FIRST BANCORP /PR/ - Interim / Quarterly Report 2017

10-Q 1 fbp06302017x10q.htm 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 June 30, 2017

[ ] 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 number)
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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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. (Check one):

Large accelerated filer ☐ Accelerated filer ☑

Non-accelerated filer ☐ (Do not check if a smaller reporting company) 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: 215,991,652 shares outstanding as of July 31, 2017.

FIRST BANCORP.

INDEX PAGE

PART I FINANCIAL INFORMATION	PAGE
Item 1. Financial Statements:
Consolidated
Statements of Financial Condition (Unaudited) as of June 30, 2017 and December 31, 2016	5
Consolidated
Statements of Income (Unaudited) – Quarters ended June 30, 2017 and 2016 and
six-month periods ended June 30, 2017 and 2016	6
Consolidated
Statements of Comprehensive Income (Unaudited) – Quarters ended June 30, 2017
and 2016 and six-month periods ended June 30, 2017 and 2016	7
Consolidated
Statements of Cash Flows (Unaudited) – Six-month periods ended June 30, 2017
and 2016	8
Consolidated
Statements of Changes in Stockholders’ Equity (Unaudited) – Six-month periods
ended June 30, 2017 and 2016	9
Notes to
Consolidated Financial Statements
(Unaudited)	10
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations	78
Item 3. Quantitative and
Qualitative Disclosures About Market Risk	142
Item 4. Controls and
Procedures	142
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	143
Item 1A. Risk Factors	143
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds	144
Item 3. Defaults Upon
Senior Securities	145
Item 4. Mine Safety
Disclosures	145
Item 5. Other Information	145
Item 6. Exhibits	145
SIGNATURES

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”) with the U.S. Securities and Exchange Commission (“SEC”), in the Corporation’s press releases or in other public or stockholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases “would,” “intends,” “will likely result,” “expect to,” “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.”

First BanCorp. wishes to caution readers not to place undue reliance on any such “forward-looking statements,” which speak only as of the date made, and to advise 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 might cause such a difference include, but are not limited to, the risks described or referenced below in Part II, Item 1A. “Risk Factors,” and the following:

· uncertainty as to the ultimate outcomes of actions taken, or those that may have to 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 Puerto Rico’s financial problems, including the filing of a form of bankruptcy under Title III of PROMESA that provides a court debt restructuring process similar to U.S. bankruptcy protection and the effect of measures included in the Puerto Rico government fiscal plan to our clients and loan portfolios;

· the ability of the Puerto Rico government or any of its public corporations or other instrumentalities to repay its respective debt obligations, including the effect of payment defaults on the Puerto Rico government general obligations, bonds of the Government Development Bank for Puerto Rico (the “GDB”) and certain bonds of government public corporations, and recent and any future downgrades of the long-term and short-term debt ratings of the Puerto Rico government, which could exacerbate Puerto Rico’s adverse economic conditions and, in turn, further adversely impact the Corporation;

· uncertainty about whether the Corporation will be able to continue to fully comply with the written agreement dated June 3, 2010 (the “Written Agreement”) that the Corporation entered into with the Federal Reserve Bank of New York (the “New York FED” or “Federal Reserve”), that, among other things, requires the Corporation to serve as a source of strength to FirstBank Puerto Rico (“FirstBank” or the “Bank”) and that, except with the consent generally of the New York FED and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”, referred to together with the New York FED as the “Federal Reserve”), prohibits the Corporation from paying dividends to stockholders or receiving dividends from FirstBank, making payments on trust preferred securities or subordinated debt, incurring, increasing or guaranteeing debt or repurchasing any capital securities and uncertainty whether such consent will be provided for future interest payments on the subordinated debt, despite the consents that have enabled the Corporation to pay quarterly interest payments on the Corporation’s subordinated debentures associated with its trust preferred securities since the second quarter of 2016, and for future monthly dividends on the non-cumulative perpetual preferred stock, despite the consents that have enabled the Corporation to pay monthly dividends on its non-cumulative perpetual preferred stock since December 2016;

· a decrease in demand for the Corporation’s products and services and lower revenues and earnings because of the continued recession in Puerto Rico;

· uncertainty as to the availability of certain funding sources, such as brokered certificates of deposit (“brokered CDs”);

· the Corporation’s reliance on brokered CDs to fund operations and provide liquidity;

· the risk of not being able to fulfill the Corporation’s cash obligations or resume paying dividends to the Corporation’s common stockholders in the future due to the Corporation’s need to receive regulatory approvals to declare or pay any dividends and to take dividends or any other form of payment representing a reduction in capital from FirstBank or FirstBank’s failure to generate sufficient cash flow to make a dividend payment to the Corporation;

· the weakness of the real estate markets and of 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, high levels of non-performing assets, charge-offs and provisions for loan and lease losses, and may subject the Corporation to further risk from loan defaults and foreclosures;

· the ability of FirstBank to realize the benefits of its deferred tax assets subject to the remaining valuation allowance;

· adverse changes in general economic conditions in Puerto Rico, the United States (“U.S.”), and the U.S. Virgin Islands (“USVI”), and British Virgin Islands (“BVI”), including the interest rate environment, market liquidity, housing absorption rates, real estate prices, and disruptions in the U.S. capital markets, which reduced interest margins and affected funding sources, and has affected demand for all of the Corporation’s products and services and reduced the Corporation’s revenues and earnings, and the value of the Corporation’s assets, and may continue to have these effects;

· 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 other-than-temporary, including additional impairments on the Corporation’s remaining $8.0 million Puerto Rico government’s debt securities;

· uncertainty about regulatory and legislative changes for financial services companies in Puerto Rico, the U.S., the USVI and the BVI, which could affect the Corporation’s financial condition or performance and could cause the Corporation’s actual results for future periods to differ materially from prior results and anticipated or projected results;

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

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

· 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 acquisitions and dispositions;

· a need to recognize impairments on the Corporation’s financial instruments, goodwill or other intangible assets relating to acquisitions;

· the risk that downgrades in the credit ratings of the Corporation’s long-term senior debt will adversely affect the Corporation’s ability to access necessary external funds;

· the impact on the Corporation’s businesses, business practices and results of operations of a potential higher interest rate environment;

· uncertainty as to whether FirstBank will be able 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.

Investors should refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016, as well as “Part II, Item 1A, Risk Factors,” in this quarterly report on Form 10-Q, for a discussion of such factors and certain risks and uncertainties to which the Corporation is subject.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Unaudited)

	June 30, 2017	December 31, 2016
(In thousands,
except for share information)
ASSETS
Cash and due
from banks	$ 422,150	$ 289,591
Money market
investments:
Time deposits
with other financial institutions	3,125	2,800
Other
short-term investments	7,289	7,294
Total
money market investments	10,414	10,094
Investment
securities available for sale, at fair value:
Securities
pledged that can be repledged	350,226	339,390
Other
investment securities	1,409,819	1,542,530
Total
investment securities available for sale	1,760,045	1,881,920
Investment
securities held to maturity, at amortized cost:
Securities
pledged that can be repledged	-	-
Other
investment securities	156,049	156,190
Total
investment securities held to maturity, fair value of $134,944 (2016-
$132,759)	156,049	156,190
Other equity
securities	43,072	42,992
Loans, net of
allowance for loan and lease losses of $173,485
(2016 -
$205,603)	8,687,691	8,681,270
Loans held for
sale, at lower of cost or market	37,272	50,006
Total
loans, net	8,724,963	8,731,276
Premises and
equipment, net	146,586	150,828
Other real
estate owned	150,045	137,681
Accrued interest
receivable on loans and investments	44,491	45,453
Other assets	455,985	476,430
Total
assets	$ 11,913,800	$ 11,922,455
LIABILITIES
Non-interest-bearing
deposits	$ 1,578,142	$ 1,484,155
Interest-bearing
deposits	7,164,751	7,347,050
Total
deposits	8,742,893	8,831,205
Securities sold
under agreements to repurchase	300,000	300,000
Advances from
the Federal Home Loan Bank (FHLB)	675,000	670,000
Other borrowings	216,187	216,187
Accounts payable
and other liabilities	119,810	118,820
Total
liabilities	10,053,890	10,136,212
STOCKHOLDERS'
EQUITY
Preferred stock,
authorized, 50,000,000 shares:
Non-cumulative
Perpetual Monthly Income Preferred Stock: issued 22,004,000
shares,
outstanding 1,444,146 shares, aggregate liquidation value of $36,104	36,104	36,104
Common stock,
$0.10 par value, authorized, 2,000,000,000 shares;
issued,
219,928,329 shares (2016 - 218,700,394 shares issued)	21,993	21,870
Less: Treasury
stock (at par value)	(397)	(125)
Common stock
outstanding, 215,963,916, shares outstanding (2016 - 217,446,205
shares
outstanding)	21,596	21,745
Additional
paid-in capital	933,710	931,856
Retained
earnings, includes legal surplus reserve of $52,436	883,129	830,928
Accumulated
other comprehensive loss, net of tax of $7,752	(14,629)	(34,390)
Total
stockholders' equity	1,859,910	1,786,243
Total
liabilities and stockholders' equity	$ 11,913,800	$ 11,922,455
The accompanying
notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Quarter Ended — June 30,		Six-Month Period Ended — June 30,
	2017	2016	2017	2016
(In thousands,
except per share information)
Interest and
dividend income:
Loans	$ 132,697	$ 132,111	$ 264,139	$ 267,250
Investment
securities	13,950	13,552	27,252	28,171
Money market
investments	727	1,271	1,211	2,344
Total
interest income	147,374	146,934	292,602	297,765
Interest
expense:
Deposits	16,348	17,224	32,320	34,481
Securities
sold under agreements to repurchase	2,765	6,029	5,388	11,505
Advances from
FHLB	2,292	1,471	4,414	2,942
Other
borrowings	2,065	1,982	4,027	3,961
Total
interest expense	23,470	26,706	46,149	52,889
Net
interest income	123,904	120,228	246,453	244,876
Provision for
loan and lease losses	18,096	20,986	43,538	42,039
Net interest
income after provision for loan and lease losses	105,808	99,242	202,915	202,837
Non-interest
income:
Service
charges and fees on deposit accounts	5,803	5,618	11,593	11,418
Mortgage
banking activities	4,846	4,893	8,462	9,646
Net gain on
sale of investments	371	-	371	8
Other-than-temporary impairment (OTTI) losses on available-for-sale debt
securities:
Total
other-than-temporary impairment losses	-	-	(12,231)	(1,845)
Portion of
other-than-temporary impairment
recognized in other comprehensive income (OCI)	-	-	-	(4,842)
Net
impairment losses on available-for-sale debt securities	-	-	(12,231)	(6,687)
Gain on early
extinguishment of debt	-	-	-	4,217
Insurance
commission income	1,855	1,542	5,442	4,811
Other
non-interest income	7,674	7,725	15,155	14,834
Total
non-interest income	20,549	19,778	28,792	38,247
Non-interest
expenses:
Employees'
compensation and benefits	38,409	37,401	77,062	75,836
Occupancy and
equipment	13,759	13,043	27,847	27,226
Business
promotion	3,192	4,048	6,473	8,051
Professional
fees	11,800	11,327	22,756	22,103
Taxes, other
than income taxes	3,745	3,756	7,421	7,548
Insurance and
supervisory fees	4,855	7,066	9,764	14,409
Net loss on
other real estate owned (OREO) and OREO operations	3,369	3,325	7,445	6,531
Credit and
debit card processing expenses	3,566	3,274	6,397	6,556
Communications	1,628	1,725	3,171	3,533
Other
non-interest expenses	4,746	4,579	8,615	10,748
Total non-interest
expenses	89,069	89,544	176,951	182,541
Income before
income taxes	37,288	29,476	54,756	58,543
Income tax
expense	(9,290)	(7,523)	(1,217)	(13,246)
Net income	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Net income
attributable to common stockholders	$ 27,329	$ 21,953	$ 52,201	$ 45,297
Net income
per common share:
Basic	$ 0.13	$ 0.10	$ 0.24	$ 0.21
Diluted	$ 0.13	$ 0.10	$ 0.24	$ 0.21
Dividends
declared per common share	$ -	$ -	$ -	$ -
The accompanying
notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Quarter Ended — June 30,		Six-Month Period Ended — June 30,
	2017	2016	2017	2016
(In thousands)
Net income	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Available-for-sale
debt securities on which an other-than-temporary
impairment
has been recognized:
Unrealized gain (loss) on debt securities on which an
other-than-temporary impairment has been recognized	1,127	2,453	(1,803)	1,455
Reduction
of non-credit OTTI component on securities sold	5,678	-	5,678	-
Reclassification adjustments for net gain included in net income	(371)	-	(371)	-
Reclassification adjustment for other-than-temporary impairment
on
debt securities included in net income	-	-	12,231	6,687
All other
unrealized gains and losses on available-for-sale securities:
Reclassification adjustments for net gain included in net income	-	-	-	(8)
All other
unrealized holding gains on available-for-sale
securities arising during the period	2,631	11,422	4,026	36,132
Other
comprehensive income for the period	9,065	13,875	19,761	44,266
Total
comprehensive income	$ 37,063	$ 35,828	$ 73,300	$ 89,563
The
accompanying notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six-Month Period Ended — June 30,	June 30,
	2017	2016
(In thousands)
Cash flows
from operating activities:
Net income	$ 53,539	$ 45,297
Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation
and amortization	8,230	9,015
Amortization
of intangible assets	2,242	2,442
Provision for
loan and lease losses	43,538	42,039
Deferred
income tax expense	728	11,972
Stock-based
compensation	3,599	3,346
Gain on sales
of investments	(371)	(8)
Other-than-temporary impairments on debt securities	12,231	6,687
Gain on early
extinguishment of debt	-	(4,217)
Unrealized
(gain) loss on derivative instruments	(307)	243
Net gain on
sales of premises and equipment and other assets	(133)	(686)
Net gain on
sales of loans	(3,696)	(5,089)
Net
amortization/accretion of premiums, discounts and deferred loan fees and
costs	(4,235)	(4,624)
Originations
and purchases of loans held for sale	(182,678)	(220,056)
Sales and
repayments of loans held for sale	188,890	224,765
Amortization
of broker placement fees	1,007	1,645
Net
amortization/accretion of premium and discounts on investment securities	40	1,898
Decrease in
accrued interest receivable	10	2,713
Increase
(decrease) in accrued interest payable	567	(26,580)
Decrease in
other assets	4,225	2,816
Increase
(decrease) in other liabilities	4,148	(11,414)
Net cash
provided by operating activities	131,574	82,204
Cash flows
from investing activities:
Principal
collected on loans	1,362,537	1,494,316
Loans
originated and purchased	(1,498,967)	(1,321,511)
Proceeds from
sales of loans held for investment	53,245	-
Proceeds from
sales of repossessed assets	20,999	27,674
Proceeds from
sales of available-for-sale securities	23,408	14,990
Purchases of
available-for-sale securities	(12,440)	(279,500)
Proceeds from
principal repayments and maturities of available-for-sale securities	119,664	183,570
Proceeds from
principal repayments and maturities of held-to-maturity securities	141	141
Additions to
premises and equipment	(5,269)	(5,280)
Proceeds from
sale of premises and equipment and other assets	1,109	2,250
Net
purchase/sales of other equity securities	(80)	(210)
Net cash
outflows from purchase/sale of insurance contracts	-	(960)
Net cash
provided by investing activities	64,347	115,480
Cash flows
from financing activities:
Net decrease
in deposits	(64,810)	(114,613)
Net FHLB
advances proceeds	5,000	-
Dividends
paid on preferred stock	(1,338)	-
Repurchase of
outstanding common stock	(1,894)	(590)
Repayment of
junior subordinated debentures	-	(7,025)
Net cash
used in financing activities	(63,042)	(122,228)
Net increase in
cash and cash equivalents	132,879	75,456
Cash and cash
equivalents at beginning of period	299,685	752,458
Cash and cash
equivalents at end of period	$ 432,564	$ 827,914
Cash and cash
equivalents include:
Cash and due
from banks	$ 422,150	$ 617,827
Money market
instruments	10,414	210,087
	$ 432,564	$ 827,914
The accompanying
notes are an integral part of these statements.

FIRST BANCORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(Unaudited)

	Six-Month Period Ended — June 30,	June 30,
	2017	2016
(In thousands)
Preferred
Stock	$ 36,104	$ 36,104
Common Stock
outstanding:
Balance at
beginning of period	21,745	21,509
Common stock
issued as compensation	27	44
Common stock
withheld for taxes	(33)	(19)
Restricted
stock grants	95	179
Restricted
stock forfeited	(238)	-
Balance
at end of period	21,596	21,713
Additional
Paid-In-Capital:
Balance at
beginning of period	931,856	926,348
Stock-based
compensation	3,599	3,346
Common stock
withheld for taxes	(1,861)	(571)
Restricted
stock grants	(95)	(179)
Common stock
issued as compensation	(27)	(44)
Restricted
stock forfeited	238	-
Balance
at end of period	933,710	928,900
Retained
Earnings:
Balance at
beginning of period	830,928	737,922
Net income	53,539	45,297
Dividends on
preferred stock	(1,338)	-
Balance
at end of period	883,129	783,219
Accumulated
Other Comprehensive Income (Loss), net of tax:
Balance at
beginning of period	(34,390)	(27,749)
Other
comprehensive income, net of tax	19,761	44,266
Balance
at end of period	(14,629)	16,517
Total
stockholders' equity	$ 1,859,910	$ 1,786,453
The
accompanying notes are an integral part of these statements.

FIRST BANCORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2016. 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 of the Corporation for the year ended December 31, 2016, which are included in the Corporation’s 2016 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 and six-month period ended June 30, 2017 are not necessarily indicative of the results to be expected for the entire year.

Adoption of new accounting requirements and recently issued but not yet effective accounting requirements

The Financial Accounting Standards Board (“FASB”) has issued the following accounting pronouncements and guidance relevant to the Corporation’s operations:

In May 2014, the FASB updated the Accounting Standards Codification (the “Codification” or the “ASC”) to create a new, principles-based revenue recognition framework. The Update is the culmination of efforts by the FASB and the International Accounting Standards Board to develop a common revenue standard for GAAP and International Financial Reporting Standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance describes a 5-step process that entities can apply to achieve the core principle of revenue recognition and requires disclosures sufficient to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers and the significant judgments used in determining that information. The new framework is effective for public business entities, with certain exceptions provided recently by the SEC staff, for annual periods beginning after December 15, 2017, including interim periods within those reporting periods, as a result of the FASB’s amendment to the standard to defer the effective date by one year. Early adoption is permitted for interim periods beginning after December 15, 2016. While the new guidance does not apply to revenue associated with loans or securities, the Corporation has been working to identify the impact on fees and other non-interest revenues within the scope of the new guidance and assess the related revenues to determine if any accounting or internal control changes will be required for the new provisions. While the Corporation has not yet identified any material changes in the timing of revenue recognition, the Corporation’s review is ongoing.

In March 2016, the FASB updated the Codification to simplify certain aspects of the accounting for share-based payment transactions. The main provisions in this Update include: (i) recognition of all tax benefits and tax deficiencies (including tax benefits of dividends on share-base payment awards) as income tax expense or benefit in the income statement, (ii) classification of the excess tax benefit along with other income tax cash flows as an operating activity, (iii) an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur, (iv) a threshold to qualify for equity classification that permits withholding up to the maximum statutory tax rate in the applicable jurisdictions, and (v) classification of cash paid by an employer as a financing activity when the payment results from the withholding of shares for tax withholding purposes. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Corporation adopted the provisions during the first quarter of 2017 without any material impact on the Corporation’s consolidated financial statements.

In March 2016, the FASB updated the Codification to require an equity method investor to add the cost of acquiring an additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. Also, this Update requires that an entity that has an available-for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership Do not modify beyond this point! !

Do not modify before this point! ! interest or degree of influence that result in the adoption of the equity method. Early application is permitted. The adoption of this guidance during the first quarter of 2017 did not have an impact on the Corporation’s consolidated financial statements.

In October 2016, the FASB updated the Codification to modify the criteria used by a reporting entity when determining if it is the primary beneficiary of a variable interest entity (“VIE”) when the entities are under common control and the reporting entity has indirect interests in the VIE through related parties. If the reporting entity meets the first criteria in that it has the power to direct the activities of the VIE that are most significant to its economic performance, it is required to consider all interests held indirectly through related entities on a proportionate basis in determining if it meets the second criterion, that is, the obligation to absorb losses of the VIE, or the right to receive benefits from it that are potentially significant to the VIE. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this guidance did not have an impact on the Corporation’s consolidated financial statements.

In March 2017, the FASB updated the Codification to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. With respect to securities held at a discount, the amendments do not require an accounting change; thus, the discount continues to be amortized to maturity. Under current GAAP, premiums and discounts on callable debt securities generally are amortized to the maturity date. An entity must have a large number of similar loans to consider estimates of future principal prepayments when applying the interest method. However, an entity that holds an individual callable debt security at a premium may not amortize that premium to the earliest call date. If that callable debt security is subsequently called, the entity records a loss equal to the unamortized premium. The amendments in this Update more closely align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. In most cases, market participants price securities to the call date that produces the worst yield when the coupon is above current market rates (that is, the security is trading at a premium) and price securities to maturity when the coupon is below market rates (that is, the security is trading at a discount) in anticipation that the borrower will act in its economic best interest. As a result, the amendments more closely align interest income recorded on bonds held at a premium or a discount with the economics of the underlying instrument. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The adoption of this guidance is not expected to have a material impact on the Corporation’s statement of financial condition or results of operations. As of June 30, 2017, the Corporation had $ 4.2 million of callable debt securities held at a premium (unamortized premium of $ 0.1 million).

In May 2017, the FASB updated the codification to reduce the cost and complexity when applying ASC Topic 718 and standardize the practice of applying Topic 718 to financial reporting. Topic 718 prescribes the accounting treatment of a modification in the terms or conditions of a share-based payment award. The guidance clarifies what changes would qualify as a modification. This was done by better defining what does not constitute a modification. In order for a change to a share-based arrangement to not require Topic 718 modification treatment, all of the following must be met: (i) the fair value (or alternative measurement method used) of the modified award equals the fair value (or alternative measurement method used) of the original award immediately before the original award is modified, (ii) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (iii) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under this Update. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The amendments in this Update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The Corporation’s Omnibus Plan provides for equity based compensation incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash-based awards and other stock-based awards. If any change occurs in the future to the Omnibus Plan, the Corporation will evaluate it under this guidance.

NOTE 2 – EARNINGS PER COMMON SHARE

	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
(In thousands,
except per share information)
Net income	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Less:
Preferred stock dividends	(669)	-	(1,338)	-
Net income
attributable to common stockholders	$ 27,329	$ 21,953	$ 52,201	$ 45,297
Weighted-Average
Shares:
Average
common shares outstanding	213,900	212,768	213,621	212,558
Average
potential dilutive common shares	2,932	3,155	3,482	2,040
Average
common shares outstanding- assuming dilution	216,832	215,923	217,103	214,598
Earnings
per common share:
Basic	$ 0.13	$ 0.10	$ 0.24	$ 0.21
Diluted	$ 0.13	$ 0.10	$ 0.24	$ 0.21

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, 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 common shares consist of common stock issuable under the assumed exercise of stock options, unvested shares of restricted stock that do not contain non-forfeitable dividend rights, and outstanding warrants using the treasury stock method. This method assumes that the potential common shares are issued and the proceeds from the exercise, in addition to the amount of compensation cost attributable to future services, are used to purchase common stock at the exercise date. The difference between the numbers of potential shares issued and the shares purchased is added as incremental shares to the actual number of shares outstanding to compute diluted earnings per share. Stock options, unvested shares of restricted stock that do not contain non-forfeitable dividend rights, and outstanding warrants that result in lower potential 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. There were no stock options outstanding as of June 30, 2017. Stock options not included in the computation of outstanding shares because they were antidilutive amounted to 39,855 as of June 30, 2016.

NOTE 3 – STOCK-BASED COMPENSATION

As of January 21, 2007, the Corporation’s 1997 stock option plan expired and no additional awards could be granted under that plan. A ll outstanding awards granted under this plan continued in full force and effect since then, subject to their original terms. No awards of shares could be granted under the 1997 stock option plan as of its expiration. During the first quarter of 2017, all of the remaining outstanding awards granted under the 1997 stock option plan expired.

| The activity of stock options granted under the 1997 stock option plan for the

six-month period ended June 30, 2017 is set forth below:
			Weighted-Average
			Remaining	Aggregate
	Number of	Weighted-Average	Contractual Term	Intrinsic Value
	Options	Exercise Price	(Years)	(In thousands)
Beginning of
period outstanding and
exercisable	34,989	$ 138.00
Options expired	(34,989)	138.00
End of period
outstanding and exercisable	-	$ -	-	$ -

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, to extend the term of the Omnibus Plan to May 24, 2026 and to re-approve the material terms of the performance goals under the Omnibus Plan for purposes of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended. The Omnibus Plan provides for equity-based compensation incentives (the “awards”) through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, cash-based awards and other stock-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 June 30, 2017, 7,984,812 shares of common stock were available for issuance under the Omnibus Plan. The Corporation’s Board of Directors, upon receiving the relevant recommendation of the Corporation’s Compensation 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.

Under the Omnibus Plan, during the first half of 2017, the Corporation awarded 3,644 shares of restricted stock that are subject to a one-year vesting period to a new independent director appointed in the first quarter. In addition, during the first half of 2017, the Corporation awarded 951,332 shares of restricted stock to employees subject to a vesting period of two years. Included in those 951,332 shares of restricted stock were 838,332 shares granted in the first quarter of 2017 to certain senior officers consistent with the requirements of the Troubled Asset Relief Program (“TARP”) Interim Final Rule, which permit TARP recipients to grant “long-term restricted stock” without violating the prohibition on paying or accruing a bonus payment, subject to limits on value and certain vesting and non-transferability requirements. On May 10, 2017, the United States Department of U.S. Treasury (the “U.S. Treasury”) announced that it sold all of its remaining 10,291,553 shares of the Corporation’s common stock. As a result of the U.S. Treasury’s sale, the Corporation is no longer subject to the compensation-related restrictions under TARP, which substantially limited the Corporation’s ability to award short-term and long-term incentives to the Corporation’s executives, and the transferability restrictions on the shares of restricted stock held by the senior officers subject to the restrictions lapsed. However, since the U.S. Treasury did not recover the full amount of its original investment under TARP, 2,370,571 outstanding shares of restricted stock held by senior officers were forfeited, resulting in a reduction in the number of common shares outstanding. The U.S. Treasury continues to hold a warrant to purchase 1,285,899 shares of the Corporation’s common stock.

The fair value of the shares of restricted stock granted in the first half of 2017 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 838,332 shares of restricted stock granted under the TARP requirements, the market price was discounted assuming that 50 % of the shares of restricted stock would become freely transferable and the remaining 50 % would be forfeited , resulting in a fair value of $ 2.71 for each share of restricted stock granted under TARP requirements. Since the assumption was correct, the forfeiture resulting from the U.S. Treasury’s sale did not have an impact in the Corporation’s operating results. Also, the Corporation used empirical data to estimate employee terminations; separate groups of employees that have similar historical exercise behavior were considered separately for valuation purposes.

| | The following table summarizes the restricted stock activity in the first half of 2017 under the Omnibus Plan: | | | --- | --- | --- | | | Six-Month Period Ended | | | | June 30, 2017 | | | | Number of shares | Weighted-Average | | | of restricted | Grant Date | | | stock | Fair Value | | Non-vested shares at beginning of year | 4,178,791 | $ 2.58 | | Granted | 954,976 | 3.04 | | Forfeited (1) | (2,383,571) | 2.30 | | Vested (2) | (916,044) | 3.34 | | Non-vested shares at June 30, 2017 | 1,834,152 | $ 2.79 | | (1) | Includes 2,370,571 of outstanding shares of restricted stock, subject to TARP requirements, that were forfeited as a result of the U.S. Treasury's sale of its remaining shares of the Corporation's common stock. | | | (2) | Includes 743,021 shares of restricted stock released from TARP restrictions. | |

For the quarter and six-month period ended June 30, 2017, the Corporation recognized $ 1.0 million and $ 2.0 million, respectively, of stock-based compensation expense related to restricted stock awards, compared to $ 1.0 million and $ 1.9 million for the same periods in 2016, respectively. As of June 30, 2017, there was $ 4.4 million of total unrecognized compensation cost related to non-vested shares of restricted stock. The weighted average period over which the Corporation expects to recognize such cost is 1.4 years.

During the first half of 2016, the Corporation awarded 1,786,137 shares of restricted stock to employees subject to a vesting period of two years. Included in those 1,786,137 shares of restricted stock were 1,546,137 shares granted to certain senior officers consistent with the requirements of TARP. As explained above, the Corporation is no longer subject to the compensation-related restrictions under TARP as a result of the U.S. Treasury’s sale of its remaining shares of the Corporation’s common stock.

The fair value of the shares of restricted stock granted in the first half of 2016 was based on the market price of the Corporation’s outstanding common stock on the date of the grant. For the 1,546,137 shares of restricted stock granted under the TARP requirements, the market price was discounted due to the post-vesting restrictions . For purposes of determining the awards’ fair value, the Corporation assumed that 50 % of the shares of restricted stock would become freely transferable and the remaining 50 % will be forfeited, resulting in a fair value of $ 1.43 for restricted shares granted under the TARP requirements.

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 share-based compensation, as the effect of adjusting the rate for all expense amortization is recognized in the period in which the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then 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. The estimated forfeiture rate did not change as a result of the restricted shares forfeited in connection with the aforementioned U.S. Treasury’s sale of the Corporation’s common stock.

Also, under the Omnibus Plan, effective April 1, 2013, the Corporation’s Board of Directors determined to increase the salary amounts paid to certain executive officers primarily by paying the increased salary amounts in the form of shares of the Corporation’s common stock, instead of cash. During the first half of 2017, the Corporation issued 272,959 shares of common stock (first half of 2016 – 441,942 shares) with a weighted average market value of $ 5.94 (first half of 2016 – $ 3.20 ) as salary stock compensation. This resulted in a compensation expense of $ 1.6 million recorded in the first half of 2017 (first half of 2016 – $ 1.4 million).

For the first half of 2017, the Corporation withheld 90,973 shares (first half of 2016 – 134,949 shares) from the common stock paid to certain senior officers as additional compensation and 235,680 shares of restricted stock that vested during the first half of 2017 (first half of 2016 – 51,754 ) to cover employees’ payroll and income tax withholding liabilities; these shares are held as treasury shares. The Corporation paid any fractional share of salary stock that the officer was entitled to in cash. In the consolidated financial statements, the Corporation treats shares withheld for tax purposes as common stock repurchases.

On June 29, 2017, the Corporation’s Board of Directors upon the recommendation of the Corporation’s Compensation and Benefits Committee, approved a new executive compensation program that, as of July 1, 2017, applies to the Corporation’s executive officers as a result of the aforementioned sale by the U.S. Treasury of its remaining shares of the Corporation’s common stock. The new compensation program for executive officers maintains the current levels of cash salary through calendar year 2017. The payment of additional salary amounts currently paid in the form of stock will continue through the second quarter of 2018 and will be eliminated at such time.

In addition, as a long-term incentive, the new compensation program provides a variable pay opportunity for long-term performance through a combination of performance shares and restricted stock. The aggregate value of the performance shares and restricted stock will be determined based upon a qualitative assessment of the achievement by executives of their individual goals for the prior year and at three different possible aggregate equity valuation levels (minimum threshold, target and maximum). The Corporation’s Board of Directors has determined that 60 % of the long-term incentive award value based upon prior year performance will be in performance shares and 40 % will be in restricted stock with the following terms:

· Performance Shares— the payout of the performance shares will depend upon the achievement of a pre-established corporate tangible book value per share goal at the end of a three-year period. All of the performance shares will vest if performance is at the pre-established performance goal level or above. To the extent that performance is below the target but at or above a pre-defined minimum threshold, a proportionate amount of the performance shares will vest. No performance shares will vest if performance is below the threshold.

· Restricted Stock—Restricted stock will vest over a three-year period as follows: fifty percent ( 50 %) of the shares will vest on the second anniversary date of the grant of the award and the remaining fifty percent ( 50 %) will vest on the third anniversary date of the grant of the award.

The first awards of performance shares are expected to be made in early 2018.

NOTE 4 – INVESTMENT SECURITIES

Investment Securities Available for Sale

The amortized cost, non-credit loss component of other-than-temporary impairment (“OTTI”) recorded in other comprehensive income (“OCI”), gross unrealized gains and losses recorded in OCI, approximate fair value, and weighted average yield of investment securities available for sale by contractual maturities as of June 30, 2017 and December 31, 2016 were as follows:

| | | June 30, 2017 — Amortized cost | Noncredit Loss Component of OTTI Recorded in OCI | | | Fair value | Weighted-average yield% | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Gross Unrealized | | | | | | | | | gains | losses | | | | (Dollars in thousands) | | | | | | | | | U.S. Treasury securities: | | | | | | | | | | After 1 to 5 years | $ 7,443 | $ - | $ - | $ 12 | $ 7,431 | 1.29 | | Obligations of U.S. | | | | | | | | | government-sponsored | | | | | | | | | agencies: | | | | | | | | | Due within one year | | 69,976 | - | - | 107 | 69,869 | 1.04 | | After 1 to 5 years | | 361,964 | - | 171 | 1,875 | 360,260 | 1.37 | | After 5 to 10 years | | 16,943 | - | 29 | 159 | 16,813 | 2.00 | | After 10 years | | 42,592 | - | - | 239 | 42,353 | 1.60 | | Puerto Rico government | | | | | | | | | obligations: | | | | | | | | | After 10 years | | 7,980 | - | 68 | 2,402 | 5,646 | 5.00 | | United States and Puerto Rico | | | | | | | | | government obligations | | 506,898 | - | 268 | 4,794 | 502,372 | 1.42 | | Mortgage-backed securities: | | | | | | | | | FHLMC certificates: | | | | | | | | | After 5 to 10 years | | 21,643 | - | 62 | - | 21,705 | 2.18 | | After 10 years | | 277,351 | - | 489 | 4,054 | 273,786 | 2.18 | | | | 298,994 | - | 551 | 4,054 | 295,491 | 2.18 | | GNMA certificates: | | | | | | | | | After 1 to 5 years | | 94 | - | 2 | - | 96 | 3.33 | | After 5 to 10 years | | 81,006 | - | 1,635 | - | 82,641 | 3.05 | | After 10 years | | 114,213 | - | 8,175 | 21 | 122,367 | 4.35 | | | | 195,313 | - | 9,812 | 21 | 205,104 | 3.81 | | FNMA certificates: | | | | | | | | | Due within one year | | 52 | - | - | - | 52 | 4.04 | | After 1 to 5 years | | 16,949 | - | 475 | - | 17,424 | 2.56 | | After 5 to 10 years | | 19,418 | - | 19 | 191 | 19,246 | 2.01 | | After 10 years | | 646,918 | - | 4,548 | 7,058 | 644,408 | 2.38 | | | | 683,337 | - | 5,042 | 7,249 | 681,130 | 2.37 | | Collateralized mortgage obligations | | | | | | | | | guaranteed by the FHLMC | | | | | | | | | and GNMA: | | | | | | | | | After 5 to 10 years | | 19,074 | - | 23 | - | 19,097 | 1.87 | | After 10 years | | 37,948 | - | 187 | - | 38,135 | 1.89 | | | | 57,022 | - | 210 | - | 57,232 | 1.88 | | Other mortgage pass-through | | | | | | | | | trust certificates: | | | | | | | | | After 10 years | | 24,838 | 6,637 | - | - | 18,201 | 2.40 | | | | 24,838 | 6,637 | - | - | 18,201 | 2.40 | | Total mortgage-backed | | | | | | | | | securities | | 1,259,504 | 6,637 | 15,615 | 11,324 | 1,257,158 | 2.53 | | Other | | | | | | | | | After 1 to 5 years | | 100 | - | - | - | 100 | 1.49 | | Equity Securities (1) | | 419 | - | - | 4 | 415 | 2.08 | | Total investment securities | | | | | | | | | available for sale | | $ 1,766,921 | $ 6,637 | $ 15,883 | $ 16,122 | $ 1,760,045 | 2.21 | | (1) | Equity securities consisted of investment in a Community Reinvestment Act Qualified Investment Fund. | | | | | | |

| | | December 31, 2016 — Amortized cost | Noncredit Loss Component of OTTI Recorded in OCI | | | Fair value | Weighted-average yield% | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Gross Unrealized | | | | | | | | | gains | losses | | | | (Dollars in thousands) | | | | | | | | | U.S. Treasury securities: | | | | | | | | | | Due whithin one year | $ 7,508 | $ - | $ 1 | $ - | $ 7,509 | 0.57 | | Obligations of U.S. | | | | | | | | | government-sponsored | | | | | | | | | agencies: | | | | | | | | | | After 1 to 5 years | 440,438 | - | 142 | 2,912 | 437,668 | 1.33 | | | After 5 to 10 years | 16,942 | - | 9 | 256 | 16,695 | 1.91 | | | After 10 years | 44,145 | - | 8 | 166 | 43,987 | 1.12 | | Puerto Rico government | | | | | | | | | obligations: | | | | | | | | | | After 1 to 5 years | 21,422 | 12,222 | - | - | 9,200 | - | | | After 10 years | 21,245 | 2,028 | 73 | 1,662 | 17,628 | 1.86 | | United States and Puerto Rico | | | | | | | | | government obligations | | 551,700 | 14,250 | 233 | 4,996 | 532,687 | 1.29 | | Mortgage-backed securities: | | | | | | | | | FHLMC certificates: | | | | | | | | | | After 5 to 10 years | 5,908 | - | 72 | - | 5,980 | 2.25 | | | After 10 years | 314,906 | - | 261 | 5,827 | 309,340 | 2.17 | | | | 320,814 | - | 333 | 5,827 | 315,320 | 2.17 | | GNMA certificates: | | | | | | | | | | After 1 to 5 years | 83 | - | 3 | - | 86 | 3.82 | | | After 5 to 10 years | 91,744 | - | 1,635 | 92 | 93,287 | 3.06 | | | After 10 years | 123,548 | - | 9,706 | - | 133,254 | 4.36 | | | | 215,375 | - | 11,344 | 92 | 226,627 | 3.81 | | FNMA certificates: | | | | | | | | | | Due within one year | 152 | - | 2 | - | 154 | 4.71 | | | After 1 to 5 years | 24,409 | - | 435 | - | 24,844 | 2.18 | | | After 5 to 10 years | 17,181 | - | - | 261 | 16,920 | 1.87 | | | After 10 years | 690,625 | - | 4,136 | 9,406 | 685,355 | 2.35 | | | | 732,367 | - | 4,573 | 9,667 | 727,273 | 2.33 | | Collateralized mortgage | | | | | | | | | | obligations issued or guaranteed | | | | | | | | | by the FHLMC and GNMA: | | | | | | | | | After 1 to 5 years | 19,851 | - | 4 | 31 | 19,824 | 1.42 | | | After 10 years | 39,120 | - | - | 132 | 38,988 | 1.44 | | | | 58,971 | - | 4 | 163 | 58,812 | 1.43 | | Other mortgage pass-through | | | | | | | | | trust certificates: | | | | | | | | | | After 10 years | 28,815 | 8,122 | - | - | 20,693 | 2.40 | | Total mortgage-backed securities | | 1,356,342 | 8,122 | 16,254 | 15,749 | 1,348,725 | 2.49 | | Other | | | | | | | | | | After 1 to 5 years | 100 | - | - | - | 100 | 1.50 | | Equity Securities (1) | | 415 | - | - | 7 | 408 | 2.44 | | Total investment securities | | | | | | | | | | available for sale | $ 1,908,557 | $ 22,372 | $ 16,487 | $ 20,752 | $ 1,881,920 | 2.14 | | (1) | Equity securities consisted of investment in a Community Reinvestment Act Qualified Investment Fund. | | | | | | |

Maturities of mortgage-backed securities are based on contractual terms assuming no prepayments. 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 and the noncredit loss component of OTTI are presented as part of OCI.

The following tables show the Corporation’s available-for-sale investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2017 and December 31, 2016. The tables also include debt securities for which an OTTI was recognized and only the amount related to a credit loss was recognized in earnings. For unrealized losses for which OTTI was recognized, the related credit loss was charged against the amortized cost basis of the debt security.

	As of June 30, 2017 — 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	$ -	$ -	$ 1,470	$ 2,402	$ 1,470	$ 2,402
U.S.
Treasury and U.S. government
agencies
obligations	422,548	2,234	27,918	158	450,466	2,392
Mortgage-backed
securities:
FNMA	461,637	7,249	-	-	461,637	7,249
FHLMC	215,527	4,027	867	27	216,394	4,054
GNMA	798	21	-	-	798	21
Other
mortgage pass-through trust
certificates	-	-	18,201	6,637	18,201	6,637
Equity
securities	410	4	-	-	410	4
	$ 1,100,920	$ 13,535	$ 48,456	$ 9,224	$ 1,149,376	$ 22,759
	As of December 31, 2016
	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	$ -	$ -	$ 22,609	$ 15,912	$ 22,609	$ 15,912
U.S.
Treasury and U.S. government
agencies
obligations	469,046	3,334	-	-	469,046	3,334
Mortgage-backed
securities:
FNMA	519,008	9,667	-	-	519,008	9,667
FHLMC	244,839	5,827	-	-	244,839	5,827
GNMA	43,388	92	-	-	43,388	92
Collateralized mortgage obligations
issued or
guaranteed by FHLMC and GNMA	55,309	163	-	-	55,309	163
Other
mortgage pass-through trust
certificates	-	-	20,693	8,122	20,693	8,122
Equity
securities	408	7	-	-	408	7
	$ 1,331,998	$ 19,090	$ 43,302	$ 24,034	$ 1,375,300	$ 43,124

Assessment for OTTI

Debt securities issued by U.S. government agencies, U.S. government-sponsored entities, and the U.S. Treasury accounted for approximately 99 % of the total available-for-sale portfolio as of June 30, 2017 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government. The Corporation’s OTTI assessment was concentrated mainly on private label mortgage-backed securities (“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 exists and the period over which the debt security is expected to recover:

· The length of time and the extent to which the fair value has been less than the amortized cost basis;

· 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 of a security, if any, such as changes in default rates, loss severity given 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 recorded OTTI losses on available-for-sale debt securities as follows:

	June 30,		Six-Month Period Ended — June 30,
	2017	2016	2017	2016
(In thousands)
Total
other-than-temporary impairment losses	$ -	$ -	$ (12,231)	$ (1,845)
Portion of
other-than-temporary impairment recognized in OCI	-	-	-	(4,842)
Net impairment
losses recognized in earnings (1)	$ -	$ -	$ (12,231)	$ (6,687)
(1)	For the
six-month periods ended June 30, 2017 and 2016, approximately $12.2 million
and $6.3 million, respectively, of the credit impairment recognized in
earnings consisted of credit losses on Puerto Rico Government debt securities
that were sold in the second quarter of 2017, as further discussed below. For
the six-month period ended June 30, 2016, $0.4 million of the credit
impairment recognized in earnings was associated with credit losses on
private label MBS.

| The following tables summarize the roll-forward of credit losses on debt securities held by the Corporation for

which a portion of an OTTI is recognized in OCI:
	Cumulative OTTI credit losses recognized
in earnings on securities still held
		Credit impairments	Credit impairments	Credit loss
	March 31,	recognized in earnings	recognized in earnings on	reductions for	June 30,
	2017	on securities not	securities that have been	securities sold	2017
	Balance	previously impaired	previously impaired	during the period	Balance
(In thousands)
Available-for-sale
securities
Puerto Rico
government obligations	$ 34,420	$ -	$ -	$ (34,420)	$ -
Private
label MBS	6,792	-	-	-	6,792
Total OTTI
credit losses for available-for-sale
debt
securities	$ 41,212	$ -	$ -	$ (34,420)	$ 6,792

| | Cumulative OTTI credit losses recognized in earnings on securities still held | Credit impairments | Credit loss | | | --- | --- | --- | --- | --- | | | December 31, | recognized in earnings on | reductions for | June 30, | | | 2016 | securities that have been | securities sold | 2017 | | | Balance | previously impaired | during the period | Balance | | (In thousands) | | | | | | Available-for-sale securities | | | | | | Puerto Rico government obligations | $ 22,189 | $ 12,231 | $ (34,420) | $ - | | Private label MBS | 6,792 | - | - | 6,792 | | Total OTTI credit losses for available-for-sale | | | | | | debt securities | $ 28,981 | $ 12,231 | $ (34,420) | $ 6,792 |

| | Cumulative OTTI credit losses recognized in earnings on securities still held | Credit impairments | Credit impairments | | | --- | --- | --- | --- | --- | | | March 31, | recognized in earnings | recognized in earnings on | June 30, | | | 2016 | on securities not | securities that have been | 2016 | | | Balance | previously impaired | previously impaired | Balance | | (In thousands) | | | | | | Available-for-sale securities | | | | | | Puerto Rico government obligations | $ 22,189 | $ - | $ - | $ 22,189 | | Private label MBS | 6,792 | - | - | 6,792 | | Total OTTI credit losses for available-for-sale | | | | | | debt securities | $ 28,981 | $ - | $ - | $ 28,981 |

| | Cumulative OTTI credit losses recognized in earnings on securities still held | Credit impairments | Credit impairments | | | --- | --- | --- | --- | --- | | | December 31, | recognized in earnings | recognized in earnings on | June 30, | | | 2015 | on securities not | securities that have been | 2016 | | | Balance | previously impaired | previously impaired | Balance | | (In thousands) | | | | | | Available-for-sale securities | | | | | | Puerto Rico government obligations | $ 15,889 | $ - | $ 6,300 | $ 22,189 | | Private label MBS | 6,405 | - | 387 | 6,792 | | Total OTTI credit losses for available-for-sale | | | | | | debt securities | $ 22,294 | $ - | $ 6,687 | $ 28,981 |

During the second quarter of 2017, the Corporation sold for an aggregate of $ 23.4 million three Puerto Rico Government available-for-sale debt securities, specifically bonds of the GDB and the Puerto Rico Public Buildings Authority, carried on its book at an amortized cost at the time of sale of $ 23.0 million (net of $34.4 million in cumulative OTTI impairment charges). This transaction resulted in a $0.4 million recovery from previous OTTI charges reflected in the statement of income as part of “net gain on sale of investments.” Approximately $12.2 million of the cumulative OTTI charges on these securities was recorded in the first quarter of 2017.

For the OTTI charge recorded in the first quarter of 2017, the Corporation considered revised estimates of recovery rates based on the latest available information about the Puerto Rico government’s financial condition, including the downgrade of credit ratings, and the revised fiscal plan published by the Puerto Rico government in March 2017. The Corporation applied a discounted cash flow analysis to its Puerto Rico government debt securities in order to calculate the cash flows expected to be collected and to determine if any portion of the decline in market value of these securities was considered a credit-related other-than-temporary impairment. The analysis derived an estimate of value based on the present value of risk-adjusted cash flows of the underlying securities and included the following components:

· The contractual future cash flows of the bonds were projected based on the key terms as set forth in the official statements for each security. Such key terms include, among others, the interest rate, amortization schedule, if any, and maturity date.

· The risk-adjusted cash flows were calculated based on a probability of default analysis and recovery rate assumptions, including the weighting of different scenarios of ultimate recovery, considering the credit rating of each security. Constant monthly default rates were assumed throughout the life of the bonds, which considered the respective security's credit rating as of the date of the analysis.

· The adjusted future cash flows were then discounted at the original effective yield of each investment based on the purchase price and expected risk-adjusted future cash flows as of the purchase date of each investment.

The discounted risk-adjusted cash flow analysis for the three Puerto Rico government bonds mentioned above assumed a default probability of 100 %, as these three non-performing bonds had been in default since the third quarter of 2016. Based on this analysis, the Corporation recorded in the first quarter of 2017, other-than-temporary credit-related impairment charges amounting to $12.2 million, assuming recovery rates ranging from 15 % to 80 % (with a weighted average of 41 %).

In addition, during the first quarter of 2016, the Corporation recorded a $0.4 million credit-related impairment loss associated with private label MBS, which are collateralized by fixed-rate mortgages on single-family residential properties in the United States. The interest rates on these private-label MBS are variable, tied to 3-month LIBOR and limited to the weighted-average coupon of the underlying collateral. The underlying mortgages are fixed-rate, single-family loans with original high FICO scores (over 700 ) and moderate original loan-to-value ratios (under 80 %), as well as moderate delinquency levels.

Based on the expected cash flows, and since the Corporation does not have the intention to sell the securities and has sufficient capital and liquidity to hold these securities until a recovery of the fair value occurs, only the credit loss component was reflected in earnings. Significant assumptions in the valuation of the private label MBS were as follows:

	As of — June 30, 2017		As of — December 31, 2016
	Weighted		Weighted
	Average	Range	Average	Range
Discount rate	14.3%	14.3%	14.1%	12.88% - 14.43%
Prepayment rate	15.3%	12.5% - 25.0%	13.8%	6.5% - 22.5%
Projected
Cumulative Loss Rate	4%	0.1% - 6.8%	4%	0.2% - 8.6%

Investments Held to Maturity

The amortized cost, gross unrealized gains and losses, approximate fair value, weighted-average yield and contractual maturities of investment securities held to maturity as of June 30, 2017 and December 31, 2016 were as follows:

	June 30, 2017 — Amortized cost			Fair value	Weighted average yield%
		Gross Unrealized
		gains	losses
Puerto Rico
Municipal Bonds:
After 1 to 5
years	$ 4,108	$ -	$ 149	$ 3,959	5.38
After 5 to
10 years	7,628	-	492	7,136	4.25
After 10
years	144,313	-	20,464	123,849	4.94
Total
investment securities
held to
maturity	$ 156,049	$ -	$ 21,105	$ 134,944	4.92

	December 31, 2016 — Amortized cost			Fair value	Weighted average yield%
		Gross Unrealized
		gains	losses
Puerto Rico
Municipal Bonds:
After 1 to 5
years	$ 1,136	$ -	$ 20	$ 1,116	5.38
After 5 to
10 years	10,741	-	718	10,023	4.47
After 10
years	144,313	-	22,693	121,620	4.74
Total
investment securities
held to
maturity	$ 156,190	$ -	$ 23,431	$ 132,759	4.73

The following tables show the Corporation’s held-to-maturity investments’ fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of June 30, 2017 and December 31, 2016:

	As of June 30, 2017 — 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
Municipal Bonds	$ -	$ -	$ 134,944	$ 21,105	$ 134,944	$ 21,105
	As of December 31, 2016
	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
Municipal Bonds	$ -	$ -	$ 132,759	$ 23,431	$ 132,759	$ 23,431

The Corporation determines the fair market value of Puerto Rico Municipal Bonds based on a discounted cash flow analysis using risk-adjusted discount rates. A security with similar characteristics traded in the open market is used as a proxy for each municipal bond. Then the cash flow is discounted at the average spread over the discount curve exhibited by the proxy security at the end of each quarter.

Approximately 70 % of the held-to-maturity municipal bonds were issued by three of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities are independent of the Puerto Rico central government. These obligations typically are not issued in bearer form, nor are they registered with the SEC and are not rated by external credit agencies. In most cases, these bonds have priority over the payment of operating costs and expenses of the municipality, which 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. The PROMESA oversight board has not designated any of the Commonwealth’s 78 municipalities as covered entities under PROMESA. However, while the revised fiscal plan submitted by the Puerto Rico government did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, the plan did call for the gradual elimination of budgetary subsidies provided to municipalities. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from expense, revenue or cash management measures taken to address the Puerto Rico Government’s fiscal and liquidity shortfalls, or measures included in fiscal plans of other government entities, such as the gradual reduction of the Municipal Contribution in Lieu of Taxes (“CILT”) included in the Puerto Rico Electric Power Authority (“PREPA”) fiscal plan and the recently approved GDB Restructuring Support Agreement (the “GDB RSA”). The GDB RSA provides for the restructuring under Title VI of PROMESA of substantial portions of the GDB’s indebtedness, including deposits of municipalities, through the issuance of “Participating Bond Claims” in exchange for the release of GDB from liability relating to the bonds, deposits, letters of credit and guarantees. Given the uncertain impact that the negative fiscal situation of the Puerto Rico central government and the measures taken or to be taken by other government entities may have on municipalities, the Corporation cannot be certain if future impairment charges will be required against these securities.

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 classified as money market investments in the consolidated statements of financial condition. As of June 30, 2017 and December 31, 2016, the Corporation had no outstanding securities held to maturity that were classified as cash and cash equivalents.

NOTE 5 – OTHER 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 an additional investment is required that is calculated as a percentage of total FHLB advances, letters of credit, and the collateralized portion of interest-rate swaps outstanding. The stock is capital stock issued at $ 100 par value. Both stock and cash dividends may be received on FHLB stock.

As of June 30, 2017 and December 31, 2016, the Corporation had investments in FHLB stock with a book value of $ 40.9 million and $ 40.8 million, respectively. The net realizable value is a reasonable proxy for the fair value of these instruments. Dividend income from FHLB stock for the quarters ended June 30, 2017 and 2016 was $ 0.5 million and $ 0.4 million, respectively, and for the six-month periods ended June 30, 2017 and 2016 was $ 0.9 million and $ 0.7 million, respectively.

The shares of FHLB stock owned by the Corporation were issued by the FHLB of New York. 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 Federal Home Loan Banks are all privately capitalized and operated by their member stockholders. The system is supervised by the Federal Housing Finance Agency, which ensures that the Federal Home Loan Banks 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.

The Corporation has other equity securities that do not have a readily available fair value. The carrying value of such securities as of June 30, 2017 and December 31, 2016 was $ 2.2 million.

NOTE 6 – LOANS HELD FOR INVESTMENT

The following table provides information about the loan portfolio held for investment:

	As of June 30,	As of December 31,
	2017	2016
(In thousands)
Residential mortgage
loans, mainly secured by first mortgages	$ 3,282,307	$ 3,296,031
Commercial
loans:
Construction loans	122,093	124,951
Commercial mortgage loans	1,611,730	1,568,808
Commercial and Industrial loans (1)	2,116,756	2,180,455
Total
commercial loans	3,850,579	3,874,214
Finance leases	242,645	233,335
Consumer loans	1,485,645	1,483,293
Loans held for
investment	8,861,176	8,886,873
Allowance for
loan and lease losses	(173,485)	(205,603)
Loans held for
investment, net	$ 8,687,691	$ 8,681,270
(1) As of June
30, 2017 and December 31, 2016, includes $885.1 million and $853.9 million,
respectively, of commercial loans that are secured by real estate but are not
dependent upon the real estate for repayment.

| Loans held for investment on

which accrual of interest income had been discontinued were as follows: — (In thousands)	June 30,	December 31,
	2017	2016
Non-performing
loans:
Residential
mortgage	$ 155,330	$ 160,867
Commercial mortgage	122,035	178,696
Commercial and
Industrial	65,575	146,599
Construction:
Land	10,636	11,026
Construction-commercial	35,520	36,893
Construction-residential	1,235	1,933
Consumer:
Auto loans	12,370	14,346
Finance
leases	1,112	1,335
Other
consumer loans	7,600	8,399
Total
non-performing loans held for investment (1) (2)(3)	$ 411,413	$ 560,094
(1)	As of June 30,
2017 and December 31, 2016, excludes $8.1 million of non-performing loans
held for sale.
(2)	Amount excludes
purchased-credit impaired ("PCI") loans with a carrying value of
approximately $160.4 million and $165.8 million as of June 30, 2017 and
December 31, 2016, respectively, primarily mortgage loans acquired from Doral
Bank in the first quarter of 2015 and from Doral Financial in the second
quarter of 2014, as further discussed below. These loans are not considered
non-performing due to the application of the accretion method, under which
these loans will accrete interest income over the remaining life of the loans
using an estimated cash flow analysis.
(3)	Non-performing
loans exclude $384.2 million and $384.9 million of Troubled Debt
Restructuring ("TDR") loans that are in compliance with modified
terms and in accrual status as of June 30, 2017 and December 31, 2016,
respectively.

Loans in Process of Foreclosure

As of June 30, 2017, the recorded investment of residential mortgage loans collateralized by residential real estate property that are in the process of foreclosure amounted to $ 155.5 million, including $ 23.2 million of loans insured by the FHA or guaranteed by the VA, and $ 19.9 million of PCI loans. The Corporation commences the foreclosure process on residential real estate loans when a borrower becomes 120 days delinquent in accordance with the guidelines 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 (Puerto Rico, Florida and USVI) require the foreclosure to be processed through the state’s court while foreclosure in non-judicial states (BVI) is processed without court intervention. Foreclosure timelines vary according to state law and investor guidelines. Occasionally, foreclosures may be delayed due to mandatory mediations, bankruptcy, court delays and title issues, among other reasons.

| The Corporation’s aging of the loans

held for investment portfolio is as follows:
					Purchased Credit-Impaired Loans		Total loans held for investment	90 days past due and still accruing
	30-59 Days Past Due	60-89 Days Past Due	90 days or more Past Due (1)	Total Past Due
As of June
30, 2017
(In thousands)						Current
Residential
mortgage:
FHA/VA and
other government-guaranteed loans (2) (3) (4)	$ -	$ 5,997	$ 69,580	$ 75,577	$ -	$ 41,230	$ 116,807	$ 69,580
Other
residential mortgage loans (4)	-	86,986	173,091	260,077	156,202	2,749,221	3,165,500	17,761
Commercial:
Commercial
and Industrial loans	2,740	163	71,288	74,191	-	2,042,565	2,116,756	5,713
Commercial
mortgage loans (4)	-	2,791	127,947	130,738	4,166	1,476,826	1,611,730	5,912
Construction:
Land (4)	-	223	11,043	11,266	-	19,259	30,525	407
Construction-commercial	-	-	35,520	35,520	-	46,851	82,371	-
Construction-residential	-	-	1,235	1,235	-	7,962	9,197	-
Consumer:
Auto loans	49,248	10,900	12,370	72,518	-	774,292	846,810	-
Finance
leases	7,840	1,743	1,112	10,695	-	231,950	242,645	-
Other
consumer loans	7,483	5,725	11,393	24,601	-	614,234	638,835	3,793
Total
loans held for investment	$ 67,311	$ 114,528	$ 514,579	$ 696,418	$ 160,368	$ 8,004,390	$ 8,861,176	$ 103,166
_____________
(1)	Includes
non-performing loans and accruing loans that are 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 or guaranteed by the VA as past-due loans 90 days and still
accruing as opposed to non-performing loans since the principal repayment is
insured. These balances include $29.2 million of residential mortgage loans
insured by the FHA or guaranteed by the VA that are over 15 months
delinquent, and are no longer accruing interest as of June 30, 2017.
(3)	As of June 30,
2017, includes $40.4 million of defaulted loans collateralizing Government
National Mortgage Association ("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 two or more monthly payments. FHA/VA
government-guaranteed loans, other residential mortgage loans, commercial
mortgage loans, and land loans past due 30-59 days as of June 30, 2017
amounted to $6.1 million, $122.2 million, $16.5 million and $0.3 million,
respectively.

| As of

December 31, 2016 — (In thousands)		60-89 Days Past Due	90 days or more Past Due (1)	Total Past Due	Purchased Credit- Impaired Loans	Current	Total loans held for investment	90 days past due and still accruing
Residential
mortgage:
FHA/VA and
other government-guaranteed loans (2) (3) (4)	$ -	$ 5,179	$ 77,052	$ 82,231	$ -	$ 44,627	$ 126,858	$ 77,052
Other
residential mortgage loans (4)	-	94,004	177,568	271,572	162,676	2,734,925	3,169,173	16,701
Commercial:
Commercial
and Industrial loans	14,195	3,724	151,967	169,886	-	2,010,569	2,180,455	5,368
Commercial
mortgage loans (4)	-	4,534	181,977	186,511	3,142	1,379,155	1,568,808	3,281
Construction:
Land (4)	-	436	11,504	11,940	-	19,826	31,766	478
Construction-commercial	-	-	36,893	36,893	-	40,582	77,475	-
Construction-residential (4)	-	-	1,933	1,933	-	13,777	15,710	-
Consumer:
Auto loans	57,142	13,523	14,346	85,011	-	762,947	847,958	-
Finance
leases	7,714	1,671	1,335	10,720	-	222,615	233,335	-
Other
consumer loans	7,675	5,254	12,328	25,257	-	610,078	635,335	3,929
Total
loans held for investment	$ 86,726	$ 128,325	$ 666,903	$ 881,954	$ 165,818	$ 7,839,101	$ 8,886,873	$ 106,809
____________
(1)	Includes
non-performing loans and accruing loans that are 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 or guaranteed by the VA as past-due loans 90 days and still
accruing as opposed to non-performing loans since the principal repayment is
insured. These balances include $29.3 million of residential mortgage loans
insured by the FHA or guaranteed by the VA that are over 15 months
delinquent, and are no longer accruing interest as of December 31, 2016.
(3)	As of December
31, 2016, includes $43.7 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 two or more monthly payments. FHA/VA
government-guaranteed loans, other residential mortgage loans, commercial
mortgage loans, land loans and construction-residential loans past due 30-59
days as of December 31, 2016 amounted to $9.9 million, $142.8 million, $4.6
million, $0.7 million and $0.4 million, respectively.

| The Corporation’s credit quality indicators by loan type as of June 30, 2017 and December 31, 2016 are

summarized below:
	Commercial Credit Exposure-Credit Risk
Profile Based on Creditworthiness Category:
	Substandard	Doubtful	Loss	Total Adversely Classified (1)	Total Portfolio
June 30,
2017
(In thousands)
Commercial
mortgage	$ 155,429	$ 13,716	$ -	$ 169,145	$ 1,611,730
Construction:
Land	18,942	-	-	18,942	30,525
Construction-commercial	35,520	-	-	35,520	82,371
Construction-residential	1,236	-	-	1,236	9,197
Commercial and
Industrial	139,501	3,045	166	142,712	2,116,756
	Commercial Credit Exposure-Credit Risk
Profile Based on Creditworthiness Category:
	Substandard	Doubtful	Loss	Total Adversely Classified (1)	Total Portfolio
December 31,
2016
(In thousands)
Commercial
mortgage	$ 193,391	$ 35,416	$ -	$ 228,807	$ 1,568,808
Construction:
Land	19,345	-	-	19,345	31,766
Construction-commercial	36,893	-	-	36,893	77,475
Construction-residential	1,933	-	-	1,933	15,710
Commercial and
Industrial	133,599	67,996	784	202,379	2,180,455
_________
(1)	Excludes $8.1
million as of June 30, 2017 and December 31, 2016, of construction-land
non-performing loans held for sale.

The Corporation considers a loan as adversely classified if its risk rating is Substandard, Doubtful or Loss. These categories are defined as follows:

Substandard- A Substandard asset is 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 the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. 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 basically worthless asset even though partial recovery may be affected in the future. There is little or no prospect for near term improvement and no realistic strengthening action of significance pending.


	Residential Real Estate		Consumer
June 30,
2017	FHA/VA/ Guaranteed (1)	Other residential loans	Auto	Finance Leases	Other Consumer
(In thousands)
Performing	$ 116,807	$ 2,853,968	$ 834,440	$ 241,533	$ 631,235
Purchased
Credit-Impaired (2)	-	156,202	-	-	-
Non-performing	-	155,330	12,370	1,112	7,600
Total	$ 116,807	$ 3,165,500	$ 846,810	$ 242,645	$ 638,835
(1)	It is the
Corporation's policy to report delinquent residential mortgage loans insured
by the FHA or guaranteed by the VA as past due loans 90 days and still
accruing as opposed to non-performing loans since the principal repayment is
insured. This balance includes $29.2 million of residential mortgage loans insured
by the FHA or guaranteed by the VA that are over 15 months delinquent, and
are no longer accruing interest as of June 30, 2017.
(2)	PCI loans are
excluded from non-performing statistics due to the application of the
accretion method, under which these loans will accrete interest income over
the remaining life of the loans using estimated cash flow analysis.
	Consumer Credit Exposure-Credit Risk
Profile based on Payment activity
	Residential Real Estate		Consumer
December 31,
2016	FHA/VA/ Guaranteed (1)	Other residential loans	Auto	Finance Leases	Other Consumer
(In thousands)
Performing	$ 126,858	$ 2,845,630	$ 833,612	$ 232,000	$ 626,936
Purchased
Credit-Impaired (2)	-	162,676	-	-	-
Non-performing	-	160,867	14,346	1,335	8,399
Total	$ 126,858	$ 3,169,173	$ 847,958	$ 233,335	$ 635,335
(1)	It is the
Corporation's policy to report delinquent residential mortgage loans insured
by the FHA or guaranteed by the VA as past due loans 90 days and still
accruing as opposed to non-performing loans since the principal repayment is
insured. This balance includes $29.3 million of residential mortgage loans insured
by the FHA or guaranteed by the VA that are over 15 months delinquent, and
are no longer accruing interest as of December 31, 2016.
(2)	PCI loans are
excluded from non-performing statistics due to the application of the
accretion method, under which these loans will accrete interest income over
the remaining life of the loans using estimated cash flow analysis.

The following tables present information about impaired loans, excluding PCI loans, which are reported separately, as discussed below:

| Impaired

Loans
					Quarter Ended		Six-Month Period Ended
					June 30, 2017
	Recorded Investment	Unpaid Principal Balance	Related Specific Allowance	Year-To-Date Average Recorded Investment	Interest Income Recognized on Accrual
Basis	Interest Income Recognized on Cash Basis	Interest Income Recognized on Accrual
Basis	Interest Income Recognized on Cash Basis
(In thousands)
As of June
30, 2017
With no
related specific allowance recorded:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ -
Other
residential mortgage loans	67,726	86,962	-	69,236	124	140	211	250
Commercial:
Commercial
mortgage loans	25,449	29,883	-	25,679	195	56	389	132
Commercial
and Industrial Loans	8,343	10,841	-	13,098	72	-	135	-
Construction:
Land	-	-	-	-	-	-	-	-
Construction-commercial	-	-	-	-	-	-	-	-
Construction-residential	-	-	-	-	-	-	-	-
Consumer:
Auto loans	311	311	-	1,230	1	-	1	-
Finance
leases	-	-	-	-	-	-	-	-
Other
consumer loans	1,403	2,575	-	1,513	2	23	8	44
	$ 103,232	$ 130,572	$ -	$ 110,756	$ 394	$ 219	$ 744	$ 426
With a
related specific allowance recorded:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ -
Other
residential mortgage loans	360,985	404,824	13,786	363,518	4,430	245	8,894	599
Commercial:
Commercial
mortgage loans	115,172	173,665	8,330	136,370	246	26	492	47
Commercial
and Industrial Loans	66,559	87,907	10,788	70,293	181	20	360	37
Construction:
Land	14,650	19,953	835	14,849	117	13	234	25
Construction-commercial	35,520	38,595	1,457	36,295	-	-	-	-
Construction-residential	387	551	82	390	-	-	-	-
Consumer:
Auto loans	23,683	23,683	3,736	25,116	477	-	930	-
Finance
leases	2,492	2,492	69	2,705	48	-	100	-
Other
consumer loans	12,945	13,513	1,711	13,512	358	12	693	24
	$ 632,393	$ 765,183	$ 40,794	$ 663,048	$ 5,857	$ 316	$ 11,703	$ 732
Total:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -	$ -	$ -	$ -	$ -
Other
residential mortgage loans	428,711	491,786	13,786	432,754	4,554	385	9,105	849
Commercial:
Commercial
mortgage loans	140,621	203,548	8,330	162,049	441	82	881	179
Commercial
and Industrial Loans	74,902	98,748	10,788	83,391	253	20	495	37
Construction:
Land	14,650	19,953	835	14,849	117	13	234	25
Construction-commercial	35,520	38,595	1,457	36,295	-	-	-	-
Construction-residential	387	551	82	390	-	-	-	-
Consumer:
Auto loans	23,994	23,994	3,736	26,346	478	-	931	-
Finance
leases	2,492	2,492	69	2,705	48	-	100	-
Other
consumer loans	14,348	16,088	1,711	15,025	360	35	701	68
	$ 735,625	$ 895,755	$ 40,794	$ 773,804	$ 6,251	$ 535	$ 12,447	$ 1,158

Impaired Loans	Recorded Investment	Unpaid Principal Balance	Related Specific Allowance	Year-To-Date Average Recorded Investment
(In thousands)
As of
December 31, 2016
With no related
specific allowance recorded:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -
Other
residential mortgage loans	67,996	82,602	-	71,003
Commercial:
Commercial
mortgage loans	72,620	91,685	-	80,713
Commercial
and Industrial Loans	14,656	24,642	-	17,209
Construction:
Land	180	233	-	212
Construction-commercial	-	-	-	-
Construction-residential	956	1,531	-	956
Consumer:
Auto loans	599	599	-	615
Finance
leases	94	94	-	95
Other
consumer loans	4,516	5,876	-	4,696
	$ 161,617	$ 207,262	$ -	$ 175,499
With a
related specific allowance recorded:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -
Other
residential mortgage loans	374,271	423,648	8,633	380,273
Commercial:
Commercial
mortgage loans	121,771	133,883	26,172	122,609
Commercial
and Industrial Loans	138,887	165,399	22,638	149,153
Construction:
Land	14,870	19,918	947	15,589
Construction-commercial	36,893	38,721	324	38,191
Construction-residential	392	551	134	392
Consumer:
Auto loans	24,276	24,276	3,717	26,562
Finance
leases	2,553	2,553	71	2,751
Other
consumer loans	12,375	12,734	1,785	13,322
	$ 726,288	$ 821,683	$ 64,421	$ 748,842
Total:
FHA/VA-Guaranteed loans	$ -	$ -	$ -	$ -
Other
residential mortgage loans	442,267	506,250	8,633	451,276
Commercial:
Commercial
mortgage loans	194,391	225,568	26,172	203,322
Commercial
and Industrial Loans	153,543	190,041	22,638	166,362
Construction:
Land	15,050	20,151	947	15,801
Construction-commercial	36,893	38,721	324	38,191
Construction-residential	1,348	2,082	134	1,348
Consumer:
Auto loans	24,875	24,875	3,717	27,177
Finance
leases	2,647	2,647	71	2,846
Other
consumer loans	16,891	18,610	1,785	18,018
	$ 887,905	$ 1,028,945	$ 64,421	$ 924,341
Interest income
of approximately $7.4 million ($6.8 million accrual basis and $0.6 million
cash basis) and $14.7 million ($13.2 million accrual basis and $1.5 million
cash basis) was recognized on impaired loans for the second quarter and
six-month period ended June 30, 2016, respectively.

| The following tables show the activity for impaired loans and the related specific reserve for the quarters

and six-month periods ended June 30, 2017 and 2016:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
(In thousands)
Impaired
Loans:
Balance at
beginning of period	$ 807,198	$ 917,591	$ 887,905	$ 806,509
Loans
determined impaired during the period	18,976	76,947	38,604	234,931
Charge-offs (1)	(43,083)	(11,249)	(60,487)	(19,601)
Loans sold,
net of charge-offs	-	-	(53,245)	-
Increases to
impaired loans-additional disbursements	698	414	1,239	1,761
Foreclosures	(21,233)	(9,189)	(30,690)	(16,610)
Loans no
longer considered impaired	(1,890)	(4,547)	(2,782)	(24,886)
Paid in full
or partial payments	(25,041)	(16,193)	(44,919)	(28,330)
Balance at
end of period	$ 735,625	$ 953,774	$ 735,625	$ 953,774
(1)	For the
six-month period ended June 30, 2017, includes a charge-off of $10.7 million
related to the sale of the PREPA credit line as further discussed below.

	Quarter Ended — June 30,		Six-Month Period Ended — June 30,
	2017	2016	2017	2016
(In thousands)
Specific
Reserve:
Balance at
beginning of period	$ 66,311	$ 81,495	$ 64,421	52,581
Provision
for loan losses	17,563	16,126	36,195	53,392
Net
charge-offs	(43,080)	(11,249)	(59,822)	(19,601)
Balance
at end of period	$ 40,794	$ 86,372	$ 40,794	$ 86,372

Purchased Credit Impaired ( PCI) Loans

The Corporation acquired PCI loans accounted for under ASC 310-30 as part of a transaction that closed on February 27, 2015 in which FirstBank acquired 10 Puerto Rico branches of Doral Bank, and acquired certain assets, including PCI loans, and assumed deposits, through an alliance with Banco Popular of Puerto Rico, which was the successful lead bidder with the FDIC on the failed Doral Bank, as well as other co-bidders. The Corporation also acquired PCI loans in previously completed asset acquisitions that are accounted for under ASC 310-30. These previous transactions include the acquisition from Doral Financial in the second quarter of 2014 of all its rights, title and interest in first and second residential mortgages loans in full satisfaction of secured borrowings owed by such entity to FirstBank.

Under ASC 310-30, the acquired PCI loans were aggregated into pools based on similar characteristics (i.e. delinquency status, loan terms). Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. Since the loans are accounted for by the Corporation under ASC 310-30, they are not considered non-performing and will continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash flows expected to be collected. The Corporation recognizes additional losses on this portfolio when it is probable that the Corporation will be unable to collect all cash flows expected as of the acquisition date plus additional cash flows expected to be collected arising from changes in estimates after the acquisition date.

| The carrying

amount of PCI loans were as follows:
	As of
	June 30,	December 31,
	2017	2016
(In thousands)
Residential
mortgage loans	$ 156,202	$ 162,676
Commercial
mortgage loans	4,166	3,142
Total PCI loans	$ 160,368	$ 165,818
Allowance for
loan losses	(9,446)	(6,857)
Total PCI
loans, net of allowance for loan losses	$ 150,922	$ 158,961

| The following tables present PCI loans by past due status as of June 30, 2017 and December 31, 2016: — As of June

30, 2017	30-59 Days	60-89 Days	90 days or more	Total Past Due		Total PCI loans
					Current
(In thousands)
Residential
mortgage loans	$ -	$ 11,733	$ 26,968	$ 38,701	$ 117,501	$ 156,202
Commercial
mortgage loans	-	115	1,112	1,227	2,939	4,166
Total (1)	$ -	$ 11,848	$ 28,080	$ 39,928	$ 120,440	$ 160,368
_____________
(1)	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 and
commercial mortgage loans are considered past due when the borrower is in
arrears two or more monthly payments. PCI residential mortgage loans and
commercial mortgage loans past due 30-59 days as of June 30, 2017 amounted to
$17.7 million and $1.5 million, respectively.
As of
December 31, 2016	30-59 Days	60-89 Days	90 days or more	Total Past Due		Total PCI loans
					Current
(In thousands)
Residential
mortgage loans	$ -	$ 11,892	$ 27,849	$ 39,741	$ 122,935	$ 162,676
Commercial
mortgage loans	-	355	1,150	1,505	1,637	3,142
Total (1)	$ -	$ 12,247	$ 28,999	$ 41,246	$ 124,572	$ 165,818
(1)	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 and commercial mortgage loans are considered past due when the
borrower is in arrears two or more monthly payments. PCI residential mortgage
loans and commercial mortgage loans past due 30-59 days as of December 31,
2016 amounted to $22.3 million and $0.1 million, respectively.

Initial Fair Value and Accretable Yield of PCI Loans

At acquisition, the Corporation estimated the cash flows the Corporation expected to collect on PCI loans. Under the accounting guidance for PCI loans, the difference between the contractually required payments and the cash flows expected to be collected at acquisition is referred to as the non-accretable difference. This difference is neither accreted into income nor recorded on the Corporation’s consolidated statement of financial condition. The excess of cash flows expected to be collected over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loans, using the effective-yield method.

Changes in accretable yield of acquired loans

Subsequent to an acquisition of loans, the Corporation is required to periodically evaluate its estimate of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Subsequent changes in the estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications from non-accretable yield to accretable yield. Increases in the cash flows expected to be collected will generally result in an increase in interest income over the remaining life of the loan or pool of loans. Decreases in expected cash flows due to further credit deterioration will generally result in an impairment charge recognized in the Corporation’s provision for loan and lease losses, resulting in an increase to the allowance for loan losses. During the second quarter of 2017, the Corporation increased by $2.6 million to $9.4 million the reserve related to PCI loans acquired from Doral Financial in 2014 and from Doral Bank in 2015. The reserve is driven by the revisions to the expected cash flows of the portfolios for the remaining term of the loan pools based on expected performance and market conditions.

| Changes in the accretable yield of PCI loans for the quarters and six-month periods ended

June 30, 2017 and 2016 were as follows:	Quarter Ended		Six-Month Period Ended
	June 30,	June 30,	June 30,	June 30,
	2017	2016	2017	2016
(In thousands)
Balance at
beginning of period	$ 113,665	$ 114,098	$ 116,462	$ 118,385
Accretion
recognized in earnings	(2,724)	(2,927)	(5,521)	(5,816)
Reclassification
(to) from non-accretable	(1,970)	11,008	(1,970)	9,610
Balance at
end of period	$ 108,971	$ 122,179	$ 108,971	$ 122,179

| Changes in the carrying amount of loans accounted for pursuant to ASC 310-30 were as

follows:	Quarter Ended		Six-Month Period Ended
	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
(In thousands)
Balance at
beginning of period	$ 163,100	$ 172,332	$ 165,818	$ 173,913
Accretion	2,724	2,927	5,521	5,816
Collections	(4,509)	(4,581)	(9,102)	(8,952)
Foreclosures	(947)	(988)	(1,869)	(1,087)
Ending
balance	$ 160,368	$ 169,690	$ 160,368	$ 169,690
Allowance for
loan losses	(9,446)	(6,857)	(9,446)	(6,857)
Ending
balance, net of allowance for loan losses	$ 150,922	$ 162,833	$ 150,922	$ 162,833

| Changes in the

allowance for loan losses related to PCI loans follows:	Quarter Ended		Six-Month Period Ended
	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
(In thousands)
Balance at
beginning of period	$ 6,857	$ 4,568	$ 6,857	$ 3,962
Provision for
loan losses	2,589	2,289	2,589	2,895
Balance at end
of period	$ 9,446	$ 6,857	$ 9,446	$ 6,857

The outstanding principal balance of PCI loans, including amounts charged off by the Corporation, amounted to $ 200.1 million as of June 30, 2017 (December 2016 - $ 207.3 million).

Purchases and Sales of Loans

During the first half of 2017, the Corporation purchased $ 32.4 million of residential mortgage loans consistent with a strategic program to purchase ongoing residential mortgage loan production from mortgage bankers in Puerto Rico. Generally, the loans purchased from mortgage bankers were conforming residential mortgage loans. Purchases of conforming residential mortgage loans provide the Corporation the flexibility to retain or sell the loans, including through securitization transactions, depending upon the Corporation’s interest rate risk management strategies. When the Corporation sells such loans, it generally keeps the servicing of the loans.

In the ordinary course of business, the Corporation sells residential mortgage loans (originated or purchased) to GNMA and government-sponsored entities (“GSEs”) such as Fannie Mae (“FNMA”) and Freddie Mac (“FHLMC”), which generally securitize the transferred loans into mortgage-backed securities for sale into the secondary market. The Corporation sold approximately $ 52.8 million of performing residential mortgage loans to FNMA and FHLMC during the first half of 2017. Also, during the first half of 2017, the Corporation sold $ 131.8 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities. The Corporation’s continuing involvement in these sold loans consists primarily of servicing the loans. In addition, the Corporation agreed to repurchase loans when 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 statement of financial condition regardless of the Corporation’s intent to repurchase the loan.

During the first half of 2017 and 2016, the Corporation repurchased, pursuant to its repurchase option with GNMA, $ 17.5 million and $ 14.6 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 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. The Corporation generally remediates any breach of representations and warranties related to the underwriting of such loans according to established GNMA guidelines without incurring losses. The Corporation does not maintain a liability for estimated losses as a result of breaches in representations and warranties.

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 $ 16 thousand and $ 0.7 million during the first half of 2017 and 2016, 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. No losses related to breaches of representations and warranties were incurred in the first half of 2017. Historically, losses experienced on these loans have been immaterial. As a consequence, as of June 30, 2017, the Corporation does not maintain a liability for estimated losses on loans expected to be repurchased as a result of breaches in loan and servicer representations and warranties.

In addition, during the first six months of 2017, the Corporation purchased a $ 15.3 million participation in a commercial and industrial loan of which $ 6.5 million was outstanding as of June 30, 2017.

Sale of the Puerto Rico Electric Power Authority (PREPA) Loan

During the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $ 64 million at the time of sale (principal balance of $ 75 million), thereby reducing its direct exposure to the Puerto Rico government. A specific reserve of approximately $ 10.2 million had been allocated to this loan. Gross proceeds from the sale of $ 53.2 million have resulted in an incremental loss of $ 0.6 million recorded as a charge to the provision for loan and lease losses.

Loan Portfolio Concentration

The Corporation’s primary lending area is Puerto Rico. The Corporation’s banking subsidiary, First Bank, 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 Do not modify beyond this point! !

Do not modify before this point! ! $8.9 billion as of June 30, 2017, approximately 76 % have credit risk concentration in Puerto Rico, 17 % in the United States, and 7 % in the USVI and BVI.

As of June 30, 2017, the Corporation had $ 57.4 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $ 133.6 million outstanding as of December 31, 2016. As mentioned above, during the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government. Approximately $ 34.8 million of the outstanding loans consisted of loans extended to municipalities in Puerto Rico, which in most cases are supported by assigned property tax revenues. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of the Puerto Rico central government. These 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. Late in 2015, the GDB and the Municipal Revenue Collection Center (CRIM) signed and perfected a deed of trust. Through this deed, the GDB, 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. Approximately $ 6.8 million of the outstanding loans as of June 30, 2017 consisted of a loan to a unit of the central government, and approximately $ 15.8 million consisted of a loan to an affiliate of a public corporation.

Furthermore, as of June 30, 2017, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the Puerto Rico Tourism Development Fund (“TDF”) with an outstanding principal balance of $ 127.6 million (book value $ 80.5 million), compared to $ 127.7 million outstanding (book value of $ 111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $ 3.4 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $ 29.7 million on these facilities. The largest of these three loans became over 90 days matured and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. Upon completion of the agreement, which is linked in part to the GDB’s RSA recently approved by the PROMESA oversight board, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans thus, any decline in the collateral valuations may require additional impairments on these loans. As of June 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 56 % of unpaid principal balance.

In addition, the Corporation had $ 117.4 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority. Residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority 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 guaranteed under the mortgage loans insurance program. According to the most recently released audited financial statements of the Puerto Rico Housing Financing Authority, as of June 30, 2015, the Puerto Rico Housing Finance Authority’s mortgage loans insurance program covered loans in an aggregate of approximately $ 552 million. The regulations adopted by the Puerto Rico Housing Finance Authority require the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance fund. As of June 30, 2015, the most recent date as to which information is available, the Puerto Rico Housing Finance Authority had a restricted net position for such purposes of approximately $ 77.4 million.

The Corporation also has credit exposure to USVI government entities. As of June 30, 2017 the Corporation had $ 85.2 million in loans to USVI government instrumentalities and public corporations, compared to $ 84.7 million as of December 31, 2016. Of the amount outstanding as of June 30, 2017, approximately $ 62.0 million corresponds to public corporations of the USVI and $ 23.2 million corresponds to an independent instrumentality of the USVI government. All loans are currently performing and up to date with its principal and interest payments.

The Corporation cannot predict at this time the impact that the current fiscal situation of the Commonwealth of Puerto Rico, the uncertainty about 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 will have on the Puerto Rico economy, the Corporation’s clients, and on the Corporation’s financial condition and results of operations.

Troubled Debt Restructurings

Do not modify before this point! ! 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 June 30, 2017, the Corporation’s total TDR loans held for investment of $568.5 million consisted of $368.5 million of residential mortgage loans, $65.9 million of commercial and industrial loans, $50.1million of commercial mortgage loans, $ 45.0 million of construction loans, and $ 39.0 million of consumer loans. Outstanding unfunded commitments on TDR loans amounted to $ 4.6 million as of June 30, 2017.

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 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 loan 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, properties are 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 June 30, 2017, we classified an additional $ 2.8 million of residential mortgage loans as TDRs 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 commercial loans could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that would be considered a concession. The Corporation mitigates loan defaults for its commercial loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of commercial loans. 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 primarily have one-year terms and, therefore, are required to be renewed annually. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, 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 are not considered to be concessions, and the loans continue to be recorded as performing.

| Selected information on TDR loans that includes the recorded investment by loan class and modification type is summarized in the following tables. This information reflects all

TDRs:
	June 30, 2017
	Interest rate below market	Maturity or term extension	Combination of reduction in interest rate
and extension of maturity	Forgiveness of principal and/or interest	Other (1)	Total
(In thousands)
Troubled Debt
Restructurings:
Non-FHA/VA
Residential Mortgage loans	$ 26,636	$ 8,347	$ 273,798	$ -	$ 59,724	$ 368,505
Commercial
Mortgage Loans	6,625	2,157	30,796	-	10,487	50,065
Commercial
and Industrial Loans	2,146	4,444	15,372	861	43,063	65,886
Construction
Loans:
Land	-	6,667	2,190	-	324	9,181
Construction-commercial	-	-	-	35,520	-	35,520
Construction-residential	-	-	-	-	352	352
Consumer
Loans - Auto	-	1,488	14,949	-	7,557	23,994
Finance
Leases	-	284	2,208	-	-	2,492
Consumer
Loans - Other	419	2,295	7,780	224	1,830	12,548
Total
Troubled Debt Restructurings	$ 35,826	$ 25,682	$ 347,093	$ 36,605	$ 123,337	$ 568,543
(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
the concessions listed in the table.

| | Interest rate below market | Maturity or term extension | Combination of reduction in interest rate and extension of maturity | Forgiveness of principal and/or interest | Other (1) | Total | | --- | --- | --- | --- | --- | --- | --- | | (In thousands) | | | | | | | | Troubled Debt Restructurings: | | | | | | | | Non-FHA/VA Residential Mortgage loans | $ 29,254 | $ 8,373 | $ 280,588 | $ - | $ 57,594 | $ 375,809 | | Commercial Mortgage Loans | 6,044 | 2,007 | 30,005 | - | 10,686 | 48,742 | | Commercial and Industrial Loans | 2,111 | 66,830 | 16,359 | 863 | 47,358 | 133,521 | | Construction Loans: | | | | | | | | Land | - | 6,735 | 2,219 | - | 408 | 9,362 | | Construction-commercial | - | - | - | 36,893 | - | 36,893 | | Construction-residential | - | - | - | - | 357 | 357 | | Consumer Loans - Auto | - | 1,706 | 14,698 | - | 8,471 | 24,875 | | Finance Leases | - | 366 | 2,281 | - | - | 2,647 | | Consumer Loans - Other | 236 | 2,518 | 9,662 | 299 | 2,127 | 14,842 | | Total Troubled Debt Restructurings | $ 37,645 | $ 88,535 | $ 355,812 | $ 38,055 | $ 127,001 | $ 647,048 | | (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 the concessions listed in the table. | | | | | |

| | The following table presents the Corporation's TDR loans activity: — Quarter Ended | | Six-Month Period Ended | | | --- | --- | --- | --- | --- | | | June 30, | | June 30, | | | | 2017 | 2016 | 2017 | 2016 | | (In thousands) | | | | | | Beginning balance of TDRs | $ 602,364 | $ 659,104 | $ 647,048 | $ 661,591 | | New TDRs | 13,368 | 34,260 | 54,267 | 50,479 | | Increases to existing TDRs - additional | | | | | | disbursements | 330 | 355 | 754 | 1,056 | | Charge-offs post modification (1) | (9,365) | (4,632) | (24,027) | (10,454) | | Sales, net of charge-offs | - | - | (53,245) | - | | Foreclosures | (16,150) | (4,579) | (20,521) | (7,400) | | Removed from the TDR classification | - | (3,031) | - | (3,031) | | Paid-off and partial payments | (22,004) | (10,486) | (35,733) | (21,250) | | Ending balance of TDRs | $ 568,543 | $ 670,991 | $ 568,543 | $ 670,991 | | (1) | For the six-month period ended June 30, 2017, includes a charge off of $10.7 million related to the sale of the PREPA credit line. | | | |

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 loan had demonstrated performance prior to the restructuring and payment in full under the restructured terms is expected. Otherwise, loans on nonaccrual 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 non-performing 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, or an impaired loan in the calendar years subsequent to the restructuring, if it is in compliance with its modified terms. During the first half of 2016, the Corporation removed a $3.0 million loan from the TDR classification as the borrower was no longer experiencing financial difficulties, and the loan was refinanced at market terms and does not contain any concession to the borrower.

| The following table provides a breakdown

between accrual and nonaccrual status of TDR loans:
	As of June 30, 2017
	Accrual	Nonaccrual (1)	Total TDRs
(In
thousands)
Non-FHA/VA Residential Mortgage loans	$ 293,889	$ 74,616	$ 368,505
Commercial Mortgage Loans	33,406	16,659	50,065
Commercial and Industrial Loans	19,400	46,486	65,886
Construction Loans:
Land	7,627	1,554	9,181
Construction-commercial	-	35,520	35,520
Construction-residential	-	352	352
Consumer
Loans - Auto	16,326	7,668	23,994
Finance
Leases	2,381	111	2,492
Consumer
Loans - Other	11,143	1,405	12,548
Total
Troubled Debt Restructurings	$ 384,172	$ 184,371	$ 568,543
(1)	Included in
non-accrual loans are $47.2 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.

	Accrual	Nonaccrual (1)	Total TDRs
(In
thousands)
Non-
FHA/VA Residential Mortgage loans	$ 295,656	$ 80,153	$ 375,809
Commercial Mortgage Loans	32,340	16,402	48,742
Commercial and Industrial Loans	18,496	115,025	133,521
Construction Loans:
Land	7,732	1,630	9,362
Construction-commercial	-	36,893	36,893
Construction-residential	-	357	357
Consumer
Loans - Auto	16,253	8,622	24,875
Finance
Leases	2,542	105	2,647
Consumer
Loans - Other	11,868	2,974	14,842
Total
Troubled Debt Restructurings	$ 384,887	$ 262,161	$ 647,048
(1)	Included in
non-accrual loans are $110.6 million in loans that are performing under the
terms of the restructuring agreement but are reported in non-accrual 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.

TDR loans exclude restructured residential mortgage loans that are guaranteed by the U.S. federal government (i.e., FHA/VA loans) totaling $ 64.2 million as of June 30, 2017 (December 31, 2016 - $ 69.1 million). 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. The Corporation does not consider loans with U.S. federal government guarantees to be impaired loans for the purpose of calculating the allowance for loan and lease losses.

Loan modifications that are considered TDRs and were completed during the quarter and six-month period ended June 30, 2017 and 2016 were as follows:

| | Quarter Ended June 30, 2017 — Number of contracts | Pre-modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | | --- | --- | --- | --- | | (Dollars in thousands) | | | | | Troubled Debt Restructurings: | | | | | Non-FHA/VA Residential Mortgage loans | 48 | $ 9,577 | $ 9,483 | | Commercial Mortgage Loans | 2 | 267 | 267 | | Commercial and Industrial Loans | 2 | 326 | 326 | | Consumer Loans - Auto | 122 | 1,926 | 1,926 | | Finance Leases | 14 | 362 | 362 | | Consumer Loans - Other | 193 | 991 | 1,004 | | Total Troubled Debt Restructurings | 381 | $ 13,449 | $ 13,368 | | | Six-Month Period Ended June 30, 2017 | | | | | Number of contracts | Pre-modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | | (Dollars in thousands) | | | | | Troubled Debt Restructurings: | | | | | Non-FHA/VA Residential Mortgage loans | 88 | $ 14,227 | $ 13,991 | | Commercial Mortgage Loans | 8 | 22,705 | 22,465 | | Commercial and Industrial Loans | 5 | 11,074 | 11,074 | | Construction Loans: | | | | | Land | 1 | 25 | 28 | | Consumer Loans - Auto | 274 | 4,173 | 4,173 | | Finance Leases | 22 | 548 | 548 | | Consumer Loans - Other | 403 | 1,960 | 1,988 | | Total Troubled Debt Restructurings | 801 | $ 54,712 | $ 54,267 |

| | Quarter Ended June 30, 2016 — Number of contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | | --- | --- | --- | --- | | (Dollars in thousands) | | | | | Troubled Debt Restructurings: | | | | | Non-FHA/VA Residential Mortgage loans | 54 | $ 7,397 | $ 7,132 | | Commercial Mortgage Loans | 3 | 2,672 | 2,668 | | Commercial and Industrial Loans | 19 | 20,261 | 20,261 | | Consumer Loans - Auto | 165 | 2,718 | 2,718 | | Finance Leases | 12 | 242 | 242 | | Consumer Loans - Other | 269 | 1,222 | 1,239 | | Total Troubled Debt Restructurings | 522 | $ 34,512 | $ 34,260 | | | Six-Month Period Ended June 30, 2016 | | | | | Number of contracts | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | | (Dollars in thousands) | | | | | Troubled Debt Restructurings: | | | | | Non-FHA/VA Residential Mortgage loans | 112 | $ 16,409 | $ 15,591 | | Commercial Mortgage Loans | 3 | 2,672 | 2,668 | | Commercial and Industrial Loans | 19 | 20,261 | 20,261 | | Consumer Loans - Auto | 423 | 7,699 | 7,699 | | Finance Leases | 48 | 1,182 | 1,182 | | Consumer Loans - Other | 605 | 3,043 | 3,078 | | Total Troubled Debt Restructurings | 1,210 | $ 51,266 | $ 50,479 |

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-performing loan. Recidivism on modified loans 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.

Loan modifications considered TDR loans that defaulted during the quarters and six-month periods ended June 30, 2017 and June 30, 2016 and had become TDR during the 12-months preceding the default date, were as follows:

	Quarter Ended June 30, — 2017		2016
	Number of contracts	Recorded Investment	Number of contracts	Recorded Investment
(Dollars in
thousands)
Non-FHA/VA
Residential Mortgage loans	19	$ 2,614	10	$ 1,178
Consumer Loans

Auto | 5 | 69 | 31 | 498 | | Consumer Loans
Other | 29 | 103 | 34 | 116 | | Total | 53 | $ 2,786 | 75 | $ 1,792 |

	Six-Month Period Ended June 30, — 2017		2016
	Number of contracts	Recorded Investment	Number of contracts	Recorded Investment
(Dollars in
thousands)
Non-FHA/VA
Residential Mortgage loans	22	$ 2,891	21	$ 3,156
Commercial
Mortgage Loans	1	57	-	-
Consumer Loans

Auto | 9 | 130 | 40 | 634 | | Consumer Loans
Other | 46 | 164 | 67 | 246 | | Finance Leases | - | - | 1 | 13 | | Total | 78 | $ 3,242 | 129 | $ 4,049 |

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 charged off but the obligation is not forgiven to the borrower, and any payments collected are accounted for as recoveries. At the time of the restructuring, the A note is identified and classified as a TDR loan. If 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 was 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 recorded investment in loans held for investment restructured using the A/B note restructure workout strategy was approximately $36.1 million as of June 30, 2017. The following table provides additional information about the volume of this type of loan restructuring and the effect on the allowance for loan and lease losses in the first half of 2017 and 2016:

	June 30, 2017
(In thousands)
Principal
balance	$ 36,141	$ 38,259
Amount charged
off	$ -	$ -
Charges to the
provision for loan losses	$ 388	$ 1,948
Allowance for
loan losses at end of period	$ 5,529	$ 2,809

Approximately $ 3.1 million of the loans restructured using the A/B note restructure workout strategy are in accrual status. These loans continue to be individually evaluated for impairment purposes.

NOTE 7 – ALLOWANCE FOR LOAN AND LEASE LOSSES

| The

changes in the allowance for loan and lease losses were as follows:	Residential Mortgage Loans	Commercial Mortgage Loans	Commercial & Industrial Loans	Construction Loans	Consumer Loans	Total
(In
thousands)
Quarter ended
June 30, 2017
Allowance for
loan and lease losses:
Beginning
balance	$ 35,775	$ 68,468	$ 45,970	$ 3,886	$ 49,132	$ 203,231
Charge-offs	(6,967)	(30,495)	(6,378)	(595)	(11,053)	(55,488)
Recoveries	891	78	4,624	133	1,920	7,646
Provision
(release)	10,888	525	(2,134)	312	8,505	18,096
Ending balance	$ 40,587	$ 38,576	$ 42,082	$ 3,736	$ 48,504	$ 173,485
Ending balance:
specific reserve for impaired loans	$ 13,786	$ 8,330	$ 10,788	$ 2,374	$ 5,516	$ 40,794
Ending balance:
purchased credit-impaired loans (1)	$ 9,074	$ 372	$ -	$ -	$ -	$ 9,446
Ending balance:
general allowance	$ 17,727	$ 29,874	$ 31,294	$ 1,362	$ 42,988	$ 123,245
Loans held
for investment:
Ending
balance	$ 3,282,307	$ 1,611,730	$ 2,116,756	$ 122,093	$ 1,728,290	$ 8,861,176
Ending
balance: impaired loans	$ 428,711	$ 140,621	$ 74,902	$ 50,557	$ 40,834	$ 735,625
Ending
balance: purchased credit-impaired loans	$ 156,202	$ 4,166	$ -	$ -	$ -	$ 160,368
Ending
balance: loans with general allowance	$ 2,697,394	$ 1,466,943	$ 2,041,854	$ 71,536	$ 1,687,456	$ 7,965,183
	Residential Mortgage Loans	Commercial Mortgage Loans	Commercial & Industrial Loans	Construction Loans	Consumer Loans	Total
(In thousands)
Six-Month
Period Ended June 30, 2017
Allowance for
loan and lease losses:
Beginning
balance	$ 33,980	$ 57,261	$ 61,953	$ 2,562	$ 49,847	$ 205,603
Charge-offs	(15,192)	(31,857)	(18,430)	(658)	(22,245)	(88,382)
Recoveries	1,640	108	5,499	578	4,901	12,726
Provision
(release)	20,159	13,064	(6,940)	1,254	16,001	43,538
Ending balance	$ 40,587	$ 38,576	$ 42,082	$ 3,736	$ 48,504	$ 173,485
Ending balance:
specific reserve for impaired loans	$ 13,786	$ 8,330	$ 10,788	$ 2,374	$ 5,516	$ 40,794
Ending balance:
purchased credit-impaired loans (1)	$ 9,074	$ 372	$ -	$ -	$ -	$ 9,446
Ending balance:
general allowance	$ 17,727	$ 29,874	$ 31,294	$ 1,362	$ 42,988	$ 123,245
Loans held
for investment:
Ending
balance	$ 3,282,307	$ 1,611,730	$ 2,116,756	$ 122,093	$ 1,728,290	$ 8,861,176
Ending
balance: impaired loans	$ 428,711	$ 140,621	$ 74,902	$ 50,557	$ 40,834	$ 735,625
Ending
balance: purchased credit-impaired loans	$ 156,202	$ 4,166	$ -	$ -	$ -	$ 160,368
Ending
balance: loans with general allowance	$ 2,697,394	$ 1,466,943	$ 2,041,854	$ 71,536	$ 1,687,456	$ 7,965,183

		Commercial Mortgage Loans	Commercial & Industrial Loans	Construction Loans	Consumer Loans	Total
(In thousands)
Quarter ended
June 30, 2016
Allowance for
loan and lease losses:
Beginning
balance	$ 38,548	$ 68,744	$ 71,098	$ 3,013	$ 56,722	$ 238,125
Charge-offs	(11,532)	(1,437)	(1,914)	(513)	(12,970)	(28,366)
Recoveries	841	33	676	144	2,015	3,709
Provision
(release)	11,098	2,459	(71)	103	7,397	20,986
Ending balance	$ 38,955	$ 69,799	$ 69,789	$ 2,747	$ 53,164	$ 234,454
Ending balance:
specific reserve for impaired loans	$ 11,972	$ 40,071	$ 27,750	$ 1,114	$ 5,465	$ 86,372
Ending balance:
purchased credit-impaired loans (1)	$ 6,638	$ 219	$ -	$ -	$ -	$ 6,857
Ending balance:
general allowance	$ 20,345	$ 29,509	$ 42,039	$ 1,633	$ 47,699	$ 141,225
Loans held
for investment:
Ending
balance	$ 3,323,844	$ 1,523,676	$ 2,133,623	$ 137,406	$ 1,752,198	$ 8,870,747
Ending
balance: impaired loans	$ 452,280	$ 211,348	$ 197,368	$ 49,216	$ 43,562	$ 953,774
Ending
balance: purchased credit-impaired loans	$ 166,556	$ 3,134	$ -	$ -	$ -	$ 169,690
Ending
balance: loans with general allowance	$ 2,705,008	$ 1,309,194	$ 1,936,255	$ 88,190	$ 1,708,636	$ 7,747,283
	Residential Mortgage Loans	Commercial Mortgage Loans	Commercial & Industrial Loans	Construction Loans	Consumer Loans	Total
(In thousands)
Six-Month
Period Ended June 30, 2016
Allowance for
loan and lease losses:
Beginning
balance	$ 39,570	$ 68,211	$ 68,768	$ 3,519	$ 60,642	$ 240,710
Charge-offs	(18,838)	(2,012)	(5,673)	(604)	(27,774)	(54,901)
Recoveries	1,187	79	956	161	4,223	6,606
Provision
(release)	17,036	3,521	5,738	(329)	16,073	42,039
Ending balance	$ 38,955	$ 69,799	$ 69,789	$ 2,747	$ 53,164	$ 234,454
Ending balance:
specific reserve for impaired loans	$ 11,972	$ 40,071	$ 27,750	$ 1,114	$ 5,465	$ 86,372
Ending balance:
purchased credit-impaired loans (1)	$ 6,638	$ 219	$ -	$ -	$ -	$ 6,857
Ending balance:
general allowance	$ 20,345	$ 29,509	$ 42,039	$ 1,633	$ 47,699	$ 141,225
Loans held
for investment:
Ending
balance	$ 3,323,844	$ 1,523,676	$ 2,133,623	$ 137,406	$ 1,752,198	$ 8,870,747
Ending
balance: impaired loans	$ 452,280	$ 211,348	$ 197,368	$ 49,216	$ 43,562	$ 953,774
Ending
balance: purchased credit-impaired loans	$ 166,556	$ 3,134	$ -	$ -	$ -	$ 169,690
Ending
balance: loans with general allowance	$ 2,705,008	$ 1,309,194	$ 1,936,255	$ 88,190	$ 1,708,636	$ 7,747,283
(1)	Refer to Note 6-
Loans Held For Investment-PCI Loans for a detail of changes in the allowance
for loan losses related to PCI loans.

As of June 30, 2017, the Corporation maintained a $ 0.7 million reserve for unfunded loan commitments (December 31, 2016 - $ 1.6 million) mainly related to outstanding commitments on floor plan revolving lines of credit. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments to borrowers that are experiencing financial difficulties at the balance sheet date. It is calculated by multiplying an estimated loss factor by an estimated probability of funding, and then by the period-end amounts for unfunded commitments. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statement of financial condition and any change to the reserve is included as part of other non-interest expenses in the consolidated statements of income.

NOTE 8 – LOANS HELD FOR SALE

The Corporation’s loans held-for-sale portfolio was composed of:

	As of — June 30, 2017	December 31, 2016
(In thousands)
Residential
mortgage loans	$ 29,193	$ 41,927
Construction
loans	8,079	8,079
Total	$ 37,272	$ 50,006

Non-performing loans held for sale totaled $ 8.1 million as of June 30, 2017 and December 31, 2016.

NOTE 9 – OTHER REAL ESTATE OWNED

| The

following table presents OREO inventory as of the dates indicated:	June 30,	December 31,
	2017	2016
(In thousands)
OREO
OREO
balances, carrying value:
Residential (1)	$ 54,346	$ 46,917
Commercial	84,939	78,698
Construction	10,760	12,066
Total	$ 150,045	$ 137,681
(1)	Excludes $21.9
million and $15.0 million as of June 30, 2017 and December 31, 2016,
respectively, of foreclosures that meet the conditions of ASC 310-40 and are
presented as a receivable (other assets) in the statement of financial
condition.

NOTE 10 – 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 June 30, 2017 and December 31, 2016, all derivatives held by the Corporation were considered economic undesignated hedges. These undesignated hedges are recorded 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 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 to-be-announced (“TBA”) mortgage-backed securities 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. These securities are used to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.

To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. On 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:
	Notional Amounts (1)
	As of	As of
	June 30,	December 31,
	2017	2016
(In thousands)
Undesignated
economic hedges:
Interest rate
contracts:
Written
interest rate cap agreements	$ 91,510	$ 91,510
Purchased
interest rate cap agreements	91,510	91,510
Forward
Contracts:
Sale of TBA
GNMA MBS pools	31,000	33,000
	$ 214,020	$ 216,020
(1)	Notional amounts are presented on a
gross basis with no netting of offsetting exposure positions.

| The following table summarizes for derivative instruments their fair value and location in the consolidated

statements of financial condition:
	Asset Derivatives			Liability Derivatives
	Statement of	June 30,	December 31,		June 30,	December 31,
	Financial	2017	2016		2017	2016
	Condition Location	Fair Value	Fair Value	Statement of Financial Condition Location	Fair Value	Fair Value
(In thousands)
Undesignated
economic hedges:
Interest rate
contracts:
Written
interest rate cap agreements	Other assets	$ -	$ -	Accounts payable and other liabilities	$ 260	$ 552
Purchased
interest rate cap agreements	Other assets	261	554	Accounts payable and other liabilities	-	-
Forward
Contracts:
Sales of TBA
GNMA MBS pools	Other assets	137	-	Accounts payable and other liabilities	30	201
		$ 398	$ 554		$ 290	$ 753

| The following table summarizes the effect of derivative instruments on the consolidated

statements of income:
		Gain (or Loss)		Gain (or Loss)
	Location of Gain or (loss)	Quarter Ended		Six-Month Period Ended
	Recognized in Statement of	June 30,		June 30,
	Income on Derivatives	2017	2016	2017	2016
(In thousands)
Undesignated
economic hedges:
Interest rate
contracts:
Written
and purchased interest rate cap agreements	Interest income - Loans	$ -	$ (3)	$ (1)	$ (7)
Forward
contracts:
Sales of
TBA GNMA MBS pools	Mortgage banking activities	364	(87)	308	(236)
Total
gain (loss) on derivatives		$ 364	$ (90)	$ 307	$ (243)

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 June 30, 2017, the Corporation has not entered into any derivative instrument containing credit-risk-related contingent features.

NOTE 11 – 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 in respect of any other agreement or transaction between them. The following table presents information about the offsetting of financial assets and liabilities as well as derivative assets and liabilities:

| Offsetting

of Financial Assets and Derivative Assets
				Gross Amounts Not Offset in the Statement
of Financial Position
			Net Amounts of Assets Presented in the
Statement of Financial Position
	Gross Amounts of Recognized Assets	Gross Amounts Offset in the Statement of
Financial Position
				Financial Instruments	Cash Collateral
As of June
30, 2017						Net Amount
(In thousands)
Description
Derivatives	$ 261	$ -	$ 261	$ (261)	$ -	$ -
Securities
purchased under agreements to resell	200,000	(200,000)	-	-	-	-
Total	$ 200,261	$ (200,000)	$ 261	$ (261)	$ -	$ -
				Gross Amounts Not Offset in the Statement
of Financial Position
			Net Amounts of Assets Presented in the
Statement of Financial Position
	Gross Amounts of Recognized Assets	Gross Amounts Offset in the Statement of
Financial Position
				Financial Instruments	Cash Collateral
As of
December 31, 2016						Net Amount
(In thousands)
Description
Derivatives	$ 554	$ -	$ 554	$ (554)	$ -	$ -
Securities
purchased under agreements to resell	200,000	(200,000)	-	-	-	-
Total	$ 200,554	$ (200,000)	$ 554	$ (554)	$ -	$ -

| Offsetting of

Financial Liabilities and Derivative Liabilities
				Gross Amounts Not Offset in the Statement
of Financial Position
			Net Amounts of Liabilities Presented in
the Statement of Financial Position
	Gross Amounts of Recognized Liabilities	Gross Amounts Offset in the Statement of
Financial Position
				Financial Instruments	Cash Collateral
As of June
30, 2017						Net Amount
(In thousands)
Description
Securities sold
under agreements to repurchase	$ 200,000	$ (200,000)	$ -	$ -	$ -	$ -
				Gross Amounts Not Offset in the Statement
of Financial Position
			Net Amounts of Liabilities Presented in
the Statement of Financial Position
	Gross Amounts of Recognized Liabilities	Gross Amounts Offset in the Statement of
Financial Position
				Financial Instruments	Cash Collateral
As of
December 31, 2016						Net Amount
(In thousands)
Description
Securities sold
under agreements to repurchase	$ 200,000	$ (200,000)	$ -	$ -	$ -	$ -

NOTE 12 – GOODWILL AND OTHER INTANGIBLES

Goodwill as of June 30, 2017 and December 31, 2016 amounted to $ 28.1 million, recognized as part of “Other Assets” in the consolidated statements of financial condition. The Corporation conducted its annual evaluation of goodwill and intangibles during the fourth quarter of 2016. The Corporation’s goodwill is related to the acquisition of FirstBank Florida in 2005.

There have been no events related to the Florida reporting unit that could indicate potential goodwill impairment since the date of the last evaluation; therefore, no goodwill impairment evaluation was performed during the first half of 2017. Goodwill and other indefinite life intangibles are reviewed at least annually for impairment.

In connection with the acquisition of the FirstBank-branded credit card loan portfolio, in the second quarter of 2012, the Corporation recognized a purchased credit card relationship intangible of $ 24.5 million, which is being amortized over the remaining estimated life of 4.4 years on an accelerated basis based on the estimated attrition rate of the purchased credit card accounts, which reflects the pattern in which the economic benefits of the intangible asset are consumed. These benefits are consumed as the revenue stream generated by the cardholder relationship is realized.

The core deposit intangible acquired in the February 2015 Doral Bank transaction amounted to $ 5.8 million ($ 4.0 million as of June 30, 2017).

In the first quarter of 2016, FirstBank Insurance Agency acquired certain insurance customer accounts and related customer records and recognized an insurance customer relationship intangible of $1.1 million ($0.9 million as of June 30, 2017), which is being amortized over the next 5.5 years on a straight-line basis. The acquired accounts have a direct relationship to the previous mortgage loan portfolio acquisitions from Doral Bank and Doral Financial in 2015 and 2014.

| The following table shows the gross amount and accumulated amortization of the Corporation’s intangible assets recognized as part of Other Assets in the

consolidated statements of financial condition:	As of	As of
	June 30,	December 31,
	2017	2016
(Dollars in
thousands)
Core deposit
intangible:
Gross
amount, beginning of period	$ 51,664	$ 51,664
Accumulated
amortization (1)	(45,367)	(44,466)
Net
carrying amount	$ 6,297	$ 7,198
Remaining
amortization period	7.6 years	8.1 years
Purchased
credit card relationship intangible:
Gross amount	$ 24,465	$ 24,465
Accumulated
amortization (2)	(15,199)	(13,934)
Net carrying
amount	$ 9,266	$ 10,531
Remaining
amortization period	4.4 years	5 years
Insurance
Customer relationship intangible:
Gross amount	$ 1,067	$ 1,067
Accumulated
amortization (3)	(216)	(140)
Net carrying
amount	$ 851	$ 927
Remaining
amortization period	5.5 years	6.1 years
(1) For the
quarter and six-month period ended June 30, 2017, the amortization expense of
core deposit intangibles amounted to $0.5 million and $0.9 million,
respectively (2016 - $0.5 million and $1.0 million, respectively).
(2) For the
quarter and six-month period ended June 30, 2017, the amortization expense of
the purchased credit card relationship intangible amounted to $0.6 million
and $1.3 million, respectively (2016 - $0.7 million and $1.4 million,
respectively).
(3) For the
quarter and six-month period ended June 30, 2017, the amortization expense of
insurance customer relationship intangible amounted to $38 thousand and $76
thousand, respectively (2016 - $39 thousand and $64 thousand, respectively).

| The estimated aggregate annual amortization expense related to these intangible

assets for future periods is as follows:
	Amount
	(In thousands)
2017	$ 2,160
2018	3,591
2019	3,088
2020	2,851
2021	2,658
2022 and after	2,066

NOTE 13 – NON CONSOLIDATED VARIABLE INTEREST ENTITIES 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 if it is the primary beneficiary of the VIE and whether the entity should be consolidated or not.

Below is a summary of transfers of financial assets to VIEs for which the Corporation has retained some level of continuing involvement:

GNMA

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 the issuer and, as such, under seller/servicer agreements, the Corporation is required to service the loans in accordance with the issuers’ servicing guidelines and standards. As of June 30, 2017, the Corporation serviced loans securitized through GNMA with a principal balance of $ 1.6 billion.

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. 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, were used by FBP Statutory Trust I 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 trust-preferred securities. 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, were used by FBP Statutory Trust II to purchase $ 128.9 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures. The debentures are presented in the Corporation’s consolidated statements of financial condition as Other Borrowings, net of related issuance costs. The variable rate trust-preferred securities are fully and unconditionally guaranteed by the Corporation. The Junior Subordinated Deferrable Debentures issued by the Corporation in April 2004 and in 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 trust-preferred securities). During the first quarter of 2016, the Corporation completed the repurchase of $ 10 million of trust-preferred securities of the FBP Statutory Trust II that were auctioned in a public sale at which the Corporation was invited to participate. The Corporation repurchased and cancelled the repurchased trust preferred securities, resulting in a commensurate reduction in the related Junior Subordinated Deferrable Debentures. The Corporation’s winning bid equated to 70 % of the $10 million par value. The 30 % discount, plus accrued interest, resulted in a gain of approximately $4.2 million, which is reflected in the statement of income as a “Gain on early extinguishment of debt.” During the second quarter of 2015, the Corporation issued 852,831 shares of the Corporation’s common stock in exchange for $ 5.3 million of trust preferred securities (FBP Statutory Trust I), which enabled the Corporation to cancel $ 5.5 million of the carrying value of the debentures underlying the purchased trust preferred securities. The Collins Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act eliminates certain trust-preferred securities 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. During the second quarter of 2016, the Corporation received approval from the Federal Reserve and paid $ 31.2 million for all the accrued but deferred interest payments plus the interest for the second quarter on the Corporation’s subordinated Do not modify beyond this point! !

Do not modify before this point! ! debentures associated with its trust preferred securities. Subsequently, the Corporation received quarterly approvals and made scheduled quarterly interest payments for the third and fourth quarters of 2016 and the first and second quarters of 2017. As of June 30, 2017, the Corporation is current on all interest payments due related to its subordinated debt. Future interest payments are subject to Federal Reserve approval. It is the intent of the Corporation to request approvals in future periods to continue to make regularly scheduled quarterly interest payments.

Grantor Trusts

During 2004 and 2005, a third party to the Corporation, 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. The seller initially provided the servicing for a fee, which is senior to the obligations to pay trust certificate holders. The seller then entered into a sales agreement through which it sold and issued the trust certificates in favor of the Corporation’s banking subsidiary. Currently, the Bank is the sole owner of the trust certificates; 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. The securities 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 risks from losses on non-accruing loans and repossessed collateral are absorbed by the Bank as the sole holder of the certificates. As of June 30, 2017, the amortized cost and fair value of Grantor Trusts amounted to $ 24.8 million and $ 18.2 million, respectively, with a weighted average yield of 2.40 %.

Investment in unconsolidated entity

On February 16, 2011, FirstBank sold an asset portfolio consisting of performing and non-performing 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 has a seven-year maturity and bears variable interest at 30-day LIBOR plus 300 basis points and is secured by a pledge of all of the acquiring entity's assets as well as PRLP’s 65 % ownership interest in CPG/GS. As of June 30, 2017, the carrying amount of the loan was $ 4.0 million, which was included in the Corporation's commercial and industrial loans held for investment portfolio. FirstBank’s equity interest in CPG/GS is accounted for under the equity method. When applying the equity method, the Bank follows the Hypothetical Liquidation Book Value method (“HLBV”) to determine its share of CPG/GS’s earnings or loss. The loss recorded in 2014 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. Any potential increase in the carrying value of the investment in CPG/GS, under the HLBV method, would depend upon how better off the Bank is at the end of the period than it was at the beginning of the period after the waterfall calculation performed to determine the amount of gain allocated to the investors.

FirstBank also provided an $ 80 million advance facility to CPG/GS to fund unfunded commitments and costs to complete projects under construction, which was fully disbursed in 2011, and a $ 20 million working capital line of credit to fund certain expenses of CPG/GS. The working capital line expired in September 2016 and no amount is outstanding. During 2012, CPG/GS repaid the outstanding balance of the advance facility to fund unfunded commitments, and the funds became available for rewithdrawal under a one-time revolver agreement. This facility loan bears variable interest at 30-day LIBOR plus 300 basis points. As of June 30, 2017, the carrying value of the revolver agreement was $ 6.7 million, which was included in the Corporation's commercial and industrial loans held for investment portfolio.

Cash proceeds received by CPG/GS have been first used to cover operating expenses and debt service payments, including those related to the note receivable and the advance facility described above, which must be substantially repaid before proceeds can be used for other purposes, including the return of capital to both PRLP and FirstBank. 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 %, 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 the primary beneficiary (or consolidator) of CPG/GS based on whether it has both the power to direct the activities of CPG/GS that Do not modify beyond this point! !

Do not modify before this point! ! most significantly impact the entity's economic performance and the obligation to absorb losses of CPG/GS that could potentially be significant to the VIE or the right to receive benefits from the entity 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 the loan portfolio, impact foreclosure proceedings, or manage the construction and sale of the property; therefore, the Bank concluded that it is not the primary beneficiary of CPG/GS. As a creditor to CPG/GS, the Bank has certain rights related to CPG/GS; however, these are intended to be protective in nature and do not provide the Bank with the ability to manage the operations of CPG/GS. Since CPG/GS is not a consolidated subsidiary of the Bank and the transaction met the criteria for sale accounting under authoritative guidance, the Bank accounted for this transaction as a true sale, recognizing the cash received, the notes receivable, and the interest in CPG/GS, and derecognizing the loan portfolio sold.

Servicing Assets

The Corporation sells residential mortgage loans to GNMA, which generally securitizes the transferred loans into mortgage-backed securities. 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.

| The changes

in servicing assets are shown below:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
(In thousands)	2017	2016	2017	2016
Balance at
beginning of period	$ 26,330	$ 24,692	$ 26,244	$ 24,282
Capitalization
of servicing assets	1,049	1,297	1,924	2,458
Amortization	(779)	(809)	(1,567)	(1,607)
Adjustment to
fair value	(197)	(151)	(357)	(124)
Other (1)	99	15	258	35
Balance at
end of period	$ 26,502	$ 25,044	$ 26,502	$ 25,044
(1)	Amount
represents the adjustment to fair value 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:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
(In thousands)
Balance at
beginning of period	$ -	$ 109	$ 461	$ 136
Temporary
impairment charges	197	167	357	194
OTTI of
servicing assets	-	-	(621)	-
Recoveries	-	(16)	-	(70)
Balance at
end of period	$ 197	$ 260	$ 197	$ 260

| | The components of net servicing income are shown below: — Quarter Ended | | Six-Month Period Ended | | | --- | --- | --- | --- | --- | | | June 30, | | June 30, | | | | 2017 | 2016 | 2017 | 2016 | | (In thousands) | | | | | | Servicing fees | $ 1,975 | $ 1,865 | $ 3,999 | $ 3,727 | | Late charges and prepayment penalties | 138 | 163 | 237 | 305 | | Adjustment for loans repurchased | 99 | 15 | 258 | 35 | | Other (1) | (28) | (1) | (35) | (1) | | Servicing income, gross | 2,184 | 2,042 | 4,459 | 4,066 | | Amortization and impairment of servicing assets | (977) | (960) | (1,925) | (1,731) | | Servicing income, net | $ 1,207 | $ 1,082 | $ 2,534 | $ 2,335 | | (1) | Mainly consisted of compensatory fees imposed by GSEs. | | | |

| The Corporation’s servicing assets are subject to prepayment and interest rate risks. Key economic assumptions used in determining the fair value at the

time of sale of the related mortgages ranged as follows:	Maximum	Minimum
Six-Month
Period Ended June 30, 2017:
Constant
prepayment rate:
Government-guaranteed mortgage loans	6.0 %	6.0 %
Conventional conforming mortgage loans	6.4 %	6.3 %
Conventional non-conforming mortgage loans	9.5 %	9.1 %
Discount
rate:
Government-guaranteed mortgage loans	12.0 %	12.0 %
Conventional conforming mortgage loans	10.0 %	10.0 %
Conventional non-conforming mortgage loans	14.3 %	14.3 %
Six-Month
Period Ended June 30, 2016:
Constant
prepayment rate:
Government-guaranteed mortgage loans	7.6 %	7.6 %
Conventional conforming mortgage loans	8.0 %	8.0 %
Conventional non-conforming mortgage loans	14.1 %	14.0 %
Discount
rate:
Government-guaranteed mortgage loans	11.5 %	11.5 %
Conventional conforming mortgage loans	9.5 %	9.5 %
Conventional non-conforming mortgage loans	13.8 %	13.8 %

The weighted-averages of the key economic assumptions used by the Corporation 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 June 30, 2017 were as follows:

	(Dollars in thousands)
Carrying amount
of servicing assets	$ 26,502
Fair value	$ 29,926
Weighted-average
expected life (in years)	8.47
Constant
prepayment rate (weighted-average annual rate)	6.23%
Decrease in
fair value due to 10% adverse change	$ 758
Decrease in
fair value due to 20% adverse change	$ 1,482
Discount
rate (weighted-average annual rate)	11.21%
Decrease in
fair value due to 10% adverse change	$ 1,422
Decrease in
fair value due to 20% adverse change	$ 2,727

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 servicing asset 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.

NOTE 14 – DEPOSITS

| The

following table summarizes deposit balances:	June 30,	December 31,
	2017	2016
(In thousands)
Type of
account:
Non-interest
bearing checking accounts	$ 1,578,142	$ 1,484,155
Savings
accounts	2,345,664	2,518,496
Interest-bearing
checking accounts	1,155,367	1,075,929
Certificates of
deposit	2,409,876	2,312,928
Brokered CDs	1,253,844	1,439,697
	$ 8,742,893	$ 8,831,205

| Brokered

CDs mature as follows:
	June 30,
	2017
(In thousands)
Three months or
less	$ 178,236
Over three
months to six months	187,924
Over six months
to one year	342,707
Over one year
but less than three years	423,120
Three to five
years	120,478
Over five years	1,379
Total	$ 1,253,844

| The

following are the components of interest expense on deposits:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
(In thousands)
Interest
expense on deposits	$ 15,883	$ 16,494	$ 31,351	$ 32,974
Accretion of
premium from acquisition	(15)	(57)	(38)	(138)
Amortization of
broker placement fees	480	787	1,007	1,645
Interest
expense on deposits	$ 16,348	$ 17,224	$ 32,320	$ 34,481

NOTE 15 – SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

| Securities sold under agreements to repurchase (repurchase agreements) consist of the

following:	June 30, 2017	December 31, 2016
(Dollars in
thousands)
Repurchase
agreements, interest ranging from 1.96% to 3.11%
(December
31, 2016- 1.96% to 2.83%) (1)(2)	$ 300,000	$ 300,000
(1)	Reported net of
securities purchased under agreements to repurchase (reverse repurchase
agreements) by counterparty, when applicable, pursuant to ASC 210-20-45-11.
(2)	As of June 30,
2017, includes $200 million with an average rate of 2.11% that lenders have
the right to call before their contractual maturities at various dates
beginning on July 19, 2017. In addition, $100 million is tied to variable
rates.

| Repurchase

agreements mature as follows:
	June 30, 2017
	(In thousands)
Over three
months to six months	100,000
Over four to
five years	200,000
Total	$ 300,000

As of June 30, 2017 and December 31, 2016, the securities underlying such agreements were delivered to the dealers with which the repurchase agreements were transacted.

| Repurchase agreements as of June 30, 2017, grouped by counterparty, were as follows: — (Dollars in

thousands)		Weighted-Average
Counterparty	Amount	Maturity (In Months)
Dean Witter /
Morgan Stanley	$ 100,000	4
JP Morgan Chase	200,000	55
	$ 300,000

NOTE 16 – ADVANCES FROM THE FEDERAL HOME LOAN BANK (FHLB)

| The following

is a summary of the advances from the FHLB:	June 30,	December 31,
(Dollars in
thousands)	2017	2016
Short-term
fixed-rate advances from FHLB, with a weighted-average
interest
rate of 1.32% (December 31, 2016 - 0.78%)	$ 10,000	$ 170,000
Long-term
fixed-rate advances from FHLB, with a weighted-average
interest
rate of 1.61% (December 31, 2016 - 1.49%)	665,000	500,000
	$675,000	$670,000

| Advances

from FHLB mature as follows:
	June 30, 2017
(In thousands)
Within one month	$ 110,000
Over one to
three months	100,000
Over three to
six months	-
Over six months
to one year	-
Over one to
three years	345,000
Over three to
four years	120,000
Total	$ 675,000

As of June 30, 2017, the Corporation had additional capacity of approximately $ 772.7 million on this credit facility based on collateral pledged at the FHLB, including a haircut reflecting the perceived risk associated with the collateral.

NOTE 17 – OTHER BORROWINGS

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

	June 30,	December 31,
(In thousands)	2017	2016
Junior
subordinated debentures due in 2034,
interest-bearing at a floating rate of 2.75%
over 3-month
LIBOR (4.01% as of June 30, 2017
and 3.74% as
of December 31, 2016)	$ 97,630	$ 97,630
Junior
subordinated debentures due in 2034,
interest-bearing at a floating rate of 2.50%
over 3-month
LIBOR (3.77% as of June 30, 2017
and 3.50% as
of December 31, 2016)	118,557	118,557
	$ 216,187	$ 216,187

NOTE 18 – STOCKHOLDERS’ EQUITY

Common Stock

As of June 30, 2017 and December 31, 2016, the Corporation had 2,000,000,000 authorized shares of common stock with a par value of $0.10 per share. As of June 30, 2017 and December 31, 2016, there were 219,928,329 and 218,700,394 shares issued, respectively, and 215,963,916 and 217,446,205 shares outstanding, respectively. Refer to Note 3 for information about transactions related to common stock under the Omnibus Plan.

On February 7, 2017, a secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders was completed. Funds affiliated with Thomas H. Lee Partners, L.P. (“THL”) sold 10 million shares of the Corporation’s common stock, and funds managed by Oaktree Capital Management, L.P. (“Oaktree”) sold 10 million shares of the Corporation’s common stock. In addition, the underwriters exercised their option to purchase an additional 3 million shares of the Corporation’s common stock from the selling stockholders. The Corporation did not receive any proceeds from the offering. As of June 30, 2017, each of THL and Oaktree owned 9.3 % of the Corporation’s common stock.

On August 2, 2017, THL and Oaktree entered into an underwriting agreement with respect to a public offering of 20,000,000 shares of the Corporation’s common stock, ( 23,000,000 shares of Common Stock if the underwriter exercises in full its option to purchase additional shares), to be sold by the Selling Stockholders.

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 will have such rights and preferences as are fixed by the Board of Directors when authorizing the issuance of that particular series. As of June 30, 2017, the Corporation has five outstanding series of non-convertible, non-cumulative 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 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. In December 2016, for the first time since July 2009, the Corporation paid dividends on its non-cumulative perpetual monthly income preferred stock, after receiving regulatory approval. Since then, the Corporation has continued to paid monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. The Corporation intends to request approval in future periods to continue with monthly dividend payments on the non-cumulative perpetual monthly income preferred stock. The Corporation has received approval to pay the monthly dividends on the Corporation’s Series A through E Preferred Stock through September 2017.

Treasury stock

During the first half of 2017 and 2016, the Corporation withheld an aggregate of 326,653 shares and 186,703 shares, respectively, of the common stock paid to certain senior officers as additional compensation and restricted stock that vested during the first half of 2017 and 2016 to cover employees’ payroll and income tax withholding liabilities; these shares are held as treasury shares. In addition, 2,383,571 shares of restricted stock forfeited in the first half of 2017 are now held as treasury shares. As of June 30, 2017 and December 31, 2016, the Corporation had 3,964,413 and 1,254,189 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 legal surplus until such surplus equals the total of paid-in-capital on common and preferred stock. Amounts transferred to the legal surplus account from the retained earnings account 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 reserve fund, as a reduction thereof. If there is no reserve fund sufficient to cover such balance in whole or in part, Do not modify beyond this point! !

Do not modify before this point! ! the outstanding amount must be charged against the capital account and the Bank cannot pay dividends until it can replenish the reserve fund to an amount of at least 20 % of the original capital contributed. During the fourth quarter of 2016, $ 9.6 million was transferred to the legal surplus reserve. FirstBank’s legal surplus reserve, included as part of retained earnings in the Corporation’s statement of financial condition, amounted to $52.4 million as of June 30, 2017. There were no transfers to the legal surplus reserve during the first half of 2017.

NOTE 19 - 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, First BanCorp. is treated as a foreign corporation for U.S. and USVI income tax purposes and 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 regions. Any such tax paid in the U.S. and USVI is also either creditable against the Corporation’s Puerto Rico tax liability or taken as a deduction against taxable income, 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. The 2011 PR Code allows entities organized as limited liability companies to perform an election to become a non-taxable “pass-through” entity and utilize losses to offset income from other “pass-through” entities, subject to certain limitations, with the remaining net income passing-through to its partner entities. The 2011 PR Code also 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.

On March 1, 2017, the Corporation completed the applicable regulatory filings to change the tax status of its subsidiary, First Federal Finance, from a taxable corporation to a non-taxable “pass-through” entity. This election allows the Corporation to realize tax benefits of its deferred tax assets associated with pass-through ordinary net operating losses available at the banking subsidiary, FirstBank, which were subject to a full valuation allowance as of December 31, 2016, against now pass-through ordinary income from this profitable subsidiary.

On March 1, 2017, the Corporation also completed the applicable regulatory filings to change the tax status of its subsidiary, FirstBank Insurance, from a taxable corporation to a non-taxable “pass-through” entity. This election allows the Corporation to offset pass-through income projected to be earned by FirstBank Insurance with the projected net operating losses at the Holding Company.

The Corporation has maintained an effective tax rate lower than the maximum statutory rate mainly by investing in government obligations and mortgage-backed securities exempt from U.S. and Puerto Rico income taxes and by doing business through an International Banking Entity (“IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gain on sales is exempt from Puerto Rico income taxation. The IBE 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 second quarter and first six-months of 2017, the Corporation recorded an income tax expense of $9.3 million and $1.2 million, respectively, compared to an income tax expense of $7.5 million and $13.2 million, for comparable periods in 2016. The increase in the second quarter of 2017, as compared to the same period in 2016, was primarily driven by higher pre-tax earnings. The decrease in the income tax expense for the first six months of 2017, as compared to the same period in 2016, was mostly attributable to a $ 13.2 million tax benefit recorded in the first quarter of 2017 as a result of the above discussed change in tax status of certain subsidiaries from taxable corporations to limited liability companies with an election to be treated as partnerships for income tax purposes in Puerto Rico.

The $13.2 million tax benefit was primarily associated with the reversal of the $ 13.9 million deferred tax asset valuation allowance previously recorded at FirstBank related to pass-through ordinary net operating losses, partially offset by the elimination of the $ 0.7 million deferred tax asset previously recorded at FirstBank Insurance. The remaining difference in the income tax expense of the first six months of 2017, when compared to the first six months of 2016, was primarily related to a higher estimated annual effective tax rate in 2017.

Do not modify before this point! ! be recognized. The Corporation’s estimated annual effective tax rate in the first half of 2017, excluding entities from which a tax benefit cannot be recognized and discrete items, was 24 % compared to 22 % for the first half of 2016. The estimated annual effective tax rate including all entities for 2017 was 14 % ( 25 % excluding discrete items, primarily the tax benefit resulting from the previously mentioned change in the tax status of two subsidiaries) compared to 24 % for the first half of 2016.

The Corporation’s net deferred tax asset amounted to $ 280.9 million as of June 30, 2017, net of a valuation allowance of $ 190.0 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 $ 280.7 million as of June 30, 2017, net of a valuation allowance of $ 149.8 million, compared to a net deferred tax asset of $ 277.4 million, net of a valuation allowance of $ 171.0 million, as of December 31, 2016.

As of June 30, 2017, the Corporation did not have Unrecognized Tax Benefits (“UTBs”) recorded on its books. Audit periods remain open for review until the statute of limitations has passed. The statute of limitations under the 2011 PR code is four years; the statute of limitations for U.S. Virgin Islands and U.S. income taxes 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. At the beginning of the 2017 year, the IRS had substantially completed the examination of the 2012 U.S. federal tax return. On January 23, 2017, the Corporation received confirmation from the IRS that the audit for the years 2011 and 2012 were closed with no adjustments to the previously filed returns. For Virgin Islands and U.S. income tax purposes, all tax years subsequent to 2012 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2012 remain open to examination.

NOTE 20 – 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. 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) mortgage-backed securities 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 required significant management judgments estimation. |

For the first half of 2017, there were no transfers into or out of Level 1, Level 2 or Level 3 of the fair value hierarchy.

Financial Instruments Recorded at Fair Value on a Recurring Basis

Investment securities available for sale

The fair value of investment securities available for sale was the market value based on quoted market prices (as is the case with equity securities, Treasury notes, and non-callable U.S. Agency debt securities), when available (Level 1), or, when available, market prices for identical or comparable assets (as is the case with MBS and callable U.S. agency debt) 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 (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 mortgage-backed securities held by the Corporation (Level 3).

Private label MBS are collateralized by fixed-rate mortgages on single-family residential properties in the United States; the interest rate on the securities is variable, tied to 3-month LIBOR and limited to the weighted-average coupon of the underlying collateral. The market valuation represents the estimated net cash flows over the projected life of the pool of underlying assets applying a discount rate that reflects market observed floating spreads over LIBOR, with a widening spread based on a nonrated security. The market valuation is derived from a model that utilizes relevant assumptions such as the prepayment rate, default rate, and loss severity on a loan level basis. The Corporation modeled the cash flow from the fixed-rate mortgage collateral using a static cash flow analysis according to collateral attributes of the underlying mortgage pool (i.e., loan term, current balance, note rate, rate adjustment type, rate adjustment frequency, rate caps, and others) in combination with prepayment forecasts based on historical portfolio performance. The variable cash flow of the security is modeled using the 3-month LIBOR forward curve. Loss assumptions were driven by the combination of default and loss severity estimates, using an asset-level risk assessment method taking into account loan credit characteristics (loan-to-value, state jurisdiction, delinquency, property type and pricing behavior, and other) to provide an estimate of default and loss severity.

Refer to the table below for further information regarding qualitative information for all assets and liabilities measured at fair value using significant unobservable inputs (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 caps were valued using a discounted cash flow approach and using the related LIBOR and swap rate for each cash flow.

A credit spread is considered 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 quarter and six-month periods ended June 30, 2017 and 2016 was immaterial.

| Assets and

liabilities measured at fair value on a recurring basis are summarized below:
	As of June 30, 2017				As of December 31, 2016
	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 :
Equity
securities	$ 415	$ -	$ -	$ 415	$ 408	$ -	$ -	$ 408
U.S. Treasury
Securities	7,431	-	-	7,431	7,509	-	-	7,509
Noncallable
U.S. agency debt	-	365,710	-	365,710	-	356,919	-	356,919
Callable U.S.
agency debt and MBS	-	1,362,542	-	1,362,542	-	1,469,463	-	1,469,463
Puerto Rico
government obligations	-	4,176	1,470	5,646	-	24,707	2,121	26,828
Private label
MBS	-	-	18,201	18,201	-	-	20,693	20,693
Other
investments	-	-	100	100	-	-	100	100
Derivatives,
included in assets:
Purchased
interest rate cap agreements	-	261	-	261	-	554	-	554
Forward
contracts	-	137	-	137	-	-	-	-
Liabilities:
Derivatives,
included in liabilities:
Written
interest rate cap agreement	-	260	-	260	-	552	-	552
Forward
contracts	-	30	-	30	-	201	-	201

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 and six-month periods ended June 30, 2017 and 2016:

	2017	2016
Level 3 Instruments
Only	Securities	Securities
(In thousands)	Available For Sale (1)	Available For Sale (1)
Beginning
balance	$ 21,382	$ 26,663
Total gains
or (losses) (realized/unrealized):
Included
in other comprehensive income	228	558
Principal
repayments and amortization	(1,839)	(1,201)
Ending balance	$ 19,771	$ 26,020
(1)	Amounts mostly
related to private label mortgage-backed securities.

	2017	2016
Level 3 Instruments
Only	Securities	Securities
(In thousands)	Available For Sale (1)	Available For Sale (1)
Beginning
balance	$ 22,914	$ 27,297
Total gains
or (losses) (realized/unrealized):
Included
in earnings	-	(387)
Included
in other comprehensive income	746	1,816
Principal
repayments and amortization	(3,889)	(2,706)
Ending balance	$ 19,771	$ 26,020
(1)	Amounts mostly
related to private label mortgage-backed securities.

| The table below presents qualitative information for significant assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June

30, 2017:
	June 30, 2017
(In thousands)	Fair Value	Valuation Technique	Unobservable Input	Range
Investment
securities available-for-sale:
Private label
MBS	$ 18,201	Discounted cash
flow	Discount rate	14.3%
			Prepayment rate	12.5% - 25.0% (Weighted Average 15.3%)
			Projected
cumulative loss rate	0.1% - 6.8% (Weighted Average 3.6%)
Puerto Rico
Government Obligations	1,470	Discounted cash
flow	Prepayment rate	3.00%

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. Meaningful and possible shifts of each input were modeled 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 prepayment rate of the underlying residential mortgage loans collateral on these obligations that are guaranteed by the Puerto Rico Housing Finance Authority (“PRHFA”). A significant increase (decrease) in the assumed rate would lead to a higher (lower) fair value estimate. Loss severity and probability of default are not included as significant unobservable variables due to the guarantee of the PRHFA. The PRHFA credit risk is modeled by discounting the cash flows using a curve appropriate to the PRHFA credit rating.

| The tables below summarize changes in unrealized gains and losses recorded in earnings for the quarters and six-month periods ended June 30, 2017 and 2016 for Level

3 assets and liabilities that are still held at the end of each period:	Changes in Unrealized Losses	Changes in Unrealized Losses
	(Quarter ended June 30, 2017)	(Quarter ended June 30, 2016)
Level 3
Instruments Only	Securities	Securities
(In thousands)	Available For Sale	Available For Sale
Changes in
unrealized losses relating to assets still held at reporting date:
Net
impairment losses on available-for-sale investment securities (credit
component)	$ -	$ -

	Changes in Unrealized Losses	Changes in Unrealized Losses
	(Six-Month Period Ended June 30, 2017)	(Six-Month Period Ended June 30, 2016)
Level 3
Instruments Only	Securities	Securities
(In thousands)	Available For Sale	Available For Sale
Changes in
unrealized losses relating to assets still held at reporting date:
Net
impairment losses on available-for-sale investment securities (credit
component)	$ -	$ (387)

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, loans).

| As of June 30, 2017, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table: | Carrying value as of June 30, 2017 | | | (Losses) recorded for the Quarter Ended June 30, 2017 | (Losses) recorded for the Six-Month Period Ended June 30, 2017 | | --- | --- | --- | --- | --- | --- | | | Level 1 | Level 2 | Level 3 | | | | (In thousands) | | | | | | | Loans receivable (1) | $ - | $ - | $ 359,302 | $ (5,341) | $ (22,707) | | OREO (2) | - | - | 150,045 | (3,237) | (6,873) | | Mortgage servicing rights (3) | - | - | 26,502 | (197) | (357) | | (1) | Consist mainly of impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was derived from external appraisals that take 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 fair value was derived from appraisals that take 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), that are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio. | | | | | | (3) | Fair value adjustments to mortgage servicing rights were mainly due to assumptions associated with mortgage prepayment rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights include: Prepayment rate of 6.23%, Discount Rate of 11.21%. | | | | |

| As of June 30, 2016, impairment or valuation adjustments were recorded for assets recognized at fair value on a non-recurring basis as shown in the following table: | Carrying value as of June 30, 2016 | | | (Losses) recorded for the Quarter Ended June 30, 2016 | (Losses) recorded for the Six-Month Period Ended June 30, 2016 | | --- | --- | --- | --- | --- | --- | | | Level 1 | Level 2 | Level 3 | | | | (In thousands) | | | | | | | Loans receivable (1) | $ - | $ - | $ 464,467 | $ (7,870) | $ (27,536) | | OREO (2) | - | - | 139,159 | (3,436) | (5,727) | | Mortgage servicing rights (3) | - | - | 25,044 | (151) | (124) | | (1) | Consist mainly of impaired commercial and construction loans. The impairment was generally measured based on the fair value of the collateral. The fair value was derived from external appraisals that take 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 fair value was derived from appraisals that take 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), that are not market observable. Losses were related to market valuation adjustments after the transfer of the loans to the OREO portfolio. | | | | | | (3) | Fair value adjustments to the mortgage servicing rights were mainly due to assumptions associated with mortgage prepayments rates. The Corporation carries its mortgage servicing rights at the lower of cost or market, measured at fair value on a non-recurring basis. Assumptions for the value of mortgage servicing rights include: Prepayment Rate of 10.56%, Discount Rate of 10.67%. | | | | |

| Qualitative information regarding the

fair value measurements for Level 3 financial instruments are as follows:
	June 30, 2017
	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
Mortgage
servicing rights	Discounted Cash
Flow	Weighted
average prepayment rate of 6.23%; weighted average discount rate of 11.21%

The following is a description of the valuation methodologies used for instruments that are not measured or reported at fair value on a recurring basis or reported at fair value on a non-recurring basis. The estimated fair value was calculated using certain facts and assumptions, which vary depending on the specific financial instrument.

Cash and due from banks and money market investments

The carrying amounts of cash and due from banks and money market investments are reasonable estimates of their fair value. Money market investments include held-to-maturity securities, which have a contractual maturity of three months or less. The fair value of these securities is based on quoted market prices in active markets that incorporate the risk of nonperformance.

Investment securities held to maturity

Investment securities held to maturity consist of financing arrangements with Puerto Rico municipalities issued in bond form, but underwritten as loans with features that are typically found in commercial loan transactions. These obligations typically are not issued in bearer form, nor are they registered with the SEC and are not rated by external credit agencies. The fair value of these financing arrangements was based on a discounted cash flow analysis using risk-adjusted discount rates (Level 3). The credit spreads for valuations are based on a similar security that traded in the open market.

Other equity securities

Equity or other securities that do not have a readily available fair value are stated at their net realizable value, which management believes is a reasonable proxy for their fair value. This category is principally composed of stock that is owned by the Corporation to comply with FHLB regulatory requirements. The realizable value of the FHLB stock equals its cost as this stock can be freely redeemed at par.

Loans receivable, including loans held for sale

The fair value of loans held for investment and of mortgage loans held for sale was estimated using discounted cash flow analyses, based on interest rates currently being offered for loans with similar terms and credit quality and with adjustments that the Corporation’s management believes a market participant would consider in determining fair value. Loans were classified by type, such as commercial, residential mortgage, and automobile. These asset categories were further segmented into fixed- and adjustable-rate categories. Valuations are carried out based on categories and not on a loan-by-loan basis. The fair values of performing fixed-rate and adjustable-rate loans were calculated by discounting expected cash flows through the estimated maturity date. This fair value is not currently an indication of an exit price as that type of assumption could result in a different fair value estimate. The fair value of credit card loans was estimated using a discounted cash flow method and excludes any value related to a customer account relationship. Other loans with no stated maturity, like credit lines, were valued at book value. Prepayment assumptions were considered for non-residential loans. For residential mortgage loans, prepayment estimates were based on a prepayment model that combined both a historical calibration and current market prepayment expectations. Discount rates were based on the U.S. Treasury and LIBOR/Swap Yield Curves at the date of the analysis, and included appropriate adjustments for expected credit losses and liquidity. For impaired collateral dependent loans, the impairment was primarily measured based on the fair value of the collateral, which is derived from appraisals that take into consideration prices in observable transactions involving similar assets in similar locations.

Deposits

The estimated fair value of demand deposits and savings accounts, which are deposits with no defined maturities, equals the amount payable on demand at the reporting date. The fair values of retail fixed-rate time deposits, with stated maturities, are based on the present value of the future cash flows expected to be paid on the deposits. The cash flows were based on contractual maturities; no early repayments were assumed. Discount rates were based on the LIBOR yield curve.

The estimated fair value of total deposits excludes the fair value of core deposit intangibles, which represent the value of the customer relationship. The fair value of total deposits is measured by the value of demand deposits and savings deposits that bear a low or zero rate of interest and do not fluctuate in response to changes in interest rates.

The fair value of brokered CDs, which are included within deposits, is determined using discounted cash flow analyses over the full term of the CDs. The fair value of the CDs is computed using the outstanding principal amount. The discount rates used were based on brokered CD market rates as of June 30, 2017. The fair value does not incorporate the risk of nonperformance, since interests in brokered CDs are generally sold by brokers in amounts of less than $ 250,000 and, therefore, are insured by the FDIC.

Securities sold under agreements to repurchase

Some repurchase agreements reprice at least quarterly, and their outstanding balances are estimated to be their fair value. Where longer commitments are involved, fair value is estimated using exit price indications of the cost of unwinding the transactions as of the end of the reporting period. The brokers who are the counterparties provide these indications, which the Corporation evaluates. Securities sold under agreements to repurchase are fully collateralized by investment securities.

Advances from the FHLB

The fair value of advances from the FHLB with fixed maturities is determined using discounted cash flow analyses over the full term of the borrowings, using indications of the fair value of similar transactions. The cash flows assume no early repayment of the borrowings. Discount rates are based on the LIBOR yield curve. Advances from the FHLB are fully collateralized by mortgage loans and, to a lesser extent, investment securities.

Other borrowings

Other borrowings consist of junior subordinated debentures. Projected cash flows from the debentures were discounted using the Bloomberg BB Finance curve plus a credit spread. This credit spread was estimated using the difference in yield curves between swap rates and a yield curve that considers the industry and credit rating of the Corporation as issuer of the debentures at a tenor comparable to the time to maturity of the debentures.

| The following tables present the carrying value, estimated fair value and estimated fair value level of hierarchy of financial instruments as of June 30, 2017 and December 31, 2016: | Total Carrying Amount in Statement of Financial Condition June 30, 2017 | Fair Value Estimate June 30, 2017 | Level 1 | Level 2 | Level 3 | | --- | --- | --- | --- | --- | --- | | (In thousands) | | | | | | | Assets: | | | | | | | Cash and due from banks and money | | | | | | | market investments | $ 432,564 | $ 432,564 | $ 432,564 | $ - | $ - | | Investment securities available | | | | | | | for sale | 1,760,045 | 1,760,045 | 7,846 | 1,732,428 | 19,771 | | Investment securities held to maturity | 156,049 | 134,944 | - | - | 134,944 | | Other equity securities | 43,072 | 43,072 | - | 43,072 | - | | Loans held for sale | 37,272 | 39,805 | - | 30,019 | 9,786 | | Loans held for investment | 8,861,176 | | | | | | Less: allowance for loan and lease losses | (173,485) | | | | | | Loans held for investment, net of allowance | $ 8,687,691 | 8,403,999 | - | - | 8,403,999 | | Derivatives, included in assets | 398 | 398 | - | 398 | - | | Liabilities: | | | | | | | Deposits | 8,742,893 | 8,750,833 | - | 8,750,833 | - | | Securities sold under agreements to repurchase | 300,000 | 333,114 | - | 333,114 | - | | Advances from FHLB | 675,000 | 674,573 | - | 674,573 | - | | Other borrowings | 216,187 | 187,612 | - | - | 187,612 | | Derivatives, included in liabilities | 290 | 290 | - | 290 | - |

| | Total Carrying Amount in Statement of Financial Condition December 31, 2016 | Fair Value Estimate December 31, 2016 | Level 1 | Level 2 | Level 3 | | --- | --- | --- | --- | --- | --- | | (In thousands) | | | | | | | Assets: | | | | | | | Cash and due from banks and money | | | | | | | market investments | $ 299,685 | $ 299,685 | $ 299,685 | $ - | $ - | | Investment securities available | | | | | | | for sale | 1,881,920 | 1,881,920 | 7,917 | 1,851,089 | 22,914 | | Investment securities held to maturity | 156,190 | 132,759 | - | - | 132,759 | | Other equity securities | 42,992 | 42,992 | - | 42,992 | - | | Loans held for sale | 50,006 | 52,707 | - | 42,921 | 9,786 | | Loans held for investment | 8,886,873 | | | | | | Less: allowance for loan and lease losses | (205,603) | | | | | | Loans held for investment, net of allowance | $ 8,681,270 | 8,455,104 | - | - | 8,455,104 | | Derivatives, included in assets | 554 | 554 | - | 554 | - | | Liabilities: | | | | | | | Deposits | 8,831,205 | 8,838,606 | - | 8,838,606 | - | | Securities sold under agreements to repurchase | 300,000 | 335,840 | - | 335,840 | - | | Advances from FHLB | 670,000 | 669,687 | - | 669,687 | - | | Other borrowings | 216,187 | 171,374 | - | - | 171,374 | | Derivatives, included in liabilities | 753 | 753 | - | 753 | - |

NOTE 21 – SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow information is as follows:

	Six-Month Period Ended June 30, — 2017	2016
	(In thousands)
Cash paid for:
Interest on
borrowings	$ 44,613	$ 77,960
Income tax	2,389	558
Non-cash
investing and financing activities:
Additions to
other real estate owned	37,756	22,018
Additions to
auto and other repossessed assets	22,731	28,658
Capitalization of servicing assets	1,924	2,458
Loan
securitizations	131,808	146,277
Loans held
for sale transferred to held for investment	10,206	-
Property
plant and equipment transferred to other assets	1,185	-

NOTE 22 – SEGMENT INFORMATION

Based upon the Corporation’s organizational structure and the information provided to the Chief Executive Officer of the Corporation and, to a lesser extent, the Board of Directors, the operating segments are driven primarily by 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 June 30, 2017, the Corporation had six 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 reporting 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 executed to manage and enhance liquidity. This segment lends funds to the Commercial and Corporate Banking, Mortgage Banking and Consumer (Retail) Banking segments to finance their lending activities and borrows from those segments. The Consumer (Retail) Banking and the United States Operations segments also lend funds to the other segments. The interest rates charged or credited by Treasury and Investments, the Consumer (Retail) Banking and the United States Operations 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, “Basis of Presentation and Significant Accounting Policies,” in the audited consolidated financial statements of the Corporation for the year ended December 31, 2016, which are included in the Corporation’s 2016 Annual Report on Form 10-K.

The Corporation evaluates the performance of the segments based on net interest income, the provision for loan and lease 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 allowance for loan and lease losses.

| The following table presents information

about the reportable segments: — (In thousands)	Mortgage Banking	Consumer (Retail) Banking	Commercial and Corporate	Treasury and Investments	United States Operations	Virgin Islands Operations	Total
For the
quarter ended June 30, 2017:
Interest income	$ 33,086	$ 43,369	$ 30,364	$ 14,657	$ 16,675	$ 9,223	$ 147,374
Net (charge)
credit for transfer of funds	(11,500)	6,546	(9,012)	14,427	(461)	-	-
Interest expense	-	(6,183)	-	(12,112)	(4,372)	(803)	(23,470)
Net interest
income	21,586	43,732	21,352	16,972	11,842	8,420	123,904
(Provision)
release for loan and lease losses	(11,167)	(7,767)	770	-	(131)	199	(18,096)
Non-interest
income	4,764	12,153	1,171	438	574	1,449	20,549
Direct
non-interest expenses	(9,622)	(28,066)	(9,771)	(969)	(8,115)	(6,918)	(63,461)
Segment
income	$ 5,561	$ 20,052	$ 13,522	$ 16,441	$ 4,170	$ 3,150	$ 62,896
Average earning
assets	$ 2,471,666	$ 1,772,605	$ 2,482,323	$ 2,142,975	$ 1,501,169	$ 609,280	$ 10,980,018
(In thousands)	Mortgage Banking	Consumer (Retail) Banking	Commercial and Corporate	Treasury and Investments	United States Operations	Virgin Islands Operations	Total
For the
quarter ended June 30, 2016:
Interest income	$ 35,041	$ 45,134	$ 31,386	$ 12,917	$ 13,423	$ 9,033	$ 146,934
Net (charge)
credit for transfer of funds	(12,675)	3,854	(5,416)	13,861	376	-	-
Interest expense	-	(6,280)	-	(15,872)	(3,714)	(840)	(26,706)
Net interest
income	22,366	42,708	25,970	10,906	10,085	8,193	120,228
(Provision)
release for loan and lease losses	(11,608)	(7,259)	(2,020)	-	(251)	152	(20,986)
Non-interest
income	4,672	11,290	913	62	732	2,109	19,778
Direct
non-interest expenses	(10,131)	(28,029)	(11,659)	(1,498)	(8,253)	(6,671)	(66,241)
Segment
income	$ 5,299	$ 18,710	$ 13,204	$ 9,470	$ 2,313	$ 3,783	$ 52,779
Average earning
assets	$ 2,577,067	$ 1,978,803	$ 2,653,482	$ 2,780,102	$ 1,171,788	$ 607,915	$ 11,769,157

(In thousands)	Mortgage Banking	Consumer (Retail) Banking	Commercial and Corporate	Treasury and Investments	United States Operations	Virgin Islands Operations	Total
Six-Month
Period Ended June 30, 2017
Interest income	$ 67,044	$ 86,286	$ 59,775	$ 28,414	$ 32,464	$ 18,619	$ 292,602
Net (charge)
credit for transfer of funds	(23,198)	11,448	(18,323)	30,660	(587)	-	-
Interest expense	-	(12,083)	-	(23,918)	(8,567)	(1,581)	(46,149)
Net interest
income	43,846	85,651	41,452	35,156	23,310	17,038	246,453
Provision for
loan and lease losses	(20,103)	(14,909)	(7,285)	-	(96)	(1,145)	(43,538)
Non-interest
income (loss)	8,350	25,982	1,958	(11,732)	1,079	3,155	28,792
Direct
non-interest expenses	(19,501)	(55,484)	(19,138)	(2,176)	(15,974)	(13,668)	(125,941)
Segment
income	$ 12,592	$ 41,240	$ 16,987	$ 21,248	$ 8,319	$ 5,380	$ 105,766
Average earning
assets	$ 2,486,280	$ 1,776,384	$ 2,513,270	$ 2,150,097	$ 1,447,490	$ 613,527	$ 10,987,048
(In thousands)	Mortgage Banking	Consumer (Retail) Banking	Commercial and Corporate	Treasury and Investments	United States Operations	Virgin Islands Operations	Total
SIx-Month
Period Ended June 30, 2016
Interest income	$ 70,260	$ 91,200	$ 64,934	$ 26,677	$ 26,147	$ 18,547	$ 297,765
Net (charge)
credit for transfer of funds	(25,599)	7,736	(11,512)	28,387	988	-	-
Interest expense	-	(12,442)	-	(31,341)	(7,403)	(1,703)	(52,889)
Net interest
income	44,661	86,494	53,422	23,723	19,732	16,844	244,876
(Provision)
release for loan and lease losses	(17,748)	(15,796)	(9,568)	-	(461)	1,534	(42,039)
Non-interest
income (loss)	9,159	24,026	1,474	(2,339)	1,915	4,012	38,247
Direct
non-interest expenses	(20,964)	(60,118)	(21,323)	(2,548)	(15,514)	(13,660)	(134,127)
Segment
income	$ 15,108	$ 34,606	$ 24,005	$ 18,836	$ 5,672	$ 8,730	$ 106,957
Average earning
assets	$ 2,589,671	$ 1,998,955	$ 2,527,919	$ 2,845,682	$ 1,156,209	$ 618,476	$ 11,736,912

| The following table presents a reconciliation of the reportable segment financial information to the

consolidated totals:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
Net income :
Total
segment income	$ 62,896	$ 52,779	$ 105,766	$ 106,957
Other
operating expenses (1)	(25,608)	(23,303)	(51,010)	(48,414)
Income before
income taxes	37,288	29,476	54,756	58,543
Income tax
expense	(9,290)	(7,523)	(1,217)	(13,246)
Total
consolidated net income	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Average
assets:
Total
average earning assets for segments	$ 10,980,018	$ 11,769,157	$ 10,987,048	$ 11,736,912
Average
non-earning assets	900,622	972,711	893,785	961,237
Total
consolidated average assets	$ 11,880,640	$ 12,741,868	$ 11,880,833	$ 12,698,149
(1)	Expenses
pertaining to corporate administrative functions that support the operating
segments 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.

NOTE 23 – REGULATORY MATTERS, COMMITMENTS AND CONTINGENCIES

The Corporation and FirstBank are each subject to various regulatory capital requirements imposed by the 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. 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.

First BanCorp. is subject to the Written Agreement that the Corporation entered into with the New York FED on June 3, 2010. The Written Agreement provides, among other things, that the holding company must serve as a source of strength to FirstBank, and that, except with the consent generally of the New York FED and/or the Federal Reserve Board, (1) the holding company may not pay dividends to stockholders or receive dividends from FirstBank, (2) the holding company and its nonbank subsidiaries may not make payments on trust-preferred securities or subordinated debt, and (3) the holding company cannot incur, increase, or guarantee debt or repurchase any capital securities. The Written Agreement also required the holding company to submit a capital plan acceptable to the New York FED that reflected sufficient capital at First BanCorp. on a consolidated basis and follow certain guidelines with respect to the appointment or change in responsibilities of senior officers. The foregoing summary is not complete and is qualified in all respects by reference to the actual language of the Written Agreement, which the Corporation filed with the SEC.

The Corporation submitted its Capital Plan setting forth its plans for how to improve its capital positions to comply with the Written Agreement over time. In addition to the Capital Plan, the Corporation submitted to its regulators a liquidity and brokered CD plan, including a contingency funding plan, a non-performing asset reduction plan, a budget and profit plan, a strategic plan, and a plan for the reduction of classified and special mention assets. As of June 30, 2017, the Corporation had completed all of the items included in the Capital Plan and is continuing to work on reducing non-performing loans. The Written Agreement also requires the submission to the regulators of quarterly progress reports.

Although the Corporation and FirstBank became subject to the U.S. Basel III capital rules (“Basel III rules”) beginning on January 1, 2015, certain requirements of the Basel III rules are being phased in over several years. The phase-in period for certain deductions and adjustments to regulatory capital (such as certain intangible assets and deferred tax assets that arise from net operating losses and tax credit carryforwards) will be completed on January 1, 2018. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the 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 or dividend or interest payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines. The phase-in of the capital conservation buffer Do not modify beyond this point! !

Do not modify before this point! ! began on January 1, 2016 with a first year requirement of 0.625 % of additional Common Equity Tier 1 Capital (“CET1”), which is being progressively increased over a four-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019.

Under the fully phased-in Basel III rules, in order to be considered adequately capitalized, the Corporation will be 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.

In addition, as required under the Basel III rules, the Corporation’s trust preferred securities (“TRuPs”) were fully phased out from Tier 1 capital as of January 1, 2016. However, the Corporation’s TRuPs may continue to be included in Tier 2 capital until the instruments are redeemed or mature.

Please refer to the discussion in “Part I – Item 7 – Business – Supervision and Regulation” included in the Corporation’s 2016 Form 10-K for a more complete discussion of supervision and regulatory matters and activities that affect the Corporation and its subsidiaries.

| The Corporation's and its banking subsidiary's regulatory capital positions as of

June 30, 2017 and December 31, 2016 were as follows:
	Regulatory Requirements
	Actual		For Capital Adequacy Purposes		To be Well-Capitalized-General Thresholds
	Amount	Ratio	Amount	Ratio	Amount	Ratio
(Dollars in
thousands)
As of June
30, 2017
Total Capital
(to
Risk-Weighted
Assets)
First
BanCorp.	$ 1,969,487	22.24%	$ 708,370	8.0%	N/A	N/A
FirstBank	$ 1,920,418	21.70%	$ 708,102	8.0%	$ 885,128	10.0%
Common Equity
Tier 1 Capital
(to
Risk-Weighted Assets)
First
BanCorp.	$ 1,647,977	18.61%	$ 398,458	4.5%	N/A	N/A
FirstBank	$ 1,537,714	17.37%	$ 398,308	4.5%	$ 575,333	6.5%
Tier I Capital
(to
Risk-Weighted
Assets)
First
BanCorp.	$ 1,647,977	18.61%	$ 531,277	6.0%	N/A	N/A
FirstBank	$ 1,808,647	20.43%	$ 531,077	6.0%	$ 708,102	8.0%
Leverage ratio
First
BanCorp.	$ 1,647,977	14.14%	$ 466,291	4.0%	N/A	N/A
FirstBank	$ 1,808,647	15.53%	$ 465,716	4.0%	$ 582,146	5.0%
As of
December 31, 2016
Total Capital
(to
Risk-Weighted
Assets)
First
BanCorp.	$ 1,921,329	21.34%	$ 720,329	8.0%	N/A	N/A
FirstBank	$ 1,872,120	20.80%	$ 720,091	8.0%	$ 900,114	10.0%
Common Equity
Tier 1 Capital
(to
Risk-Weighted Assets)
First
BanCorp.	$ 1,597,117	17.74%	$ 405,185	4.5%	N/A	N/A
FirstBank	$ 1,523,332	16.92%	$ 405,051	4.5%	$ 585,074	6.5%
Tier I Capital
(to
Risk-Weighted
Assets)
First
BanCorp.	$ 1,597,117	17.74%	$ 540,247	6.0%	N/A	N/A
FirstBank	$ 1,757,642	19.53%	$ 540,068	6.0%	$ 720,091	8.0%
Leverage ratio
First
BanCorp.	$ 1,597,117	13.70%	$ 466,376	4.0%	N/A	N/A
FirstBank	$ 1,757,642	15.10%	$ 465,740	4.0%	$ 582,174	5.0%

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 commitments to sell mortgage loans at fair value. As of June 30, 2017, commitments to extend credit amounted to approximately $ 1.2 billion, of which $ 681.3 million relates to credit card loans. Commercial and Financial standby letters of credit amounted to approximately $ 38.3 million. 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. Generally, the Corporation does not enter into interest rate lock agreements with prospective borrowers in connection with its mortgage banking activities.

As of June 30, 2017, First BanCorp. and its subsidiaries were defendants in various legal proceedings 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 cases, matters and proceedings, utilizing the latest information available. For cases, matters and proceedings where it is both probable 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 cases, matters or proceedings 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 of multiple defendants in some of the current proceedings 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 cases, matters, and proceedings is inherently uncertain, based on information currently available, Management believes that the final disposition of the Corporation’s legal cases, matters or proceedings, to the extent not previously provided for, will not have a material negative 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 additional material loss in excess of any accrual) will be incurred in connection with any legal actions, 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 at June 30, 2017, no such disclosures were necessary.

However in the event of unexpected future developments, it is possible that the ultimate resolution of these cases, matters and proceedings, if unfavorable, may be material to the Corporation’s consolidated financial position on a particular period.

Ramirez Torres, et al. v Banco Popular de Puerto Rico, et al. FirstBank Puerto Rico has been named a defendant in a class action complaint captioned Ramirez Torres, et al. v. Banco Popular de Puerto Rico, et al. The complaint seeks damages and preliminary and permanent injunctive relief on behalf of the purported class against Banco Popular de Puerto Rico and other financial institutions with insurance agency subsidiaries in Puerto Rico. Plaintiffs contend that in November 2015, Antilles Insurance Company obtained approval from the Puerto Rico Insurance Commissioner to market an endorsement that allowed its customers to obtain a reimbursement on their insurance premium for good experience, but that defendants failed to offer this product or disclose its existence to their customers, favoring other products instead, in violation of their fiduciary duties as insurance producers. Plaintiffs seek a determination that defendants unlawfully failed to comply with their fiduciary duty to disclose the existence of this new insurance benefit from this carrier, as well as double or treble damages (the latter subject to a determination that defendants engaged in anti-monopolistic practices in failing to offer this product). On July 31, 2017, the court entered judgment dismissing the complaint with prejudice. Plaintiffs have until August 15, 2017 to file for reconsideration.

NOTE 24 – FIRST BANCORP. (HOLDING COMPANY ONLY) FINANCIAL INFORMATION

The following condensed financial information presents the financial position of the Holding Company only as of June 30, 2017 and December 31, 2016 and the results of its operations for the quarters and six-month periods ended June 30, 2017 and 2016.

| Statements of Financial Condition | As of June 30, | As of December 31, | | --- | --- | --- | | | 2017 | 2016 | | | (In thousands) | | | Assets | | | | Cash and due from banks | $ 25,624 | $ 29,393 | | Money market investments | 6,111 | 6,111 | | Other investment securities | 285 | 285 | | Loans held for investment, net | 208 | 227 | | Investment in First Bank Puerto Rico, at equity | 2,019,899 | 1,946,211 | | Investment in First Bank Insurance Agency, at equity | 14,219 | 10,941 | | Investment in FBP Statutory Trust I | 2,929 | 2,929 | | Investment in FBP Statutory Trust II | 3,561 | 3,561 | | Other assets | 4,017 | 3,791 | | Total assets | $ 2,076,853 | $ 2,003,449 | | Liabilities and Stockholders' Equity | | | | Liabilities: | | | | Other borrowings | $ 216,187 | $ 216,187 | | Accounts payable and other liabilities | 756 | 1,019 | | Total liabilities | 216,943 | 217,206 | | Stockholders' equity | 1,859,910 | 1,786,243 | | Total liabilities and stockholders' equity | $ 2,076,853 | $ 2,003,449 |

| Statements

of Income	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
	(In thousands)		(In thousands)
Income:
Interest
income on money market investments	$ 5	$ 5	$ 10	$ 10
Dividend
income from banking subsidiaries	1,800	31,158	3,600	31,158
Dividend
income from non-banking subsidiaries	-	-	-	7,000
Other income	66	63	128	123
	1,871	31,226	3,738	38,291
Expense:
Other
borrowings	2,065	1,982	4,027	3,960
Other
operating expenses	699	978	1,666	1,628
	2,764	2,960	5,693	5,588
Gain on early
extinguishment of debt	-	-	-	4,217
(Loss)
income before income taxes and equity
in
undistributed earnings of subsidiaries	(893)	28,266	(1,955)	36,920
Equity in
undistributed earnings of subsidiaries	28,891	(6,313)	55,494	8,377
Net income	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Other
Comprehensive income, net of tax	9,065	13,875	19,761	44,266
Comprehensive
income	$ 37,063	$ 35,828	$ 73,300	$ 89,563

NOTE 25 – SUBSEQUENT EVENTS

The Corporation has performed an evaluation of events occurring subsequent to June 30, 2017; management has determined that there are no events occurring in this period that require disclosure in or adjustment to the accompanying financial statements.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (MD&A)

| SELECTED

FINANCIAL DATA	Quarter ended		Six-Month Period Ended
(In
thousands, except for per share and financial ratios)	June 30,		June 30,
	2017	2016	2017	2016
Condensed
Income Statements:
Total
interest income	$ 147,374	$ 146,934	$ 292,602	$ 297,765
Total
interest expense	23,470	26,706	46,149	52,889
Net interest
income	123,904	120,228	246,453	244,876
Provision
for loan and lease losses	18,096	20,986	43,538	42,039
Non-interest
income	20,549	19,778	28,792	38,247
Non-interest
expenses	89,069	89,544	176,951	182,541
Income
before income taxes	37,288	29,476	54,756	58,543
Income tax
expense	(9,290)	(7,523)	(1,217)	(13,246)
Net income	27,998	21,953	53,539	45,297
Net income
attributable to common stockholders	27,329	21,953	52,201	45,297
Per Common
Share Results:
Net earnings
per common share-basic	$ 0.13	$ 0.10	$ 0.24	$ 0.21
Net earnings
per common share-diluted	$ 0.13	$ 0.10	$ 0.24	$ 0.21
Cash
dividends declared	$ -	$ -	$ -	$ -
Average
shares outstanding	213,900	212,768	213,621	212,558
Average
shares outstanding diluted	216,832	215,923	217,103	214,598
Book value
per common share	$ 8.44	$ 8.06	$ 8.44	$ 8.06
Tangible book
value per common share (1)	$ 8.24	$ 7.83	$ 8.24	$ 7.83
Selected
Financial Ratios (In Percent):
Profitability:
Return on
Average Assets	0.95	0.69	0.91	0.72
Interest
Rate Spread	4.15	3.76	4.15	3.85
Net Interest
Margin	4.44	4.01	4.43	4.09
Interest
Rate Spread - tax equivalent basis (2)	4.30	3.88	4.29	3.99
Net Interest
Margin - tax equivalent basis (2)	4.58	4.13	4.57	4.24
Return on
Average Total Equity	6.10	5.03	5.94	5.24
Return on
Average Common Equity	6.22	5.14	6.06	5.35
Average
Total Equity to Average Total Assets	15.50	13.78	15.31	13.69
Tangible
common equity ratio (1)	14.99	13.65	14.99	13.65
Dividend
payout ratio	-	-	-	-
Efficiency
ratio (3)	61.66	63.96	64.29	64.47
Asset
Quality:
Allowance
for loan and lease losses to total loans held for investment	1.96	2.64	1.96	2.64
Net
charge-offs (annualized) to average loans (4)	2.16	1.11	1.71	1.08
Provision
for loan and lease losses to net charge-offs	37.82	85.11	57.55	87.05
Non-performing assets to total assets (4)	4.83	6.05	4.83	6.05
Non-performing loans held for investment to total loans held for investment (4)	4.64	6.74	4.64	6.74
Allowance to
total non-performing loans held for investment (4)	42.17	39.19	42.17	39.19
Allowance to
total non-performing loans held for investment,
excluding
residential real estate loans	67.75	54.05	67.75	54.05
Other
Information:
Common Stock
Price: End of period	$ 5.79	$ 3.97	$ 5.79	$ 3.97
	As of June 30, 2017	As of December 31, 2016
Balance Sheet
Data:
Loans,
including loans held for sale	$ 8,898,448	$ 8,936,879
Allowance
for loan and lease losses	173,485	205,603
Money market
and investment securities	1,969,580	2,091,196
Intangible
assets	44,512	46,754
Deferred tax
asset, net	280,929	281,657
Total assets	11,913,800	11,922,455
Deposits	8,742,893	8,831,205
Borrowings	1,191,187	1,186,187
Total
preferred equity	36,104	36,104
Total common
equity	1,838,435	1,784,529
Accumulated
other comprehensive loss, net of tax	(14,629)	(34,390)
Total equity	1,859,910	1,786,243
______________
(1) Non-GAAP
financial measures. 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 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. The
denominator includes non-recurring income and changes in the fair value of
derivative instruments.
(4) Loans used
in the denominator in calculating each of these ratios include purchased
credit-impaired ("PCI") loans. However, the Corporation separately
tracks and reports PCI loans and excludes these from non-performing loan and
non-performing asset amounts.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations relates to the accompanying unaudited consolidated financial statements of First BanCorp. (the “Corporation” or “First BanCorp.”) and should be read in conjunction with such financial statements and the notes thereto. This section also presents certain non-GAAP financial measures. Refer to 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 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 offices in Puerto Rico, the United States Virgin Islands and British Virgin Islands, and the State of Florida (USA), concentrating on commercial banking, residential mortgage loan originations, finance leases, credit cards, personal loans, small loans, auto loans, and insurance agency and broker-dealer activities.

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 scenario; 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 loan and lease losses, non-interest expenses (such as personnel, occupancy, deposit insurance premium and other costs), non-interest income (mainly service charges and fees on deposits, insurance income and revenues from broker-dealer operations), gains (losses) on sales of investments, gains (losses) on mortgage banking activities, and income taxes.

The Corporation had n et income of $28.0 million, or $0.13 per diluted common share, for the quarter ended June 30, 2017, compared to $22.0 million, or $0.10 per diluted common share, for the same period in 2016. The Corporation’s financial results for the second quarter and first six months of 2017 and 2016 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:

Quarter and Six-Month Period Ended June 30, 2017

· Recovery of $0.4 million of previously recorded other-than-temporary impairment (“OTTI”) charges on non-performing bonds of the Government Development Bank for Puerto Rico (the “GDB”) and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017, reflected in the statement of income as part of “Net gain on sale of investments.” The aggregate book value of the bonds at the time of sale was $23.0 million. No tax expense was recognized for the recovery on the sale of bonds. Refer to the Exposure to Puerto Rico Government discussion below for additional information.

· Tax benefit of $13.2 million recorded in the first quarter of 2017 associated with the change in tax status of certain subsidiaries from taxable corporations to limited liability companies that make an election to be treated as partnerships for income tax purposes in Puerto Rico. Refer to the Income Taxes discussion below for additional information.

· OTTI charge of $12.2 million recorded in the first quarter of 2017 on the aforementioned non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority. No tax benefit was recognized for the OTTI charge. Refer to the Exposure to Puerto Rico Government discussion below for additional information.

· Charge to the provision for loan and lease losses of $0.6 million ($0.3 million after-tax) recorded in the first quarter of 2017 associated with the sale of the Corporation’s participation in the Puerto Rico Electric Power Authority (“PREPA”) credit line with a book value of $64 million at the time of sale. Refer to the Provision for Loan and Lease Losses discussion below for additional information.

· Costs of $0.3 million associated with the previously reported secondary offering of the Corporation’s common stock by certain of our existing stockholders completed in the first quarter of 2017. The costs, incurred at the holding company level, had no effect on the income tax expense in 2017.

Quarter and Six-Month Period Ended June 30, 2016

· OTTI charges on debt securities of $6.7 million recorded in the first quarter of 2016, primarily on the aforementioned bonds of the GDB and the Puerto Rico Public Buildings Authority. No tax benefit was recognized for the OTTI charges.

· Gain of $4.2 million recorded in the first quarter of 2016 on the repurchase and cancellation of $10 million in trust preferred securities, reflected in the statement of income as “Gain on early extinguishment of debt.” The gain, incurred at the holding company level, had no effect on the income tax expense in 2016. Refer to the Non Interest Income discussion below for additional information.

| The following table reconciles for the second quarter and first six months of 2017 and 2016, the reported net income to adjusted net income, a non-GAAP financial measure that excludes the items described above, which 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:	Quarter ended June 30,		Six-month period ended June 30,
	2017	2016	2017	2016
(In thousands)
Net income, as
reported	$ 27,998	$ 21,953	$ 53,539	$ 45,297
Adjustments:
Recovery
of previously recorded OTTI charges on Puerto Rico
government debt securities sold	(371)	-	(371)
Income tax
benefit related to change in tax-status of certain subsidiaries	-	-	(13,161)	-
Other-than-temporary impairment on debt securities			12,231	6,687
Charge
related to sale of the PREPA credit line	-	-	569	-
Secondary
offering costs	-	-	274	-
Gain on
early extinguishment of debt	-	-	-	(4,217)
Gain on
sale of investments				(8)
Income tax
impact of adjustments (1)	-	-	(222)	-
Adjusted net
income	$ 27,627	$ 21,953	$ 52,859	$ 47,759
(1) See Basis
of Presentation for the individual tax impact for each reconciling item.

The key drivers of the Corporation’s GAAP financial results for the quarter ended June 30, 2017, compared to the same period in 2016, include the following:

· Net interest income increased by $3.7 million to $123.9 million for the quarter ended June 30, 2017 compared to $120.2 million for the same period in 2016. The increase in net interest income was primarily driven by: (i) a $3.2 million decrease in interest expense, including a $3.3 million decrease in interest expense on repurchase agreements primarily reflecting the effect of the repayment of $400 million of repurchase agreements that matured in the second half of 2016 and a $1.2 million decrease in interest expense on brokered CDs, primarily related to a $667.7 million decrease in the average volume that offset higher costs on new issuances, partially offset by an increase of $0.8 million in interest expense on FHLB advances and an increase of $0.3 million in interest expense on non-brokered interest-bearing deposits, and (ii) a $3.7 million increase in interest income on commercial and construction loans associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans.

The aforementioned variances were partially offset by: (i) a $1.7 million decrease in interest income on consumer loans largely attributable to a decrease of $52.7 million in the average balance of this portfolio, primarily auto loans, and (ii) a $1.5 million decrease in interest income on residential mortgage loans, reflecting the effect of both higher inflows of residential mortgage loans to non-performing status, as compared to the second quarter of 2016, and a $41.9 million decrease in the average balance of this portfolio.

The net interest margin increased to 4.44% for the second quarter of 2017 compared to 4.01% for the same period a year ago, primarily reflecting the benefit of cash balances used for the repayment of high-cost repurchase agreements that matured in the second half of 2016, the change in mix of earning assets, and the reduction achieved in non-performing loans over the last 12 months. Refer to Net Interest Income discussion below for additional information.

· The provision for loan and lease losses decreased by $2.9 million to $18.1 million for the second quarter of 2017 compared to $21.0 million for the same period in 2016. The decrease reflects a reduction of $3.8 million in the loan loss provision for commercial and construction loans driven by a $4.2 million recovery recorded in the second quarter of 2017 on a previously charged-off commercial loan in Puerto Rico, and a $0.2 million decrease in the loan loss provision for residential mortgage loans. These variances were partially offset by a $1.1 million increase in the loan loss provision for consumer loans, primarily related to credit card loans.

Net charge-offs totaled $47.8 million for the second quarter of 2017, or 2.16% of average loans on an annualized basis, compared to $24.7 million, or 1.11% of average loans for the same period in 2016. The increase reflects the impact of charge-offs amounting to $29.7 million recorded in the second quarter of 2017 against previously-established specific reserves for commercial mortgage loans guaranteed by the Puerto Rico Tourism Development Fund (“TDF”) and charge-offs of $3.5 million recorded on the resolution of a $27.6 million non-performing commercial relationship in Puerto Rico, partially offset by the aforementioned loans loss recovery of $4.2 million on a previously charged-off commercial loan. In addition, residential mortgage and consumer loans net charge-offs in the second quarter of 2017 decreased by $4.6 million and $1.8 million, respectively, compared to the same period in 2016. Refer to the discussions under Provision for loan and lease losses and Risk Management below for an analysis of the allowance for loan and lease losses and non-performing assets and related ratios.

· The Corporation recorded non-interest income of $20.5 million for the second quarter of 2017, compared to $19.8 million for the same period in 2016. The increase was primarily related to the $0.4 million recovery of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017 and a $0.3 million reduction in unearned insurance commissions’ reserve. Refer to Non-Interest Income discussion below for additional information.

· Non-interest expenses for the second quarter of 2017 were $89.1 million compared to $89.5 million for the same period in 2016. The decrease in non-interest expenses was largely driven by: (i) a $2.0 million decrease in the FDIC insurance premium expense reflecting, among other things, an improved earnings trend, the effect of reductions in brokered deposits and average assets, a strengthened capital position, and the reduction in the initial base assessment rate effective since the third quarter of 2016, and (ii) a $0.9 million decrease in business promotion expenses reflecting reductions in marketing-related activities and in the estimated cost of the credit card rewards program.

These reductions were partially offset by: (i) a $1.0 million increase in employees’ compensation expenses, reflecting increases of $0.7 million in incentive-based compensation and $0.5 million related to salary merit increases, (ii) a $0.7 million increase in occupancy and equipment costs, primarily due to higher electricity and rental expenses, and (iii) a $0.5 million increase in professional services fees mainly related to implementation costs for new information technology systems. Refer to Non-Interest Expenses below for additional information.

· For the second quarter of 2017, the Corporation recorded an income tax expense of $9.3 million, compared to $7.5 million for the same period in 2016. The increase in the income tax expense was primarily related to the higher pre-tax earnings generated in the second quarter of 2017. The Corporation’s estimated annual effective tax rate for the first six months of 2017, excluding entities from which a tax benefit cannot be recognized and discrete items, was 24% compared to 22% for the first half of 2016. The estimated annual effective tax rate including all entities for 2017 was 14% (25% excluding discrete items, primarily the tax benefit resulting from the change in the tax status of two subsidiaries). As of June 30, 2017, the Corporation had a net deferred tax asset of $280.9 million (net of a valuation allowance of $190.0 million). Refer to Income Taxes below for additional information.

· As of June 30, 2017, total assets were $11.9 billion, a decrease of $8.7 million from December 31, 2016. The decrease primarily reflects: (i) a $121.9 million decrease in total investment securities, driven by prepayments of U.S. agency mortgage-backed securities (“MBS”) and the aforementioned sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority in the second quarter of 2017 (ii) a $38.4 million decrease in total loans, before the allowance for loan losses, primarily reflecting a reduction of $194.2 million in the Puerto Rico region, including the effect of the sale of the PREPA credit line with a book value of $64 million at the time of sale in the first quarter of 2017, the aforementioned charge-offs of $29.7 million on commercial mortgage loans guaranteed by the TDF, the resolution of a $27.6 million non-performing commercial relationship, and a $67.9 million reduction in residential mortgage loans, partially offset by a $166.3 million growth in the Florida region, primarily reflected in the commercial and residential loan portfolios, and (iii) a $23.2 million decrease in certain accounts receivables recorded as part of “Other assets” in the statement of financial condition.

These variances were partially offset by: (i) a $132.9 million increase in cash and cash equivalents, largely driven by the increase of $94.0 million in non-interest bearing deposits as well as proceeds from U.S. agency MBS prepayments, (ii) a $32.1 million decrease in the allowance for loan and lease losses, and (iii) a $12.4 million increase in the other real estate owned (“OREO”) portfolio balance, primarily related to acquired collateral amounting to $10.6 million in connection with the resolution of the aforementioned $27.6 million non-performing commercial relationship. Refer to Financial Condition and Operating Data discussion below for additional information.

· As of June 30, 2017, total liabilities were $10.1 billion, a decrease of $82.3 million from December 31, 2016. The decrease was mainly due to a $185.9 million decrease in brokered CDs, partially offset by a $97.6 million increase in non-brokered deposits primarily associated with the $85.4 million increase in government deposits. Refer to Risk Management – Liquidity and Capital Adequacy discussion below for additional information about the Corporation’s funding sources.

· As of June 30, 2017, the Corporation’s stockholders’ equity was $1.9 billion, an increase of $73.7 million from December 31, 2016. The increase was mainly driven by the earnings generated in the first six months of 2017, exclusive of the $12.2 million OTTI charge to earnings in the first quarter and previously included as part of other comprehensive loss in total equity. The Corporation’s Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital and Leverage ratios calculated under the Basel III rules as currently in effect were 22.24%, 18.61%, 18.61%, and 14.14%, respectively, as of June 30, 2017, compared to Total Capital, Common Equity Tier 1 Capital, Tier 1 Capital and Leverage ratios of 21.34%, 17.74%, 17.74%, and 13.70%, respectively, as of December 31, 2016. Refer to Risk Management – Capital discussion below for additional information.

· Total loan production, including purchases, refinancings, renewals and draws from existing revolving and non-revolving commitments, was $906.2 million for the quarter ended June 30, 2017, excluding the utilization activity on outstanding credit cards, compared to $712.8 million for the same period in 2016. The variance was primarily related to a $100.8 million increase in the Florida region, primarily commercial loans, a $46.1 million increase in consumer loan originations in Puerto Rico, and the refinancing and renewal of two large commercial loans in Puerto Rico totaling $72.5 million, partially offset by a $19.1 million decrease in residential mortgage loan originations in Puerto Rico.

· Total non-performing assets were $575.1 million as of June 30, 2017, a decrease of $159.4 million from December 31, 2016. The decrease primarily reflects the effect of the sale of the Corporation’s participation in the PREPA credit line with a book value of $64 million at the time of sale, the charge-offs of $29.7 million recorded on commercial mortgage loans guaranteed by the TDF, the sale of non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority with a book value at the time of sale of $23.0 million, the resolution of a $27.6 million non-performing commercial relationship in Puerto Rico, and decreases of $5.5 million and $3.0 million in non-performing residential and consumer loans, respectively. As part of the aforementioned resolution, the Corporation received a cash payment of $12.8 million, recorded charge-offs of $3.5 million, and acquired collateral amounting to $10.6 million transferred to the OREO portfolio.

· Adversely classified commercial and construction loans held for investment decreased by $121.8 million to $367.6 million as of June 30, 2017, driven by the reduction in non-performing loans discussed in the above bullet.

Critical Accounting Policies and Practices

The accounting principles of the Corporation and the methods of applying these principles conform to GAAP. The Corporation’s critical accounting policies relate to: 1) the allowance for loan and lease losses; 2) other-than-temporary impairments; 3) income taxes; 4) the classification and values of financial instruments; 5) income recognition on loans; 6) loans acquired; and 7) loans held for sale. These critical accounting policies involve judgments, estimates and assumptions made by management 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. Actual results could differ from estimates, if different assumptions or conditions prevail. Certain determinations inherently require greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than those originally reported.

The Corporation’s critical accounting policies are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in First BanCorp.’s 2016 Annual Report on Form 10-K. There have not been any material changes in the Corporation’s critical accounting policies since December 31, 2016.

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 and six-month period ended June 30, 2017 was $123.9 million and $246.5 million, respectively, compared to $120.2 million and $244.9 million for the comparable periods in 2016, respectively. On a tax-equivalent basis and excluding the changes in the fair value of derivative instruments, net interest income for the quarter and six-month period ended June 30, 2017 was $128.0 million and $254.2 million, respectively, compared to $123.7 million and $253.2 million for the comparable periods in 2016, respectively.

The following tables include a detailed analysis of net interest income. Part I presents average volumes 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, information is provided on changes attributable to (i) changes in volume (changes in volume multiplied by prior period rates), and (ii) changes in rate (changes in rate multiplied by prior period volumes). Rate-volume variances (changes in rate multiplied by changes in volume) have been allocated to the changes in volume and rate based upon their respective percentage of the combined totals.

The net interest income is computed on an adjusted tax-equivalent basis and excluding the change in the fair value of derivative instruments. For a definition and reconciliation of this non-GAAP financial measure, refer to the discussions below.

Part I	Average Volume		Interest income (1) / expense		Average Rate (1)
Quarter ended
June 30,	2017	2016	2017	2016	2017	2016
(Dollars in
thousands)
Interest-earning
assets:
Money market
& other short-term investments	$ 305,563	$ 1,009,398	$ 727	$ 1,271	0.95 %	0.51 %
Government
obligations (2)	698,471	747,760	4,476	6,006	2.57 %	3.23 %
Mortgage-backed
securities	1,292,997	1,380,043	12,489	9,898	3.87 %	2.88 %
FHLB stock	37,254	31,140	488	350	5.25 %	4.52 %
Other
investments	2,701	1,727	2	2	0.30 %	0.47 %
Total
investments (3)	2,336,986	3,170,068	18,182	17,527	3.12 %	2.22 %
Residential mortgage
loans	3,265,883	3,307,788	43,678	45,261	5.36 %	5.50 %
Construction
loans	154,980	144,788	1,458	1,301	3.77 %	3.61 %
C&I and
commercial mortgage loans	3,728,733	3,664,699	42,315	38,818	4.55 %	4.26 %
Finance leases	239,271	229,892	4,333	4,308	7.26 %	7.54 %
Consumer loans	1,474,662	1,536,755	41,543	43,223	11.30 %	11.31 %
Total loans (4) (5)	8,863,529	8,883,922	133,327	132,911	6.03 %	6.02 %
Total
interest-earning assets	$ 11,200,515	$ 12,053,990	$ 151,509	$ 150,438	5.43 %	5.02 %
Interest-bearing
liabilities:
Brokered CDs	$ 1,309,399	$ 1,977,059	$ 4,695	$ 5,847	1.44 %	1.19 %
Other
interest-bearing deposits	5,908,238	5,987,694	11,653	11,377	0.79 %	0.76 %
Other borrowed
funds	516,187	988,711	4,830	8,011	3.75 %	3.26 %
FHLB advances	593,791	455,000	2,292	1,471	1.55 %	1.30 %
Total
interest-bearing liabilities	$ 8,327,615	$ 9,408,464	$ 23,470	$ 26,706	1.13 %	1.14 %
Net interest income			$ 128,039	$ 123,732
Interest rate
spread					4.30 %	3.88 %
Net interest
margin					4.58 %	4.13 %

| Six-Month

Period Ended June 30,	Average Volume — 2017	2016	Interest income (1) / expense — 2017	2016	Average Rate (1) — 2017	2016
(Dollars in
thousands)
Interest-earning
assets:
Money market
& other short-term investments	$ 287,349	$ 930,090	$ 1,211	$ 2,344	0.85 %	0.51 %
Government
obligations (2)	713,804	723,761	8,836	11,484	2.50 %	3.19 %
Mortgage-backed
securities	1,313,664	1,384,924	24,103	22,175	3.70 %	3.22 %
FHLB stock	38,401	31,212	949	698	4.98 %	4.50 %
Other
investments	2,700	1,599	4	3	0.30 %	0.38 %
Total investments (3)	2,355,918	3,071,586	35,103	36,704	3.00 %	2.40 %
Residential mortgage
loans	3,265,886	3,314,685	87,958	90,649	5.43 %	5.50 %
Construction
loans	142,790	152,535	2,602	2,916	3.67 %	3.84 %
C&I and
commercial mortgage loans	3,742,103	3,692,656	83,425	79,796	4.50 %	4.35 %
Finance leases	237,013	230,058	8,647	8,744	7.36 %	7.64 %
Consumer loans	1,475,113	1,556,726	82,606	87,255	11.29 %	11.27 %
Total loans (4) (5)	8,862,905	8,946,660	265,238	269,360	6.03 %	6.05 %
Total
interest-earning assets	$ 11,218,823	$ 12,018,246	$ 300,341	$ 306,064	5.40 %	5.12 %
Interest-bearing
liabilities:
Brokered CDs	$ 1,361,245	$ 2,026,937	$ 9,500	$ 11,864	1.41 %	1.18 %
Other
interest-bearing deposits	5,896,570	5,966,560	22,820	22,617	0.78 %	0.76 %
Other borrowed
funds	516,187	953,863	9,415	15,466	3.68 %	3.26 %
FHLB advances	617,873	455,000	4,414	2,942	1.44 %	1.30 %
Total
interest-bearing liabilities	$ 8,391,875	$ 9,402,360	$ 46,149	$ 52,889	1.11 %	1.13 %
Net interest income			$ 254,192	$ 253,175
Interest rate
spread					4.29 %	3.99 %
Net interest
margin					4.57 %	4.24 %

| (1) | On an adjusted tax-equivalent basis. The adjusted tax-equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate of 39.0% 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. Changes in the fair value of derivatives are excluded 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 non-performing loans. | | (5) | Interest income on loans includes $2.0 million and $2.4 million for the quarters ended June 30, 2017 and 2016, respectively, and $4.1 million and $5.2 million for the six-month periods ended June 30, 2017 and 2016, respectively, of income from prepayment penalties and late fees related to the Corporation’s loan portfolio. |

Part II
	Quarter ended June 30,			Six-Month Period Ended June 30,
	2017 compared to 2016			2017 compared to 2016
	Increase (decrease)			Increase (decrease)
	Due to:			Due to:
(In thousands)	Volume	Rate	Total	Volume	Rate	Total
Interest income
on interest-earning assets:
Money market
& other short-term investments	$ (1,283)	$ 739	$ (544)	$ (2,179)	$ 1,046	$ (1,133)
Government
obligations	(373)	(1,157)	(1,530)	(157)	(2,491)	(2,648)
Mortgage-backed securities	(725)	3,316	2,591	(1,272)	3,200	1,928
FHLB stock	76	62	138	171	80	251
Other
investments	1	(1)	-	2	(1)	1
Total
investments	(2,304)	2,959	655	(3,435)	1,834	(1,601)
Residential
mortgage loans	(529)	(1,054)	(1,583)	(1,458)	(1,233)	(2,691)
Construction
loans	97	60	157	(186)	(128)	(314)
C&I and
commercial mortgage loans	711	2,786	3,497	1,014	2,615	3,629
Finance
leases	179	(154)	25	249	(346)	(97)
Consumer
loans	(1,634)	(46)	(1,680)	(4,706)	57	(4,649)
Total
loans	(1,176)	1,592	416	(5,087)	965	(4,122)
Total
interest income	(3,480)	4,551	1,071	(8,522)	2,799	(5,723)
Interest
expense on interest-bearing liabilities:
Brokered CDs	(2,183)	1,031	(1,152)	(4,308)	1,944	(2,364)
Other
interest-bearing deposits	(139)	415	276	(302)	505	203
Other
borrowed funds	(4,126)	945	(3,181)	(7,589)	1,538	(6,051)
FHLB
advances	505	316	821	1,131	341	1,472
Total
interest expense	(5,943)	2,707	(3,236)	(11,068)	4,328	(6,740)
Change in net
interest income	$ 2,463	$ 1,844	$ 4,307	$ 2,546	$ (1,529)	$ 1,017

Portions of the Corporation’s interest-earning assets, mostly investments in obligations of some U.S. government agencies and sponsored entities, 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 the Puerto Rico tax law (refer to Income Taxes below for additional information). To facilitate the comparison of all interest data related to these assets, the interest income has been converted to an adjusted taxable equivalent basis. The tax equivalent yield was estimated by dividing the interest rate spread on exempt assets by 1 less the Puerto Rico statutory tax rate as adjusted for changes to enacted tax rates (39.0%) and adding to it the average cost of interest-bearing liabilities. The computation considers the interest expense disallowance required by Puerto Rico tax law.

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. The changes in the fair value of the derivative instruments have no effect on interest due or interest earned on interest-bearing liabilities or interest-earning assets, respectively.

| 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. 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		Six-Month Period Ended
(Dollars in
thousands)	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
Interest Income

GAAP | $ 147,374 | $ 146,934 | $ 292,602 | $ 297,765 | | Unrealized loss on derivative instruments | - | 2 | 1 | 6 | | Interest income excluding valuations | 147,374 | 146,936 | 292,603 | 297,771 | | Tax-equivalent adjustment | 4,128 | 3,502 | 7,738 | 8,293 | | Interest income on a tax-equivalent basis excluding valuations | 151,502 | 150,438 | 300,341 | 306,064 | | Interest Expense
GAAP | 23,470 | 26,706 | 46,149 | 52,889 | | Net interest income - GAAP | $ 123,904 | $ 120,228 | $ 246,453 | $ 244,876 | | Net interest income excluding valuations | $ 123,904 | $ 120,230 | $ 246,454 | $ 244,882 | | Net interest income on a tax-equivalent basis excluding valuations | $ 128,032 | $ 123,732 | $ 254,192 | $ 253,175 | | Average Balances | | | | | | Loans and leases | $ 8,863,529 | $ 8,883,922 | $ 8,862,905 | $ 8,946,660 | | Total securities, other short-term investments and interest-bearing cash balances | 2,336,986 | 3,170,068 | 2,355,918 | 3,071,586 | | Average Interest-Earning Assets | $ 11,200,515 | $ 12,053,990 | $ 11,218,823 | $ 12,018,246 | | Average Interest-Bearing Liabilities | $ 8,327,615 | $ 9,408,464 | $ 8,391,875 | $ 9,402,360 | | Average Yield/Rate | | | | | | Average yield on interest-earning assets - GAAP | 5.28 % | 4.90 % | 5.26 % | 4.98 % | | Average rate on interest-bearing liabilities - GAAP | 1.13 % | 1.14 % | 1.11 % | 1.13 % | | Net interest spread - GAAP | 4.15 % | 3.76 % | 4.15 % | 3.85 % | | Net interest margin - GAAP | 4.44 % | 4.01 % | 4.43 % | 4.09 % | | Average yield on interest-earning assets excluding valuations | 5.28 % | 4.90 % | 5.26 % | 4.98 % | | Average rate on interest-bearing liabilities | 1.13 % | 1.14 % | 1.11 % | 1.13 % | | Net interest spread excluding valuations | 4.15 % | 3.76 % | 4.15 % | 3.85 % | | Net interest margin excluding valuations | 4.44 % | 4.01 % | 4.43 % | 4.09 % | | Average yield on interest-earning assets on a tax-equivalent basis | | | | | | and excluding valuations | 5.43 % | 5.02 % | 5.40 % | 5.12 % | | Average rate on interest-bearing liabilities | 1.13 % | 1.14 % | 1.11 % | 1.13 % | | Net interest spread on a tax-equivalent basis and excluding valuations | 4.29 % | 3.88 % | 4.29 % | 3.99 % | | Net interest margin on a tax-equivalent basis and excluding valuations | 4.58 % | 4.13 % | 4.57 % | 4.24 % |

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, branch-based 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 and six-month period ended June 30, 2017, net interest income increased $3.7 million to $123.9 million, and $1.6 million to $246.5 million, respectively, compared to the same periods in 2016. The $3.7 million increase in net interest income for the second quarter of 2017, compared to the same period in 2016, was primarily due to:

· A $3.2 million decrease in interest expense driven by: (i) a $3.3 million decrease in interest expense on repurchase agreements, primarily reflecting the effect of the repayment of $400 million of repurchase agreements that matured in the second half of 2016 and carried an average cost of 3.35%, and (ii) a $1.2 million decrease in interest expense on brokered CDs, primarily related to a $667.7 million decrease in the average volume that offset higher costs on new issuances. Over the last 12 months, the Corporation repaid $1.1 billion of maturing brokered CDs with an average all-in cost of 1.00% and new issuances amounted to $576.1 million with an average all-in cost of 1.35%. The aforementioned decreases were partially offset by an increase of $0.8 million in interest expense on FHLB advances, reflecting higher average balances on long-term FHLB advances, and an increase of $0.3 million in interest expense on non-brokered interest-bearing deposits reflecting higher market interest rates in 2017.

· A $3.7 million increase in interest income on commercial and construction loans associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans.

· A $0.4 million increase in interest income on investment securities, including an increase of $1.5 million in interest income on U.S. agency MBS, primarily associated with a lower U.S. agency MBS premium amortization expense resulting from lower prepayment speeds in 2017, and a $0.1 million increase in FHLB stock dividends. This was partially offset by a $1.2 million decrease in interest income on U.S agencies and Puerto Rico government debt securities, reflecting an adverse impact of approximately $0.7 million related to the bonds of the GDB and the Puerto Rico Public Buildings Authority that were placed in non-performing status in the third quarter of 2016 and subsequently sold in the second quarter in 2017, and the effect in the second quarter of 2016 of discount accretions totaling $0.5 million related to $61.3 million of U.S. agencies debt securities called prior to maturity.

Partially offset by:

· A $1.7 million decrease in interest income on consumer loans and finance leases mainly attributable to the $52.7 million reduction in the average balance of this portfolio, primarily auto loans.

· A $1.5 million decrease in interest income on residential mortgage loans reflecting the effect of both higher inflows of residential mortgage loans to non-performing status, as compared to the second quarter of 2016, and a $41.9 million decrease in the average balance of this portfolio.

· A $0.5 million decrease in interest income on interest-bearing cash and cash equivalents, primarily related to deposits maintained at the Federal Reserve Bank used to repay maturing brokered CDs and the aforementioned repurchase agreements that matured in the second half of 2016, partially offset by the increases in the Federal Funds target rate.

The $1.6 million increase in net interest income for the first six months of 2017, compared to the same period in 2016, was primarily due to:

· A $6.7 million decrease in interest expense driven by: (i) a $6.1 million decrease in interest expense on repurchase agreements primarily reflecting the effect of the aforementioned repayment of $400 million of repurchase agreements matured in the second half of 2016, and (ii) a $2.4 million decrease in interest expense on brokered CDs primarily related to a $665.7 million decrease in the average volume that offset higher costs on new issuances. The aforementioned decreases were partially offset by an increase of $1.5 million in interest expense on FHLB advances, reflecting higher average balances on short-term and long-term FHLB advances, and an increase of $0.2 million in interest expense on non-brokered interest-bearing deposits reflecting higher market interest rates in 2017.

· A $4.2 million increase in interest income on commercial and construction loans associated with both the growth of the performing commercial portfolios, primarily in the Florida region, and the upward repricing of variable rate commercial loans.

Partially offset by:

· A $4.7 million decrease in interest income on consumer loans and finance leases mainly attributable to the $74.7 million reduction in the average balance of this portfolio, primarily auto loans.

· A $2.6 million decrease in interest income on residential mortgage loans reflecting the effect of both higher inflows of residential mortgage loans to non-performing status in the first half of 2017, as compared to the same period in 2016, and a $48.8 million decrease in the average balance of this portfolio.

· A $1.1 million decrease in interest income on interest-bearing cash and cash equivalents, primarily related to the utilization of deposits maintained at the Federal Reserve Bank to repay maturing brokered CDs and the aforementioned repurchase agreements that matured in the second half of 2016, partially offset by the increases in the Federal Funds target rate.

· A $0.9 million decrease in interest income on investment securities, including an adverse impact of approximately $1.4 million related to the bonds of the GDB and the Puerto Rico Public Buildings Authority that were placed in non-performing status in the third quarter of 2016 and subsequently sold in the second quarter in 2017, and the effect in the first six month of 2016 of discount accretions totaling $0.5 million related to $61.3 million of U.S. agencies debt securities called prior to maturity. These variances were partially offset by a $0.8 million increase in interest income on U.S. agency MBS, primarily Do not modify beyond this point! !

Do not modify before this point! ! associated with a lower U.S. agency MBS premium amortization expense resulting from lower prepayment speeds in 2017, and a $0.2 million increase in FHLB stock dividends.

Net interest margin increased by 43 basis points to 4.44% for the second quarter of 2017, compared to the same period in 2016, and increased by 34 basis points to 4.43% for the first six months of 2017, compared to the same period in 2016. The increase was primarily driven by the benefit of cash balances used for the repayment of high-cost repurchase agreements that matured in the second half of 2016, the reduced reliance in brokered CDs, the change in mix of earning assets, and the reduction achieved in non-performing loans over the last 12 months. Loans increased as a percentage of interest-earning assets from 73.7% and 74.4% in the second quarter and first six months of 2016, respectively, to 79.1% and 79.0% in the second quarter and first six months of 2017, respectively.

On an adjusted tax-equivalent basis, net interest income for the quarter ended June 30, 2017 increased by $4.3 million to $128.0 million, when compared to the same period in 2016, and by $1.0 million to $254.2 million for the first six months of 2017, compared to the same period in 2016. In addition to the facts discussed above, the increase in the second quarter of 2017, as compared to the same period in 2016, also includes an increase of $0.6 million in the tax-equivalent adjustment related to the increased interest income on U.S. agency MBS held by the IBE subsidiary First Bank Overseas. For the first six months of 2017, the tax equivalent adjustment decreased by $0.6 million, as compared to the same period in 2016, primarily attributable to a lower volume of tax-exempt assets.

Provision for Loan and Lease Losses

The provision for loan and lease losses is charged to earnings to maintain the allowance for loan and lease losses at a level that the Corporation considers adequate to absorb probable losses inherent in the portfolio. The adequacy of the allowance for loan and lease losses is also based upon a number of additional factors, including trends in charge-offs and delinquencies, current economic conditions, the fair value of the underlying collateral and the financial condition of the borrowers, and, as such, includes amounts based on judgments and estimates made by the Corporation. Although the Corporation believes that the allowance for loan and lease losses is adequate, factors beyond the Corporation’s control, including factors affecting the economies of Puerto Rico, especially given the current economic climate in Puerto Rico, the United States, the U.S. Virgin Islands and the British Virgin Islands, may contribute to delinquencies and defaults, thus necessitating additional reserves.

For the second quarter ended June 30, 2017, the Corporation recorded a provision for loan and lease losses of $18.1 million compared to $21.0 million for the comparable period in 2016. The $2.9 million decrease in the provision was mainly driven by:

· A $3.8 million decrease in the loan loss provision for commercial and construction loans driven by a $4.2 million recovery recorded in the second quarter of 2017 on a previously charged-off commercial loan in Puerto Rico.

· A $0.2 million decrease in the loan loss provision for residential mortgage loans, primarily related to lower charge-offs recorded in the second quarter of 2017, as compared to the same period in 2016, partially offset by higher loss severity estimates in 2017.

Partially offset by:

· A $1.1 million increase in the loan loss provision for consumer loans, primarily related to historical loss rates applied for the determination of the general reserve for credit card loans.

For the six-month period ended June 30, 2017, the Corporation recorded a provision for loan and lease losses of $43.5 million compared to $42.0 million for the same period in 2016. The provision for the first six months of 2017 included a charge of $0.6 million associated with the sale of the PREPA credit line in the first quarter.

Excluding the impact of the charge mentioned above, the adjusted provision of $43.0 million for the first six months of 2017 increased by $1.0 million compared to the provision of $42.0 million for the same period in 2016. The $0.9 million increase in the adjusted provision was driven by:

· A $3.1 million increase in the loan loss provision for residential mortgage loans, primarily related to adjustments to the loss severity estimates, including adjustments to liquidation cost assumptions.

Partially offset by:

· A $2.1 million decrease in the adjusted loan loss provision for commercial and construction loans driven by a $5.0 million increase in loss loan recoveries, including the aforementioned $4.2 million recovery recorded in the second quarter of 2017 on a previously charged-off commercial loan in Puerto Rico, as well as lower historical loss rates used for the determination of the general reserve and the overall decrease in the balance of adversely classified asset; partially offset by an increase of Do not modify beyond this point! !

Do not modify before this point! ! $13.0 million in loan loss provisions on commercial mortgage loans guaranteed by the TDF driven by adjustments to the estimated value of the guarantee in light of the revised fiscal plan published by the Puerto Rico government and a preliminary agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed-income financial instrument. Refer to the Puerto Rico Government Exposure discussion below for additional information about the Corporation’s exposure to loans guaranteed by the TDF.

· A $0.1 million decrease in the provision for consumer loans, primarily reflecting a loan loss recovery of $1.2 million recorded in the first quarter of 2017 on the sale of certain credit card loans that had been fully charged-off in prior periods, almost entirely offset by an increase in historical loss rates applied for the determination of the general reserve for credit card loans.

Refer to Credit Risk Management discussion below for an analysis of the allowance for loan and lease losses, non-performing assets, impaired loans and related information, and refer to Financial Condition and Operating 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.

| Non-Interest

Income	Quarter Ended June 30,		Six-Month Period Ended June 30,
	2017	2016	2017	2016
(In thousands)
Service charges
on deposit accounts	$ 5,803	$ 5,618	$ 11,593	$ 11,418
Mortgage banking
activities	4,846	4,893	8,462	9,646
Insurance income	1,855	1,542	5,442	4,811
Other operating
income	7,674	7,725	15,155	14,834
Non-interest
income before net gain (loss) on investments and
gain on
early extinguishment of debt	20,178	19,778	40,652	40,709
Net gain on sale
of investments securities	371	-	371	8
OTTI on debt
securities	-	-	(12,231)	(6,687)
Net gain (loss)
on investments securities	371	-	(11,860)	(6,679)
Gain on early
extinguishment of debt	-	-	-	4,217
Total	$ 20,549	$ 19,778	$ 28,792	$ 38,247

Non-interest income primarily consists of income from service charges on deposit accounts; commissions derived from various banking, securities 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 investments and impairments.

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 gain on sales and securitization 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 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 point of sale (POS) interchange fees, as well as contractual shared revenues from merchant contracts sold in 2015 .

The net gain (loss) on investment securities reflects gains or losses as a result of sales that are consistent with the Corporation’s investment policies as well as OTTI charges on the Corporation’s investment portfolio.

The gain on early extinguishment of debt is related to the repurchase and cancellation in the first quarter of 2016 of $10 million in trust preferred securities of the FBP Statutory Trust II that were auctioned in a public sale at which the Corporation was invited to Do not modify beyond this point! !

Do not modify before this point! ! participate. The Corporation repurchased and cancelled the repurchased trust preferred securities, resulting in a commensurate reduction in the related Junior Subordinated Deferrable Debentures. The Corporation’s winning bid equated to 70% of the $10 million par value. The 30% discount, plus accrued interest, resulted in a gain of $4.2 million, which is reflected in the statement of income as a “Gain on early extinguishment of debt.” As of June 30, 2017, the Corporation still has Junior Subordinated Deferrable Debentures outstanding in the aggregate amount of $216.2 million.

Non-interest income for the second quarter of 2017 amounted to $20.5 million, compared to $19.8 million for the same period in 2016. The increase in non-interest income of $0.7 million was primarily related to:

· A $0.4 million partial recovery of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017. The Corporation sold for an aggregate of $23.4 million these non-performing bonds that were carried on its books at an amortized cost of $23.0 million (net of $34.4 million in cumulative OTTI charges).

· A $0.3 million increase in insurance income, reflecting the effect of a $0.3 million decrease in the unearned insurance commissions’ reserve to account for quarterly revisions.

· A $0.2 million increase in service charges on deposits, primarily related to an increase in corporate cash management fees.

Partially offset by:

· A $0.1 million decrease in revenues from the mortgage banking activities, driven by lower conforming loan originations and sales volume in the secondary market. Total loans sold in the secondary market to U.S. government-sponsored entities amounted to $99.5 million with a related gain of $3.6 million, net of To-Be-Announced MBS (“TBAs”) hedges losses of $0.3 million, in the second quarter of 2017, compared to $113.2 million with a related gain of $3.8 million, net of TBAs hedges losses of $0.5 million, in the second quarter of 2016. This variance was partially offset by a $0.1 million increase in servicing fees commensurate with the increase in the size of the servicing portfolio.

· A $0.1 million decrease in “other operating income” in the above table, reflecting a reduction in non-deferrable loan fees such as agent fees and unused commitment fees of approximately $0.3 million and a $0.4 million decrease in gain on sales of fixed assets, partially offset by a $0.6 million increase in transactional fees such as credit and debit cards interchange fess, ATM fees, and merchant referral income.

Non-interest income for the six-month period ended June 30, 2017 amounted to $28.8 million, compared to $38.2 million for the same period in 2016. The $9.5 million decrease in non-interest income was primarily due to:

· A $5.5 million increase in OTTI charges on debt securities. During the first quarter of 2017, the Corporation recorded a $12.2 million OTTI charge on bonds of the GDB and the Puerto Rico Public Buildings Authority that were subsequently sold in the second quarter. An OTTI charge of $6.3 million on the same securities was recorded in the first quarter of 2016.

· The effect in 2016 of the $4.2 million gain on the repurchase and cancellation of $10 million in trust preferred securities.

· A $1.2 million decrease in revenues from the mortgage banking business, driven by lower conforming loan originations and sales volume in the secondary market. Total loans sold in the secondary market to U.S. government-sponsored entities amounted to $184.6 million with a related gain of $5.9 million, net of TBAs hedges losses of $0.3 million, in the first half of 2017, compared to $219.2 million with a related gain of $7.3 million, net of TBAs hedges losses of $1.3 million, in the first half of 2016. This variance was partially offset by a $0.3 million increase in servicing fees commensurate with the increase in the size of the servicing portfolio.

Partially offset by:

· A $0.6 million in insurance income, including a $0.2 million increase in contingent commissions received by the insurance agency in 2017 and a $0.3 million decrease in the unearned insurance commissions’ reserve.

· The aforementioned $0.4 million partial recovery of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017.

· A $0.3 million increase in “other operating income” in the above table, reflecting a $1.5 million increase in transactional fees such as credit and debit cards interchange fess, ATM fees, and merchant referral income, partially offset by a $0.5 million reduction in non-deferrable loan fees such as agent fees and unused commitment fees, the effect in 2016 of fee income of $0.4 million recorded in connection with a terminated credit agreement in which the Bank was committed to participate, and a $0.4 million decrease in gain on sales of fixed asset.

| Non-Interest

Expenses
The
following table presents non-interest expenses for the periods indicated:
	Quarter Ended June 30,		Six-Month Period Ended June 30,
	2017	2016	2017	2016
(In thousands)
Employees'
compensation and benefits	$ 38,409	$ 37,401	$ 77,062	$ 75,836
Occupancy and
equipment	13,759	13,043	27,847	27,226
Insurance and
supervisory fees	4,855	7,066	9,764	14,409
Taxes, other
than income taxes	3,745	3,756	7,421	7,548
Professional
fees:
Collections,
appraisals and other credit-related fees	2,452	2,898	4,524	5,279
Outsourcing
technology services	5,398	4,937	10,752	9,705
Other
professional fees	3,950	3,492	7,480	7,119
Credit and debit
card processing expenses	3,566	3,274	6,397	6,556
Business
promotion	3,192	4,048	6,473	8,051
Communications	1,628	1,725	3,171	3,533
Net loss on OREO
and OREO operations	3,369	3,325	7,445	6,531
Other	4,746	4,579	8,615	10,748
Total	$ 89,069	$ 89,544	$ 176,951	$ 182,541

Non-interest expenses for the second quarter of 2017 were $89.1 million, compared to $89.5 million for the same period in 2016. The $0.5 million decrease in non-interest expenses was mainly due to:

· A $2.0 million decrease in the FDIC insurance premium expense, included as part of “Insurance and supervisory fees” in the table above, reflecting, among other things, the improved earnings trend, the effect of reductions in brokered deposits and average assets, a strengthened capital position, and a reduction in the initial base assessment rate effective since the third quarter of 2016.

· A $0.9 million decrease in business promotion expenses, reflecting reductions in marketing-related activities and in the estimated cost of the credit cards rewards program.

Partially offset by:

· A $1.0 million increase in employee’s compensation and benefits, reflecting increases of $0.7 million in incentive-based compensation and $0.5 million related to salary merit increases.

· A $0.7 million increase in occupancy and equipment expenses, primarily due to higher electricity and rental expenses.

· A $0.5 million increase in total professional fees mainly related to implementation costs for new information technology systems, partially offset by lower costs in collection efforts and appraisals.

· A $0.3 million increase in credit and debit card processing expenses, mainly related to higher transaction volumes.

Non-interest expenses for the first six months of 2017 were $177.0 million, compared to $182.5 million for the same period in 2016. The $5.6 million decrease in non-interest expenses was principally attributable to:

· A $4.3 million decrease in the FDIC insurance premium expense, included as part of “Insurance and supervisory fees” in the table above, reflecting, among other things, the improved earnings trend, the effect of reductions in brokered deposits and average assets, a strengthened capital position, and a reduction in the initial base assessment rate effective since the third quarter of 2016.

· A $2.1 million decrease in “other operating expenses” in the table above, including reductions of $1.6 million in the provision for unfunded loan commitments and letters of credit, primarily related to lower unfunded commitments on adversely classified loans, and a $0.6 million decrease in losses and expenses related to non-real estate repossessed assets.

· A $1.6 million decrease in business promotion expenses, primarily due to lower advertising and marketing-related activities.

· A $0.4 million decrease in communication expenses, primarily due to lower postage expenses.

Partially offset by:

· A $1.2 million increase in employees’ compensation and benefits mainly due to higher incentive-based compensation, salary merit increases, and stock-based compensation costs.

· A $0.9 million increase in losses on OREO operations, primarily reflecting a $0.7 million increase in operating expenses such as OREO-related property taxes.

· A $0.7 million increase in occupancy and equipment expenses, primarily due to higher electricity and rental expenses.

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, First BanCorp. is treated as a foreign corporation for U.S. and USVI income tax purposes and 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 regions. Any such tax paid in the U.S. and USVI is also either creditable against the Corporation’s Puerto Rico tax liability, or taken as a deduction against taxable income, 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. The 2011 PR Code allows entities organized as limited liability companies to perform an election to become a non-taxable “pass-through” entity and utilize losses to offset income from other “pass-through” entities, subject to certain limitations, with the remaining net income passing-through to its partner entities. The 2011 PR Code also 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.

Do not modify before this point! ! decrease in the income tax expense for the first six months of 2017, as compared to the same period in 2016, was mostly attributable to a $13.2 million tax benefit recorded in the first quarter of 2017 as a result of the above discussed change in tax status of certain subsidiaries from taxable corporations to limited liability companies with an election to be treated as partnerships for income tax purposes in Puerto Rico.

The $13.2 million tax benefit was primarily associated with the reversal of the $13.9 million deferred tax asset valuation allowance previously recorded at FirstBank related to pass-through ordinary net operating losses, partially offset by the elimination of the $0.7 million deferred tax asset previously recorded at FirstBank Insurance. The remaining difference in the income tax expense of the first six months of 2017, when compared to the first six months of 2016, was primarily related to a higher estimated annual effective tax rate in 2017.

For the six-month period ended June 30, 2017, 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 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 half of 2017, excluding entities from which a tax benefit cannot be recognized and discrete items, was 24% compared to 22% for the first half of 2016. The estimated annual effective tax rate including all entities for 2017 was 14% (25% excluding discrete items, primarily the tax benefit resulting from the previously mentioned change in the tax status of two subsidiaries) compared to 24% for the first half of 2016.

The Corporation’s net deferred tax asset amounted to $280.9 million as of June 30, 2017, net of a valuation allowance of $190.0 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 $280.7 million as of June 30, 2017, net of a valuation allowance of $149.8 million, compared to a net deferred tax asset of $277.4 million, net of a valuation allowance of $171.0 million, as of December 31, 2016. See Item 1A of Part II, Our ability to use our U.S. and U.S.V.I. net operating loss (NOL) carryforwards may be limited, with respect to a risk relating to the use of the U.S. and U.S.V.I. NOLs.

FINANCIAL CONDITION AND OPERATING DATA ANALYSIS

Assets

The Corporation’s total assets were $11.9 billion as of June 30, 2017, a decrease of $8.7 million from December 31, 2016. The decrease, as further discussed below, was mainly due to a $121.9 million decrease in total investment securities, a $38.4 million decrease in total loans, and a $23.2 million decrease in certain accounts receivables recorded as part of “Other assets” in the statement of financial condition, partially offset by a $132.9 million increase in cash and cash equivalents, largely driven by the increase of $94.0 million in non-interest bearing deposits as well as proceeds from U.S. agency MBS prepayments, a $32.1 million decrease in the allowance for loan and lease losses, and a $12.4 million increase in the OREO portfolio balance, primarily related to acquired collateral amounting to $10.6 million in connection with the resolution of the aforementioned $27.6 million non-performing commercial relationship in Puerto Rico.

| Loan

Portfolio
The
following table presents the composition of the Corporation’s loan portfolio,
including loans held for sale, as of the dates indicated:
	June 30,	December 31,
(In thousands)	2017	2016
Residential
mortgage loans	$ 3,282,307	$ 3,296,031
Commercial
loans:
Commercial
mortgage loans	1,611,730	1,568,808
Construction loans	122,093	124,951
Commercial
and Industrial loans	2,116,756	2,180,455
Total
commercial loans	3,850,579	3,874,214
Finance leases	242,645	233,335
Consumer loans	1,485,645	1,483,293
Total loans
held for investment	8,861,176	8,886,873
Less:
Allowance
for loan and lease losses	(173,485)	(205,603)
Total loans
held for investment, net	$ 8,687,691	$ 8,681,270
Loans
held for sale	37,272	50,006
Total loans,
net	$ 8,724,963	$ 8,731,276

As of June 30, 2017, the Corporation’s total loan portfolio, before allowance, amounted to $8.9 billion, down $38.4 million when compared to December 31, 2016. The decline primarily reflects a $194.2 million decrease in the Puerto Rico region, including the effect of the sale of the PREPA credit line with a book value of $64 million at the time of sale in the first quarter of 2017, the aforementioned charge-offs of $29.7 million on commercial mortgage loans guaranteed by the TDF, the resolution of a $27.6 million non-performing commercial relationship, and a $67.9 million reduction in residential mortgage loans, partially offset by a $166.3 million growth in the Florida region primarily reflected in the commercial and residential loan portfolios. .

As shown in the table above, as of June 30, 2017, the loans held for investment portfolio was comprised of commercial loans (43%), residential real estate loans (37%), and consumer and finance leases (20%). Of the total gross loan portfolio held for investment of $8.9 billion as of June 30, 2017, approximately 76% has credit risk concentration in Puerto Rico, 17% in the United States (mainly in the state of Florida) and 7% in the Virgin Islands, as shown in the following table:

| As of June

30, 2017	Puerto Rico	Virgin Islands	United States	Total
(In thousands)
Residential
mortgage loans	$ 2,415,215	$ 287,397	$ 579,695	$ 3,282,307
Commercial
mortgage loans	1,152,380	98,935	360,415	1,611,730
Construction
loans	49,682	42,395	30,016	122,093
Commercial and
Industrial loans	1,454,116	140,129	522,511	2,116,756
Total
commercial loans	2,656,178	281,459	912,942	3,850,579
Finance leases	242,645	-	-	242,645
Consumer loans	1,383,161	48,128	54,356	1,485,645
Total loans
held for investment, gross	$ 6,697,199	$ 616,984	$ 1,546,993	$ 8,861,176
Loans held for
sale	35,369	175	1,728	37,272
Total loans	$ 6,732,568	$ 617,159	$ 1,548,721	$ 8,898,448
As of
December 31, 2016	Puerto Rico	Virgin Islands	United States	Total
(In thousands)
Residential
mortgage loans	$ 2,480,076	$ 314,915	$ 501,040	$ 3,296,031
Commercial
mortgage loans	1,177,550	79,365	311,893	1,568,808
Construction
loans	42,753	44,687	37,511	124,951
Commercial and
Industrial loans	1,571,097	139,795	469,563	2,180,455
Total
commercial loans	2,791,400	263,847	818,967	3,874,214
Finance leases	233,335	-	-	233,335
Consumer loans	1,383,485	48,958	50,850	1,483,293
Total loans
held for investment, gross	$ 6,888,296	$ 627,720	$ 1,370,857	$ 8,886,873
Loans held for
sale	38,423	-	11,583	50,006
Total loans	$ 6,926,719	$ 627,720	$ 1,382,440	$ 8,936,879

Residential Real Estate Loans

As of June 30, 2017, the Corporation’s residential real estate loan portfolio held for investment decreased by $13.7 million as compared to the balance as of December 31, 2016, mainly resulting from activities in Puerto Rico as principal repayments and charge-offs exceeded the volume of new loans originated and held for investment purposes. The residential mortgage loan portfolio held for investment in the Puerto Rico and Virgin Islands regions decreased during the first six months of 2017 by $64.9 million and $27.5 million, respectively, partially offset by an increase of $78.7 million in Florida.

The majority of the Corporation’s outstanding balance of residential mortgage loans in Puerto Rico and the Virgin Islands consists of fixed-rate loans that traditionally carried higher yields than residential mortgage loans in Florida. In the Florida region, approximately 56% of the residential real estate loan portfolio consisted of adjustable rate mortgages. In accordance with the Corporation’s underwriting guidelines, residential real estate loans are mostly fully documented loans, and the Corporation does not generally originate negative amortization loans. Refer to “Contractual Obligations and Commitments” below for additional information about outstanding commitments to sell mortgage loans.

Commercial and Construction Loans

As of June 30, 2017, the Corporation’s commercial and construction loan portfolio held for investment decreased by $23.6 million to $3.9 billion, as compared to the balance as of December 31, 2016. The decrease in commercial and construction loans includes the aforementioned sale of the PREPA credit line in the first quarter of 2017 with a book value of $64 million at the time of sale, charge offs of $29.7 million on commercial mortgage loans guaranteed by the TDF, and the resolution of the $27.6 million non-performing commercial relationship in Puerto Rico. The commercial and construction loan portfolio in the Puerto Rico region decreased by $135.2 million, partially offset by increases of $94.0 million and $17.6 million in the Florida and Virgin Islands regions, respectively. The Corporation has invested in facilities, has increased its resources dedicated to commercial and corporate banking functions and has invested in a technology platform in Florida as the Corporation expects to achieve continued growth in this region.

As of June 30, 2017, the Corporation had $57.4 million outstanding in loans extended to the Puerto Rico government, its municipalities and public corporations, compared to $133.6 million outstanding as of December 31, 2016. Approximately $34.8 million of the outstanding loans consisted of loans extended to municipalities in Puerto Rico, which in most cases are supported by assigned property tax revenues. The vast majority of revenues of the municipalities included in the Corporation’s loan portfolio are independent of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just below 5% of the total revenues of these municipalities. These 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. Late in 2015, the GDB and the Municipal Revenue Collection Center (CRIM) signed and perfected a deed of trust. Through this deed, the GDB, 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. Approximately $6.8 million of the outstanding loans as of June 30, 2017 consisted of a loan to a unit of the central government, and approximately $15.8 million consisted of a loan to an affiliate of a public corporation. As mentioned above, during the first quarter of 2017, the Corporation received an unsolicited offer and sold its outstanding participation in the PREPA line of credit with a book value of $64 million at the time of sale (principal balance of $75 million), thereby reducing its direct exposure to the Puerto Rico government.

Furthermore, as of June 30, 2017, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the TDF with an outstanding principal balance of $127.6 million (book value $80.5 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $3.4 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $29.7 million on these facilities. The largest of these three loans became over 90 days matured in the second quarter of 2017 and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. Upon completion of the agreement, which is linked in part to the GDB’s Restructuring Support Agreement recently approved by the PROMESA oversight board, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans thus, any decline in the collateral valuations may require additional impairments on these loans. As of June 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 56% of unpaid principal balance.

The Corporation also has credit exposure to USVI government entities. As of June 30, 2017 the Corporation had $85.2 million in loans to USVI government instrumentalities and public corporations, compared to $84.7 million as of December 31, 2016. Of the amount outstanding as of June 30, 2017, approximately $62.0 million corresponds to public corporations of the USVI and $23.2 Do not modify beyond this point! !

Do not modify before this point! ! million corresponds to an independent instrumentality of the USVI government. All loans are currently performing and up to date with its principal and interest payments.

As of June 30, 2017 the Corporation’s total exposure to shared national credit (“SNC”) loans amounted to $856.5 million, compared to $717.6 million as of December 31, 2016. As of June 30, 2017, approximately $422.0 million of the SNC exposure is in Puerto Rico, including $44.5 million of the loans guaranteed by the TDF.

| The composition of the Corporation's construction loan portfolio held for

investment as of June 30, 2017 by category and geographic location follows:
As of June
30, 2017
	Puerto Rico	Virgin Islands	United States	Total
(In thousands)
Loans for
residential housing projects:
Mid-rise (1)	$ 1,067	$ -	$ -	$ 1,067
Single-family, detached	2,271	150	3,793	6,214
Total for residential
housing projects	3,338	150	3,793	7,281
Construction
loans to individuals secured by residential properties	561	1,375	-	1,936
Loans for
commercial projects	18,163	38,212	26,109	82,484
Land loans -
residential	16,330	2,709	114	19,153
Land loans -
commercial	11,390	-	-	11,390
Total before net deferred fees and allowance for loan losses	$ 49,782	$ 42,446	$ 30,016	$ 122,244
Net deferred
fees	(100)	(51)	-	(151)
Total construction loan portfolio, gross	49,682	42,395	30,016	122,093
Allowance for
loan losses	(1,810)	(1,918)	(8)	(3,736)
Total
construction loan portfolio, net	$ 47,872	$ 40,477	$ 30,008	$ 118,357
____________________
(1) Mid-rise
relates to buildings of up to 7 stories.

| The following table presents further information related to the Corporation’s construction portfolio as of and for the six-month period ended June 30,

2017:
(In thousands)
Total
undisbursed funds under existing commitments	$ 72,277
Construction
loans held for investment in non-accrual status	$ 47,391
Construction
loans held for sale in non-accrual status	$ 8,079
Net charge offs

Construction loans | $ 80 | | Allowance for loan losses - Construction loans | $ 3,736 | | Non-performing construction loans to total construction loans, including held for sale | 42.61% | | Allowance for loan losses - construction loans to total construction loans held for investment | 3.06% | | Net charge-offs (annualized) to total average construction loans | 0.11% |

| The following summarizes the construction loans for residential housing projects in Puerto Rico segregated

by the estimated selling price of the units:
	(In thousands)
Under
$300k	$ 2,359
Over
$600k (1)	979
	$ 3,338
_____________
(1) One
residential housing project in Puerto Rico.

Consumer Loans and Finance Leases

As of June 30, 2017, the Corporation’s consumer loan and finance lease portfolio increased by $11.7 million to $1.7 billion, as compared to the portfolio balance as of December 31, 2016. The increase was primarily reflected in personal loans and finance leases, showing increases of $13.3 million and $9.3 million, respectively, partially offset by a $4.4 million reduction in credit card loan portfolio, and a $3.7 million decrease in boat loans. The increase was primarily associated with an increased level of loan originations in the Puerto Rico region.

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 June 30, — 2017	2016	Six-Month Period Ended June 30, — 2017	2016
	(In thousands)
Residential real
estate	$ 180,031	$ 192,836	$ 344,171	$ 357,056
C&I and
commercial mortgage	538,175	383,057	1,062,870	728,303
Construction	9,382	4,936	34,997	7,969
Finance leases	25,781	20,193	50,169	42,136
Consumer	239,369	192,070	445,016	377,584
Total loan
production	$ 992,738	$ 793,092	$ 1,937,223	$ 1,513,048

The Corporation is experiencing continued loan demand and has continued its targeted origination strategy. During the quarter and six-month period ended June 30, 2017, total loan originations, including purchases, refinancings, and draws from existing revolving and non-revolving commitments, amounted to approximately $992.7 million and $1.9 billion, respectively, compared to $793.1 million and $1.5 billion, respectively, for the comparable periods in 2016.

Residential mortgage loan originations and purchases for the quarter and six-month period ended June 30, 2017 amounted to $180.0 million and $344.2 million, respectively, compared to $192.8 million and $357.1 million, respectively, for the comparable periods in 2016. These statistics include purchases of $17.7 million and $32.4 million for the quarter and six-month period ended June 30, 2017, respectively, compared to $22.9 million and $42.1 million, respectively, for the comparable periods in 2016. The decrease of $12.8 million in the second quarter of 2017, as compared to the same period of 2016, reflects a decrease of approximately $19.1 million and $3.1 million on the Puerto Rico and Virgin Islands region, respectively, partially offset by an increase of approximately $9.3 million in the Florida region. For the six-month period ended June 30, 2017, the decrease includes reductions of $33.5 million and $3.3 million on the Puerto Rico and the Virgin Islands regions, respectively, partially offset by an increase of $23.9 million in the Florida region.

Commercial and construction loan originations (excluding government loans) for the second quarter of 2017 and 2016 amounted to $547.6 million and $374.1 million, respectively, while the originations for the six-month periods ended June 30, 2017 and 2016 amounted to $1.1 billion and $710.5 million, respectively. The increase in the second quarter of 2017, compared to the same period in 2016, was significantly impacted by the refinancing and renewal of two large commercial loans in Puerto Rico totaling $72.5 million and an increase of $89.0 million in commercial and construction loan originations in Florida. For the six-month period ended June 30, Do not modify beyond this point! !

Do not modify before this point! ! 2017, the increase includes the impact of the refinancing and renewal of five large commercial loans in Puerto Rico totaling $248.9 million and an increase of $110.8 million in the Florida region .

No government loans were originated during the second quarter and six-month period ended June 30, 2017, compared to government loans originations of $13.9 million and $25.7 for the second quarter and six-month period ended June 30, 2016, respectively.

Originations of auto loans (including finance leases) for the quarter and six-month period ended June 30, 2017 amounted to $116.3 million and $221.7 million, respectively, compared to $81.9 million and $168.0 million, respectively, for the comparable periods in 2016. Personal loan originations, other than credit cards, for the quarter and six-month period ended June 30, 2017 amounted to $62.2 million and $110.0 million, respectively, compared to $50.1 million and $96.9 million, respectively, for the comparable periods in 2016. Most of the increase in consumer loan originations was reflected in the Puerto Rico region. The utilization activity on the outstanding credit card portfolio for the quarter and six-month period ended June 30, 2017 amounted to approximately $86.6 million and $163.5 million, respectively, compared to $80.3 million and $154.8 million, respectively, for the comparable periods in 2016.

Investment Activities

As part of its liquidity, revenue diversification and interest rate risk 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 June 30, 2017 amounted to $1.8 billion, a $121.9 million decrease from December 31, 2016. The decrease was mainly driven by: (i) U.S. agency MBS prepayments of approximately $95.5 million, and (ii) the sale of non-performing bonds of GDB and the Puerto Rico Public Buildings Authority with a book value of $23.0 million at the time of sale.

Approximately 99% of the Corporation’s available-for-sale securities portfolio is invested in U.S. Government and Agency debentures and fixed rate U.S. government-sponsored agency MBS (mainly GNMA, FNMA and FHLMC fixed-rate securities).

The Corporation owns bonds of the Puerto Rico Housing Finance Authority in the aggregate amount of $8.0 million carried on the Corporation’s books at their aggregate fair value of $5.6 million that are current as to contractual payments as of June 30, 2017.

As of June 30, 2017, the Corporation’s held-to-maturity investment securities portfolio amounted to $156.0 million, down $0.2 million from December 31, 2016. Held-to-maturity investment securities consist of financing arrangements with Puerto Rico municipalities issued in bond form, accounted for as securities, but 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 SEC and are not rated by external credit agencies. These bonds have seniority to the payment of operating costs and expenses of the municipality and are supported by assigned property tax revenues. Approximately 70% consist of obligations issued by three of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities are independent of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just over 4% of the total revenues of these municipalities (6% of total revenues for the entire Corporation’s exposure to municipalities bonds). These 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.

Refer to Exposure to Puerto Rico Government discussion below for information and details about the Corporation’s total direct exposure to the Puerto Rico government.

100

| The following table presents the

carrying value of investments as of the indicated dates:	June 30,	December 31,
	2017	2016
(In thousands)
Money market
investments	$ 10,414	$ 10,094
Investment
securities available for sale, at fair value:
U.S.
Government and agencies obligations	496,726	505,859
Puerto Rico
government obligations	5,646	26,828
Mortgage-backed securities	1,257,158	1,348,725
Other	515	508
Total
investment securities available for sale, at fair value	1,760,045	1,881,920
Investment
securities held-to-maturity, at amortized cost:
Puerto Rico
Municipal Bonds	156,049	156,190
Other equity
securities, including $40.9 million and $40.8 million of FHLB stock
as of
June 30, 2017 and December 31, 2016, respectively	43,072	42,992
Total money
market investments and investment securities	$ 1,969,580	$ 2,091,196

Mortgage-backed securities as of the indicated dates consist of:	June 30,	December 31,
(In thousands)	2017	2016
Available for
sale:
FHLMC
certificates	$ 295,491	$ 315,320
GNMA
certificates	205,104	226,627
FNMA
certificates	681,130	727,273
Collateralized mortgage obligations issued or
guaranteed by FHLMC and GNMA	57,232	58,812
Other
mortgage pass-through certificates	18,201	20,693
Total
mortgage-backed securities	$ 1,257,158	$ 1,348,725

101

| The carrying values of investment securities classified as available for sale and held to maturity as of June 30, 2017 by contractual maturity (excluding mortgage-backed securities and

equity securities) are shown below:	Carrying	Weighted
(Dollars in
thousands)	Amount	Average Yield %
U.S. Government
and agencies obligations
Due within
one year	$ 69,869	1.04
Due after
one year through five years	367,691	1.37
Due after
five years through ten years	16,813	2.00
Due after
ten years	42,353	1.60
	496,726	1.37
Puerto Rico
government and municipalities obligations
Due after
one year through five years	4,108	5.36
Due after
five years through ten years	7,628	4.25
Due after
ten years	149,959	4.94
	161,695	4.92
Other
Investment Securities
Due within
one year	100	1.49
Total	658,521	2.25
Equity
securities	415	2.08
Mortgage-backed
securities	1,257,158	2.53
Total
investment securities available for sale and held to maturity	$ 1,916,094	2.43

102

Net interest income of future periods could be affected by prepayments of mortgage-backed securities. Acceleration in the prepayments of mortgage-backed securities would lower yields on these securities, as the amortization of premiums paid upon acquisition of these securities would accelerate. Conversely, acceleration of the prepayments of mortgage-backed securities would increase yields on securities purchased at a discount, as 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 June 30, 2017, the Corporation had approximately $127.8 million in debt securities (U.S. Agencies and Puerto Rico government securities) with embedded calls and with an average yield of 1.39%. Refer to Risk Management below for further analysis of the effects of changing interest rates on the Corporation’s net interest income and of the interest rate risk management strategies followed by the Corporation. Also refer to Note 4 to the accompanying unaudited consolidated financial statements 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 the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of First BanCorp.’s 2016 Annual Report on Form 10-K.

Liquidity Risk and Capital Adequacy

Liquidity is 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 the needs for liquidity 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. As of June 30, 2017, FirstBank could not pay any dividend to the parent company except upon receipt of required regulatory approvals. In 2017, the Corporation has continued to pay quarterly interest payments on the subordinated debentures associated with its trust preferred securities and the monthly dividend income on its non-cumulative perpetual monthly income preferred stock pursuant to regulatory approvals received to make these payments.

The Asset and Liability Committee of the Board of Directors is responsible for establishing the Corporation’s liquidity policy as well as approving operating and contingency procedures, and monitoring liquidity on an ongoing basis. The Management Investment and Asset Liability Committee (“MIALCO”), using measures of liquidity developed by management, which involve the use of several assumptions, reviews the Corporation’s liquidity position on a monthly basis. The MIALCO oversees liquidity management, interest rate risk and other related matters.

The MIALCO, which reports to the Board of Directors’ Asset and Liability Committee, 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 Analysis and Asset/Liability 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 Analysis and Asset/Liability Director estimates the liquidity gap for longer periods.

In order 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 will 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.

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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 through a difficult period, and define roles and responsibilities. Under the contingency funding plan, the Corporation stresses the balance sheet and the liquidity position to critical levels that imply difficulties in getting new 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 its respective commitments, and establish liquidity triggers monitored by the MIALCO in order to maintain the ordinary funding of the banking business. Four different scenarios are defined in the contingency funding plan: local market event, credit rating downgrade, an economic cycle downturn event, and a concentration event. They are reviewed and approved annually by the Board of Directors’ Asset and Liability Committee.

The Corporation manages its liquidity in a proactive manner, and maintains a sound liquidity position. Multiple measures are utilized to monitor the Corporation’s liquidity position, including core liquidity, basic liquidity, and time-based reserve measures. As of June 30, 2017, the estimated core liquidity reserve (which includes cash and free liquid assets) was $1.5 billion or 12.64% of total assets, compared to $1.6 billion or 13.35% of total assets as of December 31, 2016. The basic liquidity ratio (which adds available secured lines of credit to the core liquidity) was approximately 19.14% of total assets, compared to 19.7% of total assets as of December 31, 2016. As of June 30, 2017, the Corporation had $772.7 million available for additional credit from the FHLB of New York. Unpledged liquid securities as of June 30, 2017, mainly fixed-rate MBS and U.S. agency debentures, amounted to approximately $943.2 million. 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 June 30, 2017, the holding company had $31.7 million of cash and cash equivalents. Cash and cash equivalents at the Bank level as of June 30, 2017 were approximately $425.7 million. The Bank has $1.3 billion in brokered CDs as of June 30, 2017, of which approximately $708.9 million mature over the next twelve months. Liquidity at the Bank level is highly dependent on bank deposits, which fund 74% of the Bank’s assets (or 63%, excluding brokered CDs).

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 CDs, securities sold under agreements to repurchase, and lines of credit with the FHLB.

The Asset Liability Committee of the Board of Directors reviews credit availability on a regular basis. The Corporation has also sold mortgage loans as a supplementary source of funding. Long-term funding has also been obtained in the past through the issuance of notes and long-term brokered CDs. The cost of these different alternatives, among other things, is taken into consideration.

The Corporation has continued reducing the amounts of brokered CDs. As of June 30, 2017, the amount of brokered CDs had decreased $185.9 million to $1.3 billion from December 31, 2016. At the same time as the Corporation focuses on reducing its reliance on brokered CDs, it is seeking to add core deposits. During the first six months of 2017, the Corporation increased non-brokered deposits, excluding government deposits, by $12.2 million to $6.8 billion.

The Corporation continues to have the support of creditors, including 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 CDs – A large portion of the Corporation’s funding has been brokered CDs issued by FirstBank. Total brokered CDs decreased during the first six months of 2017 by $185.9 million to $1.3 billion as of June 30, 2017.

The average remaining term to maturity of the retail brokered CDs outstanding as of June 30, 2017 was approximately 1 year.

The use of brokered CDs has historically been important for the growth of the Corporation. The Corporation encounters intense competition in attracting and retaining regular retail deposits in Puerto Rico. The brokered CD market is very competitive and liquid, and has enabled the Corporation to obtain substantial amounts of funding in short periods of time. This strategy has enhanced the Corporation’s liquidity position, since brokered CDs are insured by the FDIC up to regulatory limits and can be obtained faster than regular retail deposits. During the first six months of 2017, the Corporation issued $232.0 million in brokered CDs with an average cost of 1.51% (average life of 2 years).

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| The following table presents contractual maturities of time deposits with denominations of

$100,000 or higher as of June 30, 2017:
	Total
	(In thousands)
Three months or
less	$ 437,823
Over three
months to six months	399,772
Over six months
to one year	701,993
Over one year	1,318,671
Total	$ 2,858,259

Certificates of deposit in denominations of $100,000 or higher include brokered CDs of $1.3 billion issued to deposit brokers in the form of large certificates of deposit that are generally participated out by brokers in shares of less than the FDIC insurance limit.

Government deposits – As of June 30, 2017, the Corporation had $494.3 million of Puerto Rico public sector deposits ($420.3 million in transactional accounts and $74 million in time deposits) compared to $408.8 million as of December 31, 2016. Approximately 35% came from municipalities and municipal agencies in Puerto Rico and 65% came from public corporations and the central government and agencies. Most of the increase in 2017 is related to higher balances in transactional deposit accounts of certain municipalities in Puerto Rico.

In addition, as of June 30, 2017, the Corporation had $154.8 million of government deposits in the Virgin Islands, compared to $154.9 million as of December 31, 2016.

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 CDs and government deposits, increased by $12.2 million to $6.8 billion as of June 30, 2017. The higher balance reflects an increase of $36.3 million in the Virgin Islands region, primarily increases in demand deposits, partially offset by decreases of $19.0 million and $5.2 million in Puerto Rico and the Florida regions, respectively. Refer to Note 14 in the accompanying unaudited consolidated financial statements for further details.

Refer to the Net Interest Income discussion above for information about average balances of interest-bearing deposits, and the average interest rate paid on deposits for the quarters and six-month periods ended June 30, 2017 and 2016.

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 $500 million as of June 30, 2017, unchanged from the balance as of December 31, 2016. 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. Refer to Note 15 in the Corporation’s unaudited consolidated financial statements for the quarter and six-month period ended June 30, 2017 for further details about repurchase agreements outstanding by counterparty and maturities.

As of June 30, 2017, the Corporation had $200 million of reverse repurchase agreements with a counterparty under a master netting arrangement that provides for a right of setoff that meets the conditions of ASC 210-20-45-11 for a net presentation. These repurchase agreements and reverse repurchase agreements are presented net on the consolidated statement of financial condition.

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 June 30, 2017 and December 31, 2016, the outstanding balance of FHLB advances was $675.0 and $670.0 million, respectively. The variance is related to $165.0 million of long-term FHLB advances borrowed in the second quarter of 2017 with an aggregate average cost of 2.00%, partially offset by a $160.0 million reduction in short-term advances. As of June 30, 2017, the Corporation had $772.7 million available for additional credit 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 Do not modify beyond this point! !

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Do not modify before this point! ! securities. 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, were used by FBP Statutory Trust I 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 trust-preferred securities. 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, were used by FBP Statutory Trust II to purchase $128.9 million aggregate principal amount of the Corporation’s Junior Subordinated Deferrable Debentures.

The trust-preferred debentures are presented in the Corporation’s consolidated statement of financial condition as Other Borrowings. The variable rate trust-preferred securities 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 trust-preferred securities). The Collins Amendment of the Dodd-Frank Act eliminated certain trust-preferred securities from Tier 1 Capital. Bank Holding Companies such as the Corporation were required to fully phase out these instruments from Tier I capital in January 1, 2016; however, they may remain in Tier 2 capital until the instruments are redeemed or mature.

As mentioned above, during the first quarter of 2016, the Corporation completed the repurchase of trust preferred securities that were being auctioned in a public sale at which the Corporation was invited to participate. The Corporation repurchased and cancelled $10 million in trust preferred securities of the FBP Statutory Trust II, resulting in a commensurate reduction in the related subordinated debenture. As of June 30, 2017, the Corporation still has subordinated debentures outstanding in the aggregate amount of $216.2 million.

During the second quarter of 2016, the Corporation received approval from the Federal Reserve and paid $31.2 million for all the accrued but deferred interest payments plus the interest for the second quarter on the Corporation’s subordinated debentures associated with its trust preferred securities. Subsequently, the Corporation has continued to pay quarterly interest payments on the subordinated debentures pursuant to quarterly regulatory approvals received to make these payments through June 30, 2017. As of June 30 2017, the Corporation is current on all interest payments due related to its subordinated debentures. It is the intent of the Corporation to request approval for future periods to continue regularly scheduled quarterly payments.

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. The ratio of residential real estate loans to total loans has increased over time. Commensurate with the increase in its mortgage banking activities, the Corporation has also invested in technology and personnel to enhance the Corporation’s secondary mortgage market capabilities.

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, HUD, FNMA and FHLMC. During the first half of 2017, the Corporation sold approximately $131.8 million of FHA/VA mortgage loans to GNMA, which packages them into mortgage-backed securities. Any regulatory actions affecting GNMA, FNMA or FHLMC could adversely affect the secondary mortgage market.

Though currently not in use, other potential sources of short-term funding for the Corporation include commercial paper and federal funds purchased. Furthermore, in previous years, the Corporation entered into several financing transactions to diversify its funding sources, including the issuance of notes payable and, as noted above, junior subordinated debentures as part of its longer-term liquidity and capital management activities. No assurance can be given that these sources of liquidity will be available in the future and, if available, will be on comparable terms.

Impact 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 results of operations. Also, changes in credit ratings may further affect the fair value of unsecured derivatives that consider the Corporation’s own credit risk as part of the valuation.

The Corporation does not have any outstanding debt or derivative agreements that would be affected by credit downgrades. Furthermore, given the Corporation’s non-reliance on corporate debt or other instruments directly linked in terms of pricing or volume Do not modify beyond this point! !

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Do not modify before this point! ! to credit ratings, the liquidity of the Corporation so far 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.

The Corporation’s credit as a long-term issuer is currently rated B+ by S&P and B- by Fitch. At the FirstBank subsidiary level, long-term issuer ratings are currently B1 by Moody’s, four notches below their definition of investment grade, B+ by S&P, four notches below their definition of investment grade, and B- by Fitch, six 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 $432.6 million as of June 30, 2017, an increase of $132.9 million when compared to the balance as of December 31, 2016. The following discussion highlights the major activities and transactions that affected the Corporation’s cash flows during the first six months of 2017 and 2016.

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 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 first six months of 2017 and 2016, net cash provided by operating activities was $131.6 million and $82.2 million, respectively. Net cash generated from operating activities was higher than reported net income largely as a result of adjustments for operating items such as the provision for loan and lease losses, depreciation and amortization, and impairments as well as the cash generated from sales of loans held for sale.

Cash Flows from Investing Activities

The Corporation’s investing activities primarily relate to originating loans to be held for investment and the purchasing, selling and repaying of available-for-sale and held-to-maturity investment securities. For the six-month period ended June 30, 2017, net cash provided by investing activities was $64.3 million, primarily reflecting U.S. agency MBS prepayments and proceed from the sales of the PREPA credit line and the non-performing bonds of GDB and the Puerto Rico Public Buildings Authority.

For the six-month period ended June 30, 2016, net cash provided by investing activities was $115.5 million, primarily reflecting principal repayments on loans held for investment and available-for-sale mortgage-backed securities.

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Cash Flows from Financing Activities

The Corporation’s financing activities primarily include the receipt of deposits and the issuance of brokered CDs, the issuance and payments of long-term debt, the issuance of equity instruments and activities related to its short-term funding. During the six-month period ended June 30, 2017, net cash used in financing activities was $63.0 million, mainly due to repayments of maturing brokered CDs.

In the first six months of 2016, net cash used in financing activities was $122.2 million, mainly due to repayments of maturing brokered CDS and the cash used for the repurchase and cancellation of trust preferred securities, partially offset by the increase in non-brokered deposits.

C apital

As of June 30, 2017, the Corporation’s stockholders’ equity was $1.9 billion, an increase of $73.7 million from December 31, 2016. The increase was mainly driven by the earnings generated in the first six months of 2017, exclusive of the $12.2 million OTTI charge to earnings in the first quarter and previously included as part of other comprehensive loss in total equity. As a result of the Written Agreement with the New York FED, currently neither First BanCorp., nor FirstBank, is permitted to pay dividends on capital securities without prior approval. In December 31, 2016, for the first time since July 2009, the Corporation paid dividends on its non-cumulative perpetual monthly income preferred stock, after receiving regulatory approval. Since then, the Corporation has continued to pay monthly dividend payments on the non-cumulative perpetual monthly income preferred stock The Corporation has received regulatory approvals to pay the monthly dividends on the Corporation’s Series A through E Preferred Stock through September 2017. The Corporation intends to request approval in future periods to continue to pay monthly dividend payments on the non-cumulative perpetual monthly income preferred stock.

| Set forth below are First BanCorp.'s and FirstBank's regulatory capital ratios as of

June 30, 2017 and December 31, 2016:
			Banking Subsidiary
	First BanCorp.		FirstBank		To be well capitalized - General
thresholds
		Fully		Fully
As of June
30, 2017	Actual	Phased-in (1)	Actual	Phased-in (1)
Total capital
ratio (Total capital to risk-weighted assets)	22.24%	21.78%	21.70%	21.25%	10.00%
Common Equity
Tier 1 capital ratio
(Common
equity Tier 1 capital to risk-weighted assets)	18.61%	17.80%	17.37%	16.58%	6.50%
Tier 1 capital
ratio (Tier 1 capital to risk-weighted assets)	18.61%	18.20%	20.43%	19.99%	8.00%
Leverage ratio	14.14%	14.11%	15.53%	15.51%	5.00%
			Banking Subsidiary
	First BanCorp.		FirstBank		To be well capitalized - General
thresholds
		Fully		Fully
As of
December 31, 2016	Actual	Phased-in (1)	Actual	Phased-in (1)
Total capital
ratio (Total capital to risk-weighted assets)	21.34%	20.84%	20.80%	20.32%	10.00%
Common Equity
Tier 1 capital ratio
(Common
equity Tier 1 capital to risk-weighted assets)	17.74%	16.90%	16.92%	15.70%	6.50%
Tier 1 capital
ratio (Tier 1 capital to risk-weighted assets)	17.74%	17.30%	19.53%	19.05%	8.00%
Leverage ratio	13.70%	13.64%	15.10%	15.04%	5.00%
(1) Certain
adjustments required under Basel III rules will be phased in through the end
of 2018. The ratios shown in this column are calculated assuming a fully
phased-in basis of all such adjustments as if they were effective as of June
30, 2017 and December 31, 2016.

108

Although the Corporation and FirstBank became subject to the Basel III rules beginning on January 1, 2015, certain requirements of the Basel III rules are being phased-in over several years. The phase-in period for certain deductions and adjustments to regulatory capital (such as certain intangible assets and deferred tax assets that arise from net operating losses and tax credit carryforwards) will be completed on January 1, 2018. The Corporation and FirstBank compute risk-weighted assets using the Standardized Approach required by the 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 or dividend or interest payments on capital instruments) and (ii) discretionary bonus payments to executive officers and heads of major business lines. The phase-in of the capital conservation buffer began on January 1, 2016 with a first year requirement of 0.625% of additional Common Equity Tier 1 capital (“CET1”), which is being progressively increase over a four-year period, increasing by that same percentage amount on each subsequent January 1 until it reaches the fully phased-in 2.5% CET1 requirement on January 1, 2019.

Under the fully phased-in Basel III rules, in order to be considered adequately capitalized, the Corporation will be 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.

In addition, as required under Basel III rules, the Corporation’s trust-preferred securities (“TRuPs”) were fully phased out from Tier 1 capital on January 1, 2016. However, the Corporation’s TRuPs may continue to be included in Tier 2 capital until the instruments are redeemed or mature.

The Corporation, as an institution with more than $10 billion but less than $50 billion of total consolidated assets, is subject to certain requirements established by the Dodd-Frank Act, including those related to capital stress testing. The Dodd-Frank Act stress testing requirements are implemented for the Corporation through the Dodd-Frank Act stress testing requirements that apply to banking organizations with consolidated assets of more than $10 billion and less than $50 billion. Consistent with these requirements, the Corporation submitted its third annual company-run stress test to regulators in July 2017. The results show that even in a severely adverse economic environment, which we are not currently in nor do we anticipate being in during the near future, the Corporation’s and the Bank’s capital ratios significantly exceed the well-capitalized thresholds throughout the nine-quarter horizon.

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 asset and insurance customer relationship intangible asset. Tangible assets are total assets less goodwill, core deposit intangibles, purchased credit card relationship and insurance customer relationship intangible assets. Refer to Basis of Presentation below for additional information.

109

| The following table is a reconciliation of the Corporation’s tangible common equity and tangible assets as of June

30, 2017 and December 31, 2016, respectively:	June 30,	December 31,
(In thousands,
except ratios and per share information)	2017	2016
Total equity -
GAAP	$ 1,859,910	$ 1,786,243
Preferred
equity	(36,104)	(36,104)
Goodwill	(28,098)	(28,098)
Purchased
credit card relationship intangible	(9,266)	(10,531)
Core deposit
intangible	(6,297)	(7,198)
Insurance
customer relationship intangible	(851)	(927)
Tangible
common equity	$ 1,779,294	$ 1,703,385
Total assets -
GAAP	$ 11,913,800	$ 11,922,455
Goodwill	(28,098)	(28,098)
Purchased
credit card relationship intangible	(9,266)	(10,531)
Core deposit
intangible	(6,297)	(7,198)
Insurance
customer relationship intangible	(851)	(927)
Tangible
assets	$ 11,869,288	$ 11,875,701
Common
shares outstanding (1)	215,964	217,446
Tangible
common equity ratio	14.99%	14.34%
Tangible
book value per common share	$ 8.24	$ 7.83
(1) In May 2017,
the U.S. Treasury sold its remaining shares of common stock in First BanCorp.
As a result, approximately 2.4 million of restricted shares outstanding were
forfeited.

110

On May 10, 2017, the U.S. Department of the Treasury announced that it sold all of its remaining 10,291,553 shares of the Corporation’s common stock. Since the U.S. Treasury did not recover the full amount of its original investment under TARP, 2,370,571 outstanding restricted shares held by the Corporation’s employees were forfeited, resulting in a reduction in the number of common shares outstanding. The reduction in the number of common shares outstanding, contributed approximately $0.09 to the increase in book value and tangible book value per common share in 2017. The U.S. Department of the Treasury continues to hold a warrant to purchase 1,285,899 shares of the Corporation’s common stock.

A secondary offering of the Corporation’s common stock by certain of the Corporation’s existing stockholders was completed on February 7, 2017. Funds affiliated with Thomas H. Lee Partners (“THL”) sold 10 million shares of the Corporation’s common stock, and funds managed by Oaktree Capital Management, L.P. (“Oaktree”) sold 10 million shares of the Corporation’s common stock. In addition, the underwriters exercised their option to purchase an additional 3 million shares of the Corporation’s common stock from the selling stockholders. The Corporation did not received any proceeds from the offering. As of June 30, 2017, each of THL and Oaktree owns 9.2% of the Corporation’s common stock.

On August 2, 2017, THL and Oaktree entered into an underwriting agreement with respect to a public offering of 20,000,000 shares of the Corporation’s common stock, (23,000,000 shares of Common Stock if the underwriter exercises in full its option to purchase additional shares), to be sold by the Selling Stockholders.

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 or 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 process 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 statement of financial position. As of June 30, 2017, commitments to extend credit amounted to approximately $1.2 billion, of which $681.3 million relates to credit card loans. Commercial and financial standby letters of credit amounted to approximately $38.3 million. Commitments to extend credit are agreements to lend to customers as long as the conditions established in the contract are met. Generally, the Corporation does not enter into interest rate lock agreements with prospective borrowers in connection with mortgage banking activities.

111

| Contractual Obligations, Commitments and

Contingencies
The
following table presents a detail of 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 June 30, 2017
	Total	Less than 1 year	1-3 years	3-5 years	After 5 years
(In thousands)
Contractual
obligations:
Certificates
of deposit	$ 3,663,720	$ 1,992,169	$ 1,272,018	$ 391,676	$ 7,857
Securities
sold under agreements to repurchase (1)	300,000	100,000	-	200,000	-
Advances
from FHLB	675,000	210,000	345,000	120,000	-
Other
borrowings	216,187	-	-	-	216,187
Total
contractual obligations	$ 4,854,907	$ 2,302,169	$ 1,617,018	$ 711,676	$ 224,044
Commitments to
sell mortgage loans	$ 139,850
Standby letters
of credit	$ 2,397
Commitments to
extend credit:
Lines of
credit	$ 1,147,904
Letters of
credit	35,907
Construction
undisbursed funds	72,277
Total
commercial commitments	$ 1,256,088
(1) Reported net
of reverse repurchase agreement by counterparty, when applicable, pursuant to
ASC 210-20-45-11.

112

The Corporation has obligations and commitments to make future payments under contracts, such as debt and lease agreements, and under 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. Other contractual obligations result mainly from contracts for the rental and maintenance of equipment. 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 stability of profitability under varying interest rate scenarios. The MIALCO oversees interest rate risk, and the MIALCO meetings focus on, among other things, current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, liquidity, loan originations pipeline, securities market values, recent or proposed changes to the investment portfolio, alternative funding sources and related costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues 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. These simulations are carried out over a one-to-five-year time horizon, assuming 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. Simulations are carried out 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 detailed by maturity or re-pricing structure and their corresponding interest yields and costs. As interest rates rise or fall, these simulations incorporate expected future lending rates, current and expected future funding sources and costs, the possible exercise of options, changes in prepayment rates, deposit decay and other factors that 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 generally 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. Several benchmark and market rate curves were used in the modeling process, primarily the LIBOR/SWAP curve, Prime, U.S. Treasury, FHLB rates, brokered CD rates, repurchase agreements rates and the mortgage commitment rate of 30 years.

The 12-month net interest income is forecasted assuming the June 30, 2017 interest rate curves remain constant. Then, net interest income is estimated under rising and falling rate scenarios. For the rising rate scenarios, a gradual (ramp) parallel upward shift of the yield curve is assumed during the first twelve months (the “+200 ramp” scenario). Conversely, for the falling rate scenarios, a gradual (ramp) parallel downward shift of the yield curve is assumed during the first twelve months (the “-200 ramp” scenario). However, given the current low levels of interest rates, 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 June 2017, as compared to December 2016, reflected a 21 basis points increase in the short-term horizon, between one to twelve months, while market rates increased by 6 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 decreased by 5 basis points. The U.S. Treasury curve in the short-term increased by 45 basis points and in the medium-term horizon increased by 2 basis points as compared to December 2016 end of month levels. The long-term horizon decreased by 18 basis points as compared to December 2016 end of month levels.

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| The following table presents the results of the simulations as of June 30, 2017 and December 31, 2016. Consistent with prior years, these exclude non-cash changes in the fair value

of derivatives:
	June 30, 2017				December 31, 2016
	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	$ 16.8	3.34 %	$ 17.5	3.50 %	$ 12.1	2.51 %	$ 14.0	2.89 %
- 200 bps ramp	$ (13.1)	(2.61) %	$ (17.7)	(3.55) %	$ (6.5)	(1.36) %	$ (11.4)	(2.35) %

The Corporation continues to manage its balance sheet structure to control the overall interest rate risk. As part of the strategy to limit the interest rate risk, the Corporation has executed certain transactions that affected the simulation results. The composition of the loan portfolio has changed as compared to the December 2016 end of month levels. While the overall loan portfolio decreased by $38.4 million largely due to reductions in non-performing loans, the performing loan portfolio increased by $110.3 million during the first six months of 2017. The Corporation has continued repositioning the balance sheet by reducing its holdings of brokered CDs, with a reduction of $185.9 million during the first half of 2017, and borrowed $165 million of long-term FHLB advances during the first six months of 2017. Cash and cash equivalents increased by $132.9 million during the first half of 2017, mainly tied to an increase in non-interest bearing deposits.

Taking into consideration the above-mentioned facts for modeling purposes, the net interest income for the next twelve months under a non-static balance sheet scenario is estimated to increase by $17.4 million in the rising rate scenario when compared against the Corporation’s flat or unchanged interest rate forecast scenario. Under the falling rate, non-static scenario, the net interest income is estimated to decrease by $17.6 million.

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, used by the Corporation in managing interest rate risk:

Forward Contracts - Forward contracts are sales of TBAs mortgage-backed securities 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. These securities are used to hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income.

For detailed information regarding the volume of derivative activities (e.g. notional amounts), location and fair values of derivative instruments in the Statements of Financial Condition and the amount of gains and losses reported in the Statements of Income, refer to Note 10 in the accompanying unaudited consolidated financial statements.

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| The following tables summarize the fair value changes in the Corporation’s derivatives as well as the sources of

the fair values:	Asset Derivatives	Liability Derivatives
	Six-Month Period Ended	Six-Month Period Ended
(In thousands)	June 30, 2017	June 30, 2017
Fair value of
contracts outstanding at the beginning of the period	$ 554	$ (753)
Changes in fair
value during the period	(156)	463
Fair value of
contracts outstanding as of June 30, 2017	$ 398	$ (290)

| 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 June
30, 2017
Pricing from
observable market inputs - Asset Derivatives	$ 137	$ -	$ 261	$ -	$ 398
Pricing from
observable market inputs - Liability Derivatives	(30)	-	(260)	-	(290)
	$ 107	$ -	$ 1	$ -	$ 108

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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, for the most part, on the level of interest rates, as well as the expectations for rates in the future.

As of June 30, 2017 and December 31, 2016, all of the derivative instruments held by the Corporation were considered economic undesignated 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 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.

Refer to Note 20 of the accompanying unaudited consolidated financial statements for additional information regarding the fair value determination of derivative instruments.

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 derivatives and 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. Refer to Contractual Obligations and Commitments above for further details. The credit risk of derivatives arises from the potential of the counterparty’s default on its contractual obligations. To manage this credit risk, the Corporation deals with counterparties of good credit standing, enters into master netting agreements whenever possible and, when appropriate, obtains collateral. For further details and information on the Corporation’s derivative credit risk exposure, refer to Interest Rate Risk Management above. 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 C&I, commercial mortgage and construction loan portfolios, the Special Asset Group (“SAG”) focuses on strategies for the accelerated reduction of non-performing assets through note sales, short sales, loss mitigation programs, and sales of OREO. In addition to the management of the resolution process for problem loans, the SAG oversees collection efforts for all loans to prevent migration to the non-performing 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 mortgage-backed securities and U.S. Treasury and agency securities. Thus, a substantial portion of these instruments is backed by mortgages, a guarantee of a U.S. government-sponsored entity 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. These goals and objectives are documented in the Corporation’s Credit Policy.

Allowance for Loan and Lease Losses and Non-performing Assets

Allowance for Loan and Lease Losses

The allowance for loan and lease losses represents the estimate of the level of reserves appropriate to absorb inherent credit losses. The amount of the allowance was determined by empirical analysis and judgments regarding the quality of each individual loan portfolio. All known relevant internal and external factors that affected loan collectability were considered, including analyses of historical charge-off experience, migration patterns, changes in economic conditions, and changes in loan collateral values. For example, factors affecting the economies of Puerto Rico, Florida (USA), the United States Virgin Islands and the British Virgin Islands may contribute to delinquencies and defaults above the Corporation’s historical loan and lease 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. There is no certainty that the allowance will be adequate over time to cover credit losses in the portfolio because of continued adverse changes in the economy, market conditions, or events adversely affecting specific customers, industries or markets. To the extent actual outcomes differ from our estimates, the credit quality of our customer base materially decreases, the risk profile of a market, industry, or group of customers Do not modify beyond this point! !

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Do not modify before this point! ! changes materially, or the allowance is determined to not be adequate, additional provisions for credit losses could be required, which could adversely affect our business, financial condition, liquidity, capital, and results of operations in future periods.

The allowance for loan and lease losses provides for probable losses that have been identified with specific valuation allowances for individually evaluated impaired loans and probable losses believed to be inherent in the loan portfolio that have not been specifically identified. An internal risk rating is assigned to each business loan at the time of approval and is subject to subsequent periodic reviews by the Corporation’s senior management. The allowance for loan and lease losses is reviewed on a quarterly basis as part of the Corporation’s continued evaluation of its asset quality.

The ratio of the allowance for loan losses to total loans held for investment decreased to 1.96% as of June 30, 2017 compared to 2.31% as of December 31, 2016. The allowance to total loans for each of the Corporation’s categories of loans changed as follows: the allowance to total loans for the C&I portfolio decreased from 2.84% as of December 31, 2016 to 1.99% as of June 30, 2017, reflecting the effect of the decrease in adversely classified and non-performing loans experienced during the first half of 2017, including the sale of the PREPA credit line as well as lower historical loss rates applied to the general reserve; the allowance to total loans for the commercial mortgage portfolio decreased from 3.65% as of December 31, 2016 to 2.39% as of June 30, 2017, impacted by large charge-offs on commercial mortgage loans guaranteed by the TDF recorded in the second quarter of 2017 against previously-established specific reserves; the allowance to total loans for the construction loan portfolio increased from 2.05% as of December 31, 2016 to 3.06% as of June 30, 2017, primarily due to the increase in the specific reserve for construction loans in the Virgin Islands; the allowance to total loans for the residential mortgage portfolio increased from 1.03% as of December 31, 2016 to 1.24% as of June 30, 2017, primarily related to increased reserves on residential mortgage TDRs driven by adjustments to the loss severity estimates, including adjustments to liquidation cost assumptions, and prepayments experience on these loans; and the allowance to total consumer and finance leases portfolio decreased from 2.90% as of December 31, 2016 to 2.81% as of June 30, 2017, primarily due to improvements in the trend of historical losses.

The ratio of the total allowance to non-performing loans held for investment was 42.17% as of June, 2017 compared to 36.71% as of December 31, 2016, driven by the sale of the PREPA credit line.

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 real estate market in Puerto Rico experienced readjustments in value over the last few years, driven by the loss of income due to higher unemployment, reduced demand and general adverse economic conditions. The Corporation sets adequate loan-to-value ratios upon original approval following its regulatory and credit policy standards.

As shown in the following table, the allowance for loan and lease losses amounted to $173.5 million as of June 30, 2017, or 1.96% of total loans, compared with $205.6 million, or 2.31% of total loans, as of December 31, 2016. Refer to the Provision for Loan and Lease Losses above for additional information.

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	Quarter Ended — June 30,		Six-Month Period Ended — June 30,
(Dollars in
thousands)	2017	2016	2017	2016
Allowance for
loan and lease losses, beginning of period	$ 203,231	$ 238,125	$ 205,603	$ 240,710
Provision
(release) for loan and lease losses:
Residential Mortgage	10,888	11,098	20,159	17,036
Commercial Mortgage	525	2,459	13,064	3,521
Commercial and Industrial (1)	(2,134)	(71)	(6,940)	5,738
Construction	312	103	1,254	(329)
Consumer and Finance Leases	8,505	7,397	16,001	16,073
Total provision
for loan and lease losses	18,096	20,986	43,538	42,039
Charge-offs
Residential Mortgage	(6,967)	(11,532)	(15,192)	(18,838)
Commercial Mortgage	(30,495)	(1,437)	(31,857)	(2,012)
Commercial and Industrial (2)	(6,378)	(1,914)	(18,430)	(5,673)
Construction	(595)	(513)	(658)	(604)
Consumer and Finance Leases	(11,053)	(12,970)	(22,245)	(27,774)
Total charge
offs	(55,488)	(28,366)	(88,382)	(54,901)
Recoveries:
Residential Mortgage	891	841	1,640	1,187
Commercial Mortgage	78	33	108	79
Commercial and Industrial	4,624	676	5,499	956
Construction	133	144	578	161
Consumer and Finance Leases	1,920	2,015	4,901	4,223
Total recoveries	7,646	3,709	12,726	6,606
Net Charge-Offs	(47,842)	(24,657)	(75,656)	(48,295)
Allowance for
loan and lease losses, end of period	$ 173,485	$ 234,454	$ 173,485	$ 234,454
Allowance for
loan and lease losses to period end total loans held for
investment	1.96 %	2.64 %	1.96 %	2.64 %
Net charge-offs
(annualized) to average loans outstanding during the
period	2.16 %	1.11 %	1.71 %	1.08 %
Net charge-offs
(annualized) to average loans outstanding during the period,
excluding net charge-offs of $10.7 million related to the sale of the PREPA
credit
line in the first half of 2017 (3)	2.16 %	1.11 %	1.47 %	1.08 %
Provision for
loan and lease losses to net charge-offs during the
period	0.38x	0.85x	0.58x	0.87x
Provision for
loan and lease losses to net charge-offs during the period, excluding
the
impact of the sale of the PREPA credit line in the first half of 2017 (3)	0.38x	0.85x	0.66x	0.87x
___________
(1) Includes a
provision of $0.6 million associated with the sale of the PREPA credit line
in the first half of 2017.
(2) Includes a
charge-off of $10.7 million associated with the sale of the PREPA credit line
in the first half of 2017.
(3) Refer to Basis
of Presentation below for a reconciliation of these measures.

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| The following table sets forth information concerning the allocation of the allowance for loan and lease losses 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
	June 30, 2017		December 31, 2016
(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	$ 40,587	37 %	$ 33,980	37 %
Commercial
mortgage loans	38,576	18 %	57,261	18 %
Construction
loans	3,736	1 %	2,562	1 %
Commercial and
Industrial loans	42,082	24 %	61,953	25 %
Consumer loans
and finance leases	48,504	20 %	49,847	19 %
	$ 173,485	100 %	$ 205,603	100 %

| The following table sets forth information concerning the composition of the Corporation's allowance for loan and lease losses as of June 30, 2017 and December 31, 2016 by loan category and by whether the allowance and related provisions were calculated individually or through a general valuation allowance. — As of June

30, 2017	Residential Mortgage Loans	Commercial Mortgage Loans			Consumer and Finance Leases
				Construction Loans
(Dollars in
thousands)			C&I Loans			Total
Impaired loans
without specific reserves:
Principal
balance of loans, net of charge-offs	$ 67,726	$ 25,449	$ 8,343	$ -	$ 1,714	$ 103,232
Impaired loans
with specific reserves:
Principal
balance of loans, net of charge-offs	360,985	115,172	66,559	50,557	39,120	632,393
Allowance for
loan and lease losses	13,786	8,330	10,788	2,374	5,516	40,794
Allowance for
loan and lease losses to principal
balance	3.82 %	7.23 %	16.21 %	4.70 %	14.10 %	6.45 %
PCI loans:
Carrying
value of PCI loans	156,202	4,166	-	-	-	160,368
Allowance for
PCI loans	9,074	372	-	-	-	9,446
Allowance for
PCI loans to carrying value	5.81 %	8.93 %	-	-	-	5.89 %
Loans with
general allowance:
Principal
balance of loans	2,697,394	1,466,943	2,041,854	71,536	1,687,456	7,965,183
Allowance for
loan and lease losses	17,727	29,874	31,294	1,362	42,988	123,245
Allowance for
loan and lease losses to principal
balance	0.66 %	2.04 %	1.53 %	1.90 %	2.55 %	1.55 %
Total loans held
for investment:
Principal
balance of loans	$ 3,282,307	$ 1,611,730	$ 2,116,756	$ 122,093	$ 1,728,290	$ 8,861,176
Allowance for
loan and lease losses	40,587	38,576	42,082	3,736	48,504	173,485
Allowance for
loan and lease losses to principal
balance (1)	1.24 %	2.39 %	1.99 %	3.06 %	2.81 %	1.96 %

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	Residential Mortgage Loans	Commercial Mortgage Loans			Consumer and Finance Leases
				Construction Loans
(Dollars in
thousands)			C&I Loans			Total
As of
December 31, 2016
Impaired loans
without specific reserves:
Principal
balance of loans, net of charge-offs	$ 67,996	$ 72,620	$ 14,656	$ 1,136	$ 5,209	$ 161,617
Impaired loans
with specific reserves:
Principal
balance of loans, net of charge-offs	374,271	121,771	138,887	52,155	39,204	726,288
Allowance for
loan and lease losses	8,633	26,172	22,638	1,405	5,573	64,421
Allowance for
loan and lease losses to principal
balance	2.31 %	21.49 %	16.30 %	2.69 %	14.22 %	8.87 %
PCI loans:
Carrying
value of PCI loans	162,676	3,142	-	-	-	165,818
Allowance for
PCI loans	6,632	225	-	-	-	6,857
Allowance for
PCI loans to carrying value	4.08%	7.16%	-	-	-	4.14%
Loans with
general allowance:
Principal
balance of loans	2,691,088	1,371,275	2,026,912	71,660	1,672,215	7,833,150
Allowance for
loan and lease losses	18,715	30,864	39,315	1,157	44,274	134,325
Allowance for
loan and lease losses to principal
balance	0.70 %	2.25 %	1.94 %	1.61 %	2.65 %	1.71 %
Total loans held
for investment:
Principal
balance of loans	$ 3,296,031	$ 1,568,808	$ 2,180,455	$ 124,951	$ 1,716,628	$ 8,886,873
Allowance for
loan and lease losses	33,980	57,261	61,953	2,562	49,847	205,603
Allowance for
loan and lease losses to principal
balance (1)	1.03 %	3.65 %	2.84 %	2.05 %	2.90 %	2.31 %
__________
(1) Loans used
in the denominator include PCI loans of $160.4 million and $165.8 million as
of June 30, 2017 and December 31, 2016, respectively. However, the
Corporation separately tracks and reports PCI loans and excludes these loans
from the amounts of non-performing loans, impaired loans, TDRs and
non-performing assets.

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| The following tables show the activity for impaired loans held for investment and the related specific

reserve during the quarter and six-month period ended June 30, 2017 and 2016:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
	(In thousands)		(In thousands)
Impaired
Loans:
Balance at
beginning of period	$ 807,198	$ 917,591	$ 887,905	$ 806,509
Loans determined
impaired during the period	18,976	76,947	38,604	234,931
Charge-offs (1)	(43,083)	(11,249)	(60,487)	(19,601)
Loans sold, net
of charge-offs	-	-	(53,245)	-
Increase to
impaired loans - additional disbursements	698	414	1,239	1,761
Foreclosures	(21,233)	(9,189)	(30,690)	(16,610)
Loans no longer
considered impaired	(1,890)	(4,547)	(2,782)	(24,886)
Paid in full or partial
payments	(25,041)	(16,193)	(44,919)	(28,330)
Balance at
end of period	$ 735,625	$ 953,774	$ 735,625	$ 953,774
(1) For the
six-month period ended June 30, 2017, includes a charge-off of $10.7 million
related to the sale of the PREPA credit line.
	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
	(In thousands)		(In thousands)
Specific
Reserve:
Balance at
beginning of period	$ 66,311	$ 81,495	$ 64,421	$ 52,581
Provision for
loan losses	17,563	16,126	36,195	53,392
Charge-offs	(43,080)	(11,249)	(59,822)	(19,601)
Balance at
end of period	$ 40,794	$ 86,372	$ 40,794	$ 86,372

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In addition, as of June 30, 2017, the Corporation maintained a $0.7 million reserve for unfunded loan commitments mainly related to outstanding commitments on floor plan revolving lines of credit. The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance sheet loan commitments to borrowers that are experiencing financial difficulties as of the balance sheet date. The reserve for unfunded loan commitments is included as part of accounts payable and other liabilities in the consolidated statement of financial condition and any change to the reserve is included as part of other non-interest expenses in the consolidated statements of income.

Non-performing Loans and Non-performing Asset

Total non-performing assets consist of non-performing loans (generally loans held for investment or loans held for sale on which the recognition of interest income has been 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. When a loan is placed in non-performing status, any interest previously recognized and not collected is reversed and charged against interest income.

Non-performing Loans Policy

Residential Real Estate Loans — The Corporation classifies real estate loans in non-performing status when interest and principal have not been received for a period of 90 days or more.

Commercial and Construction Loans — The Corporation places commercial loans (including commercial real estate and construction loans) in non-performing status when interest and principal have not been received for a period of 90 days or more or when collection of all of the principal or interest is not expected due to deterioration in the financial condition of the borrower.

Finance Leases — Finance leases are classified in non-performing status when interest and principal have not been received for a period of 90 days or more.

Consumer Loans — Consumer loans are classified in non-performing status when interest and principal have not been received 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 Impaired Loans — PCI loans were recorded at fair value at acquisition. Since the initial fair value of these loans included an estimate of credit losses expected to be realized over the remaining lives of the loans, the subsequent accounting for PCI loans differs from the accounting for non-PCI loans. The Corporation, therefore, separately tracks and reports PCI loans and excludes these from the amounts of non-performing loans, impaired loans, TDR loans, and non-performing assets.

Cash payments received on certain loans that are impaired and collateral dependent 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.

Other Real Estate Owned

OREO acquired in settlement of loans is carried at the lower of cost (carrying value of the loan) or 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 includes repossessed boats and autos acquired in settlement of loans. Repossessed boats and autos are recorded at the lower of cost or estimated fair value.

Other Non-Performing Assets

This category consists of bonds of the GDB and the Puerto Rico Public Buildings Authority prior to the sale of these non-performing bonds in the second quarter of 2017. These bonds were previously held by the Corporation as part of its available-for-sale investment securities portfolio.

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Past Due Loans 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 and VA programs. Past due loans 90 days and still accruing also include PCI loans with individual delinquencies over 90 days, primarily related to mortgage loans acquired from Doral Bank in 2015 and from Doral Financial in 2014.

TDRs are classified as either accrual or nonaccrual loans. A loan on nonaccrual 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 loans being returned to accrual 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.

| The

following table presents non-performing assets as of the dates indicated:	June 30,	December 31,
(Dollars in
thousands)	2017	2016
Non-performing
loans held for investment:
Residential mortgage	$ 155,330	$ 160,867
Commercial mortgage	122,035	178,696
Commercial and Industrial	65,575	146,599
Construction	47,391	49,852
Finance leases	1,112	1,335
Consumer	19,970	22,745
Total
non-performing loans held for investment	$ 411,413	$ 560,094
OREO	150,045	137,681
Other
repossessed property	5,588	7,300
Other assets (1)	-	21,362
Total
non-performing assets, excluding loans held for sale	$ 567,046	$ 726,437
Non-performing
loans held for sale	8,079	8,079
Total
non-performing assets, including loans held for sale (2) (3)	$ 575,125	$ 734,516
Past due loans
90 days and still accruing (4)
(5)	$ 131,246	$ 135,808
Non-performing
assets to total assets	4.83 %	6.16 %
Non-performing
loans held for investment to total loans held for investment	4.64 %	6.30 %
Allowance for
loan and lease losses	$ 173,485	$ 205,603
Allowance to
total non-performing loans held for investment	42.17 %	36.71 %
Allowance to
total non-performing loans held for investment,
excluding
residential real estate loans	67.75 %	51.50 %
___________
(1) Fair market
value of bonds of the GDB and the Puerto Rico Public Buildings Authority
prior to the sale completed during the second quarter of 2017.
(2) Purchased
credit impaired loans accounted for under ASC 310-30 of $160.4 million and
$165.8 million as of June 30, 2017 and December 31, 2016, respectively, are
excluded and not considered non-performing due to the application of the
accretion method, under which these loans will accrete interest income over
the remaining life of the loans using estimated cash flow analysis.
(3)
Non-performing assets exclude $384.2 million and $384.9 million of TDR loans
that are in compliance with the modified terms and in accrual status as of
June 30, 2017 and December 31, 2016, respectively.
(4) It is the
Corporation's policy to report delinquent residential mortgage loans insured
by the FHA or guaranteed by the VA as past-due loans 90 days and still
accruing as opposed to non-performing loans since the principal repayment is
insured. These balances include $29.2 million of residential mortgage loans
insured by the FHA or guaranteed by the VA that are over 15 months
delinquent, and are no longer accruing interest as of June 30, 2017.
(5) Amount
includes purchased credit impaired loans with individual delinquencies over
90 days and still accruing with a carrying value as of June 30, 2017 and
December 31, 2016 of approximately $28.1 million and $29.0 million, respectively,
primarily related to loans acquired from Doral Bank in the first quarter of
2015 and from Doral Financial in the second quarter of 2014.

123

| The following table shows non-performing

assets by geographic segment:	June 30,	December 31,
(Dollars in
thousands)	2017	2016
Puerto Rico:
Non-performing
loans held for investment:
Residential mortgage	$ 128,126	$ 135,863
Commercial mortgage	111,770	167,241
Commercial and Industrial	61,485	141,916
Construction	9,563	10,227
Finance
leases	1,112	1,335
Consumer	19,055	21,592
Total non-performing loans held for investment	331,111	478,174
OREO	141,540	128,395
Other
repossessed property	5,513	7,217
Other assets (1)	-	21,362
Total non-performing assets, excluding loans held for sale	$ 478,164	$ 635,148
Non-performing
loans held for sale	8,079	8,079
Total non-performing assets, including loans held for sale (2)	$ 486,243	$ 643,227
Past due loans
90 days and still accruing (3)	$ 122,985	$ 131,783
Virgin
Islands:
Non-performing
loans held for investment:
Residential mortgage	$ 20,153	$ 19,860
Commercial mortgage	7,735	7,617
Commercial and Industrial	4,090	4,683
Construction	37,749	39,625
Consumer	548	452
Total non-performing loans held for investment	70,275	72,237
OREO	6,353	6,216
Other
repossessed property	14	5
Total non-performing assets, excluding loans held for sale	$ 76,642	$ 78,458
Past due loans
90 days and still accruing	$ 8,261	$ 2,133
United
States:
Non-performing
loans held for investment:
Residential mortgage	$ 7,051	$ 5,144
Commercial mortgage	2,530	3,838
Construction	79	-
Consumer	367	701
Total non-performing loans held for investment	10,027	9,683
OREO	2,152	3,070
Other
repossessed property	61	78
Total non-performing assets	$ 12,240	$ 12,831
Past due loans
90 days and still accruing	$ -	$ 1,892
____________
(1) Fair market
value of bonds of the GDB and the Puerto Rico Public Buildings Authority
prior to the sale completed during the second quarter of 2017.
(2) Purchased
credit impaired loans accounted for under ASC 310-30 of $160.4 million and
$165.8 million as of June 30, 2017 and December 31, 2016, respectively, are
excluded and not considered non-performing due to the application of the
accretion method, under which these loans will accrete interest income over
the remaining life of the loans using estimated cash flow analysis.
(3) Amount
includes purchased credit impaired loans with individual delinquencies over
90 days and still accruing with a carrying value as of June 30, 2017 and
December 31, 2016 of approximately $28.1 million and $29.0 million,
respectively, primarily related to loans acquired from Doral Bank in the
first quarter of 2015 and from Doral Financial in the second quarter of 2014.

124

Total non-performing loans, including non-performing loans held for sale, were $419.5 million as of June 30, 2017. This represents a decrease of $148.7 million from $568.2 million as of December 31, 2016. The decrease was primarily attributable to the aforementioned sale in the first quarter of the PREPA credit line with a book value of $64 million at the time of sale, the charge offs of $29.7 million on commercial mortgage loans guaranteed by TDF, the effect of payments and charge offs totaling $16.3 million related to the resolution of a $27.6 million non-performing commercial relationship in Puerto Rico for the second quarter, and decreases of $5.5 million and $3.0 million in non-performing residential and consumer loans, respectively. As part of the aforementioned resolution of a non-performing commercial relationship in Puerto Rico, the Corporation received a cash payment of $12.8 million, recorded charge-offs of $3.5 million, and acquired collateral amounting to $10.6 million transferred to the OREO portfolio.

Non-performing commercial mortgage loans decreased by $56.7 million to $122.0 million as of June 30, 2017 from $178.7 million as of December 31, 2016. The decrease was primarily related to charge offs of $29.7 million on commercial mortgage loans guaranteed by the TDF and the resolution of a $19.9 million loan that was part of the aforementioned resolution of a $27.6 million non-performing commercial relationship in Puerto Rico. Total inflows of non-performing commercial mortgage loans amounted to $2.6 million for the first six months of 2017 compared to $157.0 million for the same period in 2016. Inflows in the prior year include the commercial mortgage loans guaranteed by the TDF and loans that were part of the $29.7 million non-performing commercial relationship resolved in the second quarter of 2017.

Non-performing C&I loans decreased by $81.0 million to $65.6 million as of June 30, 2017 from $146.6 million as of December 31, 2016. The decrease was primarily related to the aforementioned sale of the PREPA credit line with a book value of $64 million at the time of sale as well as the resolution of loans totaling $7.6 million that were part of the aforementioned resolution of a $27.6 million non-performing commercial relationship in Puerto Rico. Total inflows of non-performing C&I loans were $1.5 million during the first six months of 2017 compared to $31.6 million for the same period in 2016.

Non-performing construction loans, including non-performing construction loans held for sale, decreased by $2.5 million to $55.5 million from $57.9 million as of December 31, 2016, primarily as a result of cash collections, including a $1.0 million loan paid-off in Puerto Rico. The inflows of non-performing construction loans during the first six months of 2017 amounted to $1.1 million compared to inflows of $0.6 million for the same period in 2016.

The following tables present the activity of commercial and construction non-performing loans held for investment:

	Commercial Mortgage	Commercial & Industrial	Construction
(In thousands)
Quarter
ended June 30, 2017
Beginning
balance	$ 174,908	$ 77,972	$ 48,468	$ 301,348
Plus:
Additions to
non-performing	1,728	155	634	2,517
Less:
Loans returned
to accrual status	(1,568)	(175)	(20)	(1,763)
Non-performing
loans transferred to OREO	(8,116)	(3,771)	(20)	(11,907)
Non-performing
loans charge-offs	(30,346)	(6,378)	(598)	(37,322)
Loan
collections	(14,438)	(2,228)	(1,073)	(17,739)
Reclassification	(133)	-	-	(133)
Ending balance	$ 122,035	$ 65,575	$ 47,391	$ 235,001

125

	Commercial Mortgage	Commercial & Industrial	Construction
(In thousands)
Six-Month
Period Ended June 30, 2017
Beginning
balance	$ 178,696	$ 146,599	$ 49,852	375,147
Plus:
Additions to
non-performing	2,633	1,544	1,091	5,268
Less:
Loans returned
to accrual status	(2,041)	(987)	(20)	(3,048)
Non-performing
loans transferred to OREO	(8,647)	(4,228)	(182)	(13,057)
Non-performing
loans charge-offs	(31,453)	(18,353)	(658)	(50,464)
Loan
collections	(17,267)	(5,755)	(2,692)	(25,714)
Reclassification	114	-	-	114
Non-performing
loans sold, net of charge-offs	-	(53,245)	-	(53,245)
Ending balance	$ 122,035	$ 65,575	$ 47,391	$ 235,001

	Commercial Mortgage	Commercial & Industrial	Construction
(In thousands)
Quarter
ended June 30, 2016
Beginning
balance	$ 182,763	$ 137,896	$ 54,036	$ 374,695
Plus:
Additions to
non-performing	23,507	23,031	298	46,836
Less:
Loans returned
to accrual status	(474)	(381)	-	(855)
Non-performing
loans transferred to OREO	(1,182)	(954)	(741)	(2,877)
Non-performing
loans charge-offs	(1,313)	(1,839)	(511)	(3,663)
Loan
collections	(2,441)	(3,832)	(533)	(6,806)
Reclassification	(484)	484	-	-
Ending balance	$ 200,376	$ 154,405	$ 52,549	$ 407,330

	Commercial Mortgage	Commercial & Industrial	Construction
(In thousands)
Six-Month
Period Ended June 30, 2016
Beginning
balance	$ 51,333	$ 137,051	$ 54,636	$ 243,020
Plus:
Additions to
non-performing	156,959	31,608	606	189,173
Less:
Loans returned
to accrual status	(619)	(742)	-	(1,361)
Non-performing
loans transferred to OREO	(1,744)	(1,537)	(796)	(4,077)
Non-performing
loans charge-offs	(1,628)	(5,593)	(580)	(7,801)
Loan
collections	(3,519)	(6,866)	(1,239)	(11,624)
Reclassification	(406)	484	(78)	-
Ending balance	$ 200,376	$ 154,405	$ 52,549	$ 407,330

126

Total non-performing commercial and construction loans, including non-performing loans held for sale, with a book value of $243.1 million as of June 30, 2017 are being carried (net of reserves and accumulated charge-offs) at 46.6% of unpaid principal balance.

Non-performing residential mortgage loans decreased by $5.5 million to $155.3 million as of June 30, 2017 from $160.9 million as of December 31, 2016. The decrease was mainly driven by loans brought current, foreclosures, and charge-offs. The inflows of non-performing residential mortgage loans during the first half of 2017 amounted to $49.1 million compared to inflows of $44.9 million for the same period in 2016. Approximately $61.4 million, or 39.5% of total non-performing residential mortgage loans, have been written down to their net realizable value and no specific reserve was allocated.

| The following tables presents the activity of residential non-performing loans held for

investment:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
(In thousands)	2017	2016	2017	2016
Beginning
balance	$ 154,893	$ 172,890	$ 160,867	$ 169,001
Plus:
Additions to
non-performing	26,258	19,947	49,106	44,863
Less:
Loans returned
to accrual status	(10,139)	(8,928)	(22,289)	(18,255)
Non-performing
loans transferred to OREO	(9,449)	(7,802)	(19,000)	(14,546)
Non-performing
loans charge-off	(4,875)	(8,521)	(9,327)	(12,655)
Loan
collections	(1,491)	(3,187)	(3,913)	(4,009)
Reclassification	133	-	(114)	-
Ending balance	$ 155,330	$ 164,399	$ 155,330	$ 164,399

127

The amount of non-performing consumer loans, including finance leases, showed a $3.0 million decrease during the first half of 2017 to $21.1 million compared to $24.1 million as of December 31, 2016. The decrease was mainly related to charge-offs and cash collections, primarily auto loans and finance leases. The inflows of non-performing consumer loans of $16.7 million for the first half of 2017 decreased by $ 4.6 million compared to inflows of $21.3 million for the same period in 2016.

As of June 30, 2017, approximately $65.3 million of the loans placed in non-accrual status, mainly commercial loans, were current, or had delinquencies of less than 90 days in their principal and interest payments, including $47.2 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 six-month period ended June 30, 2017, interest income of approximately $4.1 million related to non-performing loans with a carrying value of $235.1 million as of June 30, 2017, mainly non-performing construction and commercial loans, was applied against the related principal balances under the cost-recovery method.

| As of June 30, 2017, approximately $77.4 million, or 19%, of total non-performing loans held for investment have been charged-off to their net realizable value and no specific reserve was allocated as shown in the following table: — (Dollars in

thousands)	Residential Mortgage Loans	Commercial Mortgage Loans	C&I Loans	Construction Loans	Consumer and Finance Leases	Total
As of June
30, 2017
Non-performing
loans held for investment
charged-off
to realizable value	$ 61,357	$ 11,785	$ 3,132	$ -	$ 1,172	$ 77,446
Other
non-performing loans held
for
investment	93,973	110,250	62,443	47,391	19,910	333,967
Total
non-performing loans held
for
investment	$ 155,330	$ 122,035	$ 65,575	$ 47,391	$ 21,082	$ 411,413
Allowance to
non-performing loans held for
investments	26.13 %	31.61 %	64.17 %	7.88 %	230.07 %	42.17 %
Allowance to
non-performing loans held for
investments, excluding non-performing loans
charged-off
to realizable value	43.19 %	34.99 %	67.39 %	7.88 %	243.62 %	51.95 %
As of
December 31, 2016
Non-performing
loans held for investment
charged-off
to realizable value	$ 54,356	$ 52,241	$ 12,488	$ 1,027	$ 1,243	$ 121,355
Other
non-performing loans held
for
investment	106,511	126,455	134,111	48,825	22,837	438,739
Total
non-performing loans held
for
investment	$ 160,867	$ 178,696	$ 146,599	$ 49,852	$ 24,080	$ 560,094
Allowance to
non-performing loans held for
investments	21.12 %	32.04 %	42.26 %	5.14 %	207.01 %	36.71 %
Allowance to
non-performing loans held for
investments, excluding non-performing loans
charged-off
to realizable value	31.90 %	45.28 %	46.20 %	5.25 %	218.27 %	46.86 %

128

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. As of June 30, 2017, the Corporation’s total TDR loans held for investment of $568.5 million consisted of $368.5 million of residential mortgage loans, $65.9 million of commercial and industrial loans, $50.1 million of commercial mortgage loans, $45.0 million of construction loans, and $39.0 million of consumer 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 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 the foreclosure action absent some lender concession. Nevertheless, if the Corporation is not reasonably assured that the borrower will comply with its contractual commitment, properties are 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 June 30, 2017, the Corporation classified an additional $2.8 million of residential mortgage loans as TDRs 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 commercial loans could include: reductions in interest rates to rates that are considered below market; extension of repayment schedules and maturity dates beyond original contractual terms; waivers of borrower covenants; forgiveness of principal or interest; or other contractual changes that would be considered a concession. The Corporation mitigates loan defaults for its commercial loan portfolios through its collection function. The function’s objective is to minimize both early stage delinquencies and losses upon default of commercial loans. In the case of the commercial and industrial, commercial mortgage, and construction loan portfolios, the 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 primarily have one-year terms and, therefore, are required to be renewed annually. Other facilities may be restructured or extended from time to time based upon changes in the borrower’s business needs, use of funds, the 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 are not considered to be concessions, and the loans continue to be recorded as performing.

129

| The following table provides a breakdown between accrual and nonaccrual TDRs: — (In

thousands)	June 30, 2017
	Accrual	Nonaccrual (1)	Total TDRs
Non-FHA/VA Residential Mortgage loans	$ 293,889	$ 74,616	$ 368,505
Commercial Mortgage loans	33,406	16,659	50,065
Commercial and Industrial loans	19,400	46,486	65,886
Construction loans	7,627	37,426	45,053
Consumer
loans - Auto	16,326	7,668	23,994
Finance
leases	2,381	111	2,492
Consumer
loans - Other	11,143	1,405	12,548
Total
Troubled Debt Restructurings	$ 384,172	$ 184,371	$ 568,543
(1) Included in
non-accrual loans are $47.2 million in loans that are performing under the
terms of the restructuring agreements 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.

The OREO portfolio, which is part of non-performing assets, increased by $12.4 million. The increase was driven by $10.6 million of collateral acquired in the aforementioned resolution of a non-performing commercial relationship in Puerto Rico. The following tables show the composition of the OREO portfolio as of June 30, 2017 and December 31, 2016, as well as the activity during the six-month period ended June 30, 2017 of the OREO portfolio by geographic region:

| OREO

Composition by Region — (In thousands)	As of June 30, 2017
	Puerto Rico	Virgin Islands	Florida	Consolidated
Residential	$ 51,812	$ 514	$ 2,020	$ 54,346
Commercial	79,873	4,934	132	84,939
Construction	9,855	905	-	10,760
	$ 141,540	$ 6,353	$ 2,152	$ 150,045
(In thousands)	As of December 31, 2016
	Puerto Rico	Virgin Islands	Florida	Consolidated
Residential	$ 43,925	$ 289	$ 2,703	$ 46,917
Commercial	73,393	4,938	367	78,698
Construction	11,077	989	-	12,066
	$ 128,395	$ 6,216	$ 3,070	$ 137,681
OREO
Activity by Region
(In thousands)	As of June 30, 2017
	Puerto Rico	Virgin Islands	Florida	Consolidated
Beginning
Balance	$ 128,395	$ 6,216	$ 3,070	$ 137,681
Additions	37,214	226	317	37,757
Sales	(13,063)	(106)	(1,138)	(14,307)
Fair value
adjustments	(11,006)	17	(97)	(11,086)
Ending Balance	$ 141,540	$ 6,353	$ 2,152	$ 150,045

130

Net Charge-offs and Total Credit Losses

Total net charge-offs for the first six months of 2017 were $75.7 million, or 1.71% of average loans on an annualized basis, compared to $48.3 million, or an annualized 1.08%, for the same period in 2016. Net charge-offs for the first six months of 2017 include a $10.7 million charge-off associated with the sale of the PREPA credit line. Excluding the charge-offs related to the sale of the PREPA credit line, total adjusted net charge-offs for the first six months of 2017 were the $64.9 million, or 1.47% of average loans.

Commercial mortgage loans net charge-offs in the first six months of 2017 were $31.7 million, or an annualized 3.93% of average commercial mortgage loans, compared to $1.9 million, or an annualized 0.25%, for the first six months of 2016. The increase was primarily related to the aforementioned charge-offs of $29.7 million recorded in the second quarter of 2017 on commercial mortgages loans guaranteed by the TDF.

Commercial and Industrial loans net charge-offs in the first six months of 2017 totaled $12.9 million, or an annualized 1.22% of average commercial and industrial loans, compared to $4.7 million, or an annualized 0.44%, for the first six months of 2016. Commercial and Industrial loans net charge-offs in the first six months of 2017 included the $10.7 million charge-off associated with the sale of the PREPA credit line. Excluding the impact of the PREPA credit line, adjusted commercial and industrial loans net charge-offs were $2.2 million in the first six months of 2017, or 0.21% of average loans. Approximately $5.5 million of the commercial and industrial loans charge-offs recorded in the first six months of 2017 are associated with two commercial relationships in Puerto Rico, including charge-offs of $3.5 million recorded as part of the aforementioned resolution of a $27.6 million non-performing commercial relationship, partially offset by a $$4.2 million recovery on a previously charged-off commercial loan.

Construction loans net charge-offs in the first six months of 2017 were $0.1 million, or an annualized 0.11% of average construction loans, compared to net charge-offs of $0.4 million, or an annualized 0.58%, for the first six months of 2016. The variance was primarily related to a loan loss recovery of $0.4 million recorded in 2017 on a non-performing construction loan paid-off in the Virgin Islands.

Residential mortgage loans net charge-offs in the first six months of 2017 were $13.6 million, or an annualized 0.83% of average residential mortgage loans, compared to $17.7 million, or an annualized 1.07%, for the first half of 2016. Approximately $8.2 million in charge-offs for the first half of 2017 resulted from valuations for impairment purposes of residential mortgage loans considered homogeneous given high delinquency and loan-to-value levels compared to $12.6 million for the first half of 2016. Net charge-offs on residential mortgage loans also included $4.4 million related to foreclosures for the first half of 2017, compared to $3.9 million for the first half of 2016.

Consumer loans and finance leases net charge-offs in the first six months of 2017 were $17.3 million, or an annualized 2.03% of average consumer loans and finance leases, compared to $23.6 million, or an annualized 2.64% of average loans, in the first half of 2016. The decrease was primarily reflected in the auto loan portfolio and also reflects the effect of a loan loss recovery of $1.2 million recorded in 2017 on the sale of certain credit card loans that had been fully charged off in prior periods.

| The following table presents annualized net charge-offs to average loans

held-in-various portfolio:	Quarter Ended		Six-Month Period Ended
	June 30, 2017	June 30, 2016	June 30, 2017	June 30, 2016
Residential mortgage	0.74 %	1.29 %	0.83 %	1.07 %
Commercial
mortgage	7.42 %	0.37 %	3.93 %	0.25 %
Commercial and
industrial (1)	0.34 %	0.23 %	1.22 %	0.44 %
Construction	1.19 %	1.02 %	0.11 %	0.58 %
Consumer and
finance leases	2.13 %	2.48 %	2.03 %	2.64 %
Total loans (2)	2.16 %	1.11 %	1.71 %	1.08 %
_______________
(1) Includes a
charge-off of $10.7 million associated with the sale of the PREPA credit line
in the first half of 2017. The ratio of commercial and industrial net
charge-offs to average loans, excluding the charge-off associated with the
sale of the PREPA credit line, was 0.21% in the first half of 2017.
(2) Includes the
charge-off of $10.7 million associated with the sale of the PREPA credit line
in the first half of 2017. The ratio of total net charge-offs to average
loans, excluding the charge-off associated with the sale of the PREPA credit
line, was 1.47% in the first half of 2017.

131

| The following table presents annualized net charge-offs or (recoveries) to average loans held in various

portfolios by geographic segment:	Quarter Ended		Six-Month Period Ended
	June 30,	June 30,	June 30,	June 30,
	2017	2016	2017	2016
PUERTO RICO:
Residential mortgage	0.99 %	1.67 %	1.09 %	1.37 %
Commercial
mortgage	10.14 %	0.47 %	5.34 %	0.32 %
Commercial and Industrial (1)	0.49 %	0.30 %	1.72 %	0.57 %
Construction	3.84 %	3.26 %	2.40 %	1.52 %
Consumer and finance leases	2.19 %	2.56 %	2.07 %	2.75 %
Total loans (2)	2.82 %	1.37 %	2.22 %	1.33 %
VIRGIN
ISLANDS:
Residential mortgage	0.07 %	0.13 %	0.09 %	0.10 %
Commercial mortgage (3)	(0.10) %	0.11 %	(0.10) %	(0.01) %
Commercial and Industrial (4)	(0.02) %	(0.01) %	(0.01) %	(0.02) %
Construction (5)	- %	0.33 %	(1.98) %	0.37 %
Consumer and finance leases	1.61 %	0.88 %	1.40 %	0.86 %
Total loans (6)	0.14 %	0.18 %	(0.01) %	0.15 %
FLORIDA:
Residential mortgage	0.04 %	0.06 %	0.07 %	0.05 %
Commercial mortgage (7)	(0.01) %	(0.05) %	(0.01) %	0.03 %
Commercial and Industrial (8)	- %	- %	- %	(0.01) %
Construction (9)	(1.06) %	(2.15) %	(0.65) %	(1.29) %
Consumer and finance leases	0.98 %	1.08 %	1.20 %	0.25 %
Total loans	0.01 %	- %	0.05 %	0.01 %
(1) Includes the
charge-off of $10.7 million associated with the sale of the PREPA credit line
in the first half of 2017. The ratio of commercial and industrial net
charge-offs to average commercial and industrial loans in Puerto Rico,
excluding the charge-off associated with the sale of the PREPA credit line,
was 0.30%.
(2) Includes the
charge-off of $10.7 million associated with the sale of the PREPA credit line
in the first half of 2017. The ratio of total net charge-offs to average
loans in Puerto Rico, excluding the charge-off associated with the sale of
the PREPA credit line, was 1.91%.
(3) For the
second quarter of 2017 and six-month periods ended June 30, 2017 and 2016,
recoveries in commercial mortgage loans in the Virgin Islands exceeded
charge-offs.
(4) For the
second quarters and six-month periods ended June 30, 2017 and 2016,
recoveries in commercial and industrial loans in the Virgin Islands exceeded
charge-offs.
(5) For the
first half of 2017, recoveries in construction loans in the Virgin Islands
exceeded charge-offs.
(6) For the
first half of 2017, recoveries in total loans in the Virgin Islands exceeded
charge-offs.
(7) For the
second quarters of 2017 and 2016 and for the six-month period ended June 30,
2017, recoveries in commercial mortgage loans in Florida exceeded
charge-offs.
(8) For the
first half of 2016, recoveries in commercial and industrial loans in Florida
exceeded charge-offs.
(9) For the
second quarters and six-month periods ended June 30, 2017 and 2016,
recoveries in construction loans in Florida exceeded charge-offs.

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 credit losses (equal to net charge-offs plus losses on OREO operations) for the first half of 2017 amounted to $83.1 million, or 2.00% on an annualized basis to average loans and repossessed assets, in contrast to credit losses of $54.8 million, or a loss rate of 1.35%, for the same period in 2016.

132

| The following table presents a

detail of the OREO inventory and credit losses for the periods indicated:	Quarter Ended		Six-Month Period Ended
	June 30,		June 30,
	2017	2016	2017	2016
(Dollars in
thousands)
OREO
OREO
balances, carrying value:
Residential	$ 54,346	$ 42,913	$ 54,346	$ 42,913
Commercial	84,939	82,054	84,939	82,054
Construction	10,760	14,192	10,760	14,192
Total	$ 150,045	$ 139,159	$ 150,045	$ 139,159
OREO activity
(number of properties):
Beginning
property inventory	671	563	626	549
Properties
acquired	107	103	221	186
Properties
disposed	(82)	(100)	(151)	(169)
Ending
property inventory	696	566	696	566
Average
holding period (in days)
Residential	327	321	327	321
Commercial	854	596	854	596
Construction	1,254	1,337	1,254	1,337
	692	590	692	590
OREO
operations gain (loss):
Market
adjustments and gain (losses) on sale:
Residential	$ (675)	$ (311)	$ (2,063)	$ (1,135)
Commercial	(2,168)	(3,531)	(5,552)	(5,418)
Construction	(38)	(163)	755	(129)
	(2,881)	(4,005)	(6,860)	(6,682)
Other OREO
operations expenses	(488)	680	(585)	151
Net Loss on OREO operations	$ (3,369)	$ (3,325)	$ (7,445)	$ (6,531)
CHARGE-OFFS
Residential charge-offs, net	(6,076)	(10,691)	(13,552)	(17,651)
Commercial charge-offs, net	(32,171)	(2,642)	(44,680)	(6,650)
Construction charge-offs, net	(462)	(369)	(80)	(443)
Consumer and finance leases charge-offs, net	(9,133)	(10,955)	(17,344)	(23,551)
Total charge-offs, net	(47,842)	(24,657)	(75,656)	(48,295)
TOTAL CREDIT
LOSSES (1)	$ (51,211)	$ (27,982)	$ (83,101)	$ (54,826)
LOSS RATIO
PER CATEGORY (2)
Residential	0.81 %	1.31 %	0.94 %	1.12 %
Commercial	3.61 %	0.66 %	2.63 %	0.64 %
Construction	1.20 %	1.34 %	(0.87) %	0.68 %
Consumer	2.12 %	2.46 %	2.02 %	2.62 %
TOTAL CREDIT
LOSS RATIO (3)	2.40 %	1.30 %	2.00 %	1.35 %
(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 sale 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.

133

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. In order 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 last several years. The Corporation has established and continues to enhance procedures based on legal and regulatory requirements that are designed to ensure compliance with all applicable statutory and regulatory 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 relationships to the Corporate Compliance Group.

Concentration Risk

The Corporation conducts its operations in a geographically concentrated area, as its main market is Puerto Rico. However, the Corporation has diversified its geographical risk as evidenced by its operations in the Virgin Islands and in Florida. Of the total gross loan portfolio held for investment of $8.9 billion as of June 30, 2017, approximately 76% has credit risk concentration in Puerto Rico, 17% in the United States, and 7% in the Virgin Islands.

Update to the Puerto Rico Fiscal Situation

The GDB-Economic Activity Index (the “GDB-EAI”) in May 2017 was 122.1, a 1.2% reduction compared to May 2016, and an increase of 0.4% compared to April 2017. On a year-to-date basis (July 2016 to May 2017) the decline was 2.1% with respect to the same period of the previous fiscal year. The GDB-EAI is a coincident index of economic activity for Puerto Rico made up of four indicators (non-farm payroll employment, electric power generation, cement sales and gasoline consumption). The seasonally adjusted unemployment rate in Puerto Rico was 10.1% in June 2017, compared to 12.4% in December 2016.

Based on information published by the Puerto Rico government, General Fund net revenues in June 2017 totaled $995.6 million, which was $67.2 million, or 7.2%, more than in June 2016. In addition, these revenues exceeded monthly projections by $6.7 million. The net revenues to the General Fund for the fiscal year ended June 30, 2017 totaled $9,334.9 million, an increase of $159.6 million, or 1.7%, compared with the previous fiscal year, and $234.9 million, or 2.6%, above projections. The General Fund revenues projection for the fiscal year 2017-2018 is $9,562 million.

On April 5, 2017, Moody’s lowered the credit ratings on $13 billion of Puerto Rican bonds, including the GDB’s senior notes, bonds issued by the Puerto Rico Infrastructure Financing Authority, backed by rum taxes; bonds issued by its convention center authority, backed by hotel occupancy taxes; debt of the island's largest retirement system, backed by government pension contributions; and the 1998 Resolution bonds of the island's highway authority from Ca to C. It also downgraded to Ca from Caa3 bonds issued by the Puerto Rico Industrial Development Company, backed by commercial property rent, but affirmed ratings on Puerto Rico general obligation bonds guaranteed by its constitution, and the Puerto Rico Sales Tax Financing Corporation (“COFINA”) debt, backed by sales tax revenue.

On April 28, 2017, the PROMESA oversight board approved the fiscal plans of the GDB, the Puerto Rico Highways and Transportation Authority (PRHTA), the Puerto Rico Aqueduct and Sewer Authority (PRASA) and the Puerto Rico Electric Power Authority. With its fiscal plan, the GDB prepares a gradual and orderly wind down of its operations over 10 years that seeks to mitigate the impact to its stakeholders and supports their ability to continue delivering essential services and promote economic growth. Separately from the fiscal plan, the PROMESA oversight board noted that Puerto Rico’s Fiscal Agency and Financial Do not modify beyond this point! !

134

Do not modify before this point! ! Advisory Authority (FAFAA) should provide a certification regarding the anticipated impact that reduced GDB distributions to depositors and other potential exposures might have on other government entities with fiscal plans and/or budgets. With respect to the TDF, the GDB stated in their fiscal plan that the resolution that created the TDF “specifically provides that the GDB shall not be liable for the payment of any of the TDF’s debts of any nature,” unless expressly guaranteed by the GDB.

PREPA was requested by the PROMESA oversight board to amend its plan to ensure it can lower customer rates to 21 cents per kilowatt hour by 2023 by achieving lower costs of generation and capturing other efficiency gains. The PROMESA oversight board directed PREPA to develop these savings through an expeditious capital improvement program that rapidly transitions the generation mix to low cost power sources, and other initiatives, including an increase in operational efficiency and detailed governance and implementation proposals to be further developed. The implementation plan should reflect:

· A clear path to realizing necessary capital improvements expeditiously, including a workable financing strategy for a credible capital expenditure plan that rapidly transitions the generation mix to lower cost power sources.

· A detailed plan to implement public/private partnerships or full privatization for energy generation and to finance necessary improvements in the grid.

· Changes to improve operational efficiency and procurement practices, to lower pension costs, to reduce contract spending, and to lower other costs.

· Development and inclusion of a detailed elimination of the Contribution In Lieu of Taxes (CILT) to 0% within the next 3-5 years beyond the 15% reduction included within the PREPA Fiscal Plan.

· A review of assets that could be monetized, either in the context of public private partnerships or otherwise to fund necessary capital improvements.

PRASA, whose plan will seek to reduce a 10-year funding gap of $3.5 billion, was ordered to raise rates through the implementation of a moderate but broad-based, multi-year rate increase schedule, with appropriate measures to protect lower-income residential customers, to cover the corporation’s operating and capital expenditures while avoiding sporadic, large, and onerous one-time rate hikes, which tend to have a larger impact on consumers, while PRHTA must alter its blueprint to address its fiscal sustainability asset by asset.

On April 29, 2017, the Puerto Rico governor signed the House Bill 938, which seeks equality in fringe benefits throughout the Puerto Rico government (public corporations and the central government), including, among others, the Christmas Bonus, employer contributions to the medical plan, vacation periods, and medical leave. The Puerto Rico governor also created a committee made up of the directors of the FAFAA, the Puerto Rico Department of Treasury, and the Office of Management and Budget, whose task will be to review the revenues of public corporations and other Puerto Rico government entities, and increase or reduce any rates in order to meet the metrics of the revised fiscal plan approved by the PROMESA oversight board.

On May 3, 2017, the Puerto Rico government and the PROMESA oversight board filed for a form of bankruptcy in the U.S. District court in Puerto Rico under Title III of PROMESA. The Title III allows for a court debt restructuring process similar to U.S. bankruptcy protection.

On June 30, 2017, the PROMESA oversight board certified the Puerto Rico government’s budget for fiscal year 2018, which totals $9.562 billion in general fund revenues. This budget, the first certified under the PROMESA, is based on the revised fiscal plan also approved by the PROMESA oversight board. The new budget was certified on the condition that updated fiscal plans for the GDB, the PRHTA, PREPA and PRASA be submitted within 45 days from the budget final approval date.

On July 2, 2017, the PROMESA oversight board filed for a form of bankruptcy in the U.S. District court in Puerto Rico under Title III of PROMESA for PREPA.

On July 14, 2017 the PROMESA oversight board authorized the GDB to pursue the restructuring of its debts under Title VI of PROMESA and conditionally certified the GDB’s Restructuring Support Agreement (“RSA”) under the relevant provisions of Title VI. The PROMESA oversight board’s decision was in response to a request from FAFAA, dated June 30, 2017, in which the agency noted that the proposed restructuring, along with certain related settlements contemplated by the RSA, will result in an efficient wind down of GDB’s operations and a comprehensive financial restructuring of GDB’s obligations. The RSA provides for the organized and consensual restructuring of a substantial portion of GDB’s liabilities, including GDB public bonds, deposit claims by municipalities and certain non-public entities and claims under certain GDB-issued letters of credit and guarantees (“Participating Bond Claims”). In exchange for releasing GDB from liability relating to these claims, the claim-holders will receive new bonds to be issued by a new entity.

On August 4, 2017, the PROMESA oversight board authorized the implementation of a furlough program for government employees, beginning on September 1, 2017. The furlough program contemplates the reduction of two workdays monthly (10%) which is less than the original plan of four workdays monthly (20%). This reform would run through fiscal year 2018 or until the Do not modify beyond this point! !

135

Do not modify before this point! ! Puerto Rico government demonstrates it achieved $218 million in savings related to right-sizing the government. However, later that day, the Puerto Rico government announced it has no intention of adopting the furlough reform.

Exposure to Puerto Rico Government

As of June 30, 2017, the Corporation had $221.5 million of direct exposure to the Puerto Rico Government, its municipalities and public corporations, compared to $323.3 million as of December 31, 2016. Approximately $190.9 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. Approximately 73% of the Corporation’s municipality exposure consists primarily of senior priority obligations concentrated in three of the largest municipalities in Puerto Rico. The vast majority of revenues of these three municipalities are independent of the Puerto Rico central government as the amount of revenues that depend from the Puerto Rico government General Fund subsidy represents just over 4% of the total revenues of these municipalities (6% of total revenues for the entire Corporation’s exposure to municipalities bonds and loans). These municipalities are required by law to levy special property taxes in such amounts as shall be required for the payment of all of their respective general obligation bonds and loans. The PROMESA oversight board has not designated any of the Commonwealth’s 78 municipalities as covered entities under PROMESA. However, while the revised fiscal plan submitted by the Puerto Rico government did not contemplate a restructuring of the debt of Puerto Rico’s municipalities, the plan did call for the gradual elimination of budgetary subsidies provided to municipalities. Furthermore, municipalities are also likely to be affected by the negative economic and other effects resulting from expense, revenue or cash management measures taken to address the Puerto Rico Government’s fiscal and liquidity shortfalls, or measures included in fiscal plans of other government entities, such as the gradual reduction of the CILT included in the PREPA fiscal plan and the recently approved GDB Restructuring Support Agreement. The GDB Restructuring Support Agreement provides for the restructuring of a substantial portion of the GDB’s indebtedness, including deposits of municipalities, through the issuance of “Participating Bond Claims” in exchange for the release of GDB from liability relating to the bonds, deposits, letters of credit and guarantees claims. In addition to municipalities, the total direct exposure also includes a $6.8 million loan to a unit of the central government and a $15.8 million loan to an affiliate of a public corporation. As mentioned above, the sale in the first quarter of 2017 of the PREPA credit line, with a book value of $64 million at the time of sale, contributed significantly to the reduction of the Corporation’s direct exposure to the Puerto Rico government.

The Corporation’s total direct exposure also includes obligations of the Puerto Rico Government, specifically bonds of the Puerto Rico Housing Finance Authority, at an amortized cost of $8.0 million as part of its available-for-sale investment securities portfolio recorded on its books at a fair value of $5.6 million as of June 30, 2017. During the second quarter of 2017, the Corporation sold for an aggregate of $23.4 million non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority carried on its books at an amortized cost of $23.0 million (net of $34.4 million in cumulative OTTI impairment charges). This transaction resulted in a $0.4 million recovery from previous OTTI charges reflected in the statement of income as part of “net gain on sale of investments.”

136

| The following table details the Corporation’s total direct exposure to the Puerto Rico Government according

to their maturities:
	As of June 30, 2017
	Investment
	Portfolio		Total
	(Amortized cost)	Loans	Exposure
(In thousands)
Central
Government:
After 1 to 5
years	$ -	$ 6,815	$ 6,815
Total
Central Government	-	6,815	6,815
Puerto Rico
Housing Finance Authority:
After 10
years	7,980	-	7,980
Total Puerto
Rico Housing Finance Authority	7,980	-	7,980
Public
Corporations:
Affiliate of
the Puerto Rico Electric Power Authority:
After 5 to
10 years	-	15,795	15,795
Total Public
Corporations	-	15,795	15,795
Municipalities:
After 1 to
5 years	4,108	29,495	33,603
After 5 to
10 years	7,628	5,317	12,945
After 10
years	144,313	-	144,313
Total
Municipalities	156,049	34,812	190,861
Total Direct
Government Exposure	$ 164,029	$ 57,422	$ 221,451

137

Furthermore, as of June 30, 2017, the Corporation had three loans granted to the hotel industry in Puerto Rico guaranteed by the TDF with an outstanding principal balance of $127.6 million (book value $80.5 million), compared to $127.7 million outstanding (book value of $111.8 million) as of December 31, 2016. The borrower and the operations of the underlying collateral of these loans are the primary sources of repayment and the TDF provides a secondary guarantee for payment performance. The TDF is a subsidiary of the GDB. These loans have been classified as non-performing and impaired since the first quarter of 2016, and interest payments have been applied against principal since then. Approximately $3.4 million of interest payments received on loans guaranteed by the TDF since late March 2016 have been applied against principal. During the second quarter of 2017, the Corporation recorded charge-offs of $29.7 million on these facilities. The largest of these three loans became over 90 days matured in the second quarter of 2017 and, as a collateral dependent loan, the portion of the recorded investment in excess of the fair value of the collateral and the guarantee was charged-off. A portion of the charge-offs was related to an adjustment to the estimated fair value of the guarantee on these loans in light of an agreement reached in the second quarter of 2017 in which the TDF agreed to honor a portion of its guarantee through a cash payment and a fixed income financial instrument. Upon completion of the agreement, which is linked in part to the GDB’s Restructuring Support Agreement recently approved by the PROMESA oversight board, TDF will be released as guarantor and the income-producing real estate properties will be the only collateral on these loans, thus, any decline in the collateral valuations may require additional impairments on these bonds. As of June 30, 2017, the non-performing loans guaranteed by the TDF and related facilities are being carried (net of reserves and accumulated charge-offs) at 56% of unpaid principal balance.

In addition, the Corporation had $117.4 million in exposure to residential mortgage loans that are guaranteed by the Puerto Rico Housing Finance Authority. Residential mortgage loans guaranteed by the Puerto Rico Housing Finance Authority 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 guaranteed under the mortgage loans insurance program. According to the most recently released audited financial statements of the Puerto Rico Housing Financing Authority, as of June 30, 2015, the Puerto Rico Housing Finance Authority’s mortgage loans insurance program covered loans in an aggregate of approximately $552 million. The regulations adopted by the Puerto Rico Housing Finance Authority require the establishment of adequate reserves to guarantee the solvency of the mortgage loans insurance fund. As of June 30, 2015, the most recent date as to which information is available, the Puerto Rico Housing Finance Authority had a restricted net position for such purposes of approximately $77.4 million.

Furthermore, as of June 30, 2017, the Corporation had $494.3 million of public sector deposits in Puerto Rico. Approximately 35% is from municipalities and municipal agencies in Puerto Rico and 65% is from public corporations and the central government and agencies in Puerto Rico.

Exposure to USVI government

The Corporation has operations in the USVI and has credit exposure to USVI government entities.

The USVI is experiencing a number of fiscal and economic challenges that could adversely affect the ability of its public corporations and instrumentalities to service their outstanding debt obligations. 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 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 USVI government entities or imposing a stay on creditor remedies, including by making PROMESA applicable to the USVI.

As of June 30, 2017, the Corporation had $85.2 million in loans to USVI government instrumentalities and public corporations, compared to $84.7 million as of December 31, 2016. Of the amount outstanding as of June 30, 2017, approximately $62.0 million corresponds to public corporations of the USVI and $23.2 million corresponds to an independent instrumentality of the USVI government. All loans are currently performing and up to date with its principal and interest payments.

Furthermore, the Corporation had $109.2 million of public sector deposits in the USVI.

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.

138

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:

Net interest income, interest rate spread, and net interest margin are reported excluding the changes in the fair value of derivative instruments and on a tax-equivalent basis in order to provide to investors the additional information about the Corporation’s net interest income that management uses and believes should facilitate comparability and analysis. 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 certain loans, on a common basis that facilitates comparison of results to the results of peers. Refer to Net Interest Income discussion above for the table that reconciles the non-GAAP financial measure “net interest income excluding fair value changes and on a tax-equivalent basis” with net interest income calculated and presented in accordance with GAAP. The table also reconciles the non-GAAP financial measures “net interest spread and margin excluding fair value changes and on a tax-equivalent basis” with net interest spread and margin calculated and presented in accordance with GAAP.
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, 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 also 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. Refer to Risk Management – Capital discussion above for a reconciliation of the Corporation’s tangible common equity and tangible assets.
Adjusted provision for loan and lease losses, adjusted net charge-offs, and the ratios of adjusted net charge-offs to average loans, and adjusted provision for loan and lease losses to net charge-offs are non-GAAP financial measures that exclude the effects related to the sale of the Corporation’s participation in the PREPA line of credit in the first quarter of 2017 with a book value of $64 million at the time of sale. Management believes that the adjustment measures helps investors understand the Corporation’s performance without regard to items that are not expected to reoccur with any regularity or may reoccur at uncertain times and may have inconsistent impact on the reported results and facilitates comparisons with prior periods.
Adjusted non-interest income excludes for the second quarter of 2017 and for the first six months of 2017 and 2016, the following:

· Partial recovery of $0.4 million of previously recorded OTTI charges on non-performing bonds of the GDB and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017.

· OTTI charges on debt securities of $12.2 million and $6.7 million in the first quarter of 2017 and 2016, respectively.

· Gain of $4.2 million on the repurchase and cancellation of trust preferred securities in the first quarter of 2016.

· Gain of $8 thousand on the sale of a U.S. Treasury bill in the first quarter of 2016.

Management believes that the exclusion from non-interest income of items that are not expected to reoccur with any regularity or may reoccur at uncertain times or in uncertain amounts, facilitates comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.

139

Adjusted non-interest expenses excludes for the first half of 2017 the following:

· Costs of $0.3 million associated with a secondary offering of the Corporation’s common stock by certain of the existing stockholders in the first quarter of 2017.

Management believes that the exclusion from non-interest expenses of adjustments that are above normal or recurring levels, are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts, facilitates comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.

Adjusted net income that excludes the effect of a $13.2 tax benefit recorded in the first quarter of 2017 related to the change in tax status of certain subsidiaries from taxable corporations to limited liability companies, and the effect of all the items mentioned above and their tax related impacts as follows:

· Tax benefit of $0.2 million related to the sale of the PREPA credit line in the first quarter of 2017 (calculated based on the statutory tax rate of 39%).

· No tax benefit was recorded for the partial recovery of previously recorded OTTI charges on non-performing bonds sold in the second quarter of 2017 and for the OTTI charges recorded in the first quarter of 2017 and 2016.

· The gain realized on the repurchase and cancellation of trust preferred securities and costs incurred associated with the secondary offerings, recorded at the holding company level, had no effect on the income tax expense in 2016 and 2017.

Management believes that the exclusion from net income of items that 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, facilitates comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.

The Corporation uses and believes that these non-GAAP financial measures enhance 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.

Refer to Overview of Results of Operations discussion above for the reconciliation of the non-GAAP financial measure “adjusted net income” to the GAAP financial measure. The following tables reconcile the non-GAAP financial measures “adjusted provision for loan and lease losses,” “adjusted net charge-offs,” “adjusted net charge-offs to average loans ratio,” “adjusted provision for loan and lease losses to adjusted net charge-offs,” “adjusted non-interest income” and “adjusted non-interest expenses,” to the GAAP financial measures:

2017 Second Quarter
(Dollars in
thousands)
Non-interest
income	$ 20,549	$ (371)	$ 20,178
Gain on sale
of investment securities	$ 371	$ (371)	$ -

2017 First Six-Months
(Dollars in
thousands)
Total net
charge-offs	$ 75,656	$ -	$ -	$ -	$ 10,734	$ 64,922
Total net
charge-offs to average loans	1.71%					1.47%
Commercial and
Industrial	12,931	-	-	-	10,734	2,197
Commercial
and Industrial loans
net
charge-offs to average loans	1.22%					0.21%
Provision for
loan and lease losses	$ 43,538	$ -	$ -	$ -	$ 569	$ 42,969
Commercial and
Industrial	(6,940)				569	(7,509)
Non-interest income	$ 28,792	$ -	$ 12,231	$ (371)	$	$ 40,652
Net loss on
investment and impairments	(11,860)	-	12,231	(371)		-
Non-interest
expenses	$ 176,951	$ (274)	$ -	$ -		$ 176,677
Professional
Fees	22,756	(254)	-	-		22,502
Business
promotion	6,473	(20)	-	-		6,453

140

2016 First Six-Months
(In thousands)
Non-interest
income	$ 38,247	$ 6,687	$ (4,217)	$ (8)	$ 40,709
Net loss on
investment and impairments	$ (6,679)	$ 6,687	$ -	$ (8)	$ -
Gain on early
extinguishment of debt	$ 4,217	$ -	$ (4,217)	$	$ -

	Provision for Loan and Lease
	Losses to Net Charge-Offs
	(GAAP to Non-GAAP reconciliation)
	Six-Month Period Ended
	June 30, 2017
	Provision for Loan	Net Charge-Offs
	and Lease Losses
(In thousands)
Provision for
loan and lease losses and net charge-offs (GAAP)	$ 43,538	$ 75,656
Less special items:
Sale
of the PREPA credit line	569	10,734
Provision for
loan and lease losses and net charge-offs,
excluding
special items (Non-GAAP)	$ 42,969	$ 64,922
Provision for
loan and lease losses to net charge-offs (GAAP)	57.55 %
Provision for
loan and lease losses to net charge-offs, excluding special
items
(Non-GAAP)	66.19 %

141

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 Controls and Procedures

First BanCorp.’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of First BanCorp.’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2017. Based on this evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective.

Internal Control over Financial Reporting

There have been no changes to the Corporation’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

142

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, see the risk factors below and in Item 1A, “Risk Factors,” in the Corporation’s 2016 Annual Report on Form 10-K. These factors could also 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 “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 Corporation’s 2016 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.

Puerto Rico Government’s filing for bankruptcy may adversely impact our financial condition or results of operations .

On May 3, 2017, the Puerto Rico government and the PROMESA oversight board filed for a form of bankruptcy in the U.S. District Court in Puerto Rico under Title III of PROMESA. The Title III provision allows for a court debt restructuring process similar to U.S. bankruptcy protection. Since this is the first time that any state or territory of the United States has ever filed for relief that is expected to be comparable to bankruptcy relief because of the absence, until PROMESA, of any legal authority for such a relief, it is uncertain what impact this filing will have on the Corporation. A similar Title III form of bankruptcy was filed for PREPA on July 2, 2017. The Corporation’s financial condition and results of operations may be negatively affected as a result of the resolution of the bankruptcy relief filing and further adverse developments in the Puerto Rico government’s fiscal situation given the Corporation’s direct exposure to the Puerto Rico government (excluding municipalities) of $8.0 million of Puerto Rico government debt securities, a $6.8 million loan to an agency of the Puerto Rico central government, and a $15.8 million loan to a PREPA affiliate.

Our ability to use our U.S. and U.S.V.I net operating loss (NOL) carryforwards may be limited.

We have U.S. and U.S.V.I sourced net operating losses (“NOLs”) that we incurred in prior years. Our ability to utilize our U.S. and U.S.V.I. NOLs for income tax purposes at such jurisdictions may be limited under Section 382 of the U.S. Internal Revenue Code (the “Section 382”). We are in the process of finalizing a formal ownership change analysis within the meaning of Section 382 covering a comprehensive period, and believe that it is reasonable to conclude that an ownership change occurred during such period. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage over a three-year testing period. Upon the occurrence of a Section 382 ownership change, the use of NOLs attributable to the period prior to the ownership change is subject to limitations and only a portion of the U.S. and U.S.V.I NOLs may be used by the Corporation to offset its annual U.S. and U.S.V.I taxable income, if any. The utilization of NOLs allocable to the post ownership change period should not be affected by the ownership change. A Section 382 limitation could result in higher U.S. and U.S.V.I tax liabilities than we would incur in the absence of such a limitation. As of June 30, 2017, we believe there would be no tax liability and that income tax expense, if any, would not be material. Prospectively, we would be able to mitigate the adverse effects associated with a Section 382 limitation to the extent that we have Puerto Rico tax liability that we can reduce through a credit or a deduction of the amount of the additional U.S. or U.S.V.I tax liability. 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 and cannot be known with certainty at this time.

143

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 purchasers. The following table provides information relating to the Corporation’s purchases of shares of its common stock in the second quarter of 2017.

			Total Number of	Maximum — Number of Shares
			Shares Purchased	That May Yet be
		Average	as Part of Publicly	Purchased Under
	Total number of	Price	Announced Plans	These Plans or
Period	shares purchased (1)	Paid	Or Programs	Programs
April, 2017	15,990	$ 5.80	-	-
May, 2017	196,285	5.74	-	-
June, 2017	16,077	5.39	-	-
Total	228,352	$ 5.72	-	-
(1) Reflects shares of common stock withheld from the common
stock (a) paid to certain senior officers as additional compensation, which
the Corporation calls salary stock, and (b) upon vesting of restricted stock
to cover minimum tax withholding obligations. The Corporation intends to
continue to satisfy statutory tax withholding obligations in connection with
shares paid as salary stock to certain senior officers and the vesting of
outstanding restricted stock through the withholding of shares.

144

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 following the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed with this report, which Exhibit Index is incorporated herein by reference.

145

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: August 9, 2017
Aurelio Alemán
President and Chief Executive Officer

Date: August 9, 2017
Orlando Berges
Executive Vice President and Chief Financial Officer

146

Exhibit Index

| 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 .1 – Interactive Data File (Quarterly Report on Form
10-Q for the quarterly period ended June 30, 2017, furnished in XBRL
(eXtensible Business Reporting Language).

147

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