1.

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.

2.

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.

3.

Adjusted pre-tax, pre-provision income is a non-GAAP performance metric that management uses and believes that investors may find useful in analyzing underlying performance trends, particularly in times of economic stress, including as a result of natural catastrophes such as the recent hurricanes. Adjusted pre-tax, pre-provision income, as defined by management, represents income (loss) before income taxes excluding the provision for loan and lease losses, as well as certain 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.

4.

Adjusted provision for loan and lease losses, and the ratios of adjusted provision for loan and lease losses to net charge-offs, and the adjusted allowance to total loans held for investment are non-GAAP financial measures that excludes the effects related to the establishment in the third quarter of 2017 of a $66.5 million provision for loan and lease losses directly related to the initial estimate, based on available information, of inherent losses resulting from the impact of Hurricanes Irma and Maria, and the effect related to the sale of the Corporation’s participation in the Puerto Rico Electric Power Authority (“PREPA”) line of credit in the first quarter of 2017. Management believes that this information helps investors understand the adjusted measures without regard to items that are not expected to reoccur with any regularity or may reoccur at uncertain times and in uncertain amounts on reported results and facilitates comparisons with prior periods.

5.

Adjusted non-interest income that excludes the effect of a gain on the repurchase and cancellation of trust preferred securities in the third quarter of 2017, the effect of a recovery of previously recorded other-than-temporary impairment (“OTTI”) charges on non-performing bonds of the Government Development Bank for Puerto Rico and the Puerto Rico Public Buildings Authority sold in the second quarter of 2017, and the effect of gains on sales of U.S agency mortgage-backed securities (“MBS”) in the third 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.

6.

Adjusted non-interest expenses that reflect the exclusion of costs incurred for storm relief efforts and assistance to employees affected by Hurricanes Irma and Maria in the third quarter of 2017, inclusion of expected insurance recoveries for employees’ compensation and rental costs that the Corporation incurred when Hurricanes Irma and Maria precluded employees from working during the third quarter of 2017, the exclusion of costs associated with a secondary offering of the Corporation’s common stock by certain of the existing stockholders in the third quarter of 2017, and exclusion of costs related to severance payments on permanent job discontinuance that are above normal or recurring levels recorded in the third quarter of 2016. Management believes that adjustments to non-interest expenses of items 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 facilitate comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.

7.

Adjusted net income that reflects the effect of all the items mentioned above and their tax related impacts. Management believes that adjustments to 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 facilitate comparisons with prior periods, and provides an alternate presentation of the Corporation’s performance.

Provision for loan and lease losses to

Net Charge-Offs

(GAAP to Non-GAAP reconciliation)

Provision for loan and lease losses to

Net Charge-Offs

(GAAP to Non-GAAP reconciliation)

Quarter Ended

September 30, 2017

Nine-month Period Ended

September 30, 2017

(In thousands)

Provision for Loan and

Lease Losses

Net Charge-Offs

Provision for Loan and

Lease Losses

Net Charge-Offs

Provision for loan and lease losses and net charge-offs (GAAP)

$

75,013

$

17,628

$

118,551

$

93,284

Less Special items:

Storm-related provision for loan and lease losses

66,490

–

66,490

–

Sale of the PREPA credit line

–

–

10,734

Provision for loan and lease losses and net charge-offs, excluding special items (Non-GAAP)

$

8,523

$

17,628

$

51,492

$

82,550

Provision for loan and lease losses to net charge-offs (GAAP)

425.54

%

127.09

%

Provision for loan and lease losses to net charge-offs, excluding special items (Non-GAAP)

48.35

%

62.38

%

Allowance for Loan and Lease Losses to Total Loans Held

for Investment (GAAP to Non-GAAP reconciliation)

As of September 30, 2017

(In thousands)

Allowance for Loan and

Lease Losses

Total Loans Held for Investment

Allowance for Loan and Lease Losses and Total Loans Held for Investment (GAAP)

$

230,870

$

8,877,214

Less Special items:

Storm-related allowance for loan and lease losses

66,490

–

Allowance for Loan and Lease Losses and Total Loans Held for Investment, excluding special items (Non-GAAP)

$

164,380

$

8,877,214

Allowance for Loan and Lease Losses to Total Loans Held for Investment (GAAP)

2.60

%

Allowance for Loan and Lease Losses to Total Loans Held for Investment, excluding special items (Non-GAAP)

1.85

%