, driven by purchases of U.S. agencies MBS and U.S. agencies callable and bullet debentures, and an increase of $24.3 million in cash and cash equivalents attributable to the liquidity obtained from the growth in deposits and loan repayments. These variances were partially offset by a decrease of $129.7 million in total loans, consisting of a $134.5 million decrease in residential mortgage loans, and a $41.7 million decrease in commercial and construction loans (net of a $24.5 million increase in the SBA PPP loan portfolio), partially offset by an increase of $46.5 million in consumer loans. See “Financial Condition and Operating Data Analysis” below for additional information.

 As of March 31, 2021, total liabilities were $17.2 billion, an increase of $675.4 million from December 31, 2020. The increase was mainly driven by a $472.3 million increase in total deposits, excluding brokered deposits and government deposits, and a $252.0 million increase in government deposits, partially offset by a $31.3 million decrease in brokered deposits. See “Risk Management – Liquidity Risk and Capital Adequacy” below for additional information about the Corporation’s funding sources.

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 As of March 31, 2021, the Corporation’s stockholders’ equity was $2.2 billion, a decrease of $54.8 million from December 31, 2020. The decrease was driven by a $98.9 million decrease in the fair value of available-for-sale investment securities recorded as part of Other comprehensive (loss) income in the consolidated statements of financial condition, driven by changes in market interest rates, and common and preferred stock dividends declared in the first quarter of 2021 totaling $16.0 million, partially offset by earnings generated in the first quarter. The Corporation’s common equity tier 1 (“CET1”) capital, tier 1 capital, total capital and leverage ratios were 17.68%, 17.99%, 20.73% and 11.36%, respectively, as of March 31, 2021, compared to CET1 capital, tier 1 capital, total capital and leverage ratios of 17.31%, 17.61%, 20.37%, and 11.26%, respectively, as of December 31, 2020. See “Risk Management – Capital” below for additional information.

 Total loan production, including purchases, refinancings, renewals and draws from existing revolving and non-revolving commitments, but excluding the utilization activity on outstanding credit cards, was $1.2 billion for the quarter ended March 31, 2021, compared to $802.6 million for the same period in 2020. During the first quarter of 2021, the Corporation originated $209.3 million of SBA PPP loans. Excluding those loans, total loan originations increased by $232.7 million to $1.0 billion during the first quarter of 2021, as compared to the first quarter of 2020. The increase consisted of: (i) a $98.5 million increase in commercial and construction loan originations; (ii) an $83.9 million increase in residential mortgage loan originations; and (iii) a $50.2 million increase in consumer loan originations. The originations in the first quarter of 2020 were affected by the onset of the COVID-19 pandemic and related restrictive measures taken by governments, businesses and individuals that caused significant disruptions in loan underwriting and closing process as a result of a nearly two-month full lockdown of non-essential businesses that were implemented in Puerto Rico on March 16, 2020.

 Total non-performing assets were $284.9 million as of March 31, 2021, a decrease of $8.6 million from December 31, 2020. The decrease was driven by a $9.4 million reduction in nonaccrual commercial and construction loans, including through the repayment of a $6.0 million nonaccrual construction loan relationship in the Virgin Islands region, and a $3.9 million decrease in the OREO portfolio balance, driven by write-downs to the value of certain income-producing commercial properties and sales of residential properties. See “Risk Management – Non-Accruing and Non-Performing Assets” below for additional information.

 Adversely classified commercial and construction loans increased by $49.5 million to $204.7 million as of March 31, 2021 compared to December 31, 2020. The increase was driven by the downgrade of two commercial relationships in the Puerto Rico region totaling $33.2 million. The Corporation is closely monitoring its loan portfolio to identify potential at-risk segments, payment performance, the need for permanent modifications, and the performance of different sectors of the economy in all the markets where the Corporation operates.

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The Corporation’s financial results for the first quarters of 2021 and 2020 included the following items that management believes are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts (the “Special Items”):

Quarter ended March 31, 2021

 Merger and restructuring costs of $11.3 million ($7.0 million after-tax) in connection with the BSPR acquisition integration process and related restructuring initiatives. Merger and restructuring costs in the first quarter of 2021 included approximately $4.8 million related to voluntary and involuntary employee separation programs implemented in the Puerto Rico region. The Corporation anticipates additional charges of approximately $1.7 million in the second quarter of 2021 in connection with the previously announced VSP offered to eligible employees in the Puerto Rico region. Approximately 100 employees participated in the program. To allow for a transition period, the effective separation date for eligible employees is the period between the end of November 2020 until the end of July 2021. In addition, merger and restructuring costs in the first quarter of 2021 included consulting fees, expenses related to system conversions and other integration related efforts, and accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan.

 COVID-19 pandemic-related expenses of $1.2 million ($0.8 million after-tax), primarily costs related to additional cleaning, safety materials, and security measures.

Quarter ended March 31, 2020

 Gain of $8.2 million on sales of approximately $275.6 million of U.S. agencies MBS executed in the latter part of March 2020. The gain, realized at the tax-exempt international banking entity subsidiary, had no effect on the income tax expense recorded in the first quarter of 2020.

 A benefit of $1.2 million ($0.7 million after-tax) resulting from insurance recoveries associated with hurricane-related expenses incurred primarily in the Puerto Rico region.

 Merger and restructuring costs of $0.8 million ($0.5 million after-tax) in connection with the BSPR acquisition. Merger and restructuring costs in the first quarter of 2020 primarily included consulting, legal, and other pre-conversion related efforts associated with the then-pending acquisition of BSPR.

 Costs of $0.4 million ($0.2 million after-tax) related to the COVID-19 pandemic response efforts, primarily additional cleaning costs and communications with customers.

	The following table reconciles for the first quarter of 2021 and 2020 the reported net income to adjusted net income (loss), a non-GAAP financial measure that excludes the Special Items identified above:
		Quarter ended March 31,
		2021		2020
(In thousands)
Net income, as reported (GAAP)		$	61,150	$	2,266
Adjustments:
Merger and restructuring costs			11,267		845
	Benefit from hurricane-related insurance recoveries		-		(1,153)
Gain on sales of investment securities			-		(8,247)
COVID-19 pandemic-related expenses			1,209		363
Income tax impact of adjustments (1)			(4,679)		(21)
Adjusted net income (loss) (Non-GAAP)		$	68,947	$	(5,947)

(1)See "Basis of Presentation" below for the individual tax impact related to reconciling items.

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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. The Corporation’s significant accounting policies are described in Note 1 – Nature of Business and Summary of Significant Accounting Policies to the consolidated financial statements included in the 2020 Annual Report on Form 10-K.

Not all significant accounting policies require management to make difficult, subjective or complex judgments. The Corporation’s critical accounting estimates that are particularly susceptible to significant changes include: 1) the ACL; 2) income taxes; and 3) acquired loans. Actual results could differ from estimates and assumptions, if different outcomes or conditions prevail.

Allowance for Credit Losses

The Corporation maintains an ACL for loans and finance leases based upon management’s estimate of the lifetime expected credit losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, the Corporation maintains an ACL for debt securities classified as either held-to-maturity or available-for-sale, and other off-balance sheet credit exposures (e.g., unfunded loan commitments). For loans and finance leases, unfunded loan commitments, and held-to-maturity debt securities, the estimate of lifetime credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using historical experience. The ACL for available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, the length of the initial loss forecast period, the reversion of losses beyond the initial forecast period, historical loss expectations, usage of macroeconomic scenarios, and qualitative factors, which may not be adequately captured in the loss model, as further discussed below.

The macroeconomic scenarios utilized by the Corporation include variables that have historically been key drivers of increases and decreases in credit losses, as well as the estimated effects of the COVID-19 pandemic on such variables. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, retail sales, interest-rate forecasts, corporate bond spreads and changes in equity market prices. The Corporation derives the economic forecasts it uses in its ACL model from Moody's Analytics. The latter has a large team of economists, data-base managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.

As of March 31, 2021, the Corporation used the base-case economic scenario from Moody’s Analytics in its estimation of credit losses. The Corporation has currently set an initial forecast period (“reasonable and supportable period”) of 2 years and a reversion period of up to 3 years, utilizing a straight-line approach and reverting back to the historical macroeconomic mean for Puerto Rico and the Virgin Islands regions. For the Florida region, the methodology considers a reasonable and supportable forecast period and an implicit reversion towards the historical trend that varies for each macroeconomic variable, achieving the steady state by year 5. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted for prepayments, is used based on the change in key historical economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore influence the amount of future cash flows for each instrument that the Corporation does not expect to collect.

Although no one economic variable can fully demonstrate the sensitivity of the ACL calculation to changes in the economic variables used in the model, the Corporation has identified certain economic variables that have significant influence in the Corporation’s model for determining the ACL. As of March 31, 2021, the Corporation’s ACL model considered the following assumptions for key economic variables in the base-case scenario:

 Commercial Real Estate Price Index year-over-year decrease of approximately 8.6% in the second quarter of 2021, followed by declines ranging from 8.8% – 9.7% during the remainder of 2021.

 Regional Home Price Index in Puerto Rico (purchase only prices), year-over-year increase of approximately 10.6% in the second quarter of 2021, followed by increases ranging from 0.5% - 1.9% during the remainder of 2021. For the Florida region and the U.S. mainland (all transactions, including refinances), year-over-year increase of approximately 1.7% and 4.8%, respectively, in the second quarter of 2021, followed by declines ranging from 0.2% – 1.8% for the Florida region and increases ranging from 3.0% – 3.9% for the U.S. mainland during the remainder of 2021.

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 Levels of regional unemployment in Puerto Rico at approximately 8.1% in the second quarter of 2021, followed by modest improvements throughout the remainder of 2021 to an approximate level of 7.7% by the end of 2021. For the Florida region and the U.S. mainland, unemployment rate of 6.2% and 6.3%, respectively, in the second quarter of 2021, followed by modest improvements throughout the remainder of 2021 to an approximate level of 5.5% in Florida and 5.7% in the U.S. mainland by the end of 2021.

 A year-over-year increase in real gross domestic product (“GDP”) in the U.S. mainland approximately 10.8% in the second quarter of 2021, followed by increasing levels of real GDP growth between 4.6% –5.0% during the remainder of 2021.

Further, the Corporation periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not be limited to, factors such as: (i) 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 underwriting changes, among others. Management reviews the need for and appropriate level of qualitative adjustments on a quarterly basis, and as such, the amount and allocation of qualitative adjustments may change in future periods.

The ACL can also be impacted by unanticipated changes in asset quality of the portfolio, such as increases in risk rating downgrades in our commercial portfolio, deterioration in borrower delinquencies or credit scores in our credit card portfolio or increases in the loan-to-value ratio (“LTVs”) in our residential real estate portfolio. In addition, while we have incorporated our estimated impact of COVID-19 into our ACL, the ultimate impact of the pandemic is still unknown, including how long economic activities will be impacted and what effect the unprecedented levels of government fiscal and monetary actions will have on the economy and our credit losses. Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent.

As described above, the process to determine the ACL requires numerous estimates and assumptions, some of which require a high degree of judgment and are often interrelated. Changes in the estimates and assumptions can result in significant changes in the ACL, as was the case during the first quarter of 2021. As of March 31, 2021, the total ACL for loans, held-to-maturity and available-for-sale securities, and off-balance sheet credit exposure decreased to $373.4 million, from $401.1 million as of December 31, 2020. The net reserve release of $27.7 million during the first quarter of 2021 consisted of net charge-offs of $12.5 million and a provision for credit losses net benefit of $15.3 million. The provision for credit losses net benefit recorded in the first quarter of 2021 primarily reflects an improvement in the outlook of macroeconomic variables to which the reserve is correlated, including improvements in unemployment rate forecasts, and the overall decrease in the size of the residential mortgage and the commercial and construction loan portfolios. Our process for determining the ACL is further discussed in Note 1 – Nature of Business and Summary of Significant Accounting Policies, to the consolidated financial statements included in the 2020 Annual Report on Form 10-K.

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Income Taxes

The Corporation is required to estimate income taxes in preparing its consolidated financial statements. This involves the estimation of current income tax expense together with an assessment of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The determination of current income tax expense involves estimates and assumptions that require the Corporation to assume certain positions based on its interpretation of current tax regulations. Management assesses the relative benefits and risks of the appropriate tax treatment of transactions, taking into account statutory, judicial and regulatory guidance, and recognizes tax benefits only when deemed probable. Changes in assumptions affecting estimates may be required in the future and estimated tax liabilities may need to be increased or decreased accordingly. The Corporation adjusts the accrual of tax contingencies in light of changing facts and circumstances, such as the progress of tax audits, case law and emerging legislation. The Corporation’s effective tax rate includes the impact of tax contingencies and changes to such accruals, as considered appropriate by management. When particular tax matters arise, a number of years may elapse before such matters are finally resolved by the taxing authorities. Favorable resolution of such matters or the expiration of the statute of limitations may result in the release of tax contingencies that the Corporation recognizes as a reduction to its effective tax rate in the year of resolution. Unfavorable settlement of any particular issue could increase the effective tax rate and may require the use of cash in the year of resolution.

The determination of deferred tax expense or benefit is based on changes in the carrying amounts of assets and liabilities that generate temporary differences. The carrying value of the Corporation’s net deferred tax asset assumes that the Corporation will be able to generate sufficient future taxable income based on estimates and assumptions. If these estimates and related assumptions change, the Corporation may be required to record valuation allowances against its deferred tax assets, resulting in additional income tax expense in the consolidated statements of income. Management evaluates its deferred tax assets on a quarterly basis and assesses the need for a valuation allowance, if any. A valuation allowance is established when management believes that it is more likely than not that some portion of its deferred tax assets will not be realized. The determination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires the evaluation of positive and negative evidence that can be objectively verified. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character is available within the carryforward periods. Consideration must be given to all sources of taxable income, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, and tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. The Corporation has concluded that, based on the level of positive evidence, it is more likely than not that the deferred tax asset of $306.4 million (net of a valuation allowance of $112.7 million) will be realized at March 31, 2021. However, there is no guarantee that the tax benefits associated with the deferred tax assets will be fully realized. The positive evidence considered by management in arriving at its conclusion included factors such as: FirstBank’s three-year cumulative income position; sustained periods of profitability; management’s proven ability to forecast future income accurately and execute tax strategies; forecasts of future profitability under several potential scenarios that support the partial utilization of NOLs prior to their expiration from 2021 through 2024; and the utilization of NOLs over the past three-years. The negative evidence considered by management included: uncertainties about the state of the Puerto Rico economy, including considerations relating to the effect of hurricane and pandemic recovery funds together with Puerto Rico government debt renegotiation efforts and the ultimate sustainability of the latest fiscal plan certified by the PROMESA oversight board.

Refer to “Income Taxes” below for further information related to Income Taxes.

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Acquired Loans

Loans acquired through a purchase or a business combination are recorded at their fair value as of the acquisition date. The Corporation performs an assessment of acquired loans to first determine if such loans have experienced more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit deteriorated (“PCD”) loans. For loans that have not experienced more than insignificant deterioration in credit quality since origination, referred to as non-PCD loans, the Corporation records such loans at fair value, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan using the interest method. Additionally, upon the purchase or acquisition of non-PCD loans, the Corporation measures and records an ACL based on the Corporation’s methodology for determining the ACL. The ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans were purchased or acquired.

Acquired loans that are classified as PCD are recognized at fair value. The ACL estimated for PCD loans as of the acquisition date is recorded as a gross-up of the loan balance and the ACL. Any remaining discount or premium after the gross-up is then recognized as an adjustment to yield over the remaining life of the loan. After the acquisition date, the accounting for acquired loans and leases, including PCD and non-PCD loans follows the same accounting guidance as loans and leases originated by the Corporation. Characteristics relevant to the classification of PCD loans include: delinquency, payment history since origination, credit scores migration and/or other factors the Corporation may become aware of through its initial analysis of acquired loans that may indicate there has been more than insignificant deterioration in credit quality since a loan’s origination. In connection with the BSPR acquisition on September 1, 2020, the Corporation acquired PCD loans and non-PCD loans with an aggregate fair value of approximately $752.8 million and $1.8 billion, respectively. The fair value of the loans acquired from BSPR was estimated based on a discounted cash flow method under which the present value of the contractual cash flows was calculated based on certain valuation assumptions such as default rates, loss severity, and prepayment rates, consistent with the Corporation’s CECL methodology, and discounted using a market rate of return that accounts for both the time value of money and investment risk factors. The discount rate utilized to analyze fair value considered the cost of funds rate, capital charge, servicing costs, and liquidity premium, mostly based on industry standards.

For PCD loans that, prior to the adoption of CECL, were classified as purchased credit impaired (“PCI”) loans and accounted for under ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC Subtopic 310-30”), the Corporation adopted CECL using the prospective transition approach. As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. As of March 31, 2021, such PCD loans consisted of $126.0 million of residential mortgage loans and $2.4 million of commercial mortgage loans acquired by the Corporation as part of previously completed asset acquisitions. As the Corporation elected to maintain pools of units of account for loans previously accounted for under ASC Subtopic 310-30, the Corporation is not able to remove loans from the pools until they are paid off, written off or sold (consistent with the Corporation’s practice prior to adoption of CECL), but is required to follow CECL for purposes of the ACL. Regarding interest income recognition for PCD loans that existed at the time of adoption of CECL, the prospective transition approach for PCD loans required by CECL was applied at a pool level, which froze the effective interest rate of the pools as of January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans that the Corporation has elected to maintain in previously existing pools pursuant to the policy election right upon adoption of CECL should be made at the pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the timing and amounts of cash flows expected to be collected, and (ii) the Corporation did not acquire the asset primarily for the rewards of ownership of the underlying collateral, such as for use in operations or improving the collateral for resale. Thus, the Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics. In accordance with CECL, the Corporation did not reassess whether modifications to individual acquired loans accounted for within pools were TDR as of the date of adoption.

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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. Net interest income for the quarter ended March 31, 2021 was $176.3 million, compared to $138.6 million for the comparable period in 2020. On a tax-equivalent basis and excluding the changes in the fair value of derivative instruments, net interest income for the quarter ended March 31, 2021 was $180.8 million, compared to $144.3 million for the comparable period in 2020.

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 and excluding the change in the fair value of derivative instruments is a non-GAAP financial measure. For the definition of this non-GAAP financial measure, refer to the discussion in “Basis of Presentation” below.

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Part I
		Average Volume				Interest income (1) / expense				Average Rate (1)
	Quarter ended March 31,	2021		2020		2021		2020		2021		2020
	(Dollars in thousands)
	Interest-earning assets:
	Money market and other short-term investments	$	1,428,038	$	770,708	$	349	$	2,262	0.10	%	1.18	%
	Government obligations (2)		1,439,872		481,967		5,974		5,301	1.68	%	4.42	%
	MBS		3,604,584		1,763,813		9,730		14,009	1.09	%	3.19	%
	FHLB stock		31,228		33,390		401		596	5.21	%	7.18	%
	Other investments		7,238		5,668		9		11	0.50	%	0.78	%
	Total investments (3)		6,510,960		3,055,546		16,463		22,179	1.03	%	2.92	%
	Residential mortgage loans		3,493,822		2,890,810		45,586		38,655	5.29	%	5.38	%
	Construction loans		212,676		122,120		3,244		1,881	6.19	%	6.20	%
	Commercial and Industrial (“C&I”)
	and Commercial mortgage loans		5,431,614		3,679,470		66,269		47,972	4.95	%	5.24	%
	Finance leases		481,995		421,740		8,870		7,919	7.46	%	7.55	%
	Consumer loans		2,148,159		1,883,278		58,737		52,310	11.09	%	11.17	%
	Total loans (4) (5)		11,768,266		8,997,418		182,706		148,737	6.30	%	6.65	%
	Total interest-earning assets	$	18,279,226	$	12,052,964	$	199,169	$	170,916	4.42	%	5.70	%
	Interest-bearing liabilities:
	Brokered certificates of deposit (“CDs”)	$	188,949	$	429,106	$	989	$	2,452	2.12	%	2.30	%
	Other interest-bearing deposits		10,702,468		6,580,393		11,353		17,202	0.43	%	1.05	%
	Loans payable		-		4,396		-		3	-	%	0.27	%
	Other borrowed funds		483,762		440,194		3,572		3,950	2.99	%	3.61	%
	FHLB advances		440,000		555,110		2,463		3,008	2.27	%	2.18	%
	Total interest-bearing liabilities	$	11,815,179	$	8,009,199	$	18,377	$	26,615	0.63	%	1.34	%
	Net interest income on a tax equivalent
	basis and excluding valuations					$	180,792	$	144,301
	Interest rate spread									3.79	%	4.36	%
	Net interest margin									4.01	%	4.82	%

(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. The Corporation excludes changes in the fair value of derivatives from interest income and interest expense because the changes in valuation do not affect interest received or paid.

(2)Government obligations include debt issued by government-sponsored agencies.

(3)Unrealized gains and losses on available-for-sale securities are excluded from the average volumes.

(4)Average loan balances include the average of nonaccrual loans.

(5)Interest income on loans includes $2.6 million and $2.2 million for the first quarter of 2021 and 2020, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio.

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Part II
		Quarter ended March 31,
		2021 compared to 2020
		Increase (decrease)
		Due to:
	(In thousands)	Volume		Rate		Total
	Interest income on interest-earning assets:
	Money market and other short-term investments	$	1,055	$	(2,968)	$	(1,913)
	Government obligations		7,285		(6,612)		673
	MBS		9,840		(14,119)		(4,279)
	FHLB stock		(37)		(158)		(195)
	Other investments		2		(4)		(2)
	Total investments		18,145		(23,861)		(5,716)
	Residential mortgage loans		7,832		(901)		6,931
	Construction loans		1,384		(21)		1,363
	Commercial and Industrial and Commercial mortgage loans		21,993		(3,696)		18,297
	Finance leases		1,091		(140)		951
	Consumer loans		7,106		(679)		6,427
	Total loans		39,406		(5,437)		33,969
	Total interest income		57,551		(29,298)		28,253
	Interest expense on interest-bearing liabilities:
	Brokered CDs		(1,287)		(176)		(1,463)
	Non-brokered interest-bearing deposits		7,603		(13,452)		(5,849)
	Loans payable		(3)		-		(3)
	Other borrowed funds		346		(724)		(378)
	FHLB advances		(649)		104		(545)
	Total interest expense		6,010		(14,248)		(8,238)
	Change in net interest income	$	51,541	$	(15,050)	$	36,491

Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and U.S. government-sponsored entities (“GSEs”), generate interest that is exempt from income tax, principally in Puerto Rico. Also, interest and gains on sales of investments held by the Corporation’s international banking entities (“IBEs”) are tax-exempt under Puerto Rico tax law (see “Income Taxes” below for additional information). Management believes that the presentation of interest income on an adjusted tax-equivalent basis facilitates the comparison of all interest data related to these assets. The Corporation estimated the tax equivalent yield by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate (37.5%) and adding to it the average cost of interest-bearing liabilities. The computation considers the interest expense disallowance required by Puerto Rico tax law.

Management believes that the presentation of net interest income excluding the effects of the changes in the fair value of the derivative instruments (“valuations”) provides additional information about the Corporation’s net interest income and facilitates comparability and analysis from period to period. The changes in the fair value of the derivative instruments have no effect on interest due on interest-bearing liabilities or interest earned on interest-earning assets.

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The following table reconciles net interest income in accordance with GAAP to net interest income, excluding valuations, and net interest income on an adjusted tax-equivalent basis for the indicated periods. The table also reconciles net interest spread and net interest margin on a GAAP basis to these items excluding valuations, and on an adjusted tax-equivalent basis:
	Quarter Ended March 31,
(Dollars in thousands)	2021			2020
Interest Income - GAAP	$	194,642		$	165,264
Unrealized gain on derivative instruments		(25)			-
Interest income excluding valuations		194,617			165,264
Tax-equivalent adjustment		4,552			5,652
Interest income on a tax-equivalent basis and excluding valuations		199,169			170,916
Interest Expense - GAAP		18,377			26,615
Net interest income - GAAP	$	176,265		$	138,649
Net interest income excluding valuations	$	176,240		$	138,649
Net interest income on a tax-equivalent basis and excluding valuations	$	180,792		$	144,301
Average Balances
Loans and leases	$	11,768,266		$	8,997,418
Total securities, other short-term investments and interest-bearing cash balances		6,510,960			3,055,546
Average Interest-Earning Assets	$	18,279,226		$	12,052,964
Average Interest-Bearing Liabilities	$	11,815,179		$	8,009,199
Average Yield/Rate
Average yield on interest-earning assets - GAAP		4.32	%		5.51	%
Average rate on interest-bearing liabilities - GAAP		0.63	%		1.34	%
Net interest spread - GAAP		3.69	%		4.17	%
Net interest margin - GAAP		3.91	%		4.63	%
Average yield on interest-earning assets excluding valuations		4.32	%		5.51	%
Average rate on interest-bearing liabilities		0.63	%		1.34	%
Net interest spread excluding valuations		3.69	%		4.17	%
Net interest margin excluding valuations		3.91	%		4.63	%
Average yield on interest-earning assets on a tax-equivalent basis
and excluding valuations		4.42	%		5.70	%
Average rate on interest-bearing liabilities		0.63	%		1.34	%
Net interest spread on a tax-equivalent basis and excluding valuations		3.79	%		4.36	%
Net interest margin on a tax-equivalent basis and excluding valuations		4.01	%		4.82	%

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Interest income on interest-earning assets primarily represents interest earned on loans held for investment and investment securities.

Interest expense on interest-bearing liabilities primarily represents interest paid on brokered CDs, retail deposits, repurchase agreements, advances from the FHLB and junior subordinated debentures.

Unrealized gains or losses on derivatives represent changes in the fair value of derivatives, primarily interest rate caps used for protection against rising interest rates.

For the quarter ended March 31, 2021, net interest income increased $37.7 million to $176.3 million, compared to $138.6 million for the same period in 2020. The $37.7 million increase in net interest income was primarily due to:

 An $18.6 million increase in interest income on commercial and construction loans, mainly due to a $1.8 billion increase in the average balance of this portfolio, primarily related to both the effect of loans acquired in conjunction with the BSPR acquisition and the SBA PPP loans originated through 2020 and the first quarter of 2021. Total discount accretion related to fair value marks on commercial and construction loans acquired in the BSPR acquisition amounted to $2.7 million in the first quarter of 2021. Additionally, interest income for the first quarter of 2021 includes $5.4 million earned on average SBA PPP loan balances of $406.2 million, including the acceleration of fee income recognition in the amount of $3.2 million related to forgiveness remittances of $175.7 million received in the current quarter in principal balance of SBA PPP loans. The increase in interest income related to the higher average balances of commercial and construction loans in 2021 was partially offset by the decrease in yields in these portfolios. The decreases in yields on commercial and construction loans were the result of the predominance of loans in these categories with variable rates of interest tied to LIBOR and Prime rates, each of which decreased significantly in 2020 and remained low in the first quarter of 2021.

As of March 31, 2021, the interest rate on approximately 39% of the Corporation’s commercial and construction loans, excluding SBA PPP loans, was based upon LIBOR indices and 16% was based upon the Prime rate index. For the first quarter of 2021, the average one-month LIBOR rate declined 129 basis points, the average three-month LIBOR rate declined 133 basis points, and the average Prime rate declined 116 basis points compared to the average rates for such indices for the first quarter of 2020.

 A $7.4 million increase in interest income on consumer loans and finance leases, mainly due to a $325.1 million increase in the average balance of this portfolio, which resulted in an increase in interest income of approximately $8.5 million, largely related to auto loans and finance leases. The increase in the average balance reflects the effect of both consumer loans acquired in connection with the BSPR acquisition and organic growth. The benefit of the increase in the average balance of the consumer loan portfolio was partially offset by, among other things, the adverse effect of one less day in the first quarter of 2021, as compared to the same period in 2020, which resulted in a decrease of approximately $0.7 million on this portfolio.

 A $6.8 million increase in interest income on residential mortgage loans, primarily related to a $603.0 million increase the average balance of this portfolio, primarily related to loans acquired in the BSPR acquisition.

 An $8.2 million decrease in total interest expense, primarily due to: (i) a $5.8 million decrease in interest expense on interest-bearing checking, savings and non-brokered time deposits, primarily related to the effect of lower rates paid in response to the Federal Fund target rate decreases over the past year that more than offset the effect of the $4.1 billion increase in average balance; (ii) a $1.5 million decrease in interest expense on brokered CDs, primarily related to the $240.2 million decrease in the average balance in related deposits; (iii) a $0.5 million decrease in interest expense on FHLB advances, primarily related to a $115.1 million decrease in the average balance of FHLB advances; and (iv) a $0.7 million decrease in interest expense related to the downward repricing of floating-rate junior subordinated debentures.

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Partially offset by:

 A $1.9 million decrease in interest income from interest-bearing cash balances, which consisted primarily of deposits maintained at the New York FED. Balances at the New York FED earned 0.10% during the first quarter of 2021, compared to 1.17% for the same period a year ago, a decrease attributable to declines in the Federal Funds target rate. The adverse effect of lower rates was partially offset by a $657.3 million increase in the average balance of interest-bearing cash balances, primarily related to the growth in deposits made by customers.

 A $1.6 million decrease in interest income on investment securities, primarily related to the adverse effects of a higher premium amortization expense related to higher prepayment rates of U.S. agencies MBS and lower reinvestment yields, partially offset by an increase of $2.8 billion in the average balance of investment securities, largely related to U.S. agencies MBS and debt securities.

The net interest margin decreased by 72 basis points to 3.91% for the first quarter of 2021, compared to 4.63% for the first quarter of 2020. The decrease was primarily attributable to the effect of the low interest rate environment on U.S. agencies MBS prepayment rates, reinvestment yields on investment securities, and the repricing of variable rate commercial loans and interest-bearing cash balances. In addition, net interest margin was adversely affected by a higher proportion of low-yielding assets, such as interest-bearing cash balances, U.S. agencies MBS and debt securities, to total interest-earning assets, partially offset by the decrease in the average rate paid on interest-bearing deposits.

On an adjusted tax-equivalent basis, net interest income for the quarter ended March 31, 2021 increased by $36.5 million to $180.8 million, compared to $144.3 million for the same period in 2020. The tax-equivalent adjustment decreased by $1.1 million, primarily due to a decrease in tax-exempt interest income on U.S. agencies MBS held by the IBE subsidiary First Bank Overseas.

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Provision for Credit Losses

The provision for credit losses consists of provisions for credit losses on loans and finance leases and, unfunded loan commitments, as well as held-to-maturity and available-for-sale debt securities. 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 a net benefit of $14.4 million for the first quarter of 2021, compared to an expense of $74.0 million for the first quarter of 2020. The variances by major portfolio category are as follow:

 Provision for credit losses for the commercial and construction loan portfolio was a net benefit of $14.6 million for the first quarter of 2021, compared to an expense of $24.6 million in the first quarter of 2020. The net benefit recorded in the first quarter of 2021, reflects improvements in projected macroeconomic variables, primarily in the unemployment rate variable, and, to a lesser extent, the overall decrease in the size of these portfolios in the Puerto Rico region. The significant reserve builds in the prior year were due to the deterioration of the macroeconomic outlook as a result of the onset of the COVID-19 pandemic reflected across multiple sectors with higher increases in the ACL made for loans in the accommodation, retail real estate, and transportation industries.

 Provision for credit losses for the residential mortgage loan portfolio was a net benefit of $4.2 million for the first quarter of 2021, compared to an expense of $16.2 million in the first quarter of 2020. The net benefit recorded in the first quarter of 2021 reflects the effect of both continued improvements in the outlook of macroeconomic variables, such as regional unemployment rates and the Home Price Index, particularly in the Florida region, and the overall portfolio decrease. The significant reserve builds in the prior year were due to the deterioration of the macroeconomic outlook as a result of the onset of the COVID-19 pandemic.

 Provision for credit losses for the consumer loans and finance leases portfolio was an expense of $4.3 million for the first quarter of 2021, compared to $33.2 million in the first quarter of 2020. The charges to the provision in the first quarter of 2021 were primarily related to the auto loans and finance lease portfolios that, among other things, accounted for the overall increase in the size of these portfolios, as well as charges to the provision for credit card loans that, among other things, reflect deterioration in delinquency trends, partially offset by releases associated with continued improvements in macroeconomic variables. The significant reserve builds in the prior year were due to the deterioration of the macroeconomic outlook as a result of the onset of the COVID-19 pandemic primarily reflected in the credit cards and unsecured personal loan portfolios.

See “Risk Management – Credit Risk Management” below for an analysis of the ACL, non-performing assets, and related information, and see “Financial Condition and Operating Data Analysis – Loan Portfolio and Risk Management — Credit Risk Management” below for additional information concerning the Corporation’s loan portfolio exposure in the geographic areas where the Corporation does business.

Provision for credit losses for unfunded loan commitments

The provision for credit losses for unfunded commercial and construction loan commitments and standby letters of credit was a net benefit of $0.7 million for the first quarter of 2021, compared to an expense of $1.8 million in the first quarter of 2020. The net benefit recorded in the first quarter of 2021 was primarily related to a construction loan commitment due to improvements in the outlook of macroeconomic variables. The reserve build in the prior year was due to the deterioration of the macroeconomic outlook as a result of the onset of the COVID-19 pandemic.

Provision for credit losses for held-to-maturity and available-for-sale debt securities

As of March 31, 2021, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. The provision for credit losses for held-to-maturity securities was an expense of $24 thousand for the first quarter of 2021, compared to $1.1 million for the same period a year ago. Meanwhile, the provision for credit losses for available-for-sale debt securities was a net benefit of $0.1 million for the first quarter of 2021, compared to an expense of $0.4 million for the same period a year ago. Changes to the ACL for available-for-sale debt securities were primarily in connection with private label MBS resulting from changes in the present value of expected cash flows based upon the performance of the underlying mortgages and changes in macroeconomic conditions.

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Non-Interest Income
	The following table presents the composition of non-interest income for the indicated periods:
		Quarter Ended March 31,
		2021		2020
	(In thousands)
	Service charges on deposit accounts	$	8,304	$	5,957
	Mortgage banking activities		7,273		3,788
	Insurance income		5,241		4,582
	Other operating income		10,138		7,626
	Non-interest income before net gain
	on sales of investment securities		30,956		21,953
	Net gain on sales of investment securities		-		8,247
	Total	$	30,956	$	30,200

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Non-interest income primarily consists of income from service charges on deposit accounts, commissions derived from various banking and insurance activities, gains and losses on mortgage banking activities, interchange and other fees related to debit and credit cards, and net gains and losses on investment securities.

Service charges on deposit accounts include monthly fees, overdraft fees, and other fees on deposit accounts, as well as corporate cash management fees.

Income from mortgage banking activities includes gains on sales and securitizations of loans, revenues earned for administering residential mortgage loans originated by the Corporation and subsequently sold with servicing retained, and unrealized gains and losses on forward contracts used to hedge the Corporation’s securitization pipeline. In addition, lower-of-cost-or-market valuation adjustments to the Corporation’s residential mortgage loans held-for-sale portfolio and servicing rights portfolio, if any, are recorded as part of mortgage banking activities.

Insurance income consists mainly of insurance commissions earned by the Corporation’s subsidiary, FirstBank Insurance Agency, Inc.

The other operating income category is composed of miscellaneous fees such as debit, credit card and POS interchange fees, as well as contractual shared revenues from merchant contracts sold in 2015.

The net gain on investment securities reflects gains or losses as a result of sales that are consistent with the Corporation’s investment policies.

Non-interest income for the first quarter of 2021 amounted to $31.0 million, compared to $30.2 million for the same period in 2020. The $0.8 million increase in non-interest income was primarily related to:

 A 3.5 million increase in revenues from mortgage banking activities, primarily related to a $2.3 million increase in realized gains on sales of residential mortgage loans in the secondary market, a $0.9 million increase related to the net change in mark-to-market gains and losses from both interest rate lock commitments and To-Be-Announced (“TBA”) MBS forward contracts, and a $0.8 million increase in service fee income. These variances were partially offset by a $0.7 million increase in the amortization expense related to mortgage servicing rights. Total loans sold in the secondary market to GNMA and U.S. GSEs during the first quarter of 2021 amounted to $151.5 million with a related net gain of $5.7 million (including realized gains of $0.3 million on TBA MBS hedges), compared to total loans sold in the secondary market during the first quarter of 2020 of $93.7 million with a related net gain of $3.4 million (net of realized losses of $0.4 million on TBA MBS hedges). The lower interest rate environment prevailing in 2021, as compared to the first quarter of 2020, and the adverse effect in prior years of disruptions in the loan originations and closing process related to the onset of the COVID-19 pandemic and related restrictive measures, resulted in a higher volume of conforming residential mortgage loan originations and sales.

 A $2.5 million increase Other operating income in the table above, primarily related to: (i) a $2.1 million increase in transactional fee income from credit and debit cards, POS, and merchant-related activity, reflecting both higher transaction volumes and income generated by the acquired BSPR operations; and (ii) a $0.3 million increase in wire transfer commission income.

 A $2.3 million increase in service charges and fees on deposits accounts, driven by the income generated by the acquired BSPR operations, primarily reflecting an increase in the number of cash management transactions of commercial clients.

 A $0.7 million increase in insurance income, driven by both higher property insurance commissions, positively impacted by a higher volume of residential mortgage loan originations during the first quarter of 2021, when compared to same period in 2020, and higher insurance contingent commissions received by the insurance agency in the first quarter of 2021 as compared to the same period in 2020.

Partially offset by:

 The effect in the first quarter of 2020 of an $8.2 million gain on sales of approximately $275.6 million of available-for-sale U.S. agencies MBS. The securities sold carried an increased prepayment risk given the dramatic drops in market interest rates in March 2020.

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Non-Interest Expenses
The following table presents the components of non-interest expenses for the indicated periods:
		Quarter Ended March 31,
		2021		2020
	(In thousands)
	Employees' compensation and benefits	$	50,842	$	42,859
	Occupancy and equipment		24,242		15,127
	FDIC deposit insurance premium		1,988		1,522
	Taxes, other than income taxes		6,199		3,880
	Professional fees:
	Collections, appraisals and other credit-related fees		1,310		1,696
	Outsourced technology services		12,373		6,829
	Other professional fees		4,018		3,268
	Credit and debit card processing expenses		4,278		3,950
	Business promotion		2,970		3,622
	Communications		2,462		1,877
	Net loss on OREO and OREO operations expenses		1,898		1,188
	Merger and restructuring costs		11,267		845
	Other		9,454		5,521
	Total	$	133,301	$	92,184

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Non-interest expenses for the quarter ended March 31, 2021 were $133.3 million, compared to $92.2 million for the first quarter of 2020. Included in non-interest expenses are the following Special Items:

 Merger and restructuring costs associated with the acquisition of BSPR of $11.3 million for the first quarter of 2021, compared to $0.8 million for the first quarter of 2020. These costs primarily included charges related to voluntary and involuntary employee separation programs implemented in the Puerto Rico region, as well as consulting fees, expenses related to system conversions and other integration related efforts, and accelerated depreciation charges related to planned closures and consolidation of branches in accordance with the Corporation’s integration and restructuring plan.

 COVID-19 pandemic-related expenses of $1.2 million for the first quarter of 2021, compared to $0.4 million for the first quarter of 2020. For the first quarter of 2021 these costs primarily consisted of: (i) expenses of $1.0 million associated with cleaning and security protocols, included as part of Occupancy and equipment costs in the table above; and (ii) $0.1 million in sales and use taxes, included as part of Taxes, other than income taxes in the table above. For the first quarter of 2020, these costs primarily consisted of: (i) expenses of $0.2 million associated with advertising and digital marketing media related to communications with customers, included as part of Business promotions in the table above; (ii) expenses of $0.1 million associated with cleaning and security protocols, included as part of Occupancy and equipment in the table above; and (iii) expenses of $0.1 million associated with staff relations, included as part of Employees’ compensation and benefits in the table above.

 Benefit from hurricane-related expenses insurance recoveries recorded as contra-expense in the first quarter of 2020 amounting to $1.2 million, primarily related to repairs and maintenance expenses, included as a contra expense of Occupancy and equipment costs in the table above.

On a non-GAAP basis, adjusted non-interest expenses, excluding the effect of the Special Items mentioned above, amounted to $120.8 million for the first quarter of 2021, compared to $92.1 million for the first quarter of 2020. The $28.7 million increase in adjusted non-interest expenses primarily reflects the effect of operations, personnel, and branches acquired from BSPR. Some of the most significant variances in adjusted non-interest expenses follows:

 An $8.0 million increase in adjusted employees’ compensation and benefits expenses, primarily driven by incremental expenses related to personnel retained from the acquisition of BSPR, partially offset by a $2.2 million decrease in deferred loan origination costs, primarily in connection with the origination of SBA PPP loans in the first quarter of 2021.

 A $7.4 million increase in adjusted occupancy and equipment expenses, primarily related to incremental expenses associated with the BSPR acquired operations including rental and software maintenance expenses.

 A $5.7 million increase in adjusted professional service fees, including a $5.5 million increase in outsourced technology fees, primarily related to approximately $3.1 million of temporary technology processing costs of the acquired BSPR operations while system conversions are completed, as well as costs of approximately $1.5 million incurred in connection with the platform used for SBA PPP loan originations and forgiveness funding.

 A $3.9 million increase in adjusted Other non-interest expenses, in the table above, including a $2.2 million increase in the amortization of intangible assets, primarily associated with the intangibles assets recognized in connection with the BSPR acquisition, and a $1.3 million increase in insurance and supervisory expenses, primarily associated with higher costs on insurance policies.

 A $2.2 million increase in adjusted taxes, other than income taxes, primarily related to incremental municipal license taxes, property taxes, and sales and use taxes related to the acquired operations.

 A $0.7 million increase in losses from OREO operations, primarily reflecting a $1.7 million increase in write-downs to the value of OREO properties, largely related to a commercial property in the Puerto Rico region, and a $0.2 million decrease in income recognized from rental payments associated with OREO income-producing properties, partially offset by a $0.7 million increase in net realized gains on sales of OREO properties and a $0.4 million decrease in OREO-related operating expenses, primarily taxes, repairs, and maintenance expenses.

 A $0.6 million increase in communication expenses, primarily related to incremental expenses on telephone, data, and postage related to the acquired operations.

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Income Taxes

For the first quarter of 2021, the Corporation recorded an income tax expense of $28.0 million, compared to an income tax benefit of $3.0 million for the same period in 2020. The variance was primarily related to both a higher estimated effective tax rate resulting from higher levels of book taxable income and higher pre-tax income, driven by credit loss reserve releases in the fourth quarter of 2021 compared to the significant reserve builds recorded in the first quarter of 2020.

For the quarter ended March 31, 2021, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annual estimated effective tax rate, ASC Topic 740-270, “Income Taxes” (“ASC 740-270”), requires the exclusion of legal entities with pre-tax losses from which a tax benefit cannot be recognized. The Corporation’s estimated annual effective tax rate in the first quarter of 2021, excluding entities from which a tax benefit cannot be recognized and discrete items, was 31% compared to 24% for the first quarter of 2020.

The Corporation’s net deferred tax asset amounted to $306.4 million as of March 31, 2021, net of a valuation allowance of $112.7 million, and management concluded, based upon the assessment of all positive and negative evidence, that it is more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $306.2 million as of March 31, 2021, net of a valuation allowance of $70.7 million, compared to a net deferred tax asset of $329.1 million, net of a valuation allowance of $59.9 million, as of December 31, 2020. The decrease in the deferred tax asset was mainly driven by the aforementioned credit loss reserve release and the usage of net operating losses. The increase in the valuation allowance during the first quarter of 2021 was primarily related to the change in the market value of available-for-sale securities. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital loss carryforward, thus, the change in the market value of available-for-sale securities resulted in a change in the deferred tax asset and an equal change in the valuation allowance without having an effect on earnings.

In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we would have incurred in the absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at each annual taxable period, which is dependent on various factors. For the first quarter of 2021, the Corporation incurred an income tax expense of approximately $1.1 million related to its U.S. operations, compared to $1.0 million for the same period in 2020. The limitation did not impact the USVI operations in the first quarter of 2021 and 2020.

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FINANCIAL CONDITION AND OPERATING DATA ANALYSIS

Assets

The Corporation’s total assets were $19.4 billion as of March 31, 2021, an increase of $620.7 million from December 31, 2020. The increase was primarily related to a $763.9 million increase in investment securities, mainly driven by purchases of U.S. agencies MBS and U.S agencies callable and bullet debentures totaling $1.4 billion during the first quarter, partially offset by approximately $202.1 million of U.S. agencies bonds that were called prior to maturity during the first quarter, prepayments of $314.1 million of U.S. agencies MBS, and a $98.9 million decrease in the fair value of available-for-sale investment securities attributable to changes in market interest rates. In addition, there was an increase of $24.3 million in cash and cash equivalents attributable to the liquidity obtained from the growth in deposits. These variances were partially offset by a decrease of $129.7 million in total loans, as further discussed below.

Loan Portfolio

The following table presents the composition of the Corporation’s loan portfolio, including loans held for sale, as of the indicated dates:
		March 31,		December 31,
	(In thousands)	2021		2020
	Residential mortgage loans	$	3,395,081	$	3,521,954
	Commercial loans:
	Commercial mortgage loans		2,216,887		2,230,602
	Construction loans		190,996		212,500
	Commercial and Industrial loans (1)		3,182,706		3,202,590
	Total commercial loans		5,590,589		5,645,692
	Consumer loans and finance leases		2,656,189		2,609,643
	Total loans held for investment		11,641,859		11,777,289
	Less:
	Allowance for credit losses for loans and finance leases		(358,936)		(385,887)
	Total loans held for investment, net	$	11,282,923	$	11,391,402
	Loans held for sale		56,070		50,289
	Total loans, net	$	11,338,993	$	11,441,691
	(1) As of March 31, 2021 and December 31, 2020, includes $430.5 million and $406.0 million, respectively, of SBA PPP loans.

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As of March 31, 2021, the Corporation’s total loan portfolio, before the ACL, amounted to $11.7 billion, a decrease of $129.7 million when compared to December 31, 2020. The decrease consisted of reductions of $125.6 million in the Puerto Rico region and $15.5 million in the Virgin Islands region, partially offset by an $11.4 million increase in the Florida region. On a portfolio basis, the decrease consisted of reductions of $134.5 million in residential mortgage loans and $41.7 million in commercial and construction loans (net of a $24.5 million increase in the SBA PPP loan portfolio), partially offset by an increase of $46.5 million in consumer loans. As further discussed below, the decrease in commercial and construction loans reflects, among other things, the effect of the sale of a $14.3 million criticized commercial loan participation in the Florida region, the repayment of a $6.0 million nonaccrual construction relationship, as well as large repayments for certain term loans and revolving lines of credit in the Puerto Rico region, partially offset by new loan originations, primarily in the Florida region.

The decrease in the Puerto Rico region consisted of reductions of $99.7 million in residential mortgage loans and $75.3 million in commercial and construction loans (net of a $5.5 million increase in the SBA PPP loan portfolio), partially offset by an increase of $49.4 million in consumer loans, primarily auto loans and finance leases. The decline in the residential mortgage loan portfolio in the Puerto Rico region reflects the effect of repayments and charge-offs, which more than offset the volume of new loan originations kept on the loan portfolio held for investment. The growth in consumer loans was driven by new loan originations, primarily auto loans and finance leases, partially offset by reductions in the balances of personal loans and credit card loans. Excluding the $5.5 million increase in the SBA PPP loan portfolio, commercial and construction loans in the Puerto Rico region decreased by $80.8 million, driven by several commercial term loans individually in excess of $1 million that were paid off in the first quarter and totaled approximately $31.8 million, principal repayments that reduced by $34.5 million the balance of revolving lines of credits related to four commercial and industrial relationships, and additional repayments, which more than offset the volume of new loan originations.

The decrease in total loans in the Virgin Islands region consisted of reductions of $7.2 million in residential mortgage loans, and $8.7 million in commercial and construction loans (including a $0.2 million decrease in the SBA PPP loan portfolio), partially offset by a $0.4 million increase in the balance of consumer loans. The decrease in commercial and construction loans reflects, among other things, the aforementioned $6.0 million repayment of a nonaccrual construction relationship.

The increase in total loans in the Florida region consisted of an increase of $42.3 million in commercial and construction loans, partially offset by reductions of $27.6 million in residential mortgage loans and $3.3 million in consumer loans. The increase in the commercial and construction loan portfolio included a $19.2 million increase in the SBA PPP loan portfolio. Excluding the increase in the SBA PPP loan portfolio, commercial and construction loans in the Florida region increased by $23.1 million, driven by the origination of several commercial loans individually in excess of $10 million related to three commercial and industrial relationships and totaling $47.0 million, partially offset by the sale of a $14.3 million criticized commercial loan participation and loan repayments.

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As of March 31, 2021, the loans held for investment portfolio was comprised of commercial and construction loans (48%), residential real estate loans (29%), and consumer and finance leases (23%). Of the total gross loan portfolio held for investment of $11.6 billion as of March 31, 2021, the Corporation had credit risk concentration of approximately 79% in the Puerto Rico region, 17% 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 March 31, 2021	Puerto Rico		Virgin Islands		United States		Total
(In thousands)
Residential mortgage loans	$	2,698,364	$	205,528	$	491,189	$	3,395,081
Commercial mortgage loans		1,767,431		58,314		391,142		2,216,887
Construction loans		64,468		4,817		121,711		190,996
Commercial and Industrial loans (1)		2,094,809		129,204		958,693		3,182,706
Total commercial loans		3,926,708		192,335		1,471,546		5,590,589
Consumer loans and finance leases		2,580,682		52,102		23,405		2,656,189
Total loans held for investment, gross	$	9,205,754	$	449,965	$	1,986,140	$	11,641,859
Loans held for sale		35,719		1,309		19,042		56,070
Total loans, gross	$	9,241,473	$	451,274	$	2,005,182	$	11,697,929
(1) As of March 31, 2021, includes $430.5 million of SBA PPP loans consisting of $306.6 million in the Puerto Rico region, $27.2 million in the Virgin Islands region, and $96.7 million in the United States region.

As of December 31, 2020	Puerto Rico		Virgin Islands		United States		Total
(In thousands)
Residential mortgage loans	$	2,788,827	$	213,376	$	519,751	$	3,521,954
Commercial mortgage loans		1,793,095		60,129		377,378		2,230,602
Construction loans		73,619		11,397		127,484		212,500
Commercial and Industrial loans (1)		2,135,291		129,440		937,859		3,202,590
Total commercial loans		4,002,005		200,966		1,442,721		5,645,692
Consumer loans and finance leases		2,531,206		51,726		26,711		2,609,643
Total loans held for investment, gross	$	9,322,038	$	466,068	$	1,989,183	$	11,777,289
Loans held for sale		44,994		681		4,614		50,289
Total loans, gross	$	9,367,032	$	466,749	$	1,993,797	$	11,827,578
(1) As of December 31, 2020, includes $406.0 million of SBA PPP loans consisting of $301.1 million in the Puerto Rico region, $27.4 million in the Virgin Islands region, and $77.5 million in the United States region.

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Residential Real Estate Loans

As of March 31, 2021, the Corporation’s total residential mortgage loan portfolio, including loans held for sale, decreased by $134.5 million, as compared to the balance as of December 31, 2020. The decline reflects reductions in all regions driven by repayments and charge-offs, which more than offset the volume of new loan originations kept on the balance sheet. Consistent with the Corporation’s strategies, the residential mortgage loan portfolio decreased by $99.7 million in the Puerto Rico region, $27.6 million in the Florida region, and $7.2 million in the Virgin Islands region. Approximately 92% of the $131.4 million in residential mortgage loan originations in the Puerto Rico region during the first quarter of 2021 consisted of conforming loan originations and refinancings. Conforming mortgage loans are generally originated with the intent to sell in the secondary market to GNMA and U.S. government-sponsored agencies.

The majority of the Corporation’s outstanding balance of residential mortgage loans in the Puerto Rico and Virgin Islands regions consisted of fixed-rate loans that traditionally carry higher yields than residential mortgage loans in the Florida region. In the Florida region, approximately 56% of the residential mortgage loan portfolio consisted of hybrid adjustable-rate mortgages. In accordance with the Corporation’s underwriting guidelines, residential mortgage loans are primarily fully-documented loans, and the Corporation does not originate negative amortization loans.

Commercial and Construction Loans

As of March 31, 2021, the Corporation’s commercial and construction loan portfolio, including loans held for sale, decreased by $41.7 million (net of a $24.5 million increase in the SBA PPP loan portfolio), as compared to the balance as of December 31, 2020. The decrease in commercial and construction loans was primarily reflected in the Puerto Rico region, which declined by $75.3 million (net of a $5.5 million increase in the SBA PPP loan portfolio), as compared to the balance as of December 31, 2020. Excluding the $5.5 million increase in the SBA PPP loan portfolio, commercial and construction loans in Puerto Rico decreased by $80.8 million, driven by several commercial term loans individually in excess of $1 million that were paid off in the first quarter and totaled approximately $31.8 million, principal repayments that reduced by $34.5 million the balance of revolving lines of credits related to four commercial and industrial relationships, and additional repayments, which more than offset the volume of new loan originations.

In the Virgin Islands region, commercial and construction loans decreased by $8.7 million (including a $0.2 million decrease in the SBA PPP loan portfolio) as compared to the balance as of December 31, 2020. The decrease in the Virgin Islands region, primarily reflects the effect of the aforementioned $6.0 million repayment of a nonaccrual construction relationship.

In the Florida region, commercial and construction loans increased by $42.3 million (including a $19.2 million increase in the SBA PPP loan portfolio). Excluding the $19.2 million increase in the SBA PPP loan portfolio, commercial and construction loans in the Florida region increased by $23.1 million, driven by the origination of several commercial loans individually in excess of $10 million related to three commercial and industrial relationships and totaling $47.0 million, partially offset by the sale of a $14.3 million criticized commercial loan participation and loans repayments.

As mentioned above, the SBA reactivated the PPP in January 2021. The Corporation is originating additional PPP loans, which originations will extend through May 31, 2021. In the first quarter of 2021, the Corporation originated $209.3 million in PPP loans and received forgiveness remittances of approximately $175.7 million in the principal balance of PPP loans originated in 2020. Forgiveness remittances in the first quarter of 2021 resulted in the acceleration of fee income recognition in the amount of $3.2 million. As of March 31, 2021, SBA PPP loans, net of unearned fees of $14.1 million, totaled $430.5 million, compared to $406.0 million as of December 31, 2020.

As of March 31, 2021, the Corporation had $197.5 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $201.3 million as of December 31, 2020. As of March 31, 2021, approximately $107.2 million consisted of loans extended to municipalities in Puerto Rico that are supported by assigned property tax revenues, and $37.4 million consisted of municipal special obligation bonds. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of budgetary subsidies provided by the Puerto Rico central government. These municipalities are required by law to levy special property taxes in such amounts as are required to satisfy the payment of all of their respective general obligation bonds and notes. Late in 2015, the Government Development Bank for Puerto Rico (“GDB”) and the Municipal Revenue Collection Center (“CRIM”) signed and perfected a deed of trust. Through this deed, the Puerto Rico Fiscal Agency and Financial Advisory Authority, as fiduciary, is bound to keep the CRIM funds separate from any other deposits and must distribute the funds pursuant to applicable law. The CRIM funds are deposited at another commercial depository financial institution in Puerto Rico. In addition to loans extended to municipalities, the Corporation’s exposure to the Puerto Rico government as of March 31, 2021 included $13.5 million in loans granted to an affiliate of the Puerto Rico Electric Power Authority (“PREPA”) and $39.4 million in loans to an agency of the Puerto Rico central government.

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The Corporation also has credit exposure to USVI government entities. As of March 31, 2021, the Corporation had $62.2 million in loans to USVI government instrumentalities and public corporations, compared to $61.8 million as of December 31, 2020. Of the amount outstanding as of March 31, 2021, public corporations of the USVI owed approximately $39.0 million and an independent instrumentality of the USVI government owed approximately $23.2 million. As of March 31, 2021, all loans were currently performing and up to date on principal and interest payments.

As of March 31, 2021, the Corporation’s total exposure to shared national credit (“SNC”) loans (including unused commitments) amounted to $902.1 million, compared to $882.9 million as of December 31, 2020. As of March 31, 2021, approximately $167.1 million of the SNC exposure related to the portfolio in Puerto Rico and $735.0 million related to the portfolio in the Florida region.

The composition of the Corporation’s construction loan portfolio held for investment as of March 31, 2021 and December 31, 2020 by category and geographic location follows:

As of March 31, 2021
	Puerto Rico		Virgin Islands		United States		Total
(In thousands)
Loans for residential housing projects:
Mid-rise (1)	$	105	$	956	$	-	$	1,061
Single-family, detached		15,104		139		4,496		19,739
Total for residential housing projects		15,209		1,095		4,496		20,800
Construction loans to individuals secured by residential properties		48		-		-		48
Loans for commercial projects		39,470		2,414		116,029		157,913
Land loans - residential		4,902		1,308		1,186		7,396
Land loans - commercial		4,839		-		-		4,839
Total construction loan portfolio, gross		64,468		4,817		121,711		190,996
ACL		(1,870)		(256)		(2,789)		(4,915)
Total construction loan portfolio, net	$	62,598	$	4,561	$	118,922	$	186,081
____________________
(1) Mid-rise relates to buildings of up to 7 stories.

As of December 31, 2020
	Puerto Rico		Virgin Islands		United States		Total
(In thousands)
Loans for residential housing projects:
Mid-rise (1)	$	116	$	956	$	-	$	1,072
Single-family, detached		14,685		459		4,980		20,124
Total for residential housing projects		14,801		1,415		4,980		21,196
Construction loans to individuals secured by residential properties		48		-		-		48
Loans for commercial projects		48,185		8,635		120,888		177,708
Land loans - residential		5,685		1,347		1,616		8,648
Land loans - commercial		4,900		-		-		4,900
Total construction loan portfolio, gross		73,619		11,397		127,484		212,500
ACL		(1,752)		(880)		(2,748)		(5,380)
Total construction loan portfolio, net	$	71,867	$	10,517	$	124,736	$	207,120
____________________
(1) Mid-rise relates to buildings of up to 7 stories.

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The following table presents further information related to the Corporation’s construction portfolio as of and for the quarter ended March 31, 2021:
	(Dollars in thousands)
	Total undisbursed funds under existing commitments	$	74,686
	Construction loans held for investment in nonaccrual status	$	6,378
	Net charge offs - Construction loans	$	9
	ACL - Construction loans	$	4,915
	Nonaccrual construction loans to total construction loans		3.34%
	ACL for construction loans to total construction loans held for investment		2.57%
	Net charge-offs (annualized) to total average construction loans		0.02%

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Consumer Loans and Finance Leases

As of March 31, 2021, the Corporation’s consumer loan and finance lease portfolio increased by $46.5 million to $2.7 billion, as compared to the portfolio balance as of December 31, 2020. The increase primarily reflects increases in auto loans and finance leases, which increased by $59.6 million and $20.6 million, respectively, partially offset by reductions in personal loans, credit cards loans, other lines of credit, and boat loans of $17.9 million, $13.5 million, $1.4 million, and $0.9 million, respectively. The growth in consumer loans is mainly reflected in the Puerto Rico region and was driven by an increased level of loan originations.

Loan Production

First BanCorp. relies primarily on its retail network of branches to originate residential and consumer loans. The Corporation supplements 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.

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, for the periods indicated:
	Quarter Ended March 31,
	2021		2020
(In thousands)
Residential mortgage	$	163,927	$	80,009
Commercial mortgage		31,539		115,832
Commercial and Industrial		777,203		358,475
Construction		24,021		50,615
Consumer		342,063		282,027
Total loan production	$	1,338,753	$	886,958

Total loan originations, including purchases, refinancings, and draws from existing revolving and non-revolving commitments, amounted to approximately $1.3 billion in the first quarter of 2021, compared to $887.0 million for the comparable period in 2020. During the first quarter of 2021, the Corporation originated SBA PPP loans totaling $209.3 million. Excluding SBA PPP loans, total loan originations increased by $242.5 million from $887.0 million originated in the first quarter of 2020 million to $1.1 billion in the first quarter of 2021. The originations in the first quarter of 2020 were affected by the spread of COVID-19 and related restrictive measures that caused a sharp contraction in economic activity and high levels of volatility across most financial markets.

Residential mortgage loan originations amounted to $163.9 million for the first quarter of 2021, compared to $80.0 million for the first quarter of 2020. The increase of $83.9 million in the first quarter of 2021, as compared to the same period of 2020, reflects increases of approximately $70.9 million and $13.0 million in the Puerto Rico and Florida regions, respectively. The increase reflects the effect of both a higher volume of refinanced loans and conforming loan originations driven by the effect of lower mortgage loan interest rates and increased home purchasing activity and the effect in 2020 of disruptions in the loan underwriting and closing processes caused by the almost two-month lockdown related to the COVID-19 pandemic that was implemented in Puerto Rico on March 16, 2020.

Commercial and construction loan originations (excluding government loans) amounted to $829.7 million for the first quarter of 2021, compared to $524.4 million for the first quarter of 2020. Total commercial and construction loan originations during the first quarter of 2021 include SBA PPP loan originations of $209.3 million. Excluding SBA PPP loans, commercial and construction loan originations were $620.4 million, an increase of $95.9 million compared with the same period in 2020. The growth reflects an increase of $98.0 million in the Puerto Rico region, partially offset by reductions of $1.9 million and $0.2 million in the Florida and Virgin Islands regions, respectively. The increase in the Puerto Rico region reflects an increase in the utilization of floor plan and other commercial lines of credit, as compared to the first quarter of 2020, reflecting the effect in 2020 of disruptions caused by the COVID-19 pandemic and related restrictive measures on economic activities, as well as the overall increase in the portfolio commercial lines of credit in 2021 related to the acquisition of BSPR late in the third quarter of 2020.

Government loan originations amounted to $3.1 million for the first quarter of 2021, compared to $0.5 million for the first quarter of 2020. Government loan originations in each of those periods are related to the utilization of an arranged overdraft line of credit of a government entity in the Virgin Islands region.

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Originations of auto loans (including finance leases) for the first quarter of 2021 amounted to $208.7 million, an increase of $57.5 million, compared to $151.2 million for the first quarter of 2020. The increase was primarily reflected in the Puerto Rico region with an increase of $58.1 million, partially offset by a decrease of $0.6 million in the Virgin Islands region. The increase in auto loan and finance lease originations reflects, among other things, the effect in 2020 of disruptions caused by the COVID-19 pandemic-related lockdowns and quarantines. Personal loan originations for the first quarter of 2021, other than credit cards, amounted to $39.2 million, compared to $46.5 million for the first quarter of 2020. Most of the decrease in personal loan originations for the first quarter of 2021, as compared with the same period in 2020, was in the Puerto Rico region, as federal stimulus payments to individuals has softened the demand for personal loans in recent quarters. The utilization activity on the outstanding credit card portfolio for the first quarter of 2021 amounted to $94.1 million, compared to $84.3 million for the first quarter of 2020.

Investment Activities

As part of its liquidity, revenue diversification and interest rate risk management strategies, First BanCorp. maintains an investment portfolio that is classified as available-for-sale or held to maturity. The Corporation’s total available-for-sale investment securities portfolio as of March 31, 2021 amounted to $5.4 billion, a $759.8 million increase from December 31, 2020. The increase was mainly driven by the aforementioned purchases of U.S. agencies MBS and U.S. agencies callable and bullet debentures totaling $1.4 billion during the first quarter, partially offset by approximately $202.1 million of U.S. agencies bonds that were called prior to maturity during the first quarter, prepayments of $314.1 million of U.S. agencies MBS, and a $98.9 million decrease in the fair value of available-for-sale investment securities attributable to changes in market interest rates. Despite recent increases, long-term market interest rates remain at low levels, which may trigger accelerated exercises of call options and prepayment rights on investments securities in the future. These risks are directly linked to future period market interest rate fluctuations.

As of March 31, 2020, approximately 99% of the Corporation’s available-for-sale securities portfolio was invested in U.S. government and agencies debentures and fixed-rate GSEs’ MBS (mainly GNMA, FNMA and FHLMC fixed-rate securities). In addition, as of March 31, 2021, the Corporation held a bond issued by the Puerto Rico Housing Finance Authority (“PRHFA”), classified as available for sale, specifically a residential pass-through MBS in the aggregate amount of $3.9 million (fair value - $2.8 million). This residential pass-through MBS issued by the PRHFA is collateralized by certain second mortgages originated under a program launched by the Puerto Rico government in 2010 and had an unrealized loss of $1.1 million as of March 31, 2021, of which $0.3 million is due to credit deterioration and was charged against earnings through an ACL during 2020.

As of March 31, 2021, the Corporation’s held-to-maturity investment securities portfolio, before the ACL, amounted to $189.7 million, relatively flat compared to $189.5 million as of December 31, 2020. As of March 31, 2021, the ACL for held-to-maturity debt securities was $8.9 million, relatively flat compared to $8.8 million as of December 31, 2020. Held-to-maturity investment securities consisted of financing arrangements with Puerto Rico municipalities 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. These obligations typically are not issued in bearer form, are not registered with the Securities and Exchange Commission, and are not rated by external credit agencies. These bonds have seniority to the payment of operating costs and expenses of the municipality and, in most cases, are supported by assigned property tax revenues. Approximately 60% of the Corporation’s municipality bonds consisted of obligations issued by three of the largest municipalities in Puerto Rico. The municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and loans. Given the uncertainties as to the effects that the fiscal position of the Puerto Rico central government, the COVID-19 pandemic, and the measures taken, or to be taken, by other government entities may have on municipalities, the Corporation cannot be certain whether future charges to the ACL on these securities will be required.

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.

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The following table presents the carrying values of investments as of the indicated dates:
	March 31,		December 31,
	2021		2020
(In thousands)
Money market investments	$	2,932	$	60,572
Investment securities available for sale, at fair value:
U.S. government and agencies obligations		1,399,291		1,187,674
Puerto Rico government obligations		2,829		2,899
MBS		4,004,020		3,455,796
Other		650		650
Total investment securities available for sale, at fair value		5,406,790		4,647,019
Investment securities held to maturity, at amortized cost:
Puerto Rico municipal bonds		189,680		189,488
ACL for held-to-maturity debt securities		(8,869)		(8,845)
		180,811		180,643
Equity securities, including $31.2 million of FHLB stock, as of each of
March 31, 2021 and December 31, 2020		41,558		37,588
Total money market investments and investment securities	$	5,632,091	$	4,925,822

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MBS as of the indicated dates consisted of:
	March 31,		December 31,
(In thousands)	2021		2020
Available for sale:
FHLMC certificates	$	1,393,701	$	1,149,871
GNMA certificates		577,118		699,492
FNMA certificates		1,625,954		1,320,281
Collateralized mortgage obligations issued or
guaranteed by FHLMC, FNMA or GNMA		398,950		277,724
Private label MBS		8,297		8,428
Total MBS	$	4,004,020	$	3,455,796

The carrying values of investment securities classified as available for sale and held to maturity as of March 31, 2021 by contractual maturity (excluding MBS) are shown below:
	Carrying		Weighted
(In thousands)	Amount		Average Yield %
U.S. government and agencies obligations:
Due within one year	$	18,061	2.00
Due after one year through five years		751,504	0.57
Due after five years through ten years		608,992	0.84
Due after ten years		20,734	0.65
		1,399,291	0.71
Puerto Rico government and municipalities obligations:
Due within one year		2,968	5.38
Due after one year through five years		14,843	2.57
Due after five years through ten years		88,564	4.65
Due after ten years		86,134	3.72
		192,509	4.08
Other investment securities:
Due after one year through five years		650	2.90
Total		1,592,450	1.11
MBS		4,004,020	1.32
ACL on held-to-maturity debt securities		(8,869)	-
Total investment securities available for sale and held to maturity	$	5,587,601	1.26

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Net interest income of future periods could be affected by prepayments of MBS. Any acceleration in the prepayments of MBS would lower yields on these securities, since the amortization of premiums paid upon acquisition of these securities would accelerate. Conversely, acceleration of the prepayments of MBS would increase yields on securities purchased at a discount, since the amortization of the discount would accelerate. These risks are directly linked to future period market interest rate fluctuations. Also, net interest income in future periods might be affected by the Corporation’s investment in callable securities. As of March 31, 2021, the Corporation had approximately $1.2 billion in debt securities (U.S. agencies government securities) with embedded calls, which were primarily purchased at a discount and with an average yield of 0.69%. 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 rate risk management strategies. Also refer to Note 5 – Investment Securities, in the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2021 for additional information regarding the Corporation’s investment portfolio.

RISK MANAGEMENT

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 risk and reward in order 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: (1) liquidity risk; (2) interest rate risk; (3) market risk; (4) credit risk; (5) operational risk; (6) legal and compliance risk; (7) reputational risk; (8) model risk; (9) capital risk; (10) strategic risk; and (11) information technology risk. First BanCorp. has adopted policies and procedures designed to identify and manage the risks to which the Corporation is exposed.

The Corporation’s risk management policies are described below, as well as in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in the 2020 Annual Report on Form 10-K.

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, which is the holding company that owns the banking and non-banking subsidiaries. The second is the liquidity of the banking subsidiary. During the first quarter of 2021, the Corporation continued to pay quarterly interest payments on the subordinated debentures associated with its TRuPs, the monthly dividend income on its non-cumulative perpetual monthly income preferred stock, and quarterly dividends on its common stock.

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 of Directors’ 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 and other related matters.

The MIALCO is composed of senior management officers, including the Chief Executive Officer, the Chief Financial Officer, the Chief Risk Officer, the Retail Financial Services Director, the risk manager of the Treasury and Investments Division, the Financial Planning and ALM Director and the Treasurer. The Treasury and Investments Division is responsible for planning and executing the Corporation’s funding activities and strategy, monitoring liquidity availability on a daily basis, and reviewing liquidity measures on a weekly basis. The Treasury and Investments Accounting and Operations area of the Comptroller’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 monthly basis. The Financial Planning and ALM Division is responsible to estimates the liquidity gap for longer periods.  

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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 difficult period, 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 developed contingency funding plans for the following three scenarios: a credit rating downgrade, an economic cycle downturn event, and a funding concentration event. The Board of Directors’ Asset and Liability Committee reviews and approves these plans on an annual basis.

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 the liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. As of March 31, 2021, the estimated core liquidity reserve (which includes cash and free liquid assets) was $4.6 billion, or 23.9% of total assets, compared to $4.1 billion, or 21.6% of total assets, as of December 31, 2020. The basic liquidity ratio (which adds available secured lines of credit to the core liquidity) was approximately 29.9% of total assets as of March 31, 2021, compared to 27.9% of total assets as of December 31, 2020. As of March 31, 2021, the Corporation had $1.2 billion available for additional credit from the FHLB. Unpledged liquid securities, mainly fixed-rate MBS and U.S. agency debentures, amounted to approximately $3.1 billion as of March 31, 2021. The Corporation does not rely on uncommitted inter-bank lines of credit (federal funds lines) to fund its operations and does not include them in the basic liquidity measure. As of March 31, 2021, the holding company had $19.4 million of cash and cash equivalents. Cash and cash equivalents at the Bank level as of March 31, 2021 were approximately $1.5 billion. The Bank had $162.1 million in brokered CDs as of March 31, 2021, of which approximately $76.5 million mature over the next twelve months. In addition, the Corporation had non-maturity brokered deposits totaling $248.3 million as of March 31, 2021. Liquidity at the Bank level is highly dependent on bank deposits, which fund 83% of the Bank’s assets (or 81% excluding brokered deposits).

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 funds are deposits, including brokered deposits, securities sold under agreements to repurchase, and lines of credit with the FHLB.

The Asset and Liability Committee reviews credit availability on a regular basis. The Corporation has also sold mortgage loans as a supplementary source of funding and participates in the Borrower-in-Custody (“BIC”) Program of the FED. The Corporation has also obtained long-term funding in the past through the issuance of notes and long-term brokered CDs.

As of March 31, 2021, the amount of brokered CDs had decreased by $54.1 million to $162.1 million, from $216.2 million as of December 31, 2020. Non-maturity brokered deposits, such as a money market account maintained by a deposit broker, increased in the first quarter of 2021 by $22.8 million to $248.3 million as of March 31, 2021. Consistent with its strategy, the Corporation has been seeking to add core deposits. As of March 31, 2021, the Corporation’s deposits, excluding brokered deposits and government deposits, increased by $472.3 million to $13.3 billion, compared to $12.8 billion as of December 31, 2020. This increase is primarily related to a $505.8 million increase in demand deposits and a $107.7 million increase in savings deposits, primarily in the Puerto Rico and Virgin Islands regions, partially offset by a $141.2 million decrease in retail CDs as further discussed below.

The Corporation continues to have access to financing through counterparties to repurchase agreements, the FHLB, and other agents, such as wholesale funding brokers. While liquidity is an ongoing challenge for all financial institutions, management believes that the Corporation’s available borrowing capacity and efforts to grow retail deposits will be adequate to provide the necessary funding for the Corporation’s business plans in the foreseeable future.

The Corporation’s principal sources of funding are:

Brokered deposits – Total brokered CDs decreased during the first quarter of 2021 by $54.1 million to $162.1 million as of March 31, 2021, compared to $216.2 million as of December 31, 2020.

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The average remaining term to maturity of the brokered CDs outstanding as of March 31, 2021 was approximately 1.3 years.

The use of brokered CDs has historically been an additional source of funding for the Corporation. It provides an additional efficient channel for funding diversification and interest rate management. Brokered CDs are insured by the FDIC up to regulatory limits; and can be obtained faster than regular retail deposits. In addition, the Corporation may obtain funds from brokers deposited in non-maturity money market accounts tied to short-term money market rates such as the Federal funds rate.

The following table presents a summary of time deposits as of the indicated dates:
	March 31, 2021		December 31, 2020
(In thousands)
Total time deposits	$	2,854,291	$	3,030,485
$100,000 or more		2,168,298		2,322,041
$250,000 or more		1,181,138		1,259,036

The following table presents contractual maturities of time deposits with denominations of $100,000 or higher as of March 31, 2021:
		Total
(In thousands)
Three months or less	$	444,861
Over three months to six months		359,330
Over six months to one year		621,272
Over one year		742,835
Total	$	2,168,298

Time deposits include brokered CDs of $162.1 million issued to deposit brokers in the form of large CDs that are generally participated out by brokers in amounts of less than the FDIC insurance limit.

Government deposits – As of March 31, 2021, the Corporation had $2.0 billion of Puerto Rico public sector deposits ($1.9 billion in transactional accounts and $174.8 million in time deposits), compared to $1.8 billion as of December 31, 2020. Approximately 19% of the public sector deposits as of March 31, 2021 was from municipalities and municipal agencies in Puerto Rico and 81% was from public corporations, the central government and agencies, and U.S. federal government agencies in Puerto Rico. The increase was primarily related to increases in transactional account balances of government public corporations that reflect, among other things, the funds received by government entities from federal disaster recovery funding allocated to Puerto Rico.

In addition, as of March 31, 2021, the Corporation had $279.8 million of government deposits in the Virgin Islands region (December 31, 2020 - $280.2 million) and $10.4 million in the Florida region (December 31, 2020 - $9.7 million).

Retail deposits – The Corporation’s deposit products also include regular savings accounts, demand deposit accounts, money market accounts and retail CDs. Total deposits, excluding brokered deposits and government deposits, increased by $472.3 million to $13.3 billion from a balance of $12.8 billion as of December 31, 2020, reflecting increases of $415.2 million in the Puerto Rico region, $47.5 million in the Virgin Islands region, and $9.6 million in the Florida region. On a deposit type basis, there were increases of $505.8 million in demand deposits, reflecting increases across all regions, and $107.7 million in savings deposits, primarily in the Puerto Rico region, partially offset by a $141.2 million decrease in retail CDs, reflecting decreases across all regions.

Refer to Net Interest Income above for information about average balances of interest-bearing deposits, and the average interest rate paid on deposits for the quarters ended March 31, 2021 and 2020.

Securities sold under agreements to repurchase - The Corporation’s investment portfolio is funded in part with repurchase agreements. The Corporation’s outstanding securities sold under repurchase agreements amounted to $300 million as of each of March 31, 2021 and December 31, 2020. One of the Corporation’s strategies has been the use of structured repurchase agreements and long-term repurchase agreements to reduce liquidity risk and manage exposure to interest rate risk by lengthening the final maturities of its liabilities while keeping funding costs at reasonable levels. In addition to these repurchase agreements, the Corporation has been able to maintain access to credit by using cost-effective sources such as FHLB advances. See Note 18 – Securities Sold Under Agreements to Repurchase, in the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2021 for further details about repurchase agreements outstanding by counterparty and maturities.

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Under the Corporation’s 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.

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 each of March 31, 2021 and December 31, 2020, the outstanding balance of FHLB advances was $440.0 million. As of March 31, 2021, the Corporation had $1.2 billion available for additional borrowing capacity on FHLB lines of credit.

Trust-Preferred Securities – In 2004, FBP Statutory Trust I, a statutory trust that is wholly-owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors $100 million of its variable-rate trust-preferred securities (“TRuPs”). FBP Statutory Trust I used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.1 million of FBP Statutory Trust I variable rate common securities, to purchase $103.1 million aggregate principal amount of the Corporation’s junior subordinated deferrable debentures.

Also in 2004, FBP Statutory Trust II, a statutory trust that is wholly-owned by the Corporation and not consolidated in the Corporation’s financial statements, sold to institutional investors $125 million of its variable-rate TRuPs. FBP Statutory Trust II used the proceeds of the issuance, together with the proceeds of the purchase by the Corporation of $3.9 million of FBP Statutory Trust II variable rate common securities, to purchase $128.9 million aggregate principal amount of the Corporation’s junior subordinated deferrable debentures.

The subordinated debentures are presented in the Corporation’s consolidated statements of financial condition as other borrowings. The variable-rate TRuPs are fully and unconditionally guaranteed by the Corporation. The $100 million junior subordinated deferrable debentures issued by the Corporation in April 2004 and the $125 million issued in September 2004 mature on June 17, 2034 and September 20, 2034, respectively; however, under certain circumstances, the maturity of the subordinated debentures may be shortened (such shortening would result in a mandatory redemption of the variable-rate TRuPs). The Collins Amendment of the Dodd-Frank Act eliminated certain TRuPs from Tier 1 Capital. Bank holding companies, such as the Corporation, were required to fully phase out these instruments from Tier I capital by January 1, 2016; however, they may remain in Tier 2 capital until the instruments are redeemed or mature.

As of each of March 31, 2021 and December 31, 2020, the Corporation had subordinated debentures outstanding in the aggregate amount of $183.8 million. As of March 31, 2021, the Corporation was current on all interest payments due related to its subordinated debentures.

Other Sources of Funds and Liquidity - The Corporation’s principal uses of funds are for the origination of loans and the repayment of maturing deposits and borrowings. In connection with its mortgage banking activities, the Corporation has invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.

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The enhanced capabilities improve the Corporation’s liquidity profile as they allow the Corporation to derive liquidity, if needed, from the sale of mortgage loans in the secondary market. The U.S. (including Puerto Rico) secondary mortgage market is still highly-liquid, in large part because of the sale of mortgages through guarantee programs of the FHA, VA, U.S. Department of Housing and Urban Development (“HUD”), FNMA and FHLMC. During the first quarter of 2021, the Corporation sold approximately $56.1 million of FHA/VA mortgage loans to GNMA, which packages them into MBS.

In addition, the FED has taken several steps to promote economic and financial stability in response to the significant economic disruption caused by the COVID-19 pandemic. These actions are intended to stimulate economic activity by reducing interest rates and provide liquidity to financial markets so that firms have access to needed funding. Federal funds target rates remain at range of 0% to 0.25%, making the Primary Credit FED Discount Window Program a cost-efficient contingent source of funding for the Corporation given the highly-volatile market conditions. Although currently not in use, as of March 31, 2021, the Corporation had approximately $1.0 billion available for funding under the FED’s BIC Program. As an SBA-qualified PPP lender, the Bank is eligible to borrow under the PPP Liquidity Facility by pledging SBA PPP loans. The Corporation is not currently utilizing the PPP Liquidity Facility.

Effect of Credit Ratings on Access to Liquidity

The Corporation’s liquidity is contingent upon its ability to obtain 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. Also, changes in credit ratings may further affect the fair value of unsecured derivatives whose value takes into account the Corporation’s own credit risk.

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 credit as a long-term issuer is rated B+ by S&P and B+ by Fitch. As of the date hereof, FirstBank’s credit ratings as a long-term issuer are B2 by Moody’s, five notches below their definition of investment grade; BB by S&P, two notches below their definition of investment grade; and B+ by Fitch, four notches below their definition of 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 $1.5 billion as of March 31, 2021, an increase of $24.3 million when compared to the balance as of December 31, 2020. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first quarter of 2021 and 2020.

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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 quarter of 2021 and 2020, net cash provided by operating activities was $112.7 million and $91.5 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for items such as depreciation and amortization, cash generated from sales of loans held for sale, and, in 2020, the provision for credit losses expense.

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 investment securities. For the quarters ended March 31, 2021 and March 31, 2020, net cash used in investing activities was $768.1 million and $105.6 million, respectively, primarily due to purchases of U.S. agencies investment securities and liquidity used to fund commercial and consumer loan originations, partially offset by principal collected on loans and U.S. agencies MBS prepayments, as well as proceeds from U.S. agencies bonds called prior to maturity.

Cash Flows from Financing Activities

The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance of and payments on long-term debt, the issuance of equity instruments and activities related to its short-term funding. For the first quarter of 2021, net cash provided by financing activities was $679.7 million, mainly reflecting an increase in non-brokered deposits, partially offset by dividends paid on common and preferred stock and the repayment of matured brokered CDs.

For the first quarter of 2020, net cash provided by financing activities was $457.7 million, mainly reflecting an increase in non-brokered deposits, short-term funding obtained from the Primary Credit FED Discount Window Program, and proceeds from the early cancellation of long-term reverse repurchase agreements that were previously offset against variable-rate repurchase agreements in the 2019 consolidated statement of financial condition, partially offset by dividends paid on common and preferred stock.

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Capital

As of March 31, 2021, the Corporation’s stockholders’ equity was $2.2 billion, a decrease of $54.8 million from December 31, 2020. The decrease was driven by a $98.9 million decrease in the fair value of available-for-sale investment securities recorded as part of Other comprehensive (loss) income in the consolidated statements of financial condition, and common and preferred stock dividends declared in the first quarter totaling $16.0 million, partially offset by earnings generated in the first quarter. In the first quarter of 2021, the Corporation’ Board of Directors declared a quarterly cash dividend of $0.07 per common share, which represented $0.02 per common share, or a 40%, increase from the immediate preceding quarter’s dividend level. In addition, since December 2016, the Corporation has been making monthly dividend payments on its outstanding shares of non-cumulative perpetual Series A through E preferred stock. The Corporation intends to continue to pay monthly dividend payments on the preferred stock and quarterly dividends on common stock. The Corporation’s common stock and other stock dividends, including the declaration, timing and amount, remain subject to the consideration and approval by the Corporation’s Board of Directors at the relevant times.

On April 26, 2021, the Corporation announced that its Board of Directors approved a stock repurchase program, under which the Corporation may repurchase up to $300 million of its outstanding stock, commencing in the second quarter of 2021 through June 30, 2022. Repurchases under the program may be executed through open market purchases, accelerated share repurchases and/or privately negotiated transactions or plans, including under plans complying with Rule 10b5-1 under the Exchange Act. The Corporation’s stock repurchase program will be subject to various factors, including the Corporation’s capital position, liquidity, financial performance and alternative uses of capital, stock trading price, and general market conditions. The repurchase program may be modified, extended, suspended, or terminated at any time at the Corporation’s discretion and may include the redemption of the $36.1 million in outstanding shares of the Corporation’s Series A through E Noncumulative Perpetual Monthly Income Preferred Stock.

	Set forth below are First BanCorp.'s and FirstBank's regulatory capital ratios as of March 31, 2021 and December 31, 2020:
			Banking Subsidiary
		First BanCorp. (1)	FirstBank (1)	To be well capitalized-thresholds
As of March 31, 2021
Total capital ratio (Total capital to risk-weighted assets)		20.73%	20.24%	10.00%
CET1 capital ratio
(CET1 capital to risk weighted assets)		17.68%	16.41%	6.50%
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)		17.99%	18.99%	8.00%
Leverage ratio		11.36%	12.00%	5.00%
			Banking Subsidiary
		First BanCorp. (1)	FirstBank (1)	To be well capitalized-thresholds
As of December 31, 2020
Total capital (Total capital to risk-weighted assets)		20.37%	19.91%	10.00%
CET1 capital ratio
(CET1 capital to risk weighted assets)		17.31%	16.05%	6.50%
Tier 1 capital ratio (Tier 1 capital to risk-weighted assets)		17.61%	18.65%	8.00%
Leverage ratio		11.26%	11.92%	5.00%
(1)	As permitted by the regulatory capital framework, the Corporation elected to delay for two years the initial impact related to the adoption of CECL on January 1, 2020 plus 25% of the change in the ACL from January 1, 2020 to December 31, 2021. Such effects, will be phased in at 25% per year beginning on January 1, 2022.

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The Corporation and FirstBank compute risk-weighted assets using the standardized approach required by the U.S. Basel III capital rules (“Basel III rules”). The Basel III rules require the Corporation to maintain an additional capital conservation buffer of 2.5% of additional CET1 capital to avoid limitations on both (i) capital distributions (e.g., repurchases of capital instruments, dividends and interest payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines.

Under the Basel III rules, in order to be considered adequately capitalized and not subject to the above described limitations, the Corporation is required to maintain: (i) a minimum CET1 capital to risk-weighted assets ratio of at least 4.5%, plus the 2.5% “capital conservation buffer,” resulting in a required minimum CET1 ratio of at least 7%; (ii) a minimum ratio of total Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum Tier 1 capital ratio of 8.5%; (iii) a minimum ratio of total Tier 1 plus Tier 2 capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer, resulting in a required minimum total capital ratio of 10.5%; and (iv) a required minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average on-balance sheet (non-risk adjusted) assets.

As part of its response to the impact of COVID-19, on March 31, 2020, the agencies issued an interim final rule that provided the option to temporarily delay the effects of CECL on regulatory capital for two years, followed by a three-year transition period. The interim final rule provides that, at the election of a qualified banking organization, the initial impact to retained earnings related to the adoption of CECL plus 25% of the change in the ACL (excluding PCD loans) from January 1, 2020 to December 31, 2021 will be delayed for two years and phased-in at 25% per year beginning on January 1, 2022 over a three-year period, resulting in a total transition period of five years. Accordingly, as of March 31, 2021, the capital measures of the Corporation and the Bank exclude the $62.3 million initial impact to retained earnings and 25% of the increase in the ACL (as defined in the interim final rule) from January 1, 2020 to March 31, 2021. The federal financial regulatory agencies may take other measures affecting regulatory capital to address the COVID-19 pandemic, although the nature and impact of such measures cannot be predicted at this time.

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 equity less preferred equity, goodwill, core deposit intangibles, purchased credit card relationship intangible assets and insurance customer relationship intangible asset. Tangible assets are total assets less intangible assets such as goodwill, core deposit intangibles, purchased credit card relationships and insurance customer asset relationships. See “Basis of Presentation” below for additional information.

The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets, non-GAAP financial measures, to total equity and total assets, respectively, as of March 31, 2021 and December 31, 2020, respectively:

	March 31,		December 31,
(In thousands, except ratios and per share information)	2021		2020
Total equity - GAAP	$	2,220,425	$	2,275,179
Preferred equity		(36,104)		(36,104)
Goodwill		(38,611)		(38,632)
Purchased credit card relationship intangible		(3,768)		(4,733)
Core deposit intangible		(34,339)		(35,842)
Insurance customer relationship intangible		(280)		(318)
Tangible common equity	$	2,107,323	$	2,159,550
Total assets - GAAP	$	19,413,734	$	18,793,071
Goodwill		(38,611)		(38,632)
Purchased credit card relationship intangible		(3,768)		(4,733)
Core deposit intangible		(34,339)		(35,842)
Insurance customer relationship intangible		(280)		(318)
Tangible assets	$	19,336,736	$	18,713,546
Common shares outstanding		218,629		218,235
Tangible common equity ratio		10.90%		11.54%
Tangible book value per common share	$	9.64	$	9.90

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The Banking Law of the Commonwealth of Puerto Rico 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, including for payment as dividends to the stockholders, 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 $109.3 million as of each March 31, 2021 and December 31, 2020. There were no transfers to the legal surplus reserve during the quarter ended March 31, 2021.

Off -Balance Sheet Arrangements

In the ordinary course of business, the Corporation engages in 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. These transactions are designed to (1) meet the financial needs of customers, (2) manage the Corporation’s credit, market and liquidity risks, (3) diversify the Corporation’s funding sources, and (4) optimize capital.

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. As of March 31, 2021, the Corporation’s commitments to extend credit amounted to approximately $2.1 billion, of which $1.2 billion related to credit card loans. Commercial and financial standby letters of credit amounted to approximately $115.5 million.

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Contractual Obligations and Commitments
The following table presents information about the maturities of the Corporation’s contractual obligations and commitments, which consist of CDs, long-term contractual debt obligations, commitments to sell mortgage loans and commitments to extend credit:
	Contractual Obligations and Commitments
	As of March 31, 2021
	Total		Less than 1 year		1-3 years		3-5 years		After 5 years
(In thousands)
Contractual obligations:
Certificates of deposit	$	2,854,291	$	1,874,205	$	802,228	$	166,465	$	11,393
Securities sold under agreements to repurchase		300,000		100,000		-		200,000		-
Advances from FHLB		440,000		240,000		200,000		-		-
Other borrowings		183,762		-		-		-		183,762
Operating leases		113,789		18,775		33,130		27,336		34,548
Total contractual obligations	$	3,891,842	$	2,232,980	$	1,035,358	$	393,801	$	229,703
Commitments to sell mortgage loans	$	20,188
Standby letters of credit	$	4,929
Commitments to extend credit:
Lines of credit	$	1,975,693
Letters of credit		110,583
Construction undisbursed funds		74,686
Total commercial commitments	$	2,160,962

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The Corporation has obligations and commitments to make future payments under contracts, such as debt and lease agreements, and other commitments to sell mortgage loans at fair value and to extend credit. 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.

Interest Rate Risk Management

First BanCorp. manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income and to maintain a stable level of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk, and, in doing so, the MIALCO assesses, among other things, current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, liquidity, the pipeline of loan originations, 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 that may be pertinent to these areas. The MIALCO approves funding decisions in light of the Corporation’s overall strategies and objectives.

On 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. The Corporation carries out these simulations over a one-to-five-year time horizon and assumes upward and downward yield curve shifts. The rate scenarios considered in these simulations reflect gradual upward and downward interest rate movements of 200 basis points during a twelve-month period. 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 re-pricing structure and their corresponding interest rate 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 date of the simulations.

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 period in question. It is unlikely that actual events will match these assumptions in most cases. For this reason, the results of these forward-looking computations are only approximations of the true sensitivity of net interest income to changes in market interest rates. The Corporation uses several benchmark and market rate curves in the modeling process, primarily the LIBOR/SWAP curve, Prime, Treasury, FHLB rates, brokered CD rates, repurchase agreement rates and the mortgage commitment rate of 30 years.

As of March 31, 2021, the Corporation forecasted the 12-month net interest income assuming March 31, 2021 interest rate curves remain constant. Then, net interest income was estimated under rising and falling rate scenarios. For the rising rates scenario, the Corporation assumed a gradual (ramp) parallel upward shift of the yield curve during the first 12 months (the “+200 ramp” scenario). Conversely, for the falling rates scenario, it assumed a gradual (ramp) parallel downward shift of the yield curve during the first 12 months (the “-200 ramp” scenario). However, given the current low levels of interest rates, along with the current yield curve slope, a full downward shift of 200 basis points would represent an unrealistic scenario. Therefore, under the falling rate scenario, rates move downward up to 200 basis points, but without reaching zero. The resulting scenario shows interest rates close to zero in most cases, reflecting a flattening yield curve instead of a parallel downward scenario.

The Libor/Swap curve for March 2021, as compared to December 2020, reflected a 5 basis points reduction in the short-term horizon, between 1 to 12 months, while market rates increased by 37 basis points in the medium term, that is, between 2 to 5 years. In the long-term, that is, over a 5-year-time horizon, market rates increased by 80 basis points, as compared to December 31, 2020 levels. The U.S. Treasury curve in the short-term horizon decreased by 5 basis points and in the medium-term horizon increased by 37 basis points, as compared to the December 31, 2020 levels. The long-term horizon increased by 80 basis points as compared to December 31, 2020 levels.

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The following table presents the results of the simulations as of March 31, 2021 and December 31, 2020. Consistent with prior years, these exclude non-cash changes in the fair value of derivatives:
	March 31, 2021								December 31, 2020
	Net Interest Income Risk								Net Interest Income Risk
	(Projected for the next 12 months)								(Projected for the next 12 months)
	Static Simulation				Growing Balance Sheet				Static Simulation				Growing Balance Sheet
(Dollars in millions)	Change		% Change		Change		% Change		Change		% Change		Change		% Change
+ 200 bps ramp	$	25.1	3.47	%	$	30.7	4.06	%	$	32.3	4.53	%	$	36.0	4.96	%
- 200 bps ramp	$	(13.6)	(1.88)	%	$	(14.2)	(1.88)	%	$	(12.1)	(1.69)	%	$	(13.9)	(1.91)	%

The Corporation continues to manage its balance sheet structure to control and limit the overall interest rate risk. As of March 31, 2021, the simulations showed that the Corporation continues to maintain an asset-sensitive position. The Corporation has continued repositioning the balance sheet and improving the funding mix, mainly by increasing the average balance of interest-bearing deposits with low rate elasticity and non-interest bearing deposits, and reductions in brokered CDs. The above-mentioned growth in deposits, along with proceeds from loan repayments, have contributed to fund increases in U.S. agencies MBS and debt securities, while maintaining higher liquidity levels. The Corporation relied on its existing funding to fund SBA PPP loans, including deposits already at the Bank, and is not currently participating in the PPP Liquidity Facility or the Money Market Mutual Fund Liquidity Facility established by the FED.

The decreased net interest income sensitivity for the +200bps ramp was driven by the deployment of cash balances with short-term repricing into long-term investment securities, as well as lower estimated prepayment cash flows in the investment portfolio due to higher rates in the mid and long term tenors, the decrease in the loan portfolio, and lower balances in CDs with maturities within a year. The slight increase in net interest income sensitivity for the -200bps ramp was driven by a lower rate environment near floor levels in which a full down parallel movement of -200bps will not be possible, which has a major impact in cash balances and short-term reprising categories, including variable rate commercial loan portfolios, investment portfolio and CDs.

Taking into consideration the above-mentioned facts for modeling purposes, as of March 31, 2021, the net interest income for the next 12 months under a growing balance sheet scenario was estimated to increase by $30.7 million in the rising rate scenario, compared to an estimated increase of $36.0 million as of December 31, 2020. Under the falling rate, growing balance sheet scenario, the net interest income was estimated to decrease by $14.2 million, compared to an estimated decrease of $13.9 million as of December 31, 2020, reflecting the effect of current low levels of market interest rates on the base scenario and the model assumptions for the falling rate scenarios described above (i.e., no negative interest rates modeled).

Derivatives

First BanCorp. uses derivative instruments and other strategies to manage its exposure to interest rate risk caused by changes in interest rates beyond management’s control.

The following summarizes major strategies, including derivative activities that the Corporation uses in managing interest rate risk:

Interest rate cap agreements - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value of the interest rate cap increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates.

Forward contracts - Forward contracts are sales of TBA MBS that will settle over the standard delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net settlement provision and no market mechanism to facilitate net settlement and provide for delivery of a security within the timeframe generally established by regulations or conventions in the market-place or exchange in which the transaction is being executed. The forward sales are considered derivative instruments that need to be marked-to-market. The Corporation uses these securities to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. The Corporation also reports as forward contracts the mandatory mortgage loan sales commitments that it enters into with GSEs that require or permit net settlement via a pair-off transaction or the payment of a pair-off fee. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.

Interest Rate Lock Commitments – Interest rate lock commitments are agreements under which the Corporation agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Under the agreement, the Corporation commits to lend funds to a potential borrower generally on a fixed rate basis, regardless of whether interest rates change in the market.

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Interest Rate Swaps – The Corporation acquired interest rate swaps as a result of the BSPR acquisition completed on September 1, 2020. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreements acquired in the BSPR acquisition consist of a “back-to-back” structure in which a borrower-facing derivative transaction is paired with an identical, offsetting transaction with an approved dealer-counterparty. By using a back-to-back trading structure, both the commercial borrower and the Corporation are largely insulated from market risk and volatility. The agreements set the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. The fair values of interest rate swaps are recorded as components of other assets in the Corporation’s consolidated statements of financial condition. Changes in the fair values of interest rate swaps, which occur due to changes in interest rates, are recorded in the consolidated statements of income as a component of interest income on loans.

For detailed information regarding the volume of derivative activities (e.g., notional amounts), location and fair values of derivative instruments in the consolidated statements of financial condition and the amount of gains and losses reported in the consolidated statements of income, see Note 12 – Derivative Instruments and Hedging Activities, in the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2021.

The following tables summarize the fair value changes in the Corporation’s derivatives, as well as the sources of the fair values, as of or for the indicated dates or periods:
	Asset Derivatives		Liability Derivatives
	Quarter Ended		Quarter Ended
(In thousands)	March 31, 2021		March 31, 2021
Fair value of contracts outstanding at the beginning of the period	$	2,482	$	(1,920)
Changes in fair value during the period		(213)		564
Fair value of contracts outstanding as of March 31, 2021	$	2,269	$	(1,356)

	Sources of Fair Value
		Payment Due by Period
		Maturity Less Than One Year		Maturity 1-3 Years		Maturity 3-5 Years		Maturity in Excess of 5 Years		Total Fair Value
(In thousands)
As of March 31, 2021
Pricing from observable market inputs - Asset Derivatives		$	947	$	8	$	-	$	1,314	$	2,269
Pricing from observable market inputs - Liability Derivatives			(44)		(6)		-		(1,306)		(1,356)
		$	903	$	2	$	-	$	8	$	913

Derivative instruments, such as interest rate caps, are subject to market risk. As is the case with investment securities, the market value of derivative instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, in part, on the level of interest rates, as well as expectations for rates in the future.

As of March 31, 2021 and December 31, 2020, the Corporation considered all of its derivative instruments as undesignated economic hedges.

The use of derivatives involves market and credit risk. The market risk of derivatives stems principally from the potential for changes in the value of derivative contracts based on changes in interest rates. The credit risk of derivatives arises from the potential for default of the counterparty. To manage this credit risk, the Corporation deals with counterparties that it considers to be of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral. Master netting agreements incorporate rights of set-off that provide for the net settlement of contracts with the same counterparty in the event of default.

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Credit Risk Management

First BanCorp. is subject to credit risk mainly with respect to its portfolio of loans receivable and off-balance-sheet instruments, mainly 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 “Contractual Obligations and Commitments” above for further details. The Corporation manages its credit risk through its credit policy, underwriting, independent loan review and quality control procedures, statistical analysis, comprehensive financial analysis, and established management committees. The Corporation also 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 commercial and industrial, 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. In the case of residential construction projects, the workout function monitors project specifics, such as project management and marketing, as deemed necessary.

The Corporation may also have risk of default in the securities portfolio. The securities held by the Corporation are principally fixed-rate U.S. agency 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 Commercial Credit Risk Officer, Retail Credit Risk Officer, Chief Lending Officer 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, particularly in times of severe stress. The process includes judgments and quantitative elements that may be subject to significant change. An internal risk rating is assigned to each commercial loan at the time of approval and is subject to subsequent periodic reviews by the Corporation’s senior management. 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.

As of March 31, 2021, the ACL for loans and finance leases was $358.9 million, down $27.0 million from December 31, 2020. The decrease in the ACL for loans and finance leases primarily reflects an improvement in the outlook of macroeconomic variables to which the reserve is correlated. Refer to Note 1, - Nature of Business and Summary of Significant Accounting Policies, in the 2020 Annual Report on Form 10-K for description of the methodologies used by the Corporation to determine the ACL.

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The ratio of the ACL for loans and finance leases to total loans held for investment decreased to 3.08% as of March 31, 2021, compared to 3.28% as of December 31, 2020. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for loans and finance leases to adjusted total loans held for investment was 3.20% as of March 31, 2021, compared to 3.39% as of December 31, 2020. For the definition and reconciliation of this non-GAAP financial measure, refer to the discussion in “Basis of Presentation” below. An explanation for the change for each portfolio follows:

 The ACL to total loans ratio for the residential mortgage loan portfolio decreased from 3.42% as of December 31, 2020 to 3.36% as of March 31, 2021, primarily due to improvements in the outlook of macroeconomic variables, such as regional unemployment rates and the Home Price Index, particularly in the Florida region.

 The ACL to total loans ratio for the commercial mortgage loan portfolio decreased from 4.90% as of December 31, 2020 to 4.50% as of March 31, 2021, primarily reflecting an improvement in the outlook of macroeconomic variables to which the reserve is correlated, including improvements in unemployment rate forecasts.

 The ACL to total loans ratio for the commercial and industrial portfolio decreased from 1.18% as of December 31, 2020 to 1.01% as of March 31, 2021, reflecting the effect from the general improvements in the macroeconomic outlook, together with releases associated with updated borrowers’ financial information. On a non-GAAP basis, excluding SBA PPP loans, the ratio of the ACL for commercial and industrial loans to adjusted total commercial and industrial loans held for investment was 1.17% as of March 31, 2021, compared to 1.36% as of December 31, 2020.

 The ACL to total loans ratio for the construction loan portfolio increased from 2.53% as of December 31, 2020 to 2.57% as of March 31, 2021, primarily reflecting the effect of updated borrowers’ financial metrics, partially offset by the release of the reserve previously-established for the $6.0 million nonaccrual construction loan repaid in the first quarter of 2021.

 The ACL to total loans ratio for the consumer loan portfolio decreased from 4.33% as of December 31, 2020 to 4.07% as of March 31, 2021, primarily related to improvements in macroeconomic variables, as well as the shift in the composition of this portfolio that experienced increases in auto loans and finance leases and reductions in personal and small loan portfolios that carried a higher ACL coverage.

The ratio of the total ACL to nonaccrual loans held for investment was 178.49% as of March 31, 2021, compared to 188.16% as of December 31, 2020.

Substantially all of the Corporation’s loan portfolio is located within the boundaries of the U.S. economy. Whether the collateral is located in Puerto Rico, the U.S. and British Virgin Islands or the U.S. mainland (mainly in the state of Florida), the performance of the Corporation’s loan portfolio and the value of the collateral supporting the transactions are dependent upon the performance of and conditions within each specific area’s real estate market. The Corporation believes it sets adequate loan-to-value ratios following its regulatory and credit policy standards.

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As shown in the following table, the ACL for loans and finance leases amounted to $358.9 million as of March 31, 2021, or 3.08% of total loans, compared with $385.9 million, or 3.28% of total loans, as of December 31, 2020. See “Results of Operation - Provision for Credit Losses” above for additional information.

	Quarter Ended March 31
(Dollars in thousands)	2021			2020
ACL for loans and finance leases, beginning of period	$	385,887		$	155,139
Impact of adopting CECL		-			81,165
Provision for credit losses - (benefit) expense:
Residential mortgage		(4,175)			16,218
Commercial mortgage		(8,820)			14,167
Commercial and Industrial		(5,312)			8,391
Construction		(456)			2,062
Consumer and finance leases		4,320			33,207
Total provision for credit losses for loans and finance leases - (benefit) expense	$	(14,443)		$	74,045
Charge-offs
Residential mortgage	$	(2,825)		$	(4,435)
Commercial mortgage		(794)			(128)
Commercial and Industrial		(809)			(125)
Construction		(45)			(3)
Consumer and finance leases		(11,761)			(15,504)
Total charge offs	$	(16,234)		$	(20,195)
Recoveries:
Residential mortgage		733			656
Commercial mortgage		54			44
Commercial and Industrial		264			115
Construction		36			27
Consumer and finance leases		2,639			1,778
Total recoveries	$	3,726		$	2,620
Net charge-offs	$	(12,508)		$	(17,575)
ACL for loans and finance leases, end of period	$	358,936		$	292,774
ACL for loans and finance leases to period-end total loans held for investment		3.08	%		3.24	%
Net charge-offs (annualized) to average loans outstanding during the period		0.43	%		0.78	%
Provision for credit losses - (benefit) expense for loans and finance leases to net charge-offs during the period		-1.15	x		4.21	x

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The following table sets forth information concerning the allocation of the Corporation's ACL for loans and finance leases by loan category and the percentage of loan balances in each category to the total of such loans as of the dates indicated:
	As of					As of
	March 31, 2021					December 31, 2020
(Dollars in thousands)	Amount		Percent of loans in each category to total loans			Amount		Percent of loans in each category to total loans
Residential mortgage loans	$	114,044		29	%	$	120,311		30	%
Commercial mortgage loans		99,782		19	%		109,342		19	%
Construction loans		4,915		2	%		5,380		2	%
Commercial and Industrial loans		32,087		27	%		37,944		27	%
Consumer loans and finance leases		108,108		23	%		112,910		22	%
	$	358,936		100	%	$	385,887		100	%

The following table sets forth information concerning the composition of the Corporation's loan portfolio and related ACL as of March 31, 2021 and December 31, 2020 by loan category:
As of March 31, 2021	Residential Mortgage Loans			Commercial Mortgage Loans			Commercial and Industrial Loans						Consumer and Finance Leases
										Construction Loans
(Dollars in thousands)																Total
Total loans held for investment:
Amortized cost of loans	$	3,395,081		$	2,216,887		$	3,182,706		$	190,996		$	2,656,189		$	11,641,859
Allowance for credit losses		114,044			99,782			32,087			4,915			108,108			358,936
Allowance for credit losses to amortized cost		3.36	%		4.50	%		1.01	%		2.57	%		4.07	%		3.08	%

	Residential Mortgage Loans			Commercial Mortgage Loans									Consumer and Finance Leases
As of December 31, 2020							Commercial and Industrial Loans			Construction Loans
(Dollars in thousands)																Total
Total loans held for investment:
Amortized cost of loans	$	3,521,954		$	2,230,602		$	3,202,590		$	212,500		$	2,609,643		$	11,777,289
Allowance for credit losses		120,311			109,342			37,944			5,380			112,910			385,887
Allowance for credit losses to amortized cost		3.42	%		4.90	%		1.18	%		2.53	%		4.33	%		3.28	%

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Allowance for Credit Losses for Unfunded Loan Commitments

The Corporation estimates expected credit losses over the contractual period during which the Corporation is exposed to credit risk as a result of a contractual obligation to extend credit, such as pursuant to unfunded loan commitments and standby letters of credit for commercial and construction loans, unless the obligation is unconditionally cancellable by the Corporation. The ACL for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. As of March 31, 2021, the ACL for off-balance sheet credit exposures was $4.4 million, down $0.7 million from $5.1 million as of December 31, 2020. The decrease was mainly in connection with a construction loan commitment due to improvements in the outlook of macroeconomic variables.

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

As of March 31, 2021, the held-to-maturity debt securities portfolio consisted of Puerto Rico municipal bonds. As of March 31, 2021, the ACL for held-to-maturity debt securities was $8.9 million, relatively flat compared to $8.8 million as of December 31, 2020.

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

As of March 31, 2021, the ACL for available-for-sale debt securities was $1.2 million, relatively flat compared to $1.3 million as of December 31, 2020.

Nonaccrual Loans and Non-performing Assets

Total non-performing assets consist of nonaccrual loans (generally loans held for investment or loans held for sale on 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, and non-performing investment securities, if any. When a loan is placed in nonaccrual status, any interest previously recognized and not collected is reversed and charged against interest income. Cash payments received are recognized when collected in accordance with the contractual terms of the loans. The principal portion of the payment is used to reduce the principal balance of the loan, whereas the interest portion is recognized on a cash basis (when collected). However, when management believes that the ultimate collectability of principal is in doubt, the interest portion is applied to the outstanding principal. The risk exposure of this portfolio is diversified as to individual borrowers and industries, among other factors. In addition, a large portion is secured with real estate collateral.

Nonaccrual Loans Policy

Residential Real Estate Loans — The Corporation generally classifies real estate loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more.

Commercial and Construction Loans — The Corporation classifies commercial loans (including commercial real estate and construction loans) in nonaccrual status when it has not received interest and principal for a period of 90 days or more or when it does not expect to collect all of the principal or interest due to deterioration in the financial condition of the borrower.

158

Finance Leases — The Corporation classifies finance leases in nonaccrual status when it has not received interest and principal for a period of 90 days or more.

Consumer Loans — The Corporation classifies consumer loans in nonaccrual status when it has not received interest and principal for a period of 90 days or more. Credit card loans continue to accrue finance charges and fees until charged-off at 180 days delinquent.

Purchased Credit Deteriorated Loans — For PCD loans, the nonaccrual status is determined in the same manner as for other loans, except for PCD loans that prior to the adoption of CECL were classified as purchased credit impaired (“PCI”) loans and accounted for under ASC Subtopic 310-30, “Receivables – Loans and Debt Securities Acquired with Deteriorated Credit Quality” (ASC Subtopic 310-30). As allowed by CECL, the Corporation elected to maintain pools of loans accounted for under ASC Subtopic 310-30 as “units of accounts,” conceptually treating each pool as a single asset. Regarding interest income recognition, the prospective transition approach for PCD loans was applied at a pool level, which froze the effective interest rate of the pools as of January 1, 2020. According to regulatory guidance, the determination of nonaccrual or accrual status for PCD loans with respect to which the Corporation has made a policy election to maintain previously existing pools upon adoption of CECL should be made at the pool level, not the individual asset level. In addition, the guidance provides that the Corporation can continue accruing interest and not report the PCD loans as being in nonaccrual status if the following criteria are met: (i) the Corporation can reasonably estimate the timing and amounts of cash flows expected to be collected; and (ii) the Corporation did not acquire the asset primarily for the rewards of ownership of the underlying collateral, such as the use in operations or improving the collateral for resale. Thus, the Corporation continues to exclude these pools of PCD loans from nonaccrual loan statistics.

Other Real Estate Owned

OREO acquired in settlement of loans is carried at fair value less estimated costs to sell off the real estate. Appraisals are obtained periodically, generally on an annual basis.

Other Repossessed Property

The other repossessed property category generally included repossessed boats and autos acquired in settlement of loans. Repossessed boats and autos are recorded at the lower of cost or estimated fair value.

Loans Past-Due 90 Days and Still Accruing

These are accruing loans that are contractually delinquent 90 days or more. These past-due loans are either current as to interest but delinquent as to the payment of principal or are insured or guaranteed under applicable FHA, VA or other government-guaranteed programs for residential mortgage loans. Furthermore, as required by instructions in regulatory reports, loans past due 90 days and still accruing include loans previously pooled into GNMA securities for which the Corporation has the option but not the obligation to repurchase loans that meet GNMA’s specified delinquency criteria (e.g., borrowers fails to make any payment for three consecutive months). For accounting purposes, these GNMA loans subject to the repurchase option are required to be reflected on the financial statements with an offsetting liability

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual status and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can and are likely to continue as agreed. The Corporation considers performance prior to the restructuring, or significant events that coincide with the restructuring, in assessing whether the borrower can meet the new terms, which may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan.

159

The following table presents non-performing assets as of the indicated dates:
	March 31,			December 31,
	2021			2020
(Dollars in thousands)
Nonaccrual loans held for investment:
Residential mortgage	$	132,339		$	125,367
Commercial mortgage		28,548			29,611
Commercial and Industrial		19,128			20,881
Construction		6,378			12,971
Consumer and finance leases		14,708			16,259
Total nonaccrual loans held for investment	$	201,101		$	205,089
OREO		79,207			83,060
Other repossessed property		4,544			5,357
Total non-performing assets (1)(2)	$	284,852		$	293,506
Past due loans 90 days and still accruing (3)(4)	$	160,884		$	146,889
Non-performing assets to total assets		1.47	%		1.56	%
Nonaccrual loans held for investment to total loans held for investment		1.73	%		1.74	%
ACL for loans and finance leases	$	358,936		$	385,887
ACL for loans and finance leases to total nonaccrual loans held for investment		178.49	%		188.16	%
ACL for loans and finance leases to total nonaccrual loans held for investment,
excluding residential real estate loans		522.00	%		484.04	%

(1)Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2021 and December 31, 2020 amounted to $128.4 million and $130.9 million, respectively.

(2)Nonaccrual loans exclude $373.8 million and $393.3 million of TDR loans that were in compliance with the modified terms and in accrual status as of March 31, 2021 and December 31, 2020, respectively.

(3)It is the Corporation's policy to report delinquent residential mortgage loans insured by the FHA, guaranteed by the VA, and other government-insured loans as loans past-due 90 days and still accruing as opposed to nonaccrual loans since the principal repayment is insured. 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 $58.3 million of residential mortgage loans insured by the FHA that were over 15 months delinquent as of March 31, 2021.

(4)These include rebooked loans, which were previously pooled into GNMA securities, amounting to $17.2 million and $10.7 million as of March 31, 2021 and December 31, 2020, 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.

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The following table shows non-performing assets by geographic segment as of the indicated dates:
	March 31,		December 31,
(In thousands)	2021		2020
Puerto Rico:
Nonaccrual loans held for investment:
Residential mortgage	$	105,846	$	101,763
Commercial mortgage		17,979		18,733
Commercial and Industrial		17,103		18,876
Construction		4,871		5,323
Consumer and finance leases		13,854		15,081
Total nonaccrual loans held for investment		159,653		159,776
OREO		75,005		78,618
Other repossessed property		4,339		5,120
Total non-performing assets (1)	$	238,997	$	243,514
Past due loans 90 days and still accruing (2)	$	159,084	$	144,619
Virgin Islands:
Nonaccrual loans held for investment:
Residential mortgage	$	11,956	$	9,182
Commercial mortgage		10,569		10,878
Commercial and Industrial		1,489		1,444
Construction		1,507		7,648
Consumer		284		354
Total nonaccrual loans held for investment		25,805		29,506
OREO		4,202		4,411
Other repossessed property		69		109
Total non-performing assets	$	30,076	$	34,026
Past due loans 90 days and still accruing	$	1,550	$	2,020
United States:
Nonaccrual loans held for investment:
Residential mortgage	$	14,537	$	14,422
Commercial and Industrial		536		561
Consumer		570		824
Total nonaccrual loans held for investment		15,643		15,807
OREO		-		31
Other repossessed property		136		128
Total non-performing assets	$	15,779	$	15,966
Past due loans 90 days and still accruing	$	250	$	250

(1)Excludes PCD loans previously accounted for under ASC Subtopic 310-30 for which the Corporation made the accounting policy election of maintaining pools of loans accounted for under ASC Subtopic 310-30 as “units of account” both at the time of adoption of CECL and on an ongoing basis for credit loss measurement. These loans accrete interest income based on the effective interest rate of the loan pools determined at the time of adoption of CECL and 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 amortized cost of such loans as of March 31, 2021 and December 31, 2020 amounted to $128.4 million and $130.9 million, respectively.

(2)These include rebooked loans, which were previously pooled into GNMA securities, amounting to $17.2 million and $10.7 million as of March 31, 2021 and December 31, 2020, 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.

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Total nonaccrual loans were $201.1 million as of March 31, 2021. This represents a decrease of $4.0 million from $205.1 million as of December 31, 2020. The decrease was primarily related to a $9.4 million reduction in nonaccrual commercial and construction nonaccrual loans, including through the repayment of a $6.0 million construction loan relationship in the Virgin Islands region, and a $1.6 million decrease in nonaccrual consumer loans. These variances were partially offset by an increase of $7.0 million in nonaccrual residential mortgage loans.

Nonaccrual commercial mortgage loans decreased by $1.0 million to $28.5 million as of March 31, 2021 from $29.6 million as of December 31, 2020. The decrease was primarily related to the payoff of a $1.4 million commercial mortgage loan in the Puerto Rico region, charge-offs and the transfer of loans to OREO, partially offset by inflows. Total inflows of nonaccrual commercial mortgage loans were $3.7 million for first quarter of 2021, compared to $0.4 million for the same quarter in 2020.

Nonaccrual commercial and industrial loans decreased by $1.8 million to $19.1 million as of March 31, 2021 from $20.9 million as of December 31, 2020. The decrease was primarily related to collections of approximately $1.3 million in the first quarter of 2021. Total inflows of nonaccrual commercial and industrial loans were $0.2 million for the first quarter of 2021, compared to $2.6 million for the same quarter in 2020.

Nonaccrual construction loans decreased by $6.6 million to $6.4 million as of March 31, 2021 from $13.0 million as of December 31, 2020. The decrease was primarily related to the aforementioned $6.0 million repayment of a construction loan relationship in the Virgin Islands region.

The following tables present the activity of commercial and construction nonaccrual loans held for investment for the indicated periods:
		Commercial Mortgage		Commercial & Industrial		Construction			Total
(In thousands)
Quarter ended March 31, 2021
Beginning balance		$	29,611	$	20,881	$	12,971	$	63,463
Plus:
	Additions to nonaccrual		3,657		239		1		3,897
Less:
	Loans returned to accrual status		(1,444)		(51)		(173)		(1,668)
	Nonaccrual loans transferred to OREO		(660)		(580)		(135)		(1,375)
	Nonaccrual loans charge-offs		(793)		(94)		(45)		(932)
	Loan collections		(1,744)		(1,346)		(6,241)		(9,331)
	Reclassification		(79)		79		-		-
Ending balance		$	28,548	$	19,128	$	6,378	$	54,054

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		Commercial Mortgage		Commercial & Industrial		Construction			Total
(In thousands)
Quarter ended March 31, 2020
Beginning balance		$	40,076	$	18,773	$	9,782		68,631
Plus:
	Additions to nonaccrual		351		2,568		-		2,919
Less:
	Loans returned to accrual status		(1,687)		(801)		-		(2,488)
	Nonaccrual loans transferred to OREO		(126)		(263)		-		(389)
	Nonaccrual loan charge-offs		(125)		(124)		(3)		(252)
	Loan collections		(2,536)		(419)		(116)		(3,071)
Ending balance		$	35,953	$	19,734	$	9,663	$	65,350

Nonaccrual residential mortgage loans increased by $7.0 million to $132.3 million as of March 31, 2021, compared to $125.3 million as of December 31, 2020. The increase was mainly related to the migration of loans previously subject to the COVID-19 payment moratorium relief. The increase related to inflows was partially offset by collections, charge-offs, foreclosures, and loans restored to accrual status during the first quarter. The inflows of nonaccrual residential mortgage loans during the first quarter of 2021 were $17.3 million, an increase of $4.7 million, compared to inflows of $12.6 million for the same period in 2020.

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	The following table presents the activity of residential mortgage nonaccrual loans held for investment for the indicated periods:
		Quarters Ended
(In thousands)		March 31, 2021		March 31, 2020
Beginning balance		$	125,367	$	121,408
Plus:
Additions to nonaccrual			17,326		12,588
Less:
Loans returned to accrual status			(3,858)		(2,581)
Nonaccrual loans transferred to OREO			(2,184)		(3,550)
Nonaccrual loans charge-offs			(2,183)		(3,234)
Loan collections			(2,129)		(1,728)
Ending balance		$	132,339	$	122,903

The amount of nonaccrual consumer loans, including finance leases, decreased by $1.6 million to $14.7 million as March 31, 2021, compared to $16.2 million as of December 31, 2020. The decrease was primarily in personal loans and finance leases, driven by collections, charge-offs, and auto repossessions recorded in the first quarter, partially offset by inflows. The inflows of nonaccrual consumer loans during the first quarter of 2021 were $10.7 million, a decrease of $4.9 million, compared to inflows of $15.6 million for the same period in 2020.

As of March 31, 2021, approximately $25.5 million of the loans placed in nonaccrual status, mainly commercial loans, were current, or had delinquencies of less than 90 days in their interest payments, including $7.1 million of TDRs maintained in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and there is no doubt about full collectability. Collections on these loans are being recorded on a cash basis through earnings, or on a cost-recovery basis, as conditions warrant.

During the quarter ended March 31, 2021, interest income of approximately $0.7 million related to nonaccrual loans with a carrying value of $46.7 million as of March 31, 2021, mainly nonaccrual construction and commercial loans, was applied against the related principal balances under the cost-recovery method.

164

Total loans in early delinquency (i.e., 30-89 days past due loans, as defined in regulatory reporting instructions) amounted to $143.6 million as of March 31, 2021, a decrease of $5.2 million, compared to $148.8 million as of December 31, 2020. The variances by major portfolio categories were as follow:

 Residential mortgage loans in early delinquency decreased by $19.2 million to $47.9 million as of March 31, 2021, and consumer loans in early delinquency decreased by $15.4 million to $40.3 million as of March 31, 2021. The decreases reflect the combination of loans brought current during the first quarter and loans that migrated to nonaccrual status as explained above.

 Commercial and construction loans in early delinquency increased in the first quarter by $29.4 million to $55.3 million as of March 31, 2021, primarily as a result of the migration of a $19.1 million commercial mortgage loan that reached delinquent status during the first quarter and the migration of a commercial mortgage loan that is delinquent for over 30 days with respect to a final balloon payment of $14.2 million but with respect to which the Corporation continues to receive from the borrower interest and principal payments.

In addition, the Corporation provides homeownership preservation assistance to its customers through a loss mitigation program in Puerto Rico that is similar to the U.S. government’s Home Affordable Modification Program guidelines. Depending upon the nature of borrowers’ financial condition, restructurings or loan modifications through this program, as well as other restructurings of individual commercial, commercial mortgage, construction, and residential mortgage loans, fit the definition of a TDR. A restructuring of a debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Modifications involve changes in one or more of the loan terms that bring a defaulted loan current and provide sustainable affordability. Changes may include, among others, the extension of the maturity of the loan and modifications of the loan rate. See Note 7 - Loans Held for Investment, to the Corporation’s unaudited consolidated financial statements for the quarter ended March 31, 2021 for additional information and statistics about the Corporation’s TDR loans.

TDR loans are classified as either accrual or nonaccrual loans. Loans in accrual status may remain in accrual status when their contractual terms have been modified in a TDR if the loans had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on nonaccrual status and restructured as a TDR will remain on nonaccrual status until the borrower has proven the ability to perform under the modified structure, generally for a minimum of six months, and there is evidence that such payments can, and are likely to, continue as agreed. Performance prior to the restructuring, or significant events that coincide with the restructuring, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of the restructuring or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan. Loan modifications increase the Corporation’s interest income by returning a nonaccrual loan to performing status, if applicable, increase cash flows by providing for payments to be made by the borrower, and limit increases in foreclosure and OREO costs.

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The following table provides a breakdown between the accrual and nonaccrual TDRs as of the indicated date:
(In thousands)	As of March 31, 2021
	Accrual		Nonaccrual (1)		Total TDRs
Conventional residential mortgage loans	$	248,921	$	57,612	$	306,533
Construction loans		2,589		763		3,352
Commercial mortgage loans		44,633		16,812		61,445
Commercial and Industrial loans		64,126		5,790		69,916
Consumer loans:
Auto loans		5,853		5,020		10,873
Finance leases		1,092		16		1,108
Personal loans		804		-		804
Credit cards		2,488		-		2,488
Consumer loans - Other		3,300		385		3,685
Total Troubled Debt Restructurings	$	373,806	$	86,398	$	460,204

(1)Included in nonaccrual loans are $7.1 million in loans that are performing under the terms of the restructuring agreement but are reported in nonaccrual status until the restructured loans meet the criteria of sustained payment performance under the revised terms for reinstatement to accrual status and are deemed fully collectible.

Under the provisions of the CARES Act of 2020, as amended by the Consolidated Appropriations Act, 2021 enacted on December 27, 2020, financial institutions may permit loan modifications for borrowers affected by the COVID-19 pandemic through January 1, 2022 without categorizing the modifications as TDRs, as long as the loan meets certain conditions, including the requirement that the loan was not more than 30 days past due as of December 31, 2019. As of March 31, 2021, commercial loans totaling $324.1 million, or 2.78% of the balance of the total loan portfolio held for investment, were permanently modified under the provisions of Section 4013 of the CARES Act of 2020, as amended by Division N, Title V, Section 541 of the Consolidated Appropriations Act. These permanent modifications on commercial loans were primarily related to borrowers in industries with longer expected recovery times, mostly hospitality, retail and entertainment industries. With respect to temporary deferred repayment arrangements established in 2020 to assist borrowers affected by the COVID-19 pandemic, as of March 31, 2021, all loans previously modified under such programs have completed their deferral period.

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The OREO portfolio, which is part of non-performing assets, decreased by $3.9 million to $79.2 million as of March 31, 2021 from $83.1 million as of December 31, 2020. The following tables show the composition of the OREO portfolio as of March 31, 2021 and December 31, 2020, as well as the activity of the OREO portfolio by geographic area during the quarter ended March 31, 2021:

OREO Composition by Region
(In thousands)	As of March 31, 2021
	Puerto Rico		Virgin Islands		Florida			Consolidated
Residential	$	30,875	$	767	$	-	$	31,642
Commercial		38,158		3,180		-		41,338
Construction		5,972		255		-		6,227
	$	75,005	$	4,202	$	-	$	79,207
(In thousands)	As of December 31, 2020
	Puerto Rico		Virgin Islands		Florida			Consolidated
Residential	$	31,517	$	870	$	31	$	32,418
Commercial		41,176		3,180		-		44,356
Construction		5,925		361		-		6,286
	$	78,618	$	4,411	$	31	$	83,060
OREO Activity by Region
(In thousands)	For the quarter ended March 31, 2021
	Puerto Rico		Virgin Islands		Florida			Consolidated
Beginning Balance	$	78,618	$	4,411	$	31	$	83,060
Additions		4,521		-		-		4,521
Sales		(5,440)		(200)		(31)		(5,671)
Write-down adjustments		(2,694)		(9)		-		(2,703)
Ending Balance	$	75,005	$	4,202	$	-	$	79,207

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Net Charge-offs and Total Credit Losses

Net charge-offs totaled $12.5 million for the first quarter of 2021, or 0.43% of average loans on an annualized basis, compared to $17.6 million, or an annualized 0.78% of average loans for the same period in 2020.

Commercial mortgage loans net charge-offs in the first quarter of 2021 were $0.7 million, or an annualized 0.13% of average commercial mortgage loans, compared to $0.1 million, or an annualized 0.02% of related average loans, for the first quarter of 2020. Commercial mortgage loans net charge-offs for the first quarter of 2021 included a charge-off of $0.5 million taken on a commercial mortgage relationship in the Puerto Rico region.

Construction loans net charge-offs in the first quarter of 2021 were $9 thousand, or an annualized 0.02% of related average loans, compared to net recoveries of $24 thousand, or an annualized 0.08% of related average loans, for the first quarter of 2020.

Commercial and industrial loans net charge-offs in the first quarter of 2021 were $0.5 million, or an annualized 0.07% of average commercial and industrial loans, compared to $10 thousand, or an annualized of 0.00% of related average loans, for the first quarter of 2020. The Corporation recorded charge-offs of $0.7 million related to the $28.2 million in criticized commercial loan participations transferred to held for sale in the first quarter of 2021.

Residential mortgage loans net charge-offs in the first quarter of 2021 were $2.1 million, or an annualized 0.24% of related average loans, compared to $3.8 million, or an annualized 0.52% of related average loans, for the first quarter of 2020. Approximately $2.2 million of charge-offs taken in the first quarter of 2021 resulted from valuations of collateral dependent residential mortgage loans given high delinquency levels, compared to $3.0 million for the first quarter of 2020. Net charge-offs on residential mortgage loans for the first quarter of 2021 also included $0.3 million related to foreclosures, compared to $1.1 million in the first quarter of 2020.

Net charge-offs of consumer loans and finance leases in the first quarter of 2021 were $9.1 million, or an annualized 1.39% of related average loans, compared to $13.7 million, or an annualized 2.38% of related average loans, in the first quarter of 2020. The decrease was primarily reflected in the auto, credit cards, and small personal loan portfolios.

The following table shows the ratios of annualized net charge-offs (recoveries) to average loans held-in-portfolio for the indicated periods:
	Quarter Ended
	March 31, 2021		March 31, 2020
Residential mortgage	0.24	%	0.52	%
Commercial mortgage	0.13	%	0.02	%
Commercial and industrial	0.07	%	-	%
Construction	0.02	%	(0.08)	%
Consumer loans and finance leases	1.39	%	2.38	%
Total loans	0.43	%	0.78	%

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The following table presents the ratio of annualized net charge-offs (or recoveries) to average loans held in various portfolios by geographic segment for the indicated periods:
		Quarter Ended
		March 31,		March 31,
		2021		2020
PUERTO RICO:
	Residential mortgage	0.30	%	0.68	%
	Commercial mortgage	0.18	%	0.05	%
	Commercial & Industrial	(0.03)	%	0.01	%
	Construction	0.12	%	(0.13)	%
	Consumer and finance leases	1.34	%	2.38	%
	Total loans	0.48	%	1.02	%
VIRGIN ISLANDS:
	Residential mortgage	0.10	%	0.36	%
	Commercial mortgage	(0.24)	%	(0.14)	%
	Commercial and Industrial	-	%	-	%
	Construction	-	%	-	%
	Consumer and finance leases	1.30	%	0.86	%
	Total loans	0.16	%	0.25	%
FLORIDA:
	Residential mortgage	-	%	0.02	%
	Commercial mortgage	(0.01)	%	(0.02)	%
	Commercial and Industrial	0.29	%	(0.01)	%
	Construction	(0.04)	%	(0.07)	%
	Consumer and finance leases	6.55	%	4.55	%
	Total loans	0.22	%	0.09	%

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

Total net charge-offs plus losses on OREO operations for the first quarter of 2021 amounted to $14.4 million, or a loss rate of 0.49% on an annualized basis of average loans and repossessed assets, compared to losses of $18.8 million, or a loss rate of 0.82% on an annualized basis, for the same period in 2020.

The following table presents information about the OREO inventory and credit losses for the periods indicated:
		Quarter Ended
		March 31,
		2021		2020
(Dollars in thousands)
OREO
OREO balances, carrying value:
Residential		$	31,642	$	46,427
Commercial			41,338		45,878
Construction			6,227		7,369
Total		$	79,207	$	99,674
OREO activity (number of properties):
Beginning property inventory			513		697
Properties acquired			38		52
Properties disposed			(62)		(55)
Ending property inventory			489		694
Average holding period (in days)
Residential			652		408
Commercial			2,266		1,870
Construction			2,009		1,793
	Total average holding period (in days)		1,601		1,183
OREO operations loss:
Market adjustments and gains (losses) on sale:
Residential		$	360	$	(14)
Commercial			(2,168)		(475)
Construction			224		(132)
	Total losses on sale		(1,584)		(621)
Other OREO operations expenses			(314)		(567)
Net Loss on OREO operations		$	(1,898)	$	(1,188)
(CHARGE-OFFS) RECOVERIES
Residential charge offs, net			(2,092)		(3,779)
Commercial charge offs, net			(1,285)		(94)
Construction (charge-offs) recoveries, net			(9)		24
Consumer and finance leases charge-offs, net			(9,122)		(13,726)
Total charge-offs, net			(12,508)		(17,575)
TOTAL CREDIT LOSSES (1)		$	(14,406)	$	(18,763)
LOSS RATIO PER CATEGORY (2):
Residential			0.20%		0.52%
Commercial			0.25%		0.06%
Construction			-0.39%		0.33%
Consumer			1.38%		2.38%
TOTAL CREDIT LOSS RATIO (3)			0.49%		0.82%
________

(1)Equal to net loss on OREO operations plus charge-offs, net.

(2)Calculated as net charge-offs plus market adjustments, and gains (losses) on sales of OREO divided by average loans and repossessed assets.

(3)Calculated as net charge-offs plus net loss on OREO operations divided by average loans and repossessed assets.

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Operational Risk

The Corporation faces ongoing and emerging risk and regulatory pressure related to the activities that surround the delivery of banking and financial products. Coupled with external influences, such as market conditions, security risks, and legal risks, the potential for operational and reputational loss has increased. To mitigate and control operational risk, the Corporation has developed, and continues to enhance, specific internal controls, policies and procedures that are designed to identify and manage operational risk at appropriate levels throughout the organization. The purpose of these mechanisms is to provide reasonable assurance that the Corporation’s business operations are functioning within the policies and limits established by management.

The Corporation classifies operational risk into two major categories: business-specific and corporate-wide affecting all business lines. For business specific risks, a risk assessment group works with the various business units to ensure consistency in policies, processes and assessments. With respect to corporate-wide risks, such as information security, business recovery, and legal and compliance, the Corporation has specialized groups, such as the Legal Department, Information Security, Corporate Compliance, and Operations. 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 includes the risk of noncompliance with applicable legal and regulatory requirements, the risk of adverse legal judgments against the Corporation, and the risk that a counterparty’s performance obligations will be unenforceable. The Corporation is subject to extensive regulation in the different jurisdictions in which it conducts its business, and this regulatory scrutiny has been significantly increasing over the years. The Corporation has established, and continues to enhance, procedures that are designed to ensure compliance with all applicable statutory, regulatory and any other legal requirements. The Corporation has a Compliance Director who reports to the Chief Risk Officer and is responsible for the oversight of regulatory compliance and implementation of an enterprise-wide compliance risk assessment process. The Compliance division has officer roles in each major business area with direct reporting responsibilities to the Corporate Compliance Group.

Concentration Risk

The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. Of the total gross loan portfolio held for investment of $11.6 billion as of March 31, 2021, the Corporation had credit risk of approximately 79% in the Puerto Rico region, 17% in the United States region, and 4% in the Virgin Islands region.

Update to the Puerto Rico Fiscal Situation

A significant portion of our financial activities and credit exposure is concentrated in the Commonwealth of Puerto Rico, which has been in an economic recession since 2006.

Fiscal Plan

On April 23, 2021, the PROMESA oversight board certified the 2021 Fiscal Plan for the Commonwealth of Puerto Rico (the “2021 Fiscal Plan”). Similar to previous fiscal plans, the 2021 Fiscal Plan incorporates updated information related to the macroeconomic environment, as well as government revenues, expenditures and reform efforts. The 2021 Fiscal Plan takes into consideration the prolonged heightened unemployment rates in Puerto Rico while accounting for the impact of federal and local stimulus funding to counter the economic shocks from the COVID-19 pandemic. Moreover, the 2021 Fiscal Plan outlines recent implementation progress on operational and structural reforms and restores fiscal measures for fiscal year 2022 that had been paused in fiscal year 2021. Lastly, the 2021 Fiscal Plan includes targeted investments in civil service reform to address challenges of management of the government’s human resources and other stated government needs.

The 2021 Fiscal Plan estimates that Puerto Rico’s real gross national product (“GNP”) will grow by 3.8% and 1.5% in fiscal years 2021 and 2022, respectively, supported by the federal and local relief funds related to the COVID-19 pandemic, Hurricanes Irma and Maria, and earthquakes. These forecasts are better than those presented in the previously certified fiscal plan which estimated a 0.5% expansion in fiscal year 2021, followed by a 1.5% contraction in fiscal year 2022. According to the 2021 Fiscal Plan, while economic activity has been significantly reduced, extraordinary unemployment insurance and other direct transfer programs have more than offset the estimated income loss due to less economic activity. As a result, personal income has temporarily increased on a net basis. Nonetheless, the PROMESA oversight board recognizes that there is considerable uncertainty around the near-term economic outcomes for Puerto Rico and the U.S. mainland.

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Impact of the Pandemic-Related Federal and Local Support Packages

When estimating the impact of COVID-19 on Puerto Rico’s economy, the 2021 Fiscal Plan factors in certain economic effects. Specifically, the approach incorporates two primary factors: (i) lost income from an enduring spike in unemployment, and (ii) the relative amount of income that will be replaced by extraordinary U.S. federal government support. The forecast includes a gradual reduction of unemployment figures through fiscal year 2021; however, unemployment levels at the end of fiscal year 2021 are estimated to be around 2.5 percentage points higher than at the onset of the crisis.

In response to the pandemic crisis, both the U.S. federal government and Puerto Rico government have launched major relief packages intended to contain and mitigate the spread of the virus, support residents and frontline workers, and facilitate the economic recovery. The 2021 Fiscal Plan takes into consideration the amounts and timing of these stimulus programs. The local stimulus consisted of a $787.7 million emergency measures support package (the “Puerto Rico COVID-19 Stimulus Package”), which offered direct assistance to workers and businesses. The package was funded through $500 million of incremental new spending (made available via special appropriation), $131 million for education-related materials through existing federally funded government contracts, and $157 million through a reapportionment within the fiscal year 2020 Commonwealth General Fund budget. According to the 2021 Fiscal Plan, as of April 2021, $643.6 million (or 81.7% of the total package) had been disbursed.

On the federal side, there have been various rounds of stimulus packages that have included direct assistance to businesses, individuals, and families, as well as funding provided to local governments to assist with the pandemic response. Specifically, the 2021 Fiscal Plan incorporates the funding stemming from (i) the Families First Coronavirus Response Act (March 18, 2020), (ii) the CARES Act of 2020 (March 27, 2020), (iii) the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (“CRRSA”) (December 27, 2020), and (iv) the American Rescue Plan (“ARP”) Act of 2021 (March 21, 2021). Notably, the ARP Act created new and permanent economic support programs for Puerto Rico: an expanded Earning Income Tax Credit (“EITC”) program, with up to $600 million in federal support, and the permanent expansion of eligibility criteria for the Child Tax Credit (“CTC”). Overall, the total funding for Puerto Rico resulting from these packages is estimated at $43.5 billion as follows: (i) $408 million from the Families First Coronavirus Response Act, (ii) $18.0 billion from the CARES Act of 2020, (iii) $7.4 billion from the CRRSA Act, and (iv) $17.7 billion from the ARP Act of 2021.

The 2021 Fiscal Plan considers the combined effect of federal and local economic support in three ways. First, certain types of funding intended to prevent revenue and job loss are assumed to mitigate what otherwise would have been an even higher unemployment and revenue loss had those funds not been provided (i.e., the SBA Paycheck Protection Program). The second type of funds are those administered through economic support programs designed to provide income support directly from the U.S. federal or local government (i.e., unemployment benefits, economic impact payments, among others). The 2021 Fiscal Plan estimates that around 60% of income support funding will be spent over the fiscal years 2020-2023 period. The remaining 40% of funds is projected to be saved and/or used to pay down debt, and then is spent over a 30-year period according to the long-term consumption smoothing concept. Lastly, for government expenditures and programs funded by federal and local economic support programs, the 2021 Fiscal Plan uses the same approach as it does in estimating the pass-through of these expenditures to Puerto Rico as has been used for other types of economic stimulus funding, such as disaster-recovery spending. Moreover, the 2021 Fiscal Plan takes into consideration the estimated impact on growth related to permanent changes in EITC and CTC programs, including the additional fiscal cost of increased local funding required to fund the minimum local spending requirements to attain the maximum federal funds available under the ARP Act.

Impact of Disaster Relief Funding

The 2021 Fiscal Plan projects that approximately $84 billion of disaster relief funding in total, from federal and private sources, will be disbursed in reconstruction efforts over a period of 18 years (fiscal year 2018 to fiscal year 2035). Specifically, an estimated $47 billion is expected to come from the Federal Emergency Management Agency (“FEMA”) Disaster Relief Fund for Public Assistance, Hazard Mitigation, Mission Assignments, and Individual Assistance. Such amounts include $948 million in funding related to the 2019 and 2020 earthquakes. The 2021 Fiscal Plan includes approximately $20 billion from the federal Department of Housing and Urban Development (“HUD”) Community Development Block Grant – Disaster Recovery (“CDBG-DR”) program, of which $2.7 billion is estimated to be allocated to offset the Commonwealth and its associated entities’ expected FEMA-related cost-share requirements. Lastly, an estimated $7 billion stems from private and business insurance payouts, while $8 billion is related to other sources of federal funding. The certified fiscal plan assumes a $750 million working capital fund to address the liquidity constraints associated with the reimbursement nature of disaster relief programs and a parametric insurance coverage required by the U.S. government in case of natural disasters. According to the 2021 Fiscal Plan, this will help to accelerate FEMA-approved reconstruction projects, particularly permanent projects.

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Similar to previous versions, the 2021 Fiscal Plan outlines a series of structural reforms. These structural reforms include (i) human capital and welfare reform, (ii) K-12 education reform, (iii) ease of doing business reform, (iv) power sector reform; and (v) infrastructure reform. Furthermore, the 2021 Fiscal Plan allocates strategic investments to enhance economic growth, facilitate government response to emergencies, and optimize frontline service delivery. Moreover, the 2021 Fiscal Plan includes investments geared towards strengthening the ability of Puerto Rico to benefit from the growing importance of technology. Specifically, the 2021 Fiscal Plan allocates $400 million to incentivize private sector investments in broadband build-out and to improve access to faster speed offerings in underserved areas. In addition, the 2021 Fiscal Plan addresses the need for a comprehensive civil service reform and outlines a comprehensive plan to improve the civil service, starting with a pilot for financial management personnel that includes almost $800 million in investment (between fiscal year 2022 and fiscal year 2051) in order to enhance strategic human capital planning, recruitment, performance management and evaluations, and succession planning, as well as hiring of additional staff and salary increases for key personnel, as deemed necessary.

Lastly, the 2021 Fiscal Plan focuses on improving the responsiveness, efficiency, and affordability of the government by establishing a set of fiscal measures aimed to create robust fiscal controls and accountability through (i) the establishment of the Office of the Chief Financial Office of the government of Puerto Rico, (ii) consolidation and streamlining of agency operations, (iii) reduction of Medicaid and pensions cost, (iv) increasing revenue collections through improved compliance, and (v) enhancing the fiscal self-sufficiency of the University of Puerto Rico and municipalities. According to the 2021 Fiscal Plan, the impact of these fiscal measures is estimated to increase the Puerto Rico government revenues by $2.7 billion and reduce expenditures by $7.5 billion over the fiscal year 2021-fiscal year 2026 period.

Other Developments

On February 2, 2021, HUD and Puerto Rico’s Housing Department announced two partial approvals of the Housing Department’s Action Plan, resulting in the approval of $6 billion in Community Development Block Grant Mitigation funding for Puerto Rico.

Significant progress has been made in adjusting Puerto Rico’s debt. According to the 2021 Fiscal Plan, the restructuring of more than a third of the outstanding debt has already been completed, totaling $27 billion, including the Government Development Bank (“GDB”), the Puerto Rico Sales Tax Financing Corporation (“COFINA”), and the Puerto Rico Aqueduct and Sewer Authority (“PRASA”). On March 8, 2021, the PROMESA oversight board filed an amended Plan of Adjustment (the “2021 POA”) to restructure approximately $35 billion of debt and other claims against the Commonwealth of Puerto Rico, the Public Buildings Authority (“PBA”), and the Employee Retirement System (“ERS”); and more than $50 billion of pension liability. The 2021 POA reduces the Commonwealth’s debt from $35 billion in outstanding claims by approximately 80% to $7.4 billion in future debt and is expected to save the Puerto Rico government almost $60 billion in debt service payments when including COFINA debt service. The terms of the 2021 POA reflect the cumulative effects of the COVID-19 pandemic, the ongoing recession, and a series of natural disasters over the last several years on Puerto Rico and its economy.

On April 12, 2021, the PROMESA oversight board announced that it had reached an agreement in principle with Assured Guaranty Corp., Assured Guaranty Municipal Corp. and National Public Finance Guarantee Corporation to settle claims against the Commonwealth of Puerto Rico over monies historically appropriated conditionally to certain Commonwealth instrumentalities (clawback claims), including the Highway and Transportation Authority (“HTA”) and the Puerto Rico Convention Center District Authority (“CCDA”), and to restructure the debt of HTA and CCDA. According to the Oversight Board, the agreement also provides a template for treatment of other similarly situated creditors at the Puerto Rico Infrastructure Financing Authority (“PRIFA”) and the Metropolitan Bus Authority (“MBA”). The agreement in principle will be incorporated into the 2021 POA.

On April 19, 2021, HUD announced the approval of $8.2 billion in Community Development Block Grant Mitigation (“CDBG-MIT”) funds for Puerto Rico, along with the removal of onerous restrictions unique to Puerto Rico that limited the access to CDBG-DR recovery funds that were allocated following Hurricane Maria in September 2017. According to the press release, among the restrictions removed by HUD are the incremental grant obligations (or tranche structure) and review by the Federal Financial Monitor. HUD also removed the requirement for Puerto Rico to request and submit any certification, observations, and recommendations by the PROMESA oversight board, beyond what is already required by law.

On April 23, 2021, the PROMESA oversight board certified the 2021 fiscal plan (the “2021 CRIM Fiscal Plan”) for the Municipal Revenue Collection Center (“CRIM”). Similar to the Commonwealth’s fiscal plan, the 2021 CRIM Fiscal Plan provides a road map to a fairer, more efficient property tax system that will provide municipalities with more stable income. Specifically, the 2021 CRIM Fiscal Plan outlines 11 measures for CRIM to collect additional tax revenue by adding properties that were previously untaxed, to update appraisals to reflect improvements to properties, and to make it easier for property owners to pay taxes—all without increasing tax rates. Property taxes constitute the most significant revenue stream for municipalities, and these measures to enhance tax collections under the existing tax rates represents a significant opportunity for municipalities to improve their finances.

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On April 26, 2021, the U.S. Census Bureau announced the results for the 2020 Census. According to the Census Bureau, the resident population of Puerto Rico on April 1, 2020, was 3,285,874, down by 439,915 (or 11.8%) from the 2010 Census, placing Puerto Rico at the top of the list in terms of population loss across all 50 states. Nonetheless, such result exceeds the Census Bureau’s estimated population as of July 2019 as well as other estimates made prior to the announcement.

Exposure to Puerto Rico Government

As of March 31, 2021, the Corporation had $391.1 million of direct exposure to the Puerto Rico government, its municipalities and public corporations, compared to $394.8 million as of December 31, 2020. As of March 31, 2021, approximately $201.4 million of the exposure consisted of loans and obligations of municipalities in Puerto Rico that are supported by assigned property tax revenues and for which, in most cases, the good faith, credit and unlimited taxing power of the applicable municipality have been pledged to their repayment, and $132.9 million consisted of municipal revenue and special obligation bonds. Approximately 70% of the Corporation’s exposure to Puerto Rico municipalities consisted primarily of senior priority obligations concentrated in four of the largest municipalities in Puerto Rico. The municipalities are required by law to levy special property taxes in such amounts as are required for the payment of all of their respective general obligation bonds and notes. During the second quarter of 2019, the PROMESA oversight board announced the designation of the Commonwealth’s 78 municipalities as covered instrumentalities under PROMESA. Meanwhile, the latest fiscal plan certified by the PROMESA oversight board did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, but the plan did call for the gradual elimination of budgetary subsidies provided to municipalities and established certain funds available to municipalities to incentivize service consolidation. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from the COVID-19 pandemic, as well as expense, revenue or cash management measures taken to address the Puerto Rico government’s fiscal situation and measures included in fiscal plans of other government entities. In addition to municipalities, the total direct exposure also included $13.5 million in loans to an affiliate of PREPA, $39.4 million in loans to an agency of the Puerto Rico central government, and obligations of the Puerto Rico government, specifically a residential pass-through MBS issued by the PRHFA, at an amortized cost of $3.9 million as part of its available-for-sale investment securities portfolio (fair value of $2.8 million as of March 31, 2021).

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The following table details the Corporation’s total direct exposure to Puerto Rico government obligations according to their maturities:
	As of March 31, 2021
		Investment
		Portfolio				Total
		(Amortized cost)		Loans		Exposure
(In thousands)
Puerto Rico Housing Finance Authority:
After 10 years	$	3,926	$	-	$	3,926
Total Puerto Rico Housing Finance Authority		3,926		-		3,926
Puerto Rico Government agencies and public corporations:
Puerto Rico government agencies:
After 1 to 5 years		-		7,534		7,534
After 5 to 10 years		-		31,904		31,904
Total Puerto Rico government agencies		-		39,438		39,438
Affiliate of the Puerto Rico Electric Power Authority:
After 1 to 5 years		-		13,451		13,451
Total Public Corporations		-		13,451		13,451
Total Puerto Rico government agencies
and public corporations		-		52,889		52,889
Municipalities:
Due within one year		2,968		41,855		44,823
After 1 to 5 years		14,843		92,540		107,383
After 5 to 10 years		88,564		10,230		98,794
After 10 years		83,305		-		83,305
Total Municipalities		189,680		144,625		334,305
Total Direct Government Exposure	$	193,606	$	197,514	$	391,120

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In addition, as of March 31, 2021, the Corporation had $103.8 million in exposure to residential mortgage loans that are guaranteed by the PRHFA, compared to $106.5 million as of December 31, 2020. 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, 2017, the PRHFA’s mortgage loans insurance program covered loans in an aggregate amount of approximately $571 million. The regulations adopted by the PRHFA, requires the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance program. As of June 30, 2017, the most recent date as of which information is available, the PRHFA had an unrestricted deficit of approximately $6.9 million with respect to required reserves for the mortgage loan insurance program.

As of March 31, 2021, the Corporation had $2.0 billion of public sector deposits in Puerto Rico, compared to $1.8 billion as of December 31, 2020. Approximately 19% of the public sector deposits as of March 31, 2021 was from municipalities and municipal agencies in Puerto Rico and 81% was from public corporations, the 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 a number of fiscal and economic challenges that have deteriorated the overall financial and economic conditions in the area. According to the United States Bureau of Economic Analysis (“BEA”), GDP estimates show that the economy grew by 1.5% in 2018 after contracting at a compounded annual rate of 1.2% between 2012 and 2017. Growth in 2018 was primarily driven by consumer spending, private fixed investment, and government spending, reflecting the influx of federal disaster recovery funding in the aftermath of the two major hurricanes in 2017. Although the USVI government expects this expansionary trend to be reflected in the 2019 GDP estimates, the economic threat resulting from the COVID-19 pandemic is anticipated to diminish growth throughout 2020 and 2021.

Similar to Puerto Rico, the USVI has benefited from the various rounds of economic stimulus programs deployed by the Federal Government. Overall total pandemic-related relief funding allocated to the USVI exceeds $750 million. According to information published by the government of the U.S. Virgin Islands (“GVI”), between April 7, 2020 and April 11, 2021, the government had issued 106,846 unemployment-related insurance checks totaling $130.1 million, consisting of (i) 56,578 checks amounting to $48.1 million in regular unemployment insurance benefits and (ii) 50,268 checks totaling $82.0 million in pandemic-related unemployment benefits. Furthermore, as of April 25, 2021, over 3,000 applications from USVI businesses had been approved for the SBA PPP amounting to more than $194.9 million, according to data published by the SBA.

On March 29, 2021, Moody’s Investor Services (“Moody’s”) announced the completion of its periodic review of the ratings of the U.S. Virgin Islands and other ratings that are associated with the same analytical unit. According to Moody’s, “the USVI’s Caa3 rating reflects a small and highly concentrated economy, government finances that have been severely strained, a very poorly funded pension system that is rapidly depleting its asset base, financial reporting and other governance challenges, and the government’s loss of access to the capital markets since 2017. Despite some recent improvement in the government’s liquidity and near-term financial position, the rating incorporates the risk that the reemergence of a significant structural deficit, combined with the expected insolvency of the Government Employees’ Retirement System (“GERS”), will lead the government to restructure its debt.”

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On April 9, 2021, the United States Court of Appeals for the Third Circuit (the “Third Circuit”) determined that the GVI is not liable for approximately $43 million in interest and fees for past due contributions to the GERS. On April 19, 2021, Moody’s issued an opinion regarding the decision. According to Moody’s, “the ruling is credit positive for the USVI, because it will provide a more than $40 million reprieve from court-ordered pension contributions and thus help the financially stressed territory’s near-term ability to continue providing government services. However, it does little to alter the looming insolvency of the GERS within the next several years. The USVI almost certainly cannot afford to pay pensions directly to retirees if GERS depletes its assets, and likely cannot politically cut benefits while paying debt service in full to bondholders, meaning a GERS insolvency is highly likely to drive a debt default and restructuring.” Unless there is an infusion of cash or reduction of benefits, Moody’s projected that the GERS will run out of assets by fiscal year 2024, which starts on September 1, 2023.

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 continues to deteriorate, 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 March 31, 2021, the Corporation had $62.2 million in loans to USVI government instrumentalities and public corporations, compared to $61.8 million as of December 31, 2020. Of the amount outstanding as of March 31, 2021, public corporations of the USVI owed approximately $39.0 million and an independent instrumentality of the USVI government owed approximately $23.2 million. As of March 31, 2021, all loans were currently performing and up to date on principal and interest payments.

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in conformity with GAAP, which requires the measurement of the financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

Unlike most industrial companies, substantially all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a greater impact on a financial institution’s performance than the effects of general levels of inflation. Interest rate movements are not necessarily correlated with changes in the prices of goods and services.

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Basis of Presentation

The Corporation has included in this Form 10-Q the following financial measures that are not recognized under GAAP, which are referred to as non-GAAP financial measures:

1. Net interest income, interest rate spread, and net interest margin excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis are reported in order to provide to investors additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis of the periods presented. The changes in the fair value of derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively. The tax-equivalent adjustment to net interest income recognizes the income tax savings when comparing taxable and tax-exempt assets and assumes a marginal income tax rate. Income from tax-exempt earning assets is increased by an amount equivalent to the taxes that would have been paid if this income had been taxable at statutory rates. Management believes that it is a standard practice in the banking industry to present net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis. This adjustment puts all earning assets, most notably tax-exempt securities and tax-exempt loans, on a common basis that facilitates comparison of results to the results of peers. See “Results of Operations - Net Interest Income” above for the table that reconciles the net interest income calculated and presented in accordance with GAAP with the non-GAAP financial measure “net interest income excluding fair value changes and on a tax-equivalent basis.” The table also reconciles net interest spread and margin calculated and presented in accordance with GAAP with the non-GAAP financial measures “net interest spread and margin excluding fair value changes and on a tax-equivalent basis.”

2. The tangible common equity ratio and tangible book value per common share are non-GAAP financial measures that management believes are generally used by the financial community to evaluate capital adequacy. Tangible common equity is total equity less preferred equity, goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Tangible assets are total assets less goodwill, core deposit intangibles, and other intangibles, such as the purchased credit card relationship intangible and the insurance customer relationship intangible. Management and many stock analysts use the tangible common equity ratio and tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase method of accounting for mergers and acquisitions. Accordingly, the Corporation believes that 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” above for a reconciliation of the Corporation’s tangible common equity and tangible assets.

3. ACL for loans and finance leases to adjusted total loans held for investment ratio is a non-GAAP financial measure that excludes SBA PPP loans amounting to $430.5 million and $406.0 million as of March 31, 2021 and December 31, 2020, respectively. The SBA PPP loans are fully-guaranteed by the SBA, and the principal amount of the loans may be forgiven in full or in part, thus presenting less credit risk than a non-SBA PPP loan. Management believes the use of this non-GAAP measure provides additional understanding when assessing the Corporation’s reserve coverage and facilitates comparison with other periods. See below for the reconciliation of the GAAP ratio of ACL for loans and finance leases to total loans held for investment to the Non-GAAP ratio of the ACL for loans and finance leases to adjusted total loans held for investment.

4. To supplement the Corporation’s financial statements presented in accordance with GAAP, the Corporation uses, and believes that investors would benefit from disclosure of, non-GAAP financial measures that reflect adjustments to net income and non-interest expenses to exclude items that management identifies as Special Items because management believes they are not reflective of core operating performance, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts. This Form 10-Q includes the following non-GAAP financial measures for the quarter ended March 31, 2021 and 2020 that reflect the described items that were excluded for one of those reasons.

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Adjusted net income that reflects the effect of the following exclusions:

 Merger and restructuring costs of $11.3 million and $0.8 million recorded in the first quarters of 2021 and 2020, respectively, related to transaction costs and restructuring initiatives in connection with the acquisition of BSPR.

 COVID-19 pandemic-related expenses of $1.2 million and $0.4 million in the first quarters of 2021 and 2020, respectively.

 Gain of $8.2 million on the sales of U.S. agencies MBS in the first quarter of 2020.

 Total benefit of $1.2 million recorded in the first quarter of 2020 resulting from insurance recoveries associated with expenses related to Hurricanes Irma and Maria.

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

- Tax benefit of $4.2 million and $0.3 million in the first quarter of 2021 and 2020, respectively, related to merger and restructuring costs in connection with the acquisition of BSPR (calculated based on the statutory tax rate of 37.5%).

- Tax benefit of $0.5 million and $0.1 million in the first quarter of 2021 and 2020, respectively, in connection with the COVID-19 pandemic-related expenses (calculated based on the statutory tax rate of 37.5%).

- Tax expense of $0.4 million in the first quarter of 2020 related to the benefit of hurricane-related insurance recoveries (calculated based on the statutory tax rate of 37.5%).

- No tax expense was recorded for the gain on sales of U.S. agencies MBS in the first quarter of 2020. Those sales were recorded at the tax-exempt international banking entity subsidiary level.

See “Overview of Results of Operations” above for the reconciliation of the non-GAAP financial measure “adjusted net income” to the GAAP financial measure.

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Adjusted non-interest expenses – The following tables reconcile for the first quarter of 2021 and 2020 the non-interest expenses to adjusted non-interest expenses, which is a non-GAAP financial measure that excludes the relevant Special Items identified above:

(In thousands)
Quarter ended March 31, 2021	Non-Interest Expenses (GAAP)		Merger and Restructuring Costs		COVID 19 Pandemic-Related Expenses		Adjusted (Non-GAAP)
Non-interest expenses	$	133,301	$	11,267	$	1,209	$	120,825
Employees' compensation and benefits		50,842		-		27		50,815
Occupancy and equipment		24,242		-		1,039		23,203
Business promotion		2,970		-		18		2,952
Professional service fees		17,701		-		-		17,701
Taxes, other than income taxes		6,199		-		125		6,074
FDIC deposit insurance		1,988		-		-		1,988
Net loss on OREO and OREO expenses		1,898		-		-		1,898
Credit and debit card processing expenses		4,278		-		-		4,278
Communications		2,462		-		-		2,462
Merger and restructuring costs		11,267		11,267		-		-
Other non-interest expenses		9,454		-		-		9,454

(In thousands)
Quarter ended March 31, 2020	Non-Interest Expenses (GAAP)		Merger and Restructuring Costs		COVID 19 Pandemic-Related Expenses		Hurricane-Related Insurance Recoveries		Adjusted (Non-GAAP)
Non-interest expenses	$	92,184	$	845	$	363	$	(1,153)	$	92,129
Employees' compensation and benefits		42,859		-		51		-		42,808
Occupancy and equipment		15,127		-		133		(789)		15,783
Business promotion		3,622		-		177		(184)		3,629
Professional service fees		11,793		-		-		(180)		11,973
Taxes, other than income taxes		3,880		-		2		-		3,878
FDIC deposit insurance		1,522		-		-		-		1,522
Net loss on OREO and OREO expenses		1,188		-		-		-		1,188
Credit and debit card processing expenses		3,950		-		-		-		3,950
Communications		1,877		-		-		-		1,877
Merger and restructuring costs		845		845		-		-		-
Other non-interest expenses		5,521		-		-		-		5,521

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Allowance for credit losses on loans and finance leases to adjusted total loans held for investment ratio - The following table reconciles the “ACL for loans and finance leases to total loans held for investment ratio,” the GAAP financial ratio, to the non-GAAP financial measure “ACL for loans and finance leases to adjusted total loans held for investment ratio,” as of March 31, 2021 and December 31, 2020.

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

	Allowance for Credit Losses for Loans and Finance Leases
	to Loans Held for Investment
	(GAAP to Non-GAAP reconciliation)
		As of December 31, 2020
	Allowance for Credit Losses for				Loans Held for Investment
	Loans and Finance Leases
(In thousands)
Allowance for credit losses for loans and finance leases and loans held for investment (GAAP)	$	385,887		$	11,777,289
Less:
SBA PPP loans		-			405,953
Allowance for credit losses for loans and finance leases and adjusted loans held for investment,
excluding SBA PPP loans (Non-GAAP)	$	385,887		$	11,371,336
Allowance for credit losses for loans and finance leases to loans held for investment (GAAP)		3.28	%
Allowance for credit losses for loans and finance leases to adjusted loans held for investment,
excluding SBA PPP loans (Non-GAAP)		3.39	%

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding market risk to which the Corporation is exposed, see the information contained in Part I – Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management.”

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Control and Procedures

First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of First BanCorp.’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2021. Based on this evaluation, except as noted below in “Internal Control over Financial Reporting”, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective and provide reasonable assurance that the information required to be disclosed by the Corporation in reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and reported to the Corporation’s management, including the Chief Executive Office and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Internal Control over Financial Reporting

Other than as explained below, there have been no changes to the Corporation’s internal control over financial reporting during our most recent quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Effective September 1, 2020, the Corporation completed the acquisition of Banco Santander Puerto Rico (“BSPR”). As permitted by Securities and Exchange Commission guidance, we have elected to exclude the internal control over financial reporting of BSPR from the evaluation of the effectiveness of First BanCorp’s disclosure controls and procedures as of the end of the period covered by this report because of the timing of the completion of the acquisition. As a result of the BSPR acquisition, First BanCorp is evaluating changes to processes, information technology systems, and other components of internal control in financial reporting as part of its integration of BSPR into the Corporation’s internal control over financial reporting process.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 1A. RISK FACTORS

The Corporation’s business, operating results and/or the market price of our common and preferred stock may be significantly affected by a number of factors. For a detailed discussion of certain risk factors that could affect the Corporation’s future operations, financial condition or results for future periods are set forth in Part I, Item 1A., “Risk Factors,” in the 2020 Annual Report on Form 10-K. These risk factors, and others, could cause actual results to differ materially from historical results or the results contemplated by the forward-looking statements contained in this report. Also, refer to the discussion in “Forward Looking Statements” and Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this report for additional information that may supplement or update the discussion of risk factors in the 2020 Annual Report on Form 10-K.

There have been no material changes from those risk factors previously disclose in Part, Item 1A., “Risk Factors,” in the 2020 Annual Report on Form 10-K. Additional risks and uncertainties that are not currently known to the Corporation or are currently deemed by the Corporation to be immaterial also may materially adversely affect the Corporation’s business, financial condition or results of operations.

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ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) Not applicable.

b) Not applicable

c) Purchase of equity securities by the issuer and affiliated purchases. The following table provides information relating to the Corporation’s purchases of shares of its common stock in the first quarter of 2021.

Period	Total number of shares purchased (1)		Average price paid	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under These Plans or Programs
January 2021	-	$	-	-	-
February 2021	229		10.38	-	-
March 2021	194,242		12.22	-	-
Total	194,471	$	12.22	-	-

(1) Reflects the withholding of shares of common stock to cover minimum tax withholding obligations upon the vesting of restricted stock and performance units. The Corporation intends to continue to satisfy statutory tax withholding obligations in connection with the vesting of outstanding restricted stock and performance units through the withholding of shares.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

See the Exhibit Index below, which is incorporated by reference herein:

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Exhibit Index

10.1 – Offer Letter between First BanCorp. and Patricia M. Eaves, dated March 31, 2021, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 1, 2021.

31.1 – CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 - CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 - CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 - CFO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document, filed herewith. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document, filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document, filed herewith
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document, filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document, filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document, filed herewith
104	The cover page of First BanCorp. Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL (included within the Exhibit 101 attachments)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized:

First BanCorp.

Registrant

Date: May 10, 2021	By:	/s/ Aurelio Alemán
		Aurelio Alemán
		President and Chief Executive Officer

Date: May 10, 2021	By:	/s/ Orlando Berges
		Orlando Berges
		Executive Vice President and Chief Financial Officer

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