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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C., 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
 For Fiscal Year ended December 31, 2009
 Commission File: 001-15849
 SANTANDER BANCORP
  
 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
 Title of each class
    
    Name of each exchange on
which registeredCommon Stock, $2.50 par value
    
    New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
 NONE
 
  þ o
  o þ
  þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SANTANDER BANCORP
 CONTENTSPART I
    
    
    
    
    3Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    20Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23PART II
    
    
    
    
    23Item 5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and Issuer
Purchases of Equity Securities
    
    
    23Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    28Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    62Item 8.
    
    Financial Statements and Supplementary Data
    
    
    84Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    145Item 9A.
    
    Controls and Procedures
    
    
    145Item 9B.
    
    Other Information
    
    
    145PART III
    
    
    
    
    146Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    146Item 11.
    
    Executive Compensation
    
    
    146Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    146Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    146Item 14.
    
    Principal Accountant Fees and Services
    
    
    146PART IV
    
    
    
    
    147Item 15.
    
    Exhibits, Financial Statement Schedules
    
    
    147SIGNATURES
    
    
    
    
    148EXHIBIT INDEX
    
    
    149EX-12EX-21EX-31.1EX-31.2EX-32.1
  2




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Santander BanCorp
 
 PART I
 
 ITEM 1. BUSINESS
 General
  
  Banco Santander Puerto Rico
   antander International Bank of Puerto Rico, Inc.
  Santander Securities Corporation
  3




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Santander Asset Management Corporation
  Santander Insurance Agency, Inc.
  Santander Financial Services, Inc.
  Island Insurance Corporation
  Santander PR Capital Trust I
  Operations
   Commercial Banking
 Retail Banking
 4




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Wholesale Banking
 Mortgage Banking.
 Consumer Finance.
 Treasury and Investments
 Wealth Management
 http://www.santandernet.com
 Forward Looking Statements
 .
   5




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REGULATION AND SUPERVISION
 Overview
   Holding Company Operations  Federal Regulation
 General
 The BHC Act and the Gramm-Leach-Bliley Act (GLB Act).
    6




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USA Patriot Act
    Privacy Policies
  7




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Dividend Restrictions
       Federal Home Loan Bank System
   8




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Limitations on Transactions with Affiliates
  Loans to Insiders
  Capital Requirements
   9




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##### Table of Contents



Sarbanes-Oxley Act
   10




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Change of Control
   Banking Operations
 General
   FDIC Capital Requirements
  11




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FDIC Deposit Insurance Assessments
     12




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13




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Community Reinvestment Act
  Office of Foreign Assets Control Regulation
  Brokered Deposits
  Federal Limitations on Activities and Investments
  14




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Interstate Branching
 de novo.
 de novo
 Banking Operations-Puerto Rico Regulation
 General
     15




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IBC Act
   16




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Mortgage Banking Operations
      17




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Broker-Dealer Operations
    Insurance Operations
   Recent Puerto Rico Legislation
   18




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Employees
  Availability at our website
  19




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ITEM 1A. RISK FACTORS
  General business, economic and political conditions.
  Competition.
  Interest rate risk.
  20




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Credit Risk.
  Changes in market prices of managed assets.
 Changes in accounting standards.
  Federal and state regulations.
 21




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Governmental fiscal and monetary policy.
   Liquidity risk.
 Operational risk.
 Reputational risk.
 Merger risk.
 Litigation risk.
 Current Economic Condition of the Commonwealth of Puerto Rico.
 22




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##### Table of Contents



ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
  
 ITEM 3.
    
    LEGAL PROCEEDINGS
   
 ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
  23




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Cash
    
    
    BookDividends
    
    
    ValuePeriod
    
    High
    
    
    Low
    
    
    per Share
    
    
    per Share20091st Quarter
    
    $
    13.49
    
    
    $
    5.74
    
    
    $
    
    
    
    $
    11.702nd Quarter
    
    
    8.13
    
    
    
    6.18
    
    
    
    
    
    
    
    11.993rd Quarter
    
    
    10.80
    
    
    
    5.18
    
    
    
    
    
    
    
    12.344th Quarter
    
    
    13.12
    
    
    
    9.58
    
    
    
    
    
    
    
    12.7820081st Quarter
    
    $
    14.56
    
    
    $
    7.06
    
    
    $
    0.10
    
    
    $
    12.152nd Quarter
    
    
    15.00
    
    
    
    9.23
    
    
    
    0.10
    
    
    
    12.033rd Quarter
    
    
    15.50
    
    
    
    9.63
    
    
    
    
    
    
    
    11.914th Quarter
    
    
    14.50
    
    
    
    6.63
    
    
    
    
    
    
    
    11.83
  Dividend Policy and Dividends Paid
   24




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Stock Performance Graph
  
 
 ITEM 6.
    
    SELECTED FINANCIAL DATA
  25




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Santander BanCorp and Subsidiaries
Selected Financial Data
 Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands, except per data share)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSInterest income
    
    $
    482,158
    
    
    $
    600,771
    
    
    $
    674,210
    
    
    $
    618,320
    
    
    $
    439,605Interest expense
    
    
    130,431
    
    
    
    244,449
    
    
    
    362,531
    
    
    
    327,714
    
    
    
    212,583Net interest income
    
    
    351,727
    
    
    
    356,322
    
    
    
    311,679
    
    
    
    290,606
    
    
    
    227,022Security gains
    
    
    9,251
    
    
    
    5,154
    
    
    
    1,265
    
    
    
    
    
    
    
    17,842Loss on extinghuishment of debt
    
    
    (9,600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,959
    )Broker-dealer, asset management and insurance fees
    
    
    62,688
    
    
    
    74,808
    
    
    
    68,265
    
    
    
    56,973
    
    
    
    53,016Other income
    
    
    60,107
    
    
    
    67,873
    
    
    
    78,590
    
    
    
    61,496
    
    
    
    60,459Operating expenses
    
    
    269,067
    
    
    
    324,627
    
    
    
    344,016
    
    
    
    277,783
    
    
    
    221,386Provision for loan losses
    
    
    152,496
    
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400Income tax (benefit) provision
    
    
    11,335
    
    
    
    (6,524
    )
    
    
    4,204
    
    
    
    22,540
    
    
    
    30,788Net income (loss)
    
    $
    41,275
    
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806PER COMMON SHARE DATANet income (loss)
    
    $
    0.88
    
    
    $
    0.23
    
    
    $
    (0.78
    )
    
    $
    0.93
    
    
    $
    1.71Book value
    
    $
    12.78
    
    
    $
    11.83
    
    
    $
    11.50
    
    
    $
    12.42
    
    
    $
    12.19Outstanding shares:Average
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104End of period
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104Cash Dividend per Share
    
    $
    
    
    
    $
    0.20
    
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.64AVERAGE BALANCESLoans held for sale and loans, net of allowance
for loan losses
    
    $
    5,529,239
    
    
    $
    6,584,842
    
    
    $
    6,900,764
    
    
    $
    6,439,205
    
    
    $
    5,871,433Allowance for loan losses
    
    
    191,738
    
    
    
    175,100
    
    
    
    125,897
    
    
    
    87,465
    
    
    
    67,956Earning assets
    
    
    6,375,311
    
    
    
    8,014,368
    
    
    
    8,530,213
    
    
    
    8,262,748
    
    
    
    7,882,180Total assets
    
    
    7,112,754
    
    
    
    8,740,670
    
    
    
    9,199,712
    
    
    
    8,820,630
    
    
    
    8,285,992Deposits
    
    
    4,645,829
    
    
    
    5,558,667
    
    
    
    5,221,999
    
    
    
    5,054,687
    
    
    
    5,082,520Borrowings
    
    
    1,565,983
    
    
    
    2,314,535
    
    
    
    3,093,947
    
    
    
    2,876,720
    
    
    
    2,415,172Common equity
    
    
    569,700
    
    
    
    564,238
    
    
    
    573,536
    
    
    
    563,593
    
    
    
    576,226PERIOD END BALANCESLoans held for sale and loans, net of allowance
for loan losses
    
    $
    5,273,170
    
    
    $
    5,967,958
    
    
    $
    6,911,380
    
    
    $
    6,836,693
    
    
    $
    5,954,890Allowance for loan losses
    
    
    197,303
    
    
    
    191,889
    
    
    
    166,952
    
    
    
    106,863
    
    
    
    66,842Earning assets
    
    
    6,124,895
    
    
    
    7,186,973
    
    
    
    8,519,773
    
    
    
    8,598,703
    
    
    
    7,933,139Total assets
    
    
    6,766,436
    
    
    
    7,897,576
    
    
    
    9,160,213
    
    
    
    9,188,168
    
    
    
    8,271,948Deposits
    
    
    4,395,560
    
    
    
    5,014,902
    
    
    
    5,160,703
    
    
    
    5,313,974
    
    
    
    5,224,650Borrowings
    
    
    1,506,754
    
    
    
    1,939,384
    
    
    
    3,138,730
    
    
    
    2,954,515
    
    
    
    2,212,245Common equity
    
    
    595,897
    
    
    
    551,636
    
    
    
    536,536
    
    
    
    579,220
    
    
    
    568,527
 Continued on the following page
 26




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Continued from the previous page
 Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)SELECTED RATIOSPerformance:Net interest margin (1)
    
    
    5.56
    %
    
    
    4.50
    %
    
    
    3.74
    %
    
    
    3.63
    %
    
    
    3.02
    %Efficiency ratio (2)
    
    
    56.77
    %
    
    
    60.39
    %
    
    
    66.32
    %
    
    
    66.82
    %
    
    
    62.97
    %Return on average total assets
    
    
    0.58
    %
    
    
    0.12
    %
    
    
    (0.39
    )%
    
    
    0.49
    %
    
    
    0.96
    %Return on average common equity
    
    
    7.25
    %
    
    
    1.87
    %
    
    
    (6.32
    )%
    
    
    7.66
    %
    
    
    13.85
    %Dividend payout
    
    
    0.00
    %
    
    
    86.96
    %
    
    
    (82.05
    )%
    
    
    68.82
    %
    
    
    37.43
    %Average net loans/average total deposits
    
    
    119.02
    %
    
    
    118.46
    %
    
    
    132.15
    %
    
    
    127.39
    %
    
    
    115.52
    %Average earning assets/average total assets
    
    
    89.63
    %
    
    
    91.69
    %
    
    
    92.76
    %
    
    
    93.68
    %
    
    
    95.13
    %Average stockholders equity/average assets
    
    
    8.01
    %
    
    
    6.46
    %
    
    
    6.24
    %
    
    
    6.39
    %
    
    
    6.95
    %Fee income to average assets
    
    
    1.44
    %
    
    
    1.37
    %
    
    
    1.26
    %
    
    
    1.20
    %
    
    
    1.15
    %Capital:Tier I capital to risk-adjusted assets
    
    
    10.60
    %
    
    
    8.41
    %
    
    
    7.42
    %
    
    
    7.87
    %
    
    
    9.09
    %Total capital to risk-adjusted assets
    
    
    15.55
    %
    
    
    12.83
    %
    
    
    10.55
    %
    
    
    10.93
    %
    
    
    12.30
    %Leverage Ratio
    
    
    7.98
    %
    
    
    6.10
    %
    
    
    5.38
    %
    
    
    5.81
    %
    
    
    6.50
    %Asset quality:Non-performing loans to total loans
    
    
    5.30
    %
    
    
    3.45
    %
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %Annualized net charge-offs to average loans
    
    
    2.57
    %
    
    
    2.23
    %
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %Allowance for loan losses to period-end loans
    
    
    3.61
    %
    
    
    3.12
    %
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %Allowance for loan losses to non-performing loans
    
    
    68.07
    %
    
    
    90.21
    %
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %Allowance for loan losses to non-performing
loans plus accruing loans past-due 90 days or more
    
    
    65.54
    %
    
    
    84.84
    %
    
    
    55.36
    %
    
    
    83.62
    %
    
    
    87.17
    %Non-performing assets to total assets
    
    
    4.79
    %
    
    
    2.97
    %
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %Recoveries to charge-offs
    
    
    3.25
    %
    
    
    2.52
    %
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %EARNINGS TO FIXED CHARGES:Excluding interest on deposits
    
    
    1.94
    x
    
    
    1.04
    x
    
    
    0.82
    x
    
    
    1.42
    x
    
    
    2.19
    xIncluding interest on deposits
    
    
    1.39
    x
    
    
    1.02
    x
    
    
    0.91
    x
    
    
    1.20
    x
    
    
    1.51
    xOTHER DATA AT END OF PERIODCustomer financial assets under management
    
    $
    13,501,000
    
    
    $
    13,413,000
    
    
    $
    13,263,000
    
    
    $
    14,154,000
    
    
    $
    12,960,000Full services branches
    
    
    54
    
    
    
    57
    
    
    
    61
    
    
    
    61
    
    
    
    64Consumer retail branches
    
    
    60
    
    
    
    64
    
    
    
    68
    
    
    
    70
    
    
    
    Total branches
    
    
    114
    
    
    
    121
    
    
    
    129
    
    
    
    131
    
    
    
    64ATMs
    
    
    145
    
    
    
    169
    
    
    
    140
    
    
    
    144
    
    
    
    149
 
 (1)
    
    On a tax equivalent basis.(2)
    
    Operating expenses less provision for claim receivable in 2008 and intangibles impairment
charges in 2007 divided by net interest income on a tax equivalent basis, plus other income
excluding securities gains and losses, gain on equity securities, gain on sale of POS and Trust
division in 2007, gain on sale of FDIC assessment credits and gain on tax credit purchased in
2006, loss on early termination on repurchase agreements.. 27




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Description of the Business
  
    
    Commercial Banking  Banco Santander Puerto Rico
    
    Mortgage Banking  Banco Santander Puerto Rico (Santander Mortgage Corporation during 2007
and prior, which was merged into the Bank at January 1, 2008)
    
    Securities Brokerage and Investment Banking  Santander Securities Corporation
    
    Asset Management  Santander Asset Management Corporation
    
    Consumer Finance  Santander Financial Services, Inc.
    
    Insurance  Santander Insurance Agency, Inc. and Island Insurance Corporation
    
    International Banking  Santander International Bank of Puerto Rico, Inc.
 Basis of Presentation
  Forward-Looking Statements
   Overview of Managements Discussion and Analysis of Financial Condition and Results of Operations
   28




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##### Table of Contents



Overview of Financial Results
     
    
    The net interest margin, on a tax equivalent basis, was 5.56%, a 106 basis points of
improvement over 4.50% for the year ended December 31, 2008;
    
    The provision for loan losses decreased $23.0 million or 13.1% for the year ended
December 31, 2009 compared to the same period in 2008. The provision for loan losses
represented 103.7% of the net charge-offs for the year ended December 31, 2009 versus
116.6% for the year ended December 31, 2008;
    
    The allowance for loan losses of $197.3 million as of December 31, 2009 represented
3.61% of total loans, 68.07% of non-performing loans and 230.74% of non-performing loans
excluding loans secured by real estate. As of December
31, 2008, the allowance for loan losses was $191.9 million, represented 3.12% of total
loans, 90.21% of non-performing loans and 225.06% of non-performing loans excluding loans
secured by real estate;
    
    Non-interest income decreased $25.4 million or 17.2% for the year ended December 31,
2009 as compared to the same period in 2008. Non-interest income was impacted principally
by:
 (i)
    
    a gain of $9.3 million on investment securities available for sale
partially offset by a loss of $9.6 million on the early termination of a repurchase
agreement, compared with a gain of $5.2 million for the same period in the prior
year;(ii)
    
    a decrease in broker-dealer, asset management and insurance fees of $12.1
million;
 29




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(iii)
    
    a gain of $3.3 million on the sale of a portion of the Corporations
investment in Visa, Inc. during the third quarter of 2009 compared with a gain of
$8.6 million during the first quarter 2008 in connection with Visas initial public
offering;(iv)
    
    a loss of $7.3 million on derivatives and other financial instruments
compared with a gain of $3.3 million for the same period in prior year,(v)
    
    an unfavorable valuation adjustment of $7.4 million for loans held for sale
recorded during 2008.
 
    
    Operating expenses reflected a decrease of $55.6 million or 17.1% when with the figures
reported in 2008. This decrease was affected principally by:
 (i)
    
    $24.8 million decrease in salaries and other employee benefits partially
offset by increases of $4.5 million in incentive stock plan expense and a decrease of
$2.3 million in expense from loan origination cost being deferred;(ii)
    
    a provision for claim receivable of $25.1 million from Lehman Brother Inc
(LBI) recognized during the third quarter of 2008;(iii)
    
    decreases of $7.5 million in professional fees, $2.8 million in business
promotion, $2.4 million in occupancy cost, $2.1 in insurance expense and $1.2 million
in EDP and technical services and amortization(iv)
    
    partially offset by $6.6 million increase in FDIC assessment due to the
assessment systems implemented under the Federal Deposit Insurance Reform Act of 2005
including the emergency special assessment recognized on September 30, 2009.
 
    
    During 2009, the Corporation sold certain loans, including some classified as impaired,
to an affiliate for $142.0 million in cash. These loans had a net book value of $142.0
million comprised of an outstanding principal balance of $149.2 million and a specific
valuation allowance of $7.2 million. The type of loans by net book value was $65.5 million
in construction loans, $61.2 million in commercial loans and $15.3 million in mortgage
loans. No gain or loss was recognized on these transactions
    30




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Critical Accounting Policies
  Current Accounting Developments
  Allowance for Loan Losses
   31




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Transfers of Financial Assets Transfer and
Servicing
 Income taxes
 32




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Income Tax
   Goodwill and other intangible assets Intangible-Goodwill and Others
    33




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Market Multiple Approach
 Comparable Transaction Approach
 Discounted Cash Flow Approach
  Pension and Other Postemployment Benefits
 34




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Compensation  Retirement Benfits
   Fair Value Measurement.
  
    
    Level 1 -Unadjusted quoted market prices for identical assets or liabilities in active
markets that the Corporation has the ability to access.
    
    Level 2 -Quoted prices for similar assets or liabilities in active markets; quoted
prices for identical or similar assets or liabilities in inactive markets; or valuations
based on models where the significant inputs are observable (e.g., interest rates, yield
curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by
observable market data.
    
    Level 3 -Valuations based on models where significant inputs are not observable. The
unobservable inputs reflect the Corporations own assumptions about the assumptions that
market participants would use.
  35




---



##### Table of Contents



Results of Operations
   36




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007(Dollars in thousands)Components of net income (loss):Net interest income
    
    $
    351,727
    
    
    $
    356,322
    
    
    $
    311,679Provision for loan losses
    
    
    (152,496
    )
    
    
    (175,523
    )
    
    
    (147,824
    )Other income
    
    
    122,446
    
    
    
    147,835
    
    
    
    148,120Other operating expenses
    
    
    (269,067
    )
    
    
    (324,627
    )
    
    
    (344,016
    )Provision
(benefit) for income tax
    
    
    11,335
    
    
    
    (6,524
    )
    
    
    4,204Net income (loss)
    
    $
    41,275
    
    
    $
    10,531
    
    
    $
    (36,245
    )Other selected financial information:EPS
    
    $
    0.88
    
    
    $
    0.23
    
    
    $
    (0.78
    )ROA
    
    
    0.58
    %
    
    
    0.12
    %
    
    
    (0.39
    )%ROE
    
    
    7.25
    %
    
    
    1.87
    %
    
    
    (6.32
    )%Net interest margin, on a tax equivalent basis
    
    
    5.56
    %
    
    
    4.50
    %
    
    
    3.74
    %Efficiency Ratio (*)
    
    
    56.77
    %
    
    
    60.39
    %
    
    
    66.32
    %
 
 (*)
    
    Operating expenses less provision for claim receivable in 2008 and intangibles impairment
charges in 2007 divided by net interest income on a tax equivalent basis plus other income
excluding securities gain and losses, gain on equity securities, gain on sale of POS and Trust
division in 2007 and loss on early termination on repurchase agreements. 2009 compared to 2008.
 2008 compared to 2007.
 Net Interest Income
   37




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007(Dollars in thousands)Interest income  tax equivalent basis
    
    $
    484,949
    
    
    $
    605,445
    
    
    $
    681,755Interest expense
    
    
    (130,431
    )
    
    
    (244,449
    )
    
    
    (362,531
    )Net interest income  tax equivalent basis
    
    $
    354,518
    
    
    $
    360,996
    
    
    $
    319,224Net interest margin  tax equivalent
basis (1)
    
    
    5.56
    %
    
    
    4.50
    %
    
    
    3.74
    %
 
 (1)
    
    Net interest margin for any period equals tax-equivalent net interest income divided by
average interest-earning assets for such period. 2009 compared to 2008
    38




---



##### Table of Contents



2008 compared to 2007.
      39




---



##### Table of Contents



Year ended December 31,2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest bearing deposits
    
    $
    240,496
    
    
    $
    541
    
    
    
    0.22
    %
    
    $
    81,851
    
    
    $
    1,063
    
    
    
    1.30
    %
    
    $
    85,278
    
    
    $
    3,343
    
    
    
    3.92
    %Federal funds sold and
securities purchased under
agreements to resell
    
    
    14,053
    
    
    
    67
    
    
    
    0.48
    %
    
    
    202,658
    
    
    
    4,333
    
    
    
    2.14
    %
    
    
    68,477
    
    
    
    3,456
    
    
    
    5.05
    %Total interest-bearing deposits
    
    
    254,549
    
    
    
    608
    
    
    
    0.24
    %
    
    
    284,509
    
    
    
    5,396
    
    
    
    1.90
    %
    
    
    153,755
    
    
    
    6,799
    
    
    
    4.42
    %U.S.Treasury securities
    
    
    133,740
    
    
    
    1,255
    
    
    
    0.94
    %
    
    
    42,604
    
    
    
    1,028
    
    
    
    2.41
    %
    
    
    91,384
    
    
    
    4,090
    
    
    
    4.48
    %Obligations of other U.S. government
agencies and corporations
    
    
    45,343
    
    
    
    1,517
    
    
    
    3.35
    %
    
    
    417,457
    
    
    
    14,122
    
    
    
    3.38
    %
    
    
    635,219
    
    
    
    29,561
    
    
    
    4.65
    %Corporate Bonds
    
    
    89,543
    
    
    
    1,619
    
    
    
    1.81
    %Obligations of the government of Puerto Rico
and political subdivisions
    
    
    147,753
    
    
    
    9,565
    
    
    
    6.47
    %
    
    
    100,610
    
    
    
    5,633
    
    
    
    5.60
    %
    
    
    95,781
    
    
    
    5,113
    
    
    
    5.34
    %Collateralized mortgage obligations and
mortgage backed securities
    
    
    118,946
    
    
    
    6,050
    
    
    
    5.09
    %
    
    
    519,311
    
    
    
    24,752
    
    
    
    4.77
    %
    
    
    588,719
    
    
    
    28,422
    
    
    
    4.83
    %Other
    
    
    56,198
    
    
    
    2,750
    
    
    
    4.89
    %
    
    
    65,035
    
    
    
    3,820
    
    
    
    5.87
    %
    
    
    64,591
    
    
    
    4,076
    
    
    
    6.31
    %Total investment securities
    
    
    591,523
    
    
    
    22,756
    
    
    
    3.85
    %
    
    
    1,145,017
    
    
    
    49,355
    
    
    
    4.31
    %
    
    
    1,475,694
    
    
    
    71,262
    
    
    
    4.83
    %Loans :Commercial
    
    
    2,017,909
    
    
    
    92,424
    
    
    
    4.58
    %
    
    
    2,431,527
    
    
    
    137,263
    
    
    
    5.65
    %
    
    
    2,505,825
    
    
    
    172,671
    
    
    
    6.89
    %Construction
    
    
    100,819
    
    
    
    2,942
    
    
    
    2.92
    %
    
    
    379,857
    
    
    
    16,363
    
    
    
    4.31
    %
    
    
    481,174
    
    
    
    38,479
    
    
    
    8.00
    %Consumer
    
    
    503,112
    
    
    
    79,624
    
    
    
    15.83
    %
    
    
    613,499
    
    
    
    86,960
    
    
    
    14.17
    %
    
    
    626,580
    
    
    
    79,531
    
    
    
    12.69
    %Consumer Finance
    
    
    559,823
    
    
    
    133,638
    
    
    
    23.87
    %
    
    
    596,129
    
    
    
    141,701
    
    
    
    23.77
    %
    
    
    608,366
    
    
    
    139,075
    
    
    
    22.86
    %Mortgage
    
    
    2,492,276
    
    
    
    149,841
    
    
    
    6.01
    %
    
    
    2,662,726
    
    
    
    163,360
    
    
    
    6.14
    %
    
    
    2,692,448
    
    
    
    166,192
    
    
    
    6.17
    %Lease financing
    
    
    47,038
    
    
    
    3,116
    
    
    
    6.62
    %
    
    
    76,204
    
    
    
    5,047
    
    
    
    6.62
    %
    
    
    112,268
    
    
    
    7,746
    
    
    
    6.90
    %Gross loans
    
    
    5,720,977
    
    
    
    461,585
    
    
    
    8.07
    %
    
    
    6,759,942
    
    
    
    550,694
    
    
    
    8.15
    %
    
    
    7,026,661
    
    
    
    603,694
    
    
    
    8.59
    %Allowance for loan losses
    
    
    (191,738
    )
    
    
    
    
    
    
    
    
    
    
    (175,100
    )
    
    
    
    
    
    
    
    
    
    
    (125,897
    )Loans, net
    
    
    5,529,239
    
    
    
    461,585
    
    
    
    8.35
    %
    
    
    6,584,842
    
    
    
    550,694
    
    
    
    8.36
    %
    
    
    6,900,764
    
    
    
    603,694
    
    
    
    8.75
    %Total interest-earning assets/ interest
income (tax-equivalent basis)
    
    
    6,375,311
    
    
    
    484,949
    
    
    
    7.61
    %
    
    
    8,014,368
    
    
    
    605,445
    
    
    
    7.55
    %
    
    
    8,530,213
    
    
    
    681,755
    
    
    
    7.99
    %Total non-interest-earning assets
    
    
    737,443
    
    
    
    
    
    
    
    
    
    
    
    726,302
    
    
    
    
    
    
    
    
    
    
    
    669,499Total assets
    
    $
    7,112,754
    
    
    
    
    
    
    
    
    
    
    $
    8,740,670
    
    
    
    
    
    
    
    
    
    
    $
    9,199,712Liabilities and stockholders equityInterest-bearing liabilities:Savings and NOW accounts
    
    $
    1,817,911
    
    
    $
    19,016
    
    
    
    1.05
    %
    
    $
    1,691,094
    
    
    $
    34,944
    
    
    
    2.07
    %
    
    $
    1,715,631
    
    
    $
    51,785
    
    
    
    3.02
    %Other time deposits
    
    
    1,589,018
    
    
    
    42,932
    
    
    
    2.70
    %
    
    
    1,749,942
    
    
    
    56,905
    
    
    
    3.25
    %
    
    
    1,419,185
    
    
    
    65,810
    
    
    
    4.64
    %Brokered deposits
    
    
    547,419
    
    
    
    17,525
    
    
    
    3.20
    %
    
    
    1,385,318
    
    
    
    60,603
    
    
    
    4.37
    %
    
    
    1,401,310
    
    
    
    73,820
    
    
    
    5.27
    %Total
Interest-bearing
deposits
    
    
    3,954,348
    
    
    
    79,473
    
    
    
    2.01
    %
    
    
    4,826,354
    
    
    
    152,452
    
    
    
    3.16
    %
    
    
    4,536,126
    
    
    
    191,415
    
    
    
    4.22
    %Borrowings
    
    
    1,240,099
    
    
    
    35,600
    
    
    
    2.87
    %
    
    
    2,047,442
    
    
    
    78,049
    
    
    
    3.81
    %
    
    
    2,805,003
    
    
    
    153,951
    
    
    
    5.49
    %Term Notes
    
    
    20,279
    
    
    
    636
    
    
    
    3.14
    %
    
    
    19,674
    
    
    
    631
    
    
    
    3.21
    %
    
    
    38,223
    
    
    
    1,278
    
    
    
    3.34
    %Subordinated Notes
    
    
    305,605
    
    
    
    14,722
    
    
    
    4.82
    %
    
    
    247,419
    
    
    
    13,317
    
    
    
    5.38
    %
    
    
    250,721
    
    
    
    15,887
    
    
    
    6.34
    %Total interest-bearing liabilities
interest expense
    
    
    5,520,331
    
    
    
    130,431
    
    
    
    2.36
    %
    
    
    7,140,889
    
    
    
    244,449
    
    
    
    3.42
    %
    
    
    7,630,073
    
    
    
    362,531
    
    
    
    4.75
    %Total non interest-bearing liabilities
    
    
    1,022,723
    
    
    
    
    
    
    
    
    
    
    
    1,035,543
    
    
    
    
    
    
    
    
    
    
    
    996,103Total liabilities
    
    
    6,543,054
    
    
    
    
    
    
    
    
    
    
    
    8,176,432
    
    
    
    
    
    
    
    
    
    
    
    8,626,176Stockholders Equity
    
    
    569,700
    
    
    
    
    
    
    
    
    
    
    
    564,238
    
    
    
    
    
    
    
    
    
    
    
    573,536Total liabilities and stockholders equity
    
    $
    7,112,754
    
    
    
    
    
    
    
    
    
    
    $
    8,740,670
    
    
    
    
    
    
    
    
    
    
    $
    9,199,712Net interest income
    
    
    
    
    
    $
    354,518
    
    
    
    
    
    
    
    
    
    
    $
    360,996
    
    
    
    
    
    
    
    
    
    
    $
    319,224Net interest spread
    
    
    
    
    
    
    
    
    
    
    5.24
    %
    
    
    
    
    
    
    
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %Cost of funding earning assets
    
    
    
    
    
    
    
    
    
    
    2.05
    %
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    4.25
    %Net interest margin (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    5.56
    %
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
 40




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##### Table of Contents



Changes in Interest Income and Interest Expense-Volume and Rate Analysis
  2009 vs. 2008
    
    
    2008 vs. 2007Increase (decrease) due to change in:
    
    
    Increase (decrease) due to change in:Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest Income  tax equivalent basis:Federal
funds sold and securities purchased under agreements to resell
    
    $
    (2,325
    )
    
    $
    (1,941
    )
    
    $
    (4,266
    )
    
    $
    3,756
    
    
    $
    (2,879
    )
    
    $
    877Time deposits with other banks
    
    
    866
    
    
    
    (1,388
    )
    
    
    (522
    )
    
    
    (129
    )
    
    
    (2,151
    )
    
    
    (2,280
    )Investment securities
    
    
    (21,760
    )
    
    
    (4,839
    )
    
    
    (26,599
    )
    
    
    (14,810
    )
    
    
    (7,097
    )
    
    
    (21,907
    )Loans, net
    
    
    (88,124
    )
    
    
    (985
    )
    
    
    (89,109
    )
    
    
    (27,016
    )
    
    
    (25,984
    )
    
    
    (53,000
    )Total interest income
    
    
    (111,343
    )
    
    
    (9,153
    )
    
    
    (120,496
    )
    
    
    (38,199
    )
    
    
    (38,111
    )
    
    
    (76,310
    )Interest Expense:Savings and NOW accounts
    
    
    2,450
    
    
    
    (18,378
    )
    
    
    (15,928
    )
    
    
    (730
    )
    
    
    (16,111
    )
    
    
    (16,841
    )Other time deposits
    
    
    (32,251
    )
    
    
    (24,800
    )
    
    
    (57,051
    )
    
    
    14,509
    
    
    
    (37,876
    )
    
    
    (23,367
    )Borrowings
    
    
    (26,103
    )
    
    
    (16,346
    )
    
    
    (42,449
    )
    
    
    (35,377
    )
    
    
    (39,251
    )
    
    
    (74,628
    )Long-term borrowings
    
    
    2,863
    
    
    
    (1,453
    )
    
    
    1,410
    
    
    
    (1,239
    )
    
    
    (2,007
    )
    
    
    (3,246
    )Total interest expense
    
    
    (53,041
    )
    
    
    (60,977
    )
    
    
    (114,018
    )
    
    
    (22,837
    )
    
    
    (95,245
    )
    
    
    (118,082
    )Net interest income (expense)  tax
equivalent basis
    
    $
    (58,302
    )
    
    $
    51,824
    
    
    $
    (6,478
    )
    
    $
    (15,362
    )
    
    $
    57,134
    
    
    $
    41,772
   Provision for Loan Losses
 2009 compared to 2008.
 2008 compared to 2007.
 41




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##### Table of Contents



Other Income
   Year ended December 31,2009
    
    
    2008
    
    
    2007(Dollars In thousands)Bank service fees on deposit accounts
    
    $
    12,403
    
    
    $
    12,975
    
    
    $
    13,603Other service fees:Credit card fees
    
    
    9,412
    
    
    
    8,788
    
    
    
    10,872Mortgage-servicing fees
    
    
    4,087
    
    
    
    3,555
    
    
    
    3,010Trust fees
    
    
    1,090
    
    
    
    1,561
    
    
    
    1,914Confirming advances
    
    
    1,882
    
    
    
    6,200
    
    
    
    4,169Other fees
    
    
    10,963
    
    
    
    11,606
    
    
    
    13,633Broker-dealer, asset management and insurance fees
    
    
    62,688
    
    
    
    74,808
    
    
    
    68,265Gain on sale of securities, net
    
    
    9,251
    
    
    
    5,154
    
    
    
    1,265Gain on sale of loans
    
    
    5,144
    
    
    
    3,253
    
    
    
    6,658Trading gains
    
    
    3,275
    
    
    
    2,608
    
    
    
    2,831Gain (loss) on derivatives and other financial instruments
    
    
    (7,303
    )
    
    
    3,284
    
    
    
    249Other (loss) gains, net
    
    
    (1,637
    )
    
    
    5,739
    
    
    
    18,644Other
    
    
    11,191
    
    
    
    8,304
    
    
    
    3,007$
    122,446
    
    
    $
    147,835
    
    
    $
    148,120
  Year ended December 31,2009
    
    
    2008
    
    
    2007(Dollars in thousands)Broker-dealer
    
    $
    34,281
    
    
    $
    40,480
    
    
    $
    32,147Asset management
    
    
    25,359
    
    
    
    26,833
    
    
    
    24,362Total Santander Securities and subsidiary
    
    
    59,640
    
    
    
    67,313
    
    
    
    56,509Insurance
    
    
    3,048
    
    
    
    7,495
    
    
    
    11,756Total
    
    $
    62,688
    
    
    $
    74,808
    
    
    $
    68,265
 2009 compared to 2008.
  42




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##### Table of Contents



2008 compared to 2007.
   43




---



##### Table of Contents



Operating Expenses
  Year ended December 31,2009
    
    
    2008
    
    
    2007(Dollars in thousands)Salaries
    
    $
    60,241
    
    
    $
    76,012
    
    
    $
    72,927Pension and other benefits
    
    
    52,594
    
    
    
    57,200
    
    
    
    72,815Expenses deferred as loan origination costs
    
    
    (5,816
    )
    
    
    (8,076
    )
    
    
    (11,484
    )Total personnel costs
    
    
    107,019
    
    
    
    125,136
    
    
    
    134,258Occupancy costs
    
    
    25,291
    
    
    
    27,665
    
    
    
    23,767Equipment expenses
    
    
    3,907
    
    
    
    4,358
    
    
    
    4,427EDP servicing expense, amortization and technical services
    
    
    40,645
    
    
    
    41,860
    
    
    
    39,255Communications
    
    
    9,038
    
    
    
    10,062
    
    
    
    10,923Business promotion
    
    
    3,864
    
    
    
    6,628
    
    
    
    15,621Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    
    
    
    
    43,349Other taxes
    
    
    13,270
    
    
    
    13,101
    
    
    
    12,334Other:Professional fees
    
    
    14,609
    
    
    
    22,094
    
    
    
    14,330Amortization of intangibles
    
    
    2,798
    
    
    
    3,067
    
    
    
    3,828Printing and supplies
    
    
    1,435
    
    
    
    1,926
    
    
    
    2,137Credit card expenses
    
    
    6,357
    
    
    
    5,041
    
    
    
    6,198Insurance
    
    
    1,318
    
    
    
    3,371
    
    
    
    4,029Examinations & FDIC assessment
    
    
    12,547
    
    
    
    5,952
    
    
    
    2,194Transportation and travel
    
    
    2,017
    
    
    
    2,539
    
    
    
    2,981Repossessed assets provision and expenses
    
    
    5,031
    
    
    
    5,717
    
    
    
    7,482Collections and related legal costs
    
    
    2,102
    
    
    
    1,462
    
    
    
    1,239Provision for claim receivable
    
    
    
    
    
    
    25,120
    
    
    
    All other
    
    
    17,819
    
    
    
    19,528
    
    
    
    15,664Total other
    
    
    66,033
    
    
    
    95,817
    
    
    
    60,082Non personnel expenses
    
    
    162,048
    
    
    
    199,491
    
    
    
    209,758Total Other Operating Expenses
    
    $
    269,067
    
    
    $
    324,627
    
    
    $
    344,016Efficiency ratio-on a tax equivalent basis
    
    
    56.77
    %
    
    
    60.39
    %
    
    
    66.32
    %Personnel cost to average assets
    
    
    1.50
    %
    
    
    1.43
    %
    
    
    1.46
    %Other operating expenses to average assets
    
    
    2.28
    %
    
    
    2.28
    %
    
    
    2.28
    %Assets per employee
    
    $
    3,836
    
    
    $
    4,467
    
    
    $
    3,494
 2009 compared to 2008.
   44




---



##### Table of Contents



2008 compared to 2007.
  Income Taxes
    Income Tax. .
  45




---



##### Table of Contents



2009 compared to 2008.
 2008 compared to 2007.
 Financial Condition
 Assets
   Short Term Investments and Interest-bearing Deposits in Other Financial Institutions
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Interest-bearing deposits
    
    $
    12,376
    
    
    $
    8,370
    
    
    $
    6,606Federal funds sold
    
    
    22,146
    
    
    
    64,871
    
    
    
    82,434$
    34,522
    
    
    $
    73,241
    
    
    $
    89,040
 46




---



##### Table of Contents



Investment Portfolio
      2009

    
    2008

    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAvailable for Sale
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)U.S. Treasury
    
    $
    175,330
    
    
    $
    175,330
    
    
    $
    30,000
    
    
    $
    30,000
    
    
    $
    64,455
    
    
    $
    64,455U.S. Agency Notes
    
    
    5,791
    
    
    
    5,791
    
    
    
    141,916
    
    
    
    141,916
    
    
    
    609,223
    
    
    
    609,223Corporate Bonds
    
    
    142,517
    
    
    
    142,517P.R. Government
Obligations
    
    
    83,435
    
    
    
    83,435
    
    
    
    148,616
    
    
    
    148,616
    
    
    
    49,288
    
    
    
    49,288Mortgage-backed
Securities
    
    
    10,535
    
    
    
    10,535
    
    
    
    481,530
    
    
    
    481,530
    
    
    
    545,182
    
    
    
    545,182Foreign Securities
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    50
    
    
    
    50$
    417,608
    
    
    $
    417,608
    
    
    $
    802,112
    
    
    $
    802,112
    
    
    $
    1,268,198
    
    
    $
    1,268,198
  47




---



##### Table of Contents



December 31, 2009After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    99,996
    
    
    
    0.67
    %
    
    $
    75,333
    
    
    
    1.58
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    175,329
    
    
    $
    175,329
    
    
    
    1.06
    %U.S. Agency Notes
    
    
    5,792
    
    
    
    3.98
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,792
    
    
    
    5,792
    
    
    
    3.98
    %Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    142,517
    
    
    
    1.85
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142,517
    
    
    
    142,517
    
    
    
    1.85
    %P.R.
Government Obligations
    
    
    1,193
    
    
    
    3.72
    %
    
    
    72,355
    
    
    
    5.10
    %
    
    
    6,546
    
    
    
    5.58
    %
    
    
    3,341
    
    
    
    5.65
    %
    
    
    83,435
    
    
    
    83,435
    
    
    
    5.14
    %Mortgage-backed Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,535
    
    
    
    5.62
    %
    
    
    10,535
    
    
    
    10,535
    
    
    
    5.62
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Securities
    
    
    55,431
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,431
    
    
    
    55,431
    
    
    
    3.50
    %Total Securities
    
    $
    162,412
    
    
    
    1.78
    %
    
    $
    290,205
    
    
    
    2.59
    %
    
    $
    6,546
    
    
    
    5.58
    %
    
    $
    13,876
    
    
    
    5.63
    %
    
    $
    473,039
    
    
    $
    473,039
    
    
    
    2.44
    %
 December 31, 2008After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    30,000
    
    
    
    0.05
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    30,000
    
    
    $
    30,000
    
    
    
    0.05
    %U.S. Agency Notes
    
    
    136,007
    
    
    
    2.80
    %
    
    
    5,909
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,916
    
    
    
    141,916
    
    
    
    2.85
    %P.R.
Government Obligations
    
    
    1,454
    
    
    
    4.23
    %
    
    
    133,148
    
    
    
    5.23
    %
    
    
    9,479
    
    
    
    5.18
    %
    
    
    4,535
    
    
    
    5.55
    %
    
    
    148,616
    
    
    
    148,616
    
    
    
    5.22
    %Mortgage-backed Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,815
    
    
    
    4.39
    %
    
    
    285,715
    
    
    
    5.41
    %
    
    
    481,530
    
    
    
    481,530
    
    
    
    4.99
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    4.65
    %Other Securities
    
    
    50,382
    
    
    
    3.50
    %
    
    
    11,250
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,632
    
    
    
    61,632
    
    
    
    3.50
    %Total Securities
    
    $
    217,843
    
    
    
    2.59
    %
    
    $
    150,357
    
    
    
    5.05
    %
    
    $
    205,294
    
    
    
    4.43
    %
    
    $
    290,250
    
    
    
    5.41
    %
    
    $
    863,744
    
    
    $
    863,744
    
    
    
    4.40
    %
 December 31, 2007After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    64,455
    
    
    
    3.92
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    64,455
    
    
    $
    64,455
    
    
    
    3.92
    %U.S. Agency Notes
    
    
    253,423
    
    
    
    2.84
    %
    
    
    355,800
    
    
    
    3.91
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609,223
    
    
    
    609,223
    
    
    
    3.40
    %P.R.
Government Obligations
    
    
    1,367
    
    
    
    3.99
    %
    
    
    19,775
    
    
    
    4.44
    %
    
    
    15,111
    
    
    
    5.21
    %
    
    
    13,035
    
    
    
    5.73
    %
    
    
    49,288
    
    
    
    49,288
    
    
    
    5.00
    %Mortgage-backed Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,124
    
    
    
    4.40
    %
    
    
    320,058
    
    
    
    5.41
    %
    
    
    545,182
    
    
    
    545,182
    
    
    
    4.99
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    4.65
    %Other Securities
    
    
    64,559
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,559
    
    
    
    64,559
    
    
    
    5.50
    %Total Securities
    
    $
    383,804
    
    
    
    3.47
    %
    
    $
    375,625
    
    
    
    3.94
    %
    
    $
    240,235
    
    
    
    4.45
    %
    
    $
    333,093
    
    
    
    5.42
    %
    
    $
    1,332,757
    
    
    $
    1,332,757
    
    
    
    4.24
    %
 48




---



##### Table of Contents



Loan Portfolio
  Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial, industrial and agricultural:Retail commercial banking:Middle-market
    
    $
    1,249,993
    
    
    
    22.8
    %
    
    $
    1,363,742
    
    
    
    22.1
    %
    
    $
    1,646,046
    
    
    
    23.3
    %
    
    $
    1,692,058
    
    
    
    24.4
    %
    
    $
    1,593,359
    
    
    
    26.5
    %Agricultural
    
    
    36,205
    
    
    
    0.7
    %
    
    
    46,032
    
    
    
    0.7
    %
    
    
    63,204
    
    
    
    0.9
    %
    
    
    59,315
    
    
    
    0.9
    %
    
    
    61,531
    
    
    
    1.0
    %SBA
    
    
    38,696
    
    
    
    0.7
    %
    
    
    51,871
    
    
    
    0.8
    %
    
    
    63,825
    
    
    
    0.9
    %
    
    
    66,734
    
    
    
    1.0
    %
    
    
    69,763
    
    
    
    1.2
    %Factor liens
    
    
    9,488
    
    
    
    0.2
    %
    
    
    10,268
    
    
    
    0.2
    %
    
    
    18,252
    
    
    
    0.3
    %
    
    
    20,553
    
    
    
    0.3
    %
    
    
    16,696
    
    
    
    0.3
    %Other
    
    
    
    
    
    
    0.0
    %
    
    
    897
    
    
    
    0.0
    %
    
    
    4,688
    
    
    
    0.1
    %
    
    
    6,965
    
    
    
    0.1
    %
    
    
    40,072
    
    
    
    0.7
    %Retail commercial banking
    
    
    1,334,382
    
    
    
    24.5
    %
    
    
    1,472,810
    
    
    
    24.0
    %
    
    
    1,796,015
    
    
    
    25.5
    %
    
    
    1,845,625
    
    
    
    26.6
    %
    
    
    1,781,421
    
    
    
    29.6
    %Corporate banking
    
    
    612,197
    
    
    
    11.2
    %
    
    
    691,976
    
    
    
    11.2
    %
    
    
    765,310
    
    
    
    10.8
    %
    
    
    673,566
    
    
    
    9.7
    %
    
    
    1,205,664
    
    
    
    20.0
    %Construction
    
    
    70,707
    
    
    
    1.3
    %
    
    
    194,026
    
    
    
    3.1
    %
    
    
    484,237
    
    
    
    6.8
    %
    
    
    435,182
    
    
    
    6.3
    %
    
    
    213,705
    
    
    
    3.5
    %Lease Financing
    
    
    35,000
    
    
    
    0.6
    %
    
    
    60,615
    
    
    
    1.0
    %
    
    
    92,641
    
    
    
    1.3
    %
    
    
    132,655
    
    
    
    1.9
    %
    
    
    125,168
    
    
    
    2.1
    %Total Commercial
    
    
    2,052,286
    
    
    
    37.5
    %
    
    
    2,419,427
    
    
    
    39.3
    %
    
    
    3,138,203
    
    
    
    44.3
    %
    
    
    3,087,028
    
    
    
    44.6
    %
    
    
    3,325,958
    
    
    
    55.2
    %Consumer:Personal (installment and other
loans)
    
    
    207,156
    
    
    
    3.8
    %
    
    
    305,058
    
    
    
    5.0
    %
    
    
    402,195
    
    
    
    5.7
    %
    
    
    383,460
    
    
    
    5.5
    %
    
    
    378,269
    
    
    
    6.3
    %Automobile
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    2
    
    
    
    0.0
    %
    
    
    610
    
    
    
    0.0
    %Credit Cards
    
    
    236,789
    
    
    
    4.3
    %
    
    
    261,531
    
    
    
    4.2
    %
    
    
    240,858
    
    
    
    3.4
    %
    
    
    193,260
    
    
    
    2.8
    %
    
    
    169,416
    
    
    
    2.8
    %Consumer Finance
    
    
    558,948
    
    
    
    10.2
    %
    
    
    578,243
    
    
    
    9.4
    %
    
    
    611,114
    
    
    
    8.6
    %
    
    
    625,266
    
    
    
    9.0
    %
    
    
    
    
    
    
    0.0
    %Total Consumer
    
    
    1,002,893
    
    
    
    18.2
    %
    
    
    1,144,832
    
    
    
    18.5
    %
    
    
    1,254,167
    
    
    
    17.6
    %
    
    
    1,201,988
    
    
    
    17.3
    %
    
    
    548,295
    
    
    
    9.1
    %Mortgage:Residential
    
    
    2,412,136
    
    
    
    44.1
    %
    
    
    2,591,930
    
    
    
    42.1
    %
    
    
    2,682,362
    
    
    
    37.9
    %
    
    
    2,649,128
    
    
    
    38.1
    %
    
    
    2,141,358
    
    
    
    35.6
    %Commercial
    
    
    3,158
    
    
    
    0.1
    %
    
    
    3,658
    
    
    
    0.1
    %
    
    
    3,600
    
    
    
    0.1
    %
    
    
    5,412
    
    
    
    0.1
    %
    
    
    6,121
    
    
    
    0.1
    %Total Mortgage
    
    
    2,415,294
    
    
    
    44.3
    %
    
    
    2,595,588
    
    
    
    42.2
    %
    
    
    2,685,962
    
    
    
    38.0
    %
    
    
    2,654,540
    
    
    
    38.2
    %
    
    
    2,147,479
    
    
    
    35.7
    %Total Loans, net of unearned interestand deferred fees
    
    $
    5,470,473
    
    
    
    100.0
    %
    
    $
    6,159,847
    
    
    
    100.0
    %
    
    $
    7,078,332
    
    
    
    100.0
    %
    
    $
    6,943,556
    
    
    
    100.0
    %
    
    $
    6,021,732
    
    
    
    100.0
    %
    49




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Allowance for Loan Losses
     50




---



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51




---



##### Table of Contents



Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    191,889
    
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177Allowance acquired (Island Finance)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,104
    
    
    
    Provision for loan losses
    
    
    152,496
    
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400344,385
    
    
    
    342,475
    
    
    
    254,687
    
    
    
    167,529
    
    
    
    89,577Losses charged to the allowance:Commercial and industrial
    
    
    21,536
    
    
    
    17,782
    
    
    
    10,375
    
    
    
    9,792
    
    
    
    8,044Construction
    
    
    2,459
    
    
    
    32,257
    
    
    
    2,710
    
    
    
    
    
    
    
    1,438Mortage
    
    
    7,340
    
    
    
    1,257
    
    
    
    1,768
    
    
    
    
    
    
    
    Consumer
    
    
    55,565
    
    
    
    44,682
    
    
    
    29,281
    
    
    
    16,679
    
    
    
    17,351Consumer Finance
    
    
    63,322
    
    
    
    56,444
    
    
    
    44,484
    
    
    
    38,345
    
    
    
    Leasing
    
    
    1,801
    
    
    
    2,064
    
    
    
    2,742
    
    
    
    2,071
    
    
    
    986152,023
    
    
    
    154,486
    
    
    
    91,360
    
    
    
    66,887
    
    
    
    27,819Recoveries:Commercial and industrial
    
    
    1,614
    
    
    
    626
    
    
    
    1,192
    
    
    
    2,463
    
    
    
    1,686Construction
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Mortage
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    1,404
    
    
    
    1,256
    
    
    
    904
    
    
    
    1,677
    
    
    
    2,646Consumer Finance
    
    
    1,452
    
    
    
    1,517
    
    
    
    1,088
    
    
    
    1,314
    
    
    
    Leasing
    
    
    379
    
    
    
    481
    
    
    
    441
    
    
    
    767
    
    
    
    7524,941
    
    
    
    3,900
    
    
    
    3,625
    
    
    
    6,221
    
    
    
    5,084Net loans charged-off
    
    
    147,082
    
    
    
    150,586
    
    
    
    87,735
    
    
    
    60,666
    
    
    
    22,735Balance at end of year
    
    $
    197,303
    
    
    $
    191,889
    
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842Ratios:Allowance for loan losses to year-end loans
    
    
    3.61
    %
    
    
    3.12
    %
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %Recoveries to charge-offs
    
    
    3.25
    %
    
    
    2.52
    %
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %Net charge-offs to average loans
    
    
    2.57
    %
    
    
    2.23
    %
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %Allowance for loan losses to net charge-offs
    
    
    134.14
    %
    
    
    127.43
    %
    
    
    190.29
    %
    
    
    176.15
    %
    
    
    294.00
    %Allowance for loan losses to non-performing loans
    
    
    68.07
    %
    
    
    90.21
    %
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %Provision for loan losses to:Net charge-offs
    
    
    103.68
    %
    
    
    116.56
    %
    
    
    168.49
    %
    
    
    108.11
    %
    
    
    89.73
    %Average loans
    
    
    2.67
    %
    
    
    2.60
    %
    
    
    2.10
    %
    
    
    1.00
    %
    
    
    0.34
    %
  Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    1,562
    
    
    $
    1,835
    
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269Provision (credit) for unfunded lending
commitments and stand by letters of credit
    
    
    (114
    )
    
    
    (273
    )
    
    
    (29
    )
    
    
    198
    
    
    
    397Balance at end of year
    
    $
    1,448
    
    
    $
    1,562
    
    
    $
    1,835
    
    
    $
    1,864
    
    
    $
    1,666
 52




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2009 compared to 2008
    2008 compared to 2007
   53




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Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005% of loans
    
    
    
    
    
    
    % of loans
    
    
    
    
    
    
    % of loans
    
    
    
    
    
    
    % of loans
    
    
    
    
    
    
    % of loansin each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in eachcategory to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category to
    
    
    
    
    
    
    category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)Commercial
    
    $
    37,150
    
    
    
    19.1
    %
    
    $
    36,926
    
    
    
    35.2
    %
    
    $
    29,883
    
    
    
    35.8
    %
    
    $
    29,846
    
    
    
    49.3
    %
    
    $
    27,765
    
    
    
    49.3
    %Construction
    
    
    3,518
    
    
    
    1.8
    %
    
    
    15,496
    
    
    
    3.1
    %
    
    
    23,735
    
    
    
    6.8
    %
    
    
    3,128
    
    
    
    3.5
    %
    
    
    1,456
    
    
    
    3.5
    %Consumer
    
    
    56,927
    
    
    
    29.3
    %
    
    
    46,135
    
    
    
    9.2
    %
    
    
    33,641
    
    
    
    9.5
    %
    
    
    20,099
    
    
    
    9.4
    %
    
    
    30,664
    
    
    
    9.4
    %Consumer Finance
    
    
    63,373
    
    
    
    32.6
    %
    
    
    69,128
    
    
    
    9.4
    %
    
    
    68,359
    
    
    
    8.6
    %
    
    
    41,281
    
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    32,969
    
    
    
    17.0
    %
    
    
    22,876
    
    
    
    42.1
    %
    
    
    7,379
    
    
    
    38.0
    %
    
    
    9,249
    
    
    
    35.7
    %
    
    
    2,415
    
    
    
    35.7
    %Lease financing
    
    
    366
    
    
    
    0.2
    %
    
    
    373
    
    
    
    1.0
    %
    
    
    1,292
    
    
    
    1.3
    %
    
    
    555
    
    
    
    2.1
    %
    
    
    2,128
    
    
    
    2.1
    %Unallocated
    
    
    3,000
    
    
    
    
    
    
    
    955
    
    
    
    
    
    
    
    2,663
    
    
    
    
    
    
    
    2,705
    
    
    
    
    
    
    
    2,414
    
    
    
    $
    197,303
    
    
    
    100.0
    %
    
    $
    191,889
    
    
    
    100.0
    %
    
    $
    166,952
    
    
    
    100.0
    %
    
    $
    106,863
    
    
    
    100.0
    %
    
    $
    66,842
    
    
    
    100.0
    %
   Liabilities
     54




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th th th
   55




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Year ended December 31,2009
    
    
    2008
    
    
    2007% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAverage
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    AverageBalance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost(Dollars in thousands)Savings deposits
    
    $
    1,817,911
    
    
    
    27.8
    %
    
    
    1.05
    %
    
    $
    1,691,094
    
    
    
    20.7
    %
    
    
    2.07
    %
    
    $
    1,715,631
    
    
    
    19.9
    %
    
    
    3.02
    %Time deposits
    
    
    2,136,437
    
    
    
    32.6
    %
    
    
    2.83
    %
    
    
    3,135,260
    
    
    
    38.3
    %
    
    
    3.75
    %
    
    
    2,820,495
    
    
    
    32.7
    %
    
    
    4.95
    %Interest-bearing deposits
    
    
    3,954,348
    
    
    
    60.4
    %
    
    
    2.01
    %
    
    
    4,826,354
    
    
    
    59.0
    %
    
    
    3.16
    %
    
    
    4,536,126
    
    
    
    52.6
    %
    
    
    4.22
    %Federal funds, repos, and
commercial paper and other borrowings
    
    
    1,240,099
    
    
    
    19.0
    %
    
    
    2.87
    %
    
    
    2,047,442
    
    
    
    25.0
    %
    
    
    3.81
    %
    
    
    2,805,003
    
    
    
    32.5
    %
    
    
    5.49
    %Term and subordinated notes
    
    
    325,884
    
    
    
    5.0
    %
    
    
    4.71
    %
    
    
    267,093
    
    
    
    3.3
    %
    
    
    5.22
    %
    
    
    284,944
    
    
    
    3.3
    %
    
    
    6.02
    %Total borrowings
    
    
    1,565,983
    
    
    
    24.0
    %
    
    
    3.25
    %
    
    
    2,314,535
    
    
    
    28.3
    %
    
    
    3.97
    %
    
    
    3,089,947
    
    
    
    35.8
    %
    
    
    5.54
    %Total interest-bearing liabilities
    
    
    5,520,331
    
    
    
    84.4
    %
    
    
    2.36
    %
    
    
    7,140,889
    
    
    
    87.3
    %
    
    
    3.42
    %
    
    
    7,626,073
    
    
    
    88.4
    %
    
    
    4.75
    %Non-interest-bearing deposits
    
    
    691,482
    
    
    
    10.6
    %
    
    
    0.00
    %
    
    
    732,314
    
    
    
    9.0
    %
    
    
    0.00
    %
    
    
    685,875
    
    
    
    8.0
    %
    
    
    0.00
    %Other liabilities
    
    
    331,241
    
    
    
    5.0
    %
    
    
    0.00
    %
    
    
    303,229
    
    
    
    3.7
    %
    
    
    0.00
    %
    
    
    310,228
    
    
    
    3.6
    %
    
    
    0.00
    %Total non-interest-bearing liabilities
    
    
    1,022,723
    
    
    
    15.6
    %
    
    
    0.00
    %
    
    
    1,035,543
    
    
    
    12.7
    %
    
    
    0.00
    %
    
    
    996,103
    
    
    
    11.6
    %
    
    
    0.00
    %Total Liabilities
    
    $
    6,543,054
    
    
    
    100.0
    %
    
    
    1.99
    %
    
    $
    8,176,432
    
    
    
    100.0
    %
    
    
    2.99
    %
    
    $
    8,622,176
    
    
    
    100.0
    %
    
    
    4.20
    %
  Year ended December 31,Average Total Deposits
    
    2009
    
    
    2008
    
    
    2007(Dollars in thousands)Private Demand
    
    $
    690,924
    
    
    $
    731,645
    
    
    $
    684,922Public Demand
    
    
    558
    
    
    
    669
    
    
    
    953Non-interest bearing
    
    
    691,482
    
    
    
    732,314
    
    
    
    685,875Savings Accounts
    
    
    739,901
    
    
    
    641,970
    
    
    
    657,044NOW and Super NOW accounts
    
    
    474,364
    
    
    
    417,654
    
    
    
    401,104Government NOW accounts
    
    
    603,646
    
    
    
    631,470
    
    
    
    657,483Total Savings Accounts
    
    
    1,817,911
    
    
    
    1,691,094
    
    
    
    1,715,631Time deposits:Under $100,000
    
    
    219,543
    
    
    
    273,409
    
    
    
    262,561$100,000 and over
    
    
    1,916,894
    
    
    
    2,861,851
    
    
    
    2,557,934Total Time Deposits
    
    
    2,136,437
    
    
    
    3,135,260
    
    
    
    2,820,495Total Interest Bearing Deposits
    
    
    3,954,348
    
    
    
    4,826,354
    
    
    
    4,536,126Total Deposits
    
    $
    4,645,830
    
    
    $
    5,558,668
    
    
    $
    5,222,001
  56




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007(Dollars in thousands)Three months or less
    
    $
    1,156,944
    
    
    $
    702,292
    
    
    $
    1,105,405Over three months through six months
    
    
    180,450
    
    
    
    397,697
    
    
    
    365,957Over six months through twelve months
    
    
    90,064
    
    
    
    1,000,911
    
    
    
    79,576Over twelve months
    
    
    76,303
    
    
    
    261,580
    
    
    
    948,841Total
    
    $
    1,503,761
    
    
    $
    2,362,480
    
    
    $
    2,499,779
   Capital and Dividends
      57




---



##### Table of Contents



th
     58




---



##### Table of Contents



Capital Adequacy Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    To be Well CapitalizedFor Minimum Capital
    
    
    
    
    
    
    Under Prompt CorrectiveActual
    
    
    
    
    
    
    Adequacy
    
    
    
    
    
    
    Action ProvisionAmount
    
    
    Ratio
    
    
    
    
    
    
    Amount
    
    
    RatioAmount
    
    
    Ratio
    
    
    
    
    
    
    Must be
    
    
    Must be
    
    
    
    
    
    
    Must be
    
    
    Must be(Dollars in thousands)December 31, 2009:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    765,629
    
    
    
    15.55
    %
    
    
    3
    
    
    $
    393,865
    
    
    
    38.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    686,964
    
    
    
    15.60
    %
    
    
    3
    
    
    
    352,244
    
    
    
    38.00
    %
    
    
    3
    
    
    $
    440,305
    
    
    
    310.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    521,842
    
    
    
    10.60
    %
    
    
    3
    
    
    
    196,932
    
    
    
    34.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    571,380
    
    
    
    12.98
    %
    
    
    3
    
    
    
    176,122
    
    
    
    34.00
    %
    
    
    3
    
    
    
    264,183
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    521,842
    
    
    
    7.98
    %
    
    
    3
    
    
    
    196,075
    
    
    
    33.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    571,380
    
    
    
    8.77
    %
    
    
    3
    
    
    
    195,403
    
    
    
    33.00
    %
    
    
    3
    
    
    
    325,672
    
    
    
    >5.00
    %December 31, 2008:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    726,863
    
    
    
    12.83
    %
    
    
    3
    
    
    $
    453,114
    
    
    
    38.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    662,161
    
    
    
    12.87
    %
    
    
    3
    
    
    
    411,725
    
    
    
    38.00
    %
    
    
    3
    
    
    $
    514,656
    
    
    
    310.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    476,268
    
    
    
    8.41
    %
    
    
    3
    
    
    
    226,557
    
    
    
    34.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    537,395
    
    
    
    10.44
    %
    
    
    3
    
    
    
    205,863
    
    
    
    34.00
    %
    
    
    3
    
    
    
    308,795
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    476,268
    
    
    
    6.10
    %
    
    
    3
    
    
    
    234,278
    
    
    
    33.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    537,395
    
    
    
    6.88
    %
    
    
    3
    
    
    
    234,488
    
    
    
    33.00
    %
    
    
    3
    
    
    
    390,813
    
    
    
    >5.00
    %December 31, 2007:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    697,009
    
    
    
    10.55
    %
    
    
    3
    
    
    $
    528,134
    
    
    
    38.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    647,482
    
    
    
    10.91
    %
    
    
    3
    
    
    
    474,647
    
    
    
    38.00
    %
    
    
    3
    
    
    $
    593,309
    
    
    
    310.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    490,259
    
    
    
    7.42
    %
    
    
    3
    
    
    
    264,067
    
    
    
    34.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    573,022
    
    
    
    9.66
    %
    
    
    3
    
    
    
    237,324
    
    
    
    34.00
    %
    
    
    3
    
    
    
    355,986
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    490,259
    
    
    
    5.38
    %
    
    
    3
    
    
    
    273,297
    
    
    
    33.00
    %
    
    
    
    
    
    
    N/ABanco Santander Puerto Rico
    
    
    573,022
    
    
    
    6.84
    %
    
    
    3
    
    
    
    251,493
    
    
    
    33.00
    %
    
    
    3
    
    
    
    419,155
    
    
    
    >5.00
    %
 59




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##### Table of Contents



Goodwill and Intangible Assets
  2009
    
    
    2008
    
    
    2007(Dollars in millions)Mortgage Servicing Rights
    
    $
    9.7
    
    
    $
    10.2
    
    
    $
    9.6Advisory Servicing Rights
    
    
    1.0
    
    
    
    1.3
    
    
    
    1.6Trade Name
    
    
    18.3
    
    
    
    18.3
    
    
    
    18.3Non-compete Agreement
    
    
    
    
    
    
    0.1
    
    
    
    0.7Goodwill:Retail Banking
    
    
    10.5
    
    
    
    10.5
    
    
    
    10.5Wealth Management
    
    
    24.3
    
    
    
    24.3
    
    
    
    24.3Consumer Finance
    
    
    86.7
    
    
    
    86.7
    
    
    
    86.7$
    150.5
    
    
    $
    151.4
    
    
    $
    151.7
   Contractual Obligations and Commercial Commitments
  60




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##### Table of Contents



Payments due by Periodas of December 31, 2009MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Contractual Obligations:Federal funds purchased and
other borrowings
    
    $
    50,000
    
    
    $
    50,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Commercial paper
    
    
    67,482
    
    
    
    67,482
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank Advances
    
    
    1,060,000
    
    
    
    735,000
    
    
    
    325,000
    
    
    
    
    
    
    
    Subordinated notes
    
    
    308,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    308,691Term notes
    
    
    20,581
    
    
    
    4,802
    
    
    
    6,697
    
    
    
    9,082
    
    
    
    Operating lease obligations
    
    
    122,406
    
    
    
    30,933
    
    
    
    22,154
    
    
    
    18,970
    
    
    
    50,349Pension plan contribution
    
    
    1,366
    
    
    
    1,366
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,630,526
    
    
    $
    889,583
    
    
    $
    353,851
    
    
    $
    28,052
    
    
    $
    359,040
 Amount of Commitment and expiration periodas of December 31, 2009MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Other Commercial Commitments:Lines of credit and
financial guarantees written
    
    
    41,837
    
    
    
    40,612
    
    
    
    874
    
    
    
    351
    
    
    
    Commitments to extend credit
    
    
    1,218,115
    
    
    
    1,218,115
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,259,952
    
    
    $
    1,258,727
    
    
    $
    874
    
    
    $
    351
    
    
    $
    
 61




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##### Table of Contents



Recent Accounting Pronouncements
  
 ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Risk Management
  Credit Risk Management and Loan Quality
        62




---



##### Table of Contents



December 31, 2009
    
    
    December 31, 2008($ in thousands)Commercial and industrial
    
    $
    1,947,809
    
    
    $
    2,165,613Consumer  banking operations
    
    
    443,567
    
    
    
    565,833Consumer Finance:Consumer Installment Loans
    
    
    504,054
    
    
    
    686,277Mortgage Loans
    
    
    279,456
    
    
    
    310,642783,510
    
    
    
    996,919Leasing
    
    
    36,624
    
    
    
    64,065Construction
    
    
    70,879
    
    
    
    194,596Mortgage Loans
    
    
    2,385,592
    
    
    
    2,553,328Sub-total
    
    
    5,667,981
    
    
    
    6,540,354Unearned income and deferred fees/cost:Banking operations
    
    
    328
    
    
    
    (290
    )Consumer finance
    
    
    (224,562
    )
    
    
    (418,676
    )Allowance for loans losses:Banking operations
    
    
    (133,930
    )
    
    
    (122,761
    )Consumer finance
    
    
    (63,373
    )
    
    
    (69,128
    )$
    5,246,444
    
    
    $
    5,929,499
     63




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##### Table of Contents



December 31, 2009First
    
    
    Second
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    Mortgage
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2009
    
    $
    50,615
    
    
    $
    385
    
    
    $
    51,000
    
    
    
    2
    %
    
    $
    
    
    
    
    0.00
    %2008
    
    
    108,939
    
    
    
    1,567
    
    
    
    110,506
    
    
    
    5
    %
    
    
    2,116
    
    
    
    1.91
    %2007
    
    
    252,133
    
    
    
    2,528
    
    
    
    254,661
    
    
    
    11
    %
    
    
    13,768
    
    
    
    5.41
    %2006
    
    
    528,486
    
    
    
    3,823
    
    
    
    532,309
    
    
    
    22
    %
    
    
    43,390
    
    
    
    8.15
    %2005
    
    
    554,696
    
    
    
    528
    
    
    
    555,224
    
    
    
    23
    %
    
    
    40,410
    
    
    
    7.28
    %2004 and earlier
    
    
    879,490
    
    
    
    2,402
    
    
    
    881,892
    
    
    
    37
    %
    
    
    49,028
    
    
    
    5.56
    %Sub- Total
    
    $
    2,374,359
    
    
    $
    11,233
    
    
    $
    2,385,592
    
    
    
    100
    %
    
    $
    148,712
    
    
    
    6.23
    %
 64




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##### Table of Contents



December 31, 2008First
    
    
    Second
    
    
    Consumer
    
    
    Other
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2008
    
    $
    106,836
    
    
    $
    2,359
    
    
    $
    
    
    
    $
    
    
    
    $
    109,195
    
    
    
    4
    %
    
    $
    638
    
    
    
    0.58
    %2007
    
    
    269,220
    
    
    
    2,546
    
    
    
    
    
    
    
    
    
    
    
    271,766
    
    
    
    11
    %
    
    
    5,701
    
    
    
    2.10
    %2006
    
    
    578,086
    
    
    
    4,319
    
    
    
    31
    
    
    
    157
    
    
    
    582,593
    
    
    
    23
    %
    
    
    32,198
    
    
    
    5.53
    %2005
    
    
    604,142
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    604,778
    
    
    
    24
    %
    
    
    24,251
    
    
    
    4.01
    %2004
    
    
    439,674
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    440,161
    
    
    
    17
    %
    
    
    16,256
    
    
    
    3.69
    %2003 and earlier
    
    
    543,044
    
    
    
    1,578
    
    
    
    55
    
    
    
    158
    
    
    
    544,835
    
    
    
    21
    %
    
    
    22,953
    
    
    
    4.21
    %Sub- Total
    
    $
    2,541,002
    
    
    $
    11,925
    
    
    $
    86
    
    
    $
    315
    
    
    $
    2,553,328
    
    
    
    100
    %
    
    $
    101,997
    
    
    
    3.99
    %
    December 31, 2009First
    
    
    Second
    
    
    ARM
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage*
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2009
    
    $
    13,810
    
    
    $
    121
    
    
    $
    
    
    
    $
    13,931
    
    
    
    9
    %
    
    $
    
    
    
    
    0.00
    %2008
    
    
    28,033
    
    
    
    378
    
    
    
    
    
    
    
    28,411
    
    
    
    18
    %
    
    
    2,289
    
    
    
    8.06
    %2007
    
    
    24,811
    
    
    
    1,052
    
    
    
    1,079
    
    
    
    26,942
    
    
    
    17
    %
    
    
    2,467
    
    
    
    9.16
    %2006
    
    
    12,299
    
    
    
    899
    
    
    
    20,557
    
    
    
    33,755
    
    
    
    21
    %
    
    
    4,545
    
    
    
    13.46
    %2005
    
    
    10,824
    
    
    
    1,079
    
    
    
    17,151
    
    
    
    29,054
    
    
    
    18
    %
    
    
    2,789
    
    
    
    9.60
    %2004 and earlier
    
    
    21,457
    
    
    
    6,069
    
    
    
    
    
    
    
    27,526
    
    
    
    17
    %
    
    
    4,165
    
    
    
    15.13
    %Total
    
    $
    111,234
    
    
    $
    9,598
    
    
    $
    38,787
    
    
    $
    159,619
    
    
    
    100
    %
    
    $
    16,255
    
    
    
    10.18
    %
 
 *
    
    Net of unearned finance charges and deferred income/cost 65




---



##### Table of Contents



December 31, 2008First
    
    
    Second
    
    
    ARM
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage*
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2008
    
    $
    31,441
    
    
    $
    696
    
    
    $
    
    
    
    $
    32,137
    
    
    
    19
    %
    
    $
    262
    
    
    
    0.82
    %2007
    
    
    28,323
    
    
    
    1,498
    
    
    
    1,246
    
    
    
    31,067
    
    
    
    19
    %
    
    
    572
    
    
    
    1.84
    %2006
    
    
    13,409
    
    
    
    1,281
    
    
    
    22,355
    
    
    
    37,045
    
    
    
    21
    %
    
    
    3,196
    
    
    
    8.63
    %2005
    
    
    12,208
    
    
    
    1,219
    
    
    
    19,953
    
    
    
    33,380
    
    
    
    20
    %
    
    
    3,014
    
    
    
    9.03
    %2004
    
    
    11,524
    
    
    
    3,108
    
    
    
    
    
    
    
    14,632
    
    
    
    9
    %
    
    
    1,776
    
    
    
    12.14
    %2003 and earlier
    
    
    13,129
    
    
    
    6,185
    
    
    
    
    
    
    
    19,314
    
    
    
    12
    %
    
    
    2,160
    
    
    
    11.18
    %Total
    
    $
    110,034
    
    
    $
    13,987
    
    
    $
    43,554
    
    
    $
    167,575
    
    
    
    100
    %
    
    $
    10,980
    
    
    
    6.55
    %
 
 *
    
    Net of unearned finance charges and deferred income/cost  December 31, 2009BAND A
    
    
    Avg.
    
    
    BAND B
    
    
    Avg.
    
    
    BAND C
    
    
    Avg.
    
    
    Total
    
    
    Avg.FICO>=660
    
    
    LTV
    
    
    FICO>620 and <660
    
    
    LTV
    
    
    FICO<=620
    
    
    LTV
    
    
    Loans
    
    
    LTV(Dollars in thousands)Mortgage Loan Portfolio:Banking Operations
    
    $
    1,514,980
    
    
    
    72
    %
    
    $
    251,166
    
    
    
    70
    %
    
    $
    619,446
    
    
    
    73
    %
    
    $
    2,385,592
    
    
    
    72
    %Consumer Finance
    
    
    68,339
    
    
    
    66
    %
    
    
    39,437
    
    
    
    67
    %
    
    
    51,843
    
    
    
    65
    %
    
    
    159,619
    
    
    
    64
    %$
    1,583,319
    
    
    
    
    
    
    $
    290,603
    
    
    
    
    
    
    $
    671,289
    
    
    
    
    
    
    $
    2,545,211Consumer Installment Loans*:Banking Operations
    
    $
    284,635
    
    
    
    n/a
    
    
    $
    53,808
    
    
    
    n/a
    
    
    $
    105,124
    
    
    
    n/a
    
    
    $
    443,567
    
    
    
    n/aConsumer Finance
    
    
    187,747
    
    
    
    n/a
    
    
    
    109,654
    
    
    
    n/a
    
    
    
    101,710
    
    
    
    n/a
    
    
    
    399,111
    
    
    
    n/a$
    472,382
    
    
    
    
    
    
    $
    163,462
    
    
    
    
    
    
    $
    206,834
    
    
    
    
    
    
    $
    842,678
 
 *
    
    Net of unearned finance charges and deferred income/cost 66




---



##### Table of Contents



December 31, 2008BAND A
    
    
    Avg.
    
    
    BAND B
    
    
    Avg.
    
    
    BAND C
    
    
    Avg.
    
    
    Total
    
    
    Avg.FICO>=660
    
    
    LTV
    
    
    FICO>620 and <660
    
    
    LTV
    
    
    FICO<=620
    
    
    LTV
    
    
    Loans
    
    
    LTV(Dollars in thousands)Mortgage Loan Portfolio:Banking Operations
    
    $
    1,984,652
    
    
    
    80
    %
    
    $
    308,690
    
    
    
    81
    %
    
    $
    259,986
    
    
    
    76
    %
    
    $
    2,553,328
    
    
    
    80
    %Consumer Finance
    
    
    65,516
    
    
    
    61
    %
    
    
    41,652
    
    
    
    62
    %
    
    
    60,407
    
    
    
    61
    %
    
    
    167,575
    
    
    
    61
    %$
    2,050,168
    
    
    
    
    
    
    $
    350,342
    
    
    
    
    
    
    $
    320,393
    
    
    
    
    
    
    $
    2,720,903Consumer Installment Loans*:Banking Operations
    
    $
    427,056
    
    
    
    n/a
    
    
    $
    59,070
    
    
    
    n/a
    
    
    $
    79,707
    
    
    
    n/a
    
    
    $
    565,833
    
    
    
    n/aConsumer Finance
    
    
    176,334
    
    
    
    n/a
    
    
    
    119,492
    
    
    
    n/a
    
    
    
    114,842
    
    
    
    n/a
    
    
    
    410,668
    
    
    
    n/a$
    603,390
    
    
    
    
    
    
    $
    178,562
    
    
    
    
    
    
    $
    194,549
    
    
    
    
    
    
    $
    976,501
 
 *Net of unearned finance charges and deferred income/cost      67




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##### Table of Contents



Industry Risk
    Government Risk
  68




---



##### Table of Contents



Non-performing Assets and Past Due Loans
  Year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)Commercial, Industrial and Agricultural
    
    $
    31,021
    
    
    $
    30,564
    
    
    $
    21,236
    
    
    $
    15,549
    
    
    $
    14,326Construction
    
    
    15,571
    
    
    
    13,856
    
    
    
    141,140
    
    
    
    3,966
    
    
    
    3,414Mortgage
    
    
    186,202
    
    
    
    116,473
    
    
    
    80,805
    
    
    
    51,341
    
    
    
    45,292Consumer
    
    
    10,385
    
    
    
    13,479
    
    
    
    10,818
    
    
    
    7,590
    
    
    
    4,747Consumer Finance
    
    
    43,782
    
    
    
    35,508
    
    
    
    37,412
    
    
    
    24,731
    
    
    
    Lease Financing
    
    
    1,908
    
    
    
    2,493
    
    
    
    2,334
    
    
    
    2,783
    
    
    
    3,340Restructured Loans
    
    
    977
    
    
    
    341
    
    
    
    693
    
    
    
    892
    
    
    
    2,560Total non-performing loans
    
    
    289,846
    
    
    
    212,714
    
    
    
    294,438
    
    
    
    106,852
    
    
    
    73,679Total repossessed assets
    
    
    34,486
    
    
    
    21,592
    
    
    
    16,447
    
    
    
    6,173
    
    
    
    2,706Non-performing assets
    
    $
    324,332
    
    
    $
    234,306
    
    
    $
    310,885
    
    
    $
    113,025
    
    
    $
    76,385Accruing loans past-due 90 days or more
    
    $
    11,214
    
    
    $
    13,462
    
    
    $
    7,162
    
    
    $
    20,938
    
    
    $
    2,999Non-performing loans to total loans
    
    
    5.30
    %
    
    
    3.45
    %
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %Non-performing loans plus accruing loans
past due 90 days or more to total loans
    
    
    5.50
    %
    
    
    3.67
    %
    
    
    4.26
    %
    
    
    1.84
    %
    
    
    1.27
    %Non-performing assets to total assets
    
    
    4.79
    %
    
    
    2.97
    %
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %Interest lost
    
    $
    11,888
    
    
    $
    9,268
    
    
    $
    7,708
    
    
    $
    3,112
    
    
    $
    2,111
       69




---



##### Table of Contents



Potential Problem Loans
  Asset and Liability Management
  Market Risk and Interest Rate Sensitivity
     70




---



##### Table of Contents



Interest Rate SensitivityAs of December 31, 20090 to 3
    
    
    3 months
    
    
    1 to 3
    
    
    3 to 5
    
    
    5 to 10
    
    
    More than
    
    
    No InterestMonths
    
    
    to a Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    10 Years
    
    
    Rate Risk
    
    
    Total(Dollars in thousands)ASSETS:Investment Portfolio
    
    $
    99,872
    
    
    $
    18,689
    
    
    $
    263,257
    
    
    $
    22,337
    
    
    $
    9,725
    
    
    $
    
    
    
    $
    106,898
    
    
    $
    520,778Deposits with Other Banks
    
    
    226,841
    
    
    
    2,668
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,438
    
    
    
    330,947Loan Portfolio:Commercial
    
    
    1,014,360
    
    
    
    339,663
    
    
    
    190,250
    
    
    
    161,354
    
    
    
    116,998
    
    
    
    67,934
    
    
    
    91,020
    
    
    
    1,981,579Construction
    
    
    47,943
    
    
    
    6,501
    
    
    
    9,678
    
    
    
    1,728
    
    
    
    3,524
    
    
    
    1,333
    
    
    
    
    
    
    
    70,707Consumer
    
    
    305,142
    
    
    
    183,149
    
    
    
    311,450
    
    
    
    163,226
    
    
    
    24,693
    
    
    
    26
    
    
    
    15,207
    
    
    
    1,002,893Mortgage
    
    
    112,797
    
    
    
    298,411
    
    
    
    563,922
    
    
    
    430,735
    
    
    
    744,739
    
    
    
    130,170
    
    
    
    134,520
    
    
    
    2,415,294Fixed and Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    444,238
    
    
    
    444,238Total Assets
    
    
    1,806,955
    
    
    
    849,081
    
    
    
    1,338,557
    
    
    
    779,380
    
    
    
    899,679
    
    
    
    199,463
    
    
    
    893,321
    
    
    
    6,766,436LIABILITIES AND STOCKHOLDERS EQUITY:External Funds Purchased:Commercial Paper
    
    
    67,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    67,482Repurchase Agreements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal Funds and other borrowings
    
    
    535,000
    
    
    
    250,000
    
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,110,000Deposits:Certificates of Deposit
    
    
    1,179,664
    
    
    
    392,284
    
    
    
    90,422
    
    
    
    12,851
    
    
    
    
    
    
    
    204
    
    
    
    (6,362
    )
    
    
    1,669,063Demand Deposits andSavings Accounts
    
    
    184,934
    
    
    
    37,028
    
    
    
    202,028
    
    
    
    159,145
    
    
    
    118,055
    
    
    
    
    
    
    
    (2,421
    )
    
    
    698,769Transactional Accounts
    
    
    206,438
    
    
    
    367,366
    
    
    
    770,070
    
    
    
    86,167
    
    
    
    597,772
    
    
    
    
    
    
    
    (85
    )
    
    
    2,027,728Senior and Subordinated Debt
    
    
    4,815
    
    
    
    
    
    
    
    15,757
    
    
    
    
    
    
    
    244,691
    
    
    
    60,000
    
    
    
    4,009
    
    
    
    329,272Other Liabilities and Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    864,122
    
    
    
    864,122Total Liabilities and Capital
    
    
    2,178,351
    
    
    
    1,046,678
    
    
    
    1,403,277
    
    
    
    258,163
    
    
    
    960,518
    
    
    
    60,204
    
    
    
    859,245
    
    
    
    6,766,436Off-Balance SheetFinancial InformationInterest Rate Swaps (Assets)
    
    
    1,637,166
    
    
    
    23,645
    
    
    
    14,068
    
    
    
    27,417
    
    
    
    1,592,341
    
    
    
    36,000
    
    
    
    
    
    
    
    3,330,637Interest Rate Swaps (Liabilities)
    
    
    (1,762,447
    )
    
    
    (23,645
    )
    
    
    (13,787
    )
    
    
    (27,417
    )
    
    
    (1,467,341
    )
    
    
    (36,000
    )
    
    
    
    
    
    
    (3,330,637
    )Caps
    
    
    
    
    
    
    175
    
    
    
    605
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    780Caps Final Maturity
    
    
    
    
    
    
    (175
    )
    
    
    (605
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (780
    )GAP
    
    
    (496,677
    )
    
    
    (197,597
    )
    
    
    (64,439
    )
    
    
    521,217
    
    
    
    64,161
    
    
    
    139,259
    
    
    
    34,076
    
    
    
    Cumulative GAP
    
    $
    (496,677
    )
    
    $
    (694,274
    )
    
    $
    (758,713
    )
    
    $
    (237,496
    )
    
    $
    (173,335
    )
    
    $
    (34,076
    )
    
    $
    
    
    
    $
    Cumulative GAP to earning assets
    
    
    -7.86
    %
    
    
    -10.98
    %
    
    
    -12.00
    %
    
    
    -3.76
    %
    
    
    -2.74
    %
    
    
    -0.54
    %
    71




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##### Table of Contents



NET INTEREST MARGIN SHOCK REPORTDecember 31, 2009(In millions)
    
    -200 BPs
    
    
    -100 BPs
    
    
    -50 BPs
    
    
    Base Case
    
    
    +50 BPs
    
    
    +100 BPs
    
    
    +200 BPsGross Interest Margin
    
    $
    397.8
    
    
    $
    406.5
    
    
    $
    405.0
    
    
    $
    401.6
    
    
    $
    398.4
    
    
    $
    394.8
    
    
    $
    386.2Sensitivity
    
    $
    (3.8
    )
    
    $
    4.9
    
    
    $
    3.4
    
    
    
    
    
    
    $
    (3.2
    )
    
    $
    (6.8
    )
    
    $
    (15.4
    )
 MARKET VALUE SHOCK REPORTDecember 31, 2009(In millions)
    
    -200 BPs
    
    
    -100 BPs
    
    
    -50 BPs
    
    
    Base Case
    
    
    +50 BPs
    
    
    +100 BPs
    
    
    +200 BP'sMarket Value of Equity
    
    $
    761.1
    
    
    $
    783.7
    
    
    $
    774.1
    
    
    $
    749.9
    
    
    $
    750.9
    
    
    $
    727.8
    
    
    $
    702.2Sensitivity
    
    $
    11.2
    
    
    $
    33.8
    
    
    $
    24.2
    
    
    
    
    
    
    $
    1.0
    
    
    $
    (22.1
    )
    
    $
    (47.7
    )
  72




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##### Table of Contents



Derivatives
   Hedging Activities:
  December 31, 2009OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Economic Undesignated HedgesInterest Rate Swaps
    
    
    125,000
    
    
    
    (492
    )
    
    
    (5,702
    )
    
    
    Totals
    
    $
    125,000
    
    
    $
    (492
    )
    
    $
    (5,702
    )
    
    $
    
 December 31, 2008OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesInterest Rate Swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,237Economic Undesignated HedgesInterest Rate Swaps
    
    
    125,000
    
    
    
    5,210
    
    
    
    4,311
    
    
    
    Totals
    
    $
    125,000
    
    
    $
    5,210
    
    
    $
    4,311
    
    
    $
    1,237
 December 31, 2007OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesForeign Currency
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest Rate Swaps
    
    
    650,000
    
    
    
    (2,027
    )
    
    
    
    
    
    
    (1,023
    )Fair Value HedgesInterest Rate Swaps
    
    
    937,863
    
    
    
    (4,425
    )
    
    
    (465
    )
    
    
    Totals
    
    $
    1,587,863
    
    
    $
    (6,452
    )
    
    $
    (465
    )
    
    $
    (1,023
    )
 
 *
    
    The notional amount represents the gross sum of long and short**
    
    Net of tax 73




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##### Table of Contents



Cash Flow Hedges:
   Economic Undesignated Hedges:
     Derivative instruments not designated as hedging instruments:
  74




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##### Table of Contents



December 31, 2009Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    3,330,637
    
    
    $
    220
    
    
    $
    107Interest Rate Caps
    
    
    780
    
    
    
    
    
    
    
    Other
    
    
    3,447
    
    
    
    (8
    )
    
    
    (101
    )Equity Derivatives
    
    
    210,900
    
    
    
    
    
    
    
    Totals
    
    $
    3,545,764
    
    
    $
    212
    
    
    $
    6
 December 31, 2008Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    3,548,418
    
    
    $
    (53
    )
    
    $
    (392
    )Interest Rate Caps
    
    
    1,166
    
    
    
    
    
    
    
    Other
    
    
    3,862
    
    
    
    93
    
    
    
    48Equity Derivatives
    
    
    236,428
    
    
    
    
    
    
    
    (21
    )Totals
    
    $
    3,789,874
    
    
    $
    40
    
    
    $
    (365
    )
 December 31, 2007Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    3,237,179
    
    
    $
    257
    
    
    $
    679Interest Rate Caps
    
    
    14,762
    
    
    
    
    
    
    
    Other
    
    
    1,451
    
    
    
    45
    
    
    
    35Equity Derivatives
    
    
    267,124
    
    
    
    
    
    
    
    Totals
    
    $
    3,520,516
    
    
    $
    302
    
    
    $
    714
 
 *
    
    The notional amount represents the gross sum of long and short Liquidity Risk
  75




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##### Table of Contents



th th th
   76




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##### Table of Contents



Standard
    
    Fitch& Poors
    
    IBCAShort-term funding
    
    A-1
    
    F1+Long-term funding
    
    A
    
    AA-
   Maturity and Interest Rate Sensitivity of Interest-Earning Assets as of December 31, 2009
  As of December 31, 2009Maturities and/or Next Repricing DateAfter One YearThrough Five Years
    
    
    After Five YearsOne Year
    
    
    Fixed
    
    
    Variable
    
    
    Fixed
    
    
    Variableor Less
    
    
    Interest Rates
    
    
    Interest Rates
    
    
    Interest Rates
    
    
    Interest Rates
    
    
    Total(Dollars in thousands)Cash and Cash Equivalents and
other Interest-bearing deposits
    
    $
    330,947
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    330,947Investment Portfolio
    
    
    118,545
    
    
    
    285,595
    
    
    
    
    
    
    
    116,638
    
    
    
    
    
    
    
    520,778Loans:Commercial
    
    
    724,129
    
    
    
    354,165
    
    
    
    324,007
    
    
    
    225,958
    
    
    
    318,320
    
    
    
    1,946,579Construction
    
    
    25,750
    
    
    
    6,423
    
    
    
    10,401
    
    
    
    
    
    
    
    28,133
    
    
    
    70,707Consumer
    
    
    179,407
    
    
    
    135,478
    
    
    
    
    
    
    
    129,060
    
    
    
    
    
    
    
    443,945Consumer Finance
    
    
    182,826
    
    
    
    338,547
    
    
    
    10,909
    
    
    
    16,667
    
    
    
    9,999
    
    
    
    558,948Mortgage
    
    
    411,208
    
    
    
    994,657
    
    
    
    
    
    
    
    1,009,429
    
    
    
    
    
    
    
    2,415,294Leasing
    
    
    22,214
    
    
    
    9,893
    
    
    
    588
    
    
    
    2,305
    
    
    
    
    
    
    
    35,000Total
    
    $
    1,995,026
    
    
    $
    2,124,758
    
    
    $
    345,905
    
    
    $
    1,500,057
    
    
    $
    356,452
    
    
    $
    6,322,198
 77




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##### Table of Contents



Capital Expenditures
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Headquarters/branches
    
    $
    218
    
    
    $
    412
    
    
    $
    1,770Data processing equipment
    
    
    563
    
    
    
    1,829
    
    
    
    1,438Software
    
    
    3,093
    
    
    
    4,419
    
    
    
    1,981Office furniture and equipment
    
    
    819
    
    
    
    2,766
    
    
    
    1,257Total
    
    $
    4,693
    
    
    $
    9,426
    
    
    $
    6,446
  Environmental Matters
   Puerto Rico Income Taxes
    78




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##### Table of Contents



Income Tax. .
  United States Income Taxes
  79




---



##### Table of Contents



CERTIFICATION PURSUANT TO SECTION 303A.12(a) OF THE
NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
  
 
 80




---



##### Table of Contents



Deloitte & Touche LLP
Torre Chardón
350 Chardón Ave. Suite 700
San Juan, PR 00918-2140
USA
 Tel: +1 787 759 7171
Fax: +1 787 756 6340
www.deloitte.com
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
  
 Member of
Deloitte & Touche Tohmatsu




---



##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Balance Sheets
 December 31, 2009 and 2008
 2009
    
    
    2008ASSETSCash and Cash Equivalents:Cash and due from banks
    
    $
    296,425
    
    
    $
    217,311Interest-bearing deposits
    
    
    10,467
    
    
    
    976Federal funds sold and securities purchased under agreements to resell
    
    
    22,146
    
    
    
    64,871Total cash and cash equivalents
    
    
    329,038
    
    
    
    283,158Interest-Bearing Deposits
    
    
    1,909
    
    
    
    7,394Trading Securities, at fair value
    
    
    47,739
    
    
    
    64,719Investment Securities Available for Sale,at fair value:Securities pledged that can be repledged
    
    
    
    
    
    
    408,650Other investment securities available for sale
    
    
    417,608
    
    
    
    393,462Total investment securities available for sale
    
    
    417,608
    
    
    
    802,112Other Investment Securities,at amortized cost
    
    
    55,431
    
    
    
    61,632Loans Held for Sale,net
    
    
    26,726
    
    
    
    38,459Loans,net
    
    
    5,246,444
    
    
    
    5,929,499Accrued Interest Receivable
    
    
    32,651
    
    
    
    45,953Premises and Equipment,net
    
    
    20,179
    
    
    
    19,368Real Estate Held for Sale
    
    
    2,818
    
    
    
    8,075Goodwill
    
    
    121,482
    
    
    
    121,482Intangible Assets,net
    
    
    28,948
    
    
    
    29,842Other Assets
    
    
    435,463
    
    
    
    485,883$
    6,766,436
    
    
    $
    7,897,576LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non interest-bearing
    
    $
    698,769
    
    
    $
    692,963Interest-bearing, including $12.5 million and $101.4 million at fair
value in 2009 and 2008, respectively
    
    
    3,696,791
    
    
    
    4,321,939Total deposits
    
    
    4,395,560
    
    
    
    5,014,902Federal Funds Purchased and Other Borrowings
    
    
    50,000
    
    
    
    2,040Securities Sold Under Agreements to Repurchase
    
    
    
    
    
    
    375,000Commercial Paper Issued
    
    
    67,482
    
    
    
    50,985Federal Home Loan Bank Advances
    
    
    1,060,000
    
    
    
    1,185,000Term Notes
    
    
    20,581
    
    
    
    19,967Subordinated
Capital Notes,including $120.6 million and 118.3 million at fair value in 2009 and 2008, respectively
    
    
    308,691
    
    
    
    306,392Accrued Interest Payable
    
    
    14,015
    
    
    
    45,419Other Liabilities
    
    
    254,210
    
    
    
    346,235Total liabilities
    
    
    6,170,539
    
    
    
    7,345,940Contingencies and Commitments (Notes 18, 22 and 23)STOCKHOLDERS EQUITY:Series A Preferred stock, $25 par value; 10,000,000 shares authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock, $2.50 par value; 200,000,000 shares authorized, 50,650,364 shares issued;
46,639,104 shares outstanding
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    318,263
    
    
    
    317,141Treasury stock at cost, 4,011,260 shares
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss, net of taxes
    
    
    (20,695
    )
    
    
    (22,563
    )Retained earnings:Reserve fund
    
    
    141,833
    
    
    
    139,250Undivided profits
    
    
    97,422
    
    
    
    58,734Total stockholders equity
    
    
    595,897
    
    
    
    551,636$
    6,766,436
    
    
    $
    7,897,576
  81




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Operations Years
Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Interest Income:Loans
    
    $
    460,248
    
    
    $
    547,973
    
    
    $
    599,581Investment securities
    
    
    21,302
    
    
    
    47,402
    
    
    
    67,830Interest-bearing deposits
    
    
    541
    
    
    
    1,063
    
    
    
    3,344Federal funds sold and securities purchased under agreements to resell
    
    
    67
    
    
    
    4,333
    
    
    
    3,455Total interest income
    
    
    482,158
    
    
    
    600,771
    
    
    
    674,210Interest Expense:Deposits
    
    
    79,473
    
    
    
    152,452
    
    
    
    192,660Securities sold under agreements to repurchase and other borrowings
    
    
    36,236
    
    
    
    78,680
    
    
    
    153,955Subordinated capital notes
    
    
    14,722
    
    
    
    13,317
    
    
    
    15,916Total interest expense
    
    
    130,431
    
    
    
    244,449
    
    
    
    362,531Net interest income
    
    
    351,727
    
    
    
    356,322
    
    
    
    311,679Provision for Loan Losses
    
    
    152,496
    
    
    
    175,523
    
    
    
    147,824Net interest income after provision for loan losses
    
    
    199,231
    
    
    
    180,799
    
    
    
    163,855Other Income:Bank service charges, fees and other
    
    
    39,837
    
    
    
    44,685
    
    
    
    47,201Broker-dealer, asset management and insurance fees
    
    
    62,688
    
    
    
    74,808
    
    
    
    68,265Gain on sale of investment securities available for sale
    
    
    9,251
    
    
    
    5,154
    
    
    
    1,265Gain on sale of loans
    
    
    5,144
    
    
    
    3,253
    
    
    
    6,658Other income
    
    
    5,526
    
    
    
    19,935
    
    
    
    24,731Total other income
    
    
    122,446
    
    
    
    147,835
    
    
    
    148,120Other Operating Expenses:Salaries and employee benefits
    
    
    107,019
    
    
    
    125,137
    
    
    
    134,258Occupancy costs
    
    
    25,291
    
    
    
    27,665
    
    
    
    23,767Equipment expenses
    
    
    3,907
    
    
    
    4,358
    
    
    
    4,427EDP servicing, amortization and technical assistance
    
    
    40,645
    
    
    
    41,860
    
    
    
    39,255Communication expenses
    
    
    9,038
    
    
    
    10,062
    
    
    
    10,923Business promotion
    
    
    3,864
    
    
    
    6,628
    
    
    
    15,621Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    
    
    
    
    43,349Provision for claim receivable
    
    
    
    
    
    
    25,120
    
    
    
    Other taxes
    
    
    13,270
    
    
    
    13,101
    
    
    
    12,334Other operating expenses
    
    
    66,033
    
    
    
    70,696
    
    
    
    60,082Total other operating expenses
    
    
    269,067
    
    
    
    324,627
    
    
    
    344,016Income (loss) before provision (benefit) for income tax
    
    
    52,610
    
    
    
    4,007
    
    
    
    (32,041
    )Provision (Benefit) for Income Tax
    
    
    11,335
    
    
    
    (6,524
    )
    
    
    4,204Net Income (Loss) Available to Common Shareholders
    
    $
    41,275
    
    
    $
    10,531
    
    
    $
    (36,245
    )Basic and Diluted Earnings (Loss) per Common Share
    
    $
    0.88
    
    
    $
    0.23
    
    
    $
    (0.78
    )
  82




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Santander BanCorp and Subsidiaries
 Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Common Stock:Balance at beginning of year
    
    $
    126,626
    
    
    $
    126,626
    
    
    $
    126,626Balance at end of year
    
    
    126,626
    
    
    
    126,626
    
    
    
    126,626Capital Paid in Excess of Par Value:Balance at beginning of year
    
    
    317,141
    
    
    
    308,373
    
    
    
    304,171Capital contribution
    
    
    2,406
    
    
    
    9,710
    
    
    
    4,202Payments to ultimate parent for long-term incentive plan
    
    
    (1,284
    )
    
    
    (942
    )
    
    
    Balance at end of year
    
    
    318,263
    
    
    
    317,141
    
    
    
    308,373Treasury Stock at cost:Balance at beginning of year
    
    
    (67,552
    )
    
    
    (67,552
    )
    
    
    (67,552
    )Balance at end of year
    
    
    (67,552
    )
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated Other Comprehensive Loss, net of tax:Balance at beginning of year
    
    
    (22,563
    )
    
    
    (24,478
    )
    
    
    (44,213
    )Unrealized net (loss) gain on investment securities available
for sale, net of tax
    
    
    (3,130
    )
    
    
    13,449
    
    
    
    18,227Unrealized net gain (loss) on cash flow hedges, net of tax
    
    
    
    
    
    
    1,237
    
    
    
    (1,023
    )Minimum pension benefit (liability), net of tax
    
    
    4,998
    
    
    
    (12,771
    )
    
    
    2,531Balance at end of year
    
    
    (20,695
    )
    
    
    (22,563
    )
    
    
    (24,478
    )Reserve Fund:Balance at beginning of year
    
    
    139,250
    
    
    
    139,250
    
    
    
    137,511Transfer from undivided profits
    
    
    2,583
    
    
    
    
    
    
    
    1,739Balance at end of year
    
    
    141,833
    
    
    
    139,250
    
    
    
    139,250Undivided Profits:Balance at beginning of year
    
    
    58,734
    
    
    
    54,317
    
    
    
    122,677Net income (loss)
    
    
    41,275
    
    
    
    10,531
    
    
    
    (36,245
    )Transfer to reseve fund
    
    
    (2,583
    )
    
    
    
    
    
    
    (1,739
    )Deferred tax benefit amortization
    
    
    (4
    )
    
    
    (4
    )
    
    
    (3
    )Common stock cash dividends
    
    
    
    
    
    
    (9,329
    )
    
    
    (29,849
    )Cummulative effect of adoption of FASB ASC Topic 825
    
    
    
    
    
    
    3,219
    
    
    
    Cummulative effect of adoption of FASB ASC Topic 740
    
    
    
    
    
    
    
    
    
    
    (524
    )Balance at end of year
    
    
    97,422
    
    
    
    58,734
    
    
    
    54,317Total stockholders equity
    
    $
    595,897
    
    
    $
    551,636
    
    
    $
    536,536
  83




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Santander BanCorp and Subsidiaries
 Consolidated Statements of Comprehensive Income (Loss)
Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Comprehensive income (Loss)Net income (loss)
    
    $
    41,275
    
    
    $
    10,531
    
    
    $
    (36,245
    )Other comprehensive income (loss), net of tax:Unrealized holding gains on investment securities available for sale, net of tax
    
    
    1,573
    
    
    
    14,142
    
    
    
    18,170Reclassification adjustment for (losses) gains included in net income (loss), net of tax
    
    
    (4,703
    )
    
    
    (693
    )
    
    
    57Unrealized (losses) gains on investment securities available for sale, net of tax
    
    
    (3,130
    )
    
    
    13,449
    
    
    
    18,227Unrealized gain (loss) on cash flow hedges, net of tax
    
    
    
    
    
    
    1,237
    
    
    
    (1,023
    )Minimum pension benefit (liability), net of tax
    
    
    4,998
    
    
    
    (12,771
    )
    
    
    2,531Total other comprehensive income, net of tax
    
    
    1,868
    
    
    
    1,915
    
    
    
    19,735Comprehensive income (loss)
    
    $
    43,143
    
    
    $
    12,446
    
    
    $
    (16,510
    )
  84




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##### Table of Contents



Santander BanCorp and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    41,275
    
    
    $
    10,531
    
    
    $
    (36,245
    )Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:Depreciation and amortization
    
    
    12,451
    
    
    
    15,096
    
    
    
    16,276Deferred tax benefit
    
    
    (535
    )
    
    
    (18,083
    )
    
    
    (23,833
    )Provision for loan losses
    
    
    152,496
    
    
    
    175,523
    
    
    
    147,824Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    
    
    
    
    43,349Gain on sale of investment securities available for sale
    
    
    (9,251
    )
    
    
    (5,154
    )
    
    
    (1,265
    )Gain on sale of loans
    
    
    (5,144
    )
    
    
    (3,253
    )
    
    
    (6,658
    )Gain on sale of mortgage-servicing rights
    
    
    
    
    
    
    
    
    
    
    (132
    )Loss (gain) on derivatives and other financial instruments at fair value
    
    
    7,303
    
    
    
    (3,284
    )
    
    
    (249
    )Gain on trading securities
    
    
    (3,275
    )
    
    
    (2,607
    )
    
    
    (2,831
    )Valuation loss on loans held for sale
    
    
    
    
    
    
    7,357
    
    
    
    Net premium amortization (discount accretion) on securities
    
    
    368
    
    
    
    (2,877
    )
    
    
    (6,782
    )Net (discount accretion) premium amortization on loans
    
    
    (2,646
    )
    
    
    433
    
    
    
    (1,793
    )Accretion of debt discount
    
    
    644
    
    
    
    628
    
    
    
    Share based compensation (benefit) sponsored by the ultimate parent
    
    
    2,406
    
    
    
    (1,210
    )
    
    
    14,656Provision for claim receivable
    
    
    
    
    
    
    25,120
    
    
    
    Purchases and originations of loans held for sale
    
    
    (195,466
    )
    
    
    (345,706
    )
    
    
    (556,838
    )Proceeds from sales of loans held for sale
    
    
    199,937
    
    
    
    437,177
    
    
    
    305,183Repayments of loans held for sale
    
    
    364
    
    
    
    17,109
    
    
    
    22,511Proceeds from sales of trading securities
    
    
    1,002,635
    
    
    
    2,215,946
    
    
    
    2,553,127Purchases of trading securities
    
    
    (883,665
    )
    
    
    (2,101,645
    )
    
    
    (2,576,040
    )Net change in:Decrease in accrued interest receivable
    
    
    13,302
    
    
    
    32,382
    
    
    
    22,215(Increase) decrease in other assets
    
    
    (10,788
    )
    
    
    19,897
    
    
    
    (116,664
    )Decrease in accrued interest payable
    
    
    (31,406
    )
    
    
    (31,709
    )
    
    
    (13,889
    )Decrease in other liabilities
    
    
    (11,683
    )
    
    
    (3,469
    )
    
    
    (48,111
    )Total adjustments
    
    
    238,047
    
    
    
    427,671
    
    
    
    (229,944
    )Net cash provided by (used in) operating activities
    
    
    279,322
    
    
    
    438,202
    
    
    
    (266,189
    )CASH FLOWS FROM INVESTING ACTIVITIES:Increase (decrease) in interest-bearing deposits
    
    
    5,485
    
    
    
    (1,955
    )
    
    
    46,016Proceeds from sales of investment securities available for sale
    
    
    507,256
    
    
    
    129,451
    
    
    
    149,413Proceeds from maturities of investment securities available for sale
    
    
    196,240
    
    
    
    8,858,239
    
    
    
    36,258,629Purchases of investment securities available for sale
    
    
    (346,155
    )
    
    
    (8,808,967
    )
    
    
    (36,323,477
    )Proceeds from maturities of other investment securities
    
    
    104,526
    
    
    
    40,727
    
    
    
    16,526Purchases of other investments
    
    
    (98,325
    )
    
    
    (37,800
    )
    
    
    (30,375
    )Repayment of securities and securities called
    
    
    32,006
    
    
    
    89,302
    
    
    
    100,631Payments on derivative transactions
    
    
    
    
    
    
    (1,497
    )
    
    
    (434
    )Net decrease in loans
    
    
    422,615
    
    
    
    547,090
    
    
    
    15,083Proceeds from sales of mortgage-servicing rights
    
    
    
    
    
    
    
    
    
    
    132Proceeds from sale of buildings
    
    
    
    
    
    
    
    
    
    
    56,750Purchases of premises and equipment
    
    
    (1,582
    )
    
    
    (5,137
    )
    
    
    (3,694
    )Net cash provided by investing activities
    
    
    822,066
    
    
    
    809,453
    
    
    
    285,200(Continued)
 The accompanying notes are an integral part of these financial statements.
 85




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Santander BanCorp and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007CASH FLOWS FROM FINANCING ACTIVITIES:Net decrease in deposits
    
    
    (618,680
    )
    
    
    (149,298
    )
    
    
    (168,296
    )Net (decrease) increase in federal funds purchased and other borrowings
    
    
    (77,040
    )
    
    
    (765,070
    )
    
    
    323,710Net decrease in securities sold under agreements to repurchase
    
    
    (375,000
    )
    
    
    (60,597
    )
    
    
    (194,972
    )Net increase (decrease) in commercial paper issued
    
    
    16,496
    
    
    
    (233,497
    )
    
    
    74,933Net decrease in term notes
    
    
    
    
    
    
    
    
    
    
    (22,158
    )Issuance of subordinated capital notes
    
    
    
    
    
    
    60,000
    
    
    
    54Payments to ultimate parent for long-term incentives plans
    
    
    (1,284
    )
    
    
    (942
    )
    
    
    Dividends paid
    
    
    
    
    
    
    (16,790
    )
    
    
    (29,849
    )Net cash used in financing activities
    
    
    (1,055,508
    )
    
    
    (1,166,194
    )
    
    
    (16,578
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    45,880
    
    
    
    81,461
    
    
    
    2,433CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    283,158
    
    
    
    201,697
    
    
    
    199,264CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    329,038
    
    
    $
    283,158
    
    
    $
    201,697(Concluded)
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Cash paid during the year for:Interest
    
    $
    160,405
    
    
    $
    274,186
    
    
    $
    375,045Income taxes
    
    $
    8,023
    
    
    $
    10,756
    
    
    $
    23,648Non-cash transactions:Exercised options in ultimate parent stock recognized as capital
contribution
    
    $
    
    
    
    $
    6,661
    
    
    $
    Minimum pension benefit (liability)
    
    $
    4,998
    
    
    $
    (12,771
    )
    
    $
    2,531Loan securitization
    
    $
    98,715
    
    
    $
    107,691
    
    
    $
    47,093Assets received in full satisfaction of loans
    
    $
    23,916
    
    
    $
    16,978
    
    
    $
    20,250Reclassification of premises to real estate held for sale
    
    
    
    
    
    $
    8,075
    
    
    
    Reclassification of real estate held for sale to premises
    
    $
    5,257
    
    
    $
    
    
    
    $
    Settlement
by counterparty in bankruptcy of securities sold under agreement to repurchase
    
    $
    
    
    
    $
    200,228
    
    
    $
    Settlement
by counterparty in bankruptcy of investment securities available for sale pledged under agreement to repurchase
    
    $
    
    
    
    $
    225,348
    
    
    $
    
 The accompanying notes are an integral part of these financial statements.
 86




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Santander BanCorp and Subsidiaries
 Notes to Consolidated Financial Statements
Years Ended December 31, 2009, 2008 and 2007
 1. Summary of Significant Accounting Policies and Other Matters:
   Nature of Operations and Use of Estimates
    Principles of Consolidation
  Cash Equivalents
  Securities Purchased/Sold under Agreements to Resell/Repurchase
   87




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Investment Securitie s
  
    
    Debt securities that the Corporation has the intent and ability to hold to maturity are
classified as securities held to maturity and reported at cost adjusted for premium
amortization and discount accretion. The Corporation may not sell or transfer held to
maturity securities without calling into question its intent to hold securities to
maturity, unless a nonrecurring or unusual event that could not have been reasonably
anticipated has occurred.
    
    Debt and equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported at fair
value with unrealized gains and losses included in the consolidated statements of
operations as part of other income. Financial instruments including, to a limited extent,
derivatives, such as option contracts, are used by the Corporation in dealing and other
trading activities and are carried at fair value. Interest revenue and expense arising from
trading instruments are included in the consolidated statements of operations as part of
net interest income.
    
    Debt and equity securities not classified as either securities held to maturity or
trading securities, and which have a readily available fair value, are classified as
securities available for sale and reported at fair value, with unrealized gains and losses
reported, net of tax, in accumulated other comprehensive income (loss). The specific
identification method is used to determine realized gains and losses on sales of securities
available for sale, which are included in gain (loss) on sale of investment securities in
the consolidated statements of operations.
    
    Investments in debt, equity or other securities, that do not have readily determinable
fair values, are classified as other investment securities in the consolidated balance
sheets. These securities are stated at cost. Stock that is owned by the Corporation to
comply with regulatory requirements, such as Federal Home Loan Bank (FHLB) stock, is
included in this category.
  Derivative Financial Instruments
   Fair Value Option
 88




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Loans Held for Sale
  Loans
    Leases
  89




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##### Table of Contents



Off-Balance Sheet Instruments
    Allowance for Loan Losses
        90




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##### Table of Contents



Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  Premises and Equipment
  91




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##### Table of Contents



Real Estate Held for Sale
  Other Real Estate
  Goodwill and Intangible Assets
 Intangible-Goodwill
and Others
  Transition related to
FASB Staff Position FAS 157-2, Effective date of FASB Statement No. 157
  92




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##### Table of Contents



Mortgage-servicing Rights
   Mortgage Banking
    Trust Services
  Broker-dealer and Asset Management Commissions
  Insurance Commissions
  93




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Treasury Stock
  Income Taxes
  Income
Taxes
 Earnings Per Common Share
  Recent Accounting Pronouncements that Affect the Corporation
  
    
    FASB ASC Topic 855, Subsequent Events. In May 2009, the FASB issued FASB ASC Topic
855, which establishes general standards of accounting and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available to
be issued. In particular, this Topic sets forth (i) the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements, (ii) the
circumstances under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, (iii) the disclosures that an entity
should make about events or transactions that occurred after the balance sheet date. This
FASB ASC Topic should be applied to the accounting and disclosure of subsequent events.
This FASB ASC Topic does not apply to subsequent events or transactions that are within the
scope of other applicable accounting standards that provide different guidance on the
accounting treatment for subsequent events or transactions. This FASB ASC Topic was
effective for interim and annual periods ending after June 15, 2009.
The adoption of this Topic did not have a material impact on the
Corporations consolidated financial statements and disclosures.
    
    FASB ASC Topic 105, The FASB Accounting Standard Codification and the Hierarchy of
Generally Accepted Accounting Principles.In June 2009, the FASB issued FASB ASC Topic
105, which became the source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the Securities and Exchanges
Commissions (SEC) under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this FASB ASC Topic, the
Codification will supersede all then-existing non-SEC accounting and reporting standards.
All other non-SEC accounting literature not included in the Codification will become
non-authoritative. This FASB ASC Topic identify the sources of accounting principles and
the framework for selecting the principles used in preparing the financial statements of
nongovernmental entities that are presented in conformity with GAAP. Also, arranged these
sources of GAAP in a hierarchy for users to apply accordingly. In other words, the GAAP
hierarchy will be modified to include only two levels of GAAP: authoritative and
non-authoritative. This FASB ASC Topic is effective for financial statements
 94




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issued for
interim and annual periods ending after September 15, 2009. The adoption of this topic did
not have a material impact on the Corporations consolidated financial statements
disclosures.
    
    FASB ASC Topic 320-65, Transition Related to FSP FASB 115-2 and FASB 124-2, Recognition
and Presentation of Other-Than-Temporary Impairments.In April 2009, the FASB issued FASB
ASC Topic 320 amends the other-than-temporary impairment guidance in GAAP for debt
securities to make the guidance more operational and to improve
the presentation and disclosure of other-than-temporary impairments on debt and equity
securities in the financial statements. This FASB ASC Topic does not amend existing
recognition and measurement guidance related to other-than-temporary impairments of equity
securities. The FASB ASC Topic shall be effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15,
2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. This FASB
ASC Topic does not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, this FASB ASC Topic
requires comparative disclosures only for periods ending after initial adoption. The
adoption of this Topic did not have a material impact on the Corporations consolidated
financial statements and disclosures.
    
    Accounting Standard Update (Update) No. 2009-12, Investment in Certain Entities that
Calculate Net Asset Value per Share (or its Equivalent). In September 2009, the FASB
issued an Update to amend the FASB ASC Topic 820, Fair Value Measurements and Disclosures,
for the fair value measurement of investments in certain entities that calculates
net asset value per share (or its equivalent). The Update permits, as a practical expedient,
a reporting entity to measure the fair value of an investment that is within the scope of
the this Update on the basis of the net asset value per share of the investment (or its
equivalent) if the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of FASB ASC Topic 946, Financial Services
Investment Companies, as of the reporting entitys measurement date, including
measurement of all or substantially all of the underlying investments of the investee in
accordance with Topic 820. The Update also requires disclosures by major category of
investment about the attributes of investments within the scope this Update, such as the
nature of any restrictions on the investors ability to redeem its investments at the
measurement date, any unfunded commitments, and the investment strategies of the investees.
The major category of investment is required to be determined on the basis of the nature and
risks of the investment in a manner consistent with the guidance for major security types in
GAAP on investments in debt and equity securities in FASB ASC Topic 320, Investments Debt
and Equity Securities. The disclosures are required for all investments within the scope of
this Update regardless of whether the fair value of the investment is measured using the
practical expedient. This Update applies to all reporting entities that hold an investment
that is required or permitted to be measured or disclosed at fair value on a recurring or
non recurring basis and, as of the reporting entitys measurement date, if the investment
meets certain criteria. This Update is effective for the interim and annual periods ending
after December 15, 2009. Early application is permitted in financial statements for earlier
interim and annual periods that have not been issued.
  
    
    Accounting Standard Update (Update) No.2010-02, Accounting and Reporting for Decreases
in Ownership of a Subsidiary, an Accounting Standard Update. In January 2010, the FASB
issued a Subtopic 810-10, Noncontrolling Interests in Consolidated Financial Statements.
This Update address the implementation issues related to the changes in ownership
provisions in the consolidation process. This Update establishes the accounting and
reporting guidance for noncontrolling interests and changes in ownership interests of a
subsidiary. An entity is required to deconsolidate a subsidiary when the entity ceases to
have a controlling financial interest in the subsidiary. Upon deconsolidation of a
subsidiary, an entity recognizes a gain or loss on the transaction and measures any
retained investment in the subsidiary at fair value. The gain or loss includes any gain or
loss associated with the difference between the fair value of the retained investment in
the subsidiary and its carrying amount at the date the subsidiary is deconsolidated. In
contrast, an entity is required to account for a decrease in its ownership interest of a
subsidiary that does not result in a change of control of the subsidiary as an equity
transaction. The amendments in this Update affect accounting and reporting by an entity
that experiences a decrease in ownership in a subsidiary that is a business or nonprofit
activity. The amendments also affect accounting and reporting by an entity that exchanges a
group of assets that constitutes a business or nonprofit activity for an equity interest in
another entity. The guidance in this Update also improves the disclosures for fair value
measurements relating to retained investments in a deconsolidated subsidiary or a
preexisting interest held by an acquirer in a business combination. The amendments in this
Update are effective beginning in the period that an entity adopts this Subtopic 810-10. If
an entity has previously adopted Statement 160 as of the date the amendments in this Update
are included in the Accounting Standards Codification, the amendments in this Update are
effective beginning in the first interim or annual reporting period ending on or after
December 15, 2009. The amendments in this Update should be applied retrospectively to the
first period that an entity adopted Statement 160.
    
    Accounting Standard Update (Update) No. 2009-16, Accounting for Transfer of Financial
Assets.In June 2009, the FASB issued additional guidance under FASB ASC Topic 860,
Accounting for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities, which improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its financial
statements about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferors continuing involvement,
if any, in transferred financial assets. The Board undertook this project to address (i)
practices that have developed since the issuance of FASB ASC Topic 860, that are not
consistent with the original intent and key requirements of that statement and (ii)
concerns of financial statement users that many of the financial assets (and related
obligations) that have been derecognized should continue to be reported in the financial
statements of transferors. This additional guidance requires that a transferor recognize
and initially measure at fair value all assets obtained (including a transferors
beneficial interest) and liabilities incurred as a result of a transfer of financial assets
accounted for as a sale. Enhanced disclosures are required to provide financial statement
users with greater transparency about transfers of financial assets and a transferors
continuing involvement with transferred financial assets. This additional guidance must be
applied as of the beginning of each reporting entitys first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. Earlier application is
prohibited. This additional guidance must be applied to transfers occurring on or after the
effective date.
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
    
    Accounting Standard Update (Update) No.2009-17, Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities. In June 2009, the FASB issued FASB
ASC Topic 810, which requires an enterprise to perform an analysis to determine whether the
enterprises variable interest or interests give it a controlling financial interest in a
variable interest entity. This analysis identifies the primary beneficiary of a variable
interest entity as the enterprise that has both of the following characteristics (i)The
power to direct the activities of a variable interest entity that most significantly impact
the entitys economic performance and (ii)The obligation to absorb losses of the entity
that could potentially be significant to the variable interest entity or the right to
receive benefits from the entity that could potentially be significant to the variable
interest entity. Additionally, an enterprise is required to assess whether
it has an implicit financial responsibility to ensure that a variable interest entity
operates as designed when determining whether it has the power to direct the activities of
the variable interest entity that most significantly impact the entitys economic
performance. This FASB Topic requires ongoing reassessments of whether an enterprise is the
primary beneficiary of a variable interest entity and eliminate the quantitative approach
previously required for determining the primary beneficiary of a variable interest entity,
which was based on determining which enterprise absorbs the majority of the entitys
expected losses, receives a majority of the entitys expected residual returns, or both.
This FASB ASC Topic shall be effective as of the beginning of each reporting entitys first
annual reporting period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods thereafter.
Earlier application is prohibited.
    
    Accounting Standard Update (Update) No.2010-09,Amendments to Certain Recognition and
Disclosure Requirements. In January 2010, the FASB issued an updated to amend the
Sub-topic 855-10, Subsequent Events.This Update provides amendments to Subtopic 855-10 as
follows: (1) an entity that either (a) is an SEC filer or (b) is a conduit bond obligor for
conduit debt securities that are traded in a public market (a domestic or foreign stock
exchange or an over-the-counter market, including local or regional markets) is required to
evaluate subsequent events through the date that the financial statements are issued. If an
entity meets neither of those criteria, then it should evaluate subsequent events through
the date the financial statements are available to be issued; (2) the glossary of Topic 855
is amended to include the definition of SEC filer.An SEC filer is an entity that is
required to file or furnish its financial statements with either the SEC or, with respect
to an entity subject to Section 120) of the Securities Exchange Act of 1934, as amended,
the appropriate agency under that Section. It does not include an entity that is not
otherwise an SEC filer whose financial statements are included in a submission by another
SEC filer; (3) an entity that is an SEC filer is not required to disclose the date through
which subsequent events have been evaluated. This change alleviates potential conflicts
between Subtopic 855-10 and the SECs requirements; (4) the glossary of Topic 855 is
amended to remove the definition of public entity.The definition of a public entity in
Topic 855 was used to determine the date through which subsequent events should be
evaluated. Based on the amendments, that definition is no longer necessary for purposes of
Topic 855; (5) the scope of the reissuance disclosure requirements is refined to include
revised financial statements only. The term revised financial statementsis added to the
glossary of Topic 855. Revised financial statements include financial statements revised
either as a result of correction of an error or retrospective application of U.S. generally
accepted accounting principles. The amendments remove the requirement for an SEC filer to
disclose a date in both issued and revised financial statements. Revised financial
statements include financial statements revised as a result of either correction of an
error or retrospective application of U.S. GAAP. Additionally, the Board has clarified that
if the financial statements have been revised, then an entity that is not an SEC filer
should disclose both the date that the financial statements were issued or available to be
issued and the date the revised financial statements were issued or available to be issued.
Those amendments remove potential conflicts with the SECs literature. All of the
amendments in this Update are effective upon issuance of the final Update, except for the
use of the issued date for conduit debt obligors. That amendment is effective for interim
or annual periods ending after June 15, 2010.
    
    Accounting Standard Update (Update) No.2010-01, Accounting for Distribution to
Shareholders with Components of Stock and Cash,an EITF Developed Accounting Standard
Update. In January 2010, the FASB issued a ASC Topic 505 to address diversity in practice
related to the accounting for a distribution to shareholders that offers them the ability
to elect to receive their entire distribution in cash or shares of equivalent value with a
potential limitation on the total amount of cash that shareholders can elect to receive in
the aggregate. Historically, some entities have accounted for the stock portion of the
distribution as a new share issuance that is reflected in earning per share (EPS)
prospectively. Other entities have accounted for the stock portion of the distribution as a
stock dividend by retroactively restating shares outstanding and EPS for all periods
presented. This Update clarify that the stock portion of a distribution to shareholders
that allows them to elect to receive cash or shares with a potential limitation on the
total amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance thus eliminating the diversity in practice. This Update affect
entities that declare dividends to shareholders that may be paid in cash or shares at the
election of the shareholders with a potential limitation on the total amount of cash that
all shareholders can elect to receive in the aggregate. Such a scenario is common for real
estate investment trusts, but this Update applies to other kinds of entities as well. This
Update clarifies that the stock portion of a distribution to shareholders that allows them to
elect to receive cash or stock with a potential limitation on the total amount of cash
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that
all shareholders can elect to receive in the aggregate is considered a share issuance that
is reflected in EPS prospectively and is not a stock dividend for purposes of applying
Topics 505 and 260 (Equity and Earnings Per Share). Those distributions should be accounted
for and included in EPS calculations in accordance with paragraphs 480-10-25- 14 and
260-10-45-45 through 45-47 of the FASB ASC. The amendments in this Update are effective for
interim and annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis.
 2. Trading Securities:
  97




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3. Investment Securities Available for Sale:
  December 31, 2009Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States
Government:Within one year
    
    $
    105,521
    
    
    $
    267
    
    
    $
    
    
    
    $
    105,788
    
    
    
    0.85
    %After one year to five years
    
    
    74,939
    
    
    
    414
    
    
    
    20
    
    
    
    75,333
    
    
    
    1.58
    %180,460
    
    
    
    681
    
    
    
    20
    
    
    
    181,121
    
    
    
    1.15
    %Corporate Bonds:After one year to five years
    
    
    141,513
    
    
    
    1,004
    
    
    
    
    
    
    
    142,517
    
    
    
    1.85
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    1,190
    
    
    
    3
    
    
    
    
    
    
    
    1,193
    
    
    
    3.72
    %After one year to five years
    
    
    71,527
    
    
    
    831
    
    
    
    3
    
    
    
    72,355
    
    
    
    5.10
    %After five years to ten years
    
    
    6,420
    
    
    
    127
    
    
    
    1
    
    
    
    6,546
    
    
    
    5.58
    %Over ten years
    
    
    3,305
    
    
    
    36
    
    
    
    
    
    
    
    3,341
    
    
    
    5.65
    %82,442
    
    
    
    997
    
    
    
    4
    
    
    
    83,435
    
    
    
    5.14
    %Mortgage-backed securities:Over ten years
    
    
    10,239
    
    
    
    296
    
    
    
    
    
    
    
    10,535
    
    
    
    5.62
    %$
    414,654
    
    
    $
    2,978
    
    
    $
    24
    
    
    $
    417,608
    
    
    
    2.29
    %
 December 31, 2008Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States
Government:Within one year
    
    $
    164,844
    
    
    $
    1,164
    
    
    $
    1
    
    
    $
    166,007
    
    
    
    2.30
    %After one year to five years
    
    
    5,658
    
    
    
    251
    
    
    
    
    
    
    
    5,909
    
    
    
    3.99
    %170,502
    
    
    
    1,415
    
    
    
    1
    
    
    
    171,916
    
    
    
    2.36
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    1,460
    
    
    
    
    
    
    
    6
    
    
    
    1,454
    
    
    
    4.23
    %After one year to five years
    
    
    133,185
    
    
    
    347
    
    
    
    384
    
    
    
    133,148
    
    
    
    5.23
    %After five years to ten years
    
    
    9,545
    
    
    
    29
    
    
    
    95
    
    
    
    9,479
    
    
    
    5.18
    %Over ten years
    
    
    4,505
    
    
    
    33
    
    
    
    3
    
    
    
    4,535
    
    
    
    5.55
    %148,695
    
    
    
    409
    
    
    
    488
    
    
    
    148,616
    
    
    
    5.22
    %Mortgage-backed securities:After five years to ten years
    
    
    193,630
    
    
    
    2,258
    
    
    
    73
    
    
    
    195,815
    
    
    
    4.39
    %Over ten years
    
    
    282,235
    
    
    
    3,525
    
    
    
    45
    
    
    
    285,715
    
    
    
    5.41
    %475,865
    
    
    
    5,783
    
    
    
    118
    
    
    
    481,530
    
    
    
    4.99
    %Foreign securities:Within one year
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %$
    795,112
    
    
    $
    7,607
    
    
    $
    607
    
    
    $
    802,112
    
    
    
    4.47
    %
 98




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December 31, 2009Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    UnrealizedPositions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses(Dollars in thousands)Treasury and agencies
of the United States
Government
    
    
    3
    
    
    $
    20,028
    
    
    $
    20
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    3
    
    
    $
    20,028
    
    
    $
    20Commonwealth of Puerto
Rico and its subdivisions
    
    
    1
    
    
    
    355
    
    
    
    1
    
    
    
    2
    
    
    
    6,997
    
    
    
    3
    
    
    
    3
    
    
    
    7,352
    
    
    
    44
    
    
    $
    20,383
    
    
    $
    21
    
    
    
    2
    
    
    $
    6,997
    
    
    $
    3
    
    
    
    6
    
    
    $
    27,380
    
    
    $
    24
 December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    UnrealizedPositions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses(Dollars in thousands)Treasury and agencies
of the United States
Government
    
    
    1
    
    
    $
    30,000
    
    
    $
    1
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    30,000
    
    
    $
    1Commonwealth of Puerto
Rico and its subdivisions
    
    
    1
    
    
    
    705
    
    
    
    72
    
    
    
    14
    
    
    
    19,338
    
    
    
    416
    
    
    
    15
    
    
    
    20,043
    
    
    
    488Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    33,091
    
    
    
    118
    
    
    
    4
    
    
    
    33,091
    
    
    
    1182
    
    
    $
    30,705
    
    
    $
    73
    
    
    
    18
    
    
    $
    52,429
    
    
    $
    534
    
    
    
    20
    
    
    $
    83,134
    
    
    $
    607
    99




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4. Assets Pledged:
  2009
    
    
    2008(Dollars in thousands)Investment securities available for sale
    
    $
    156,982
    
    
    $
    227,658Other investment securities
    
    
    47,700
    
    
    
    53,325Loans
    
    
    2,309,556
    
    
    
    2,511,098$
    2,514,238
    
    
    $
    2,792,081
  5. Loans:
  2009
    
    
    2008(Dollars in thousands)Commercial and industrial
    
    $
    1,947,809
    
    
    $
    2,165,613Consumer
    
    
    443,567
    
    
    
    565,833Consumer finance
    
    
    783,510
    
    
    
    996,919Leasing
    
    
    36,624
    
    
    
    64,065Construction
    
    
    70,879
    
    
    
    194,596Mortgage
    
    
    2,385,592
    
    
    
    2,553,3285,667,981
    
    
    
    6,540,354Net unearned income and deferred (fee)/costs:Commercial, industrial and others
    
    
    328
    
    
    
    (290
    )Consumer finance
    
    
    (224,562
    )
    
    
    (418,676
    )Allowance for loan losses
    
    
    (197,303
    )
    
    
    (191,889
    )Loans, net
    
    $
    5,246,444
    
    
    $
    5,929,499
 100




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2009
    
    
    2008(Dollars in thousands)Impaired loans which require allowance
    
    $
    176,181
    
    
    $
    77,562Impaired loans that did not require allowance
    
    
    76,178
    
    
    
    23,317Total impaired loans
    
    $
    252,359
    
    
    $
    100,879Allowance for impaired loans
    
    $
    28,843
    
    
    $
    18,410Impaired loans measured based on fair value
of collateral
    
    $
    159,322
    
    
    $
    87,637Impaired loans measured based on discounted
cash flows
    
    $
    93,037
    
    
    $
    13,242Interest income recognized on impaired loans
    
    $
    536
    
    
    $
    554
   2009
    
    
    2008
    
    
    2007(Dollars in thousands)Principal balance as of December 31
    
    $
    289,846
    
    
    $
    212,714
    
    
    $
    294,438Interest income which would have been recorded had the
loans not been classified as non-accruing
    
    $
    11,888
    
    
    $
    9,268
    
    
    $
    7,708Loans past due ninety days or more and still accruing
interest
    
    $
    11,214
    
    
    $
    13,462
    
    
    $
    7,162
 101




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6. Allowance for Loan Losses:
  Year ended December 31,2009
    
    
    2008
    
    
    2007(Dollars in thousands)Balance at beginning of year
    
    $
    191,889
    
    
    $
    166,952
    
    
    $
    106,863Provision for loan losses
    
    
    152,496
    
    
    
    175,523
    
    
    
    147,824344,385
    
    
    
    342,475
    
    
    
    254,687Losses charged to the allowance:Commercial and industrial
    
    
    21,536
    
    
    
    17,782
    
    
    
    10,375Construction
    
    
    2,459
    
    
    
    32,257
    
    
    
    2,710Mortgage
    
    
    7,340
    
    
    
    1,257
    
    
    
    1,768Consumer
    
    
    55,565
    
    
    
    44,682
    
    
    
    29,281Consumer Finance
    
    
    63,322
    
    
    
    56,444
    
    
    
    44,484Leasing
    
    
    1,801
    
    
    
    2,064
    
    
    
    2,742152,023
    
    
    
    154,486
    
    
    
    91,360Recoveries:Commercial and industrial
    
    
    1,614
    
    
    
    626
    
    
    
    1,192Construction
    
    
    
    
    
    
    20
    
    
    
    Mortgage
    
    
    92
    
    
    
    
    
    
    
    Consumer
    
    
    1,404
    
    
    
    1,256
    
    
    
    904Consumer Finance
    
    
    1,452
    
    
    
    1,517
    
    
    
    1,088Leasing
    
    
    379
    
    
    
    481
    
    
    
    4414,941
    
    
    
    3,900
    
    
    
    3,625Net loans charged-off
    
    
    147,082
    
    
    
    150,586
    
    
    
    87,735Balance at end of year
    
    $
    197,303
    
    
    $
    191,889
    
    
    $
    166,952
 7. Premises and Equipment:
  Useful lifein years
    
    
    2009
    
    
    2008(Dollars in thousands)Land
    
    
    
    
    
    $
    2,251
    
    
    $
    1,037Buildings
    
    
    50
    
    
    
    8,172
    
    
    
    1,110Equipment
    
    
    3-10
    
    
    
    41,574
    
    
    
    43,649Leasehold improvements
    
    Various
    
    
    29,573
    
    
    
    30,23081,570
    
    
    
    76,026Accumulated depreciation and
amortization
    
    
    
    
    
    
    (61,391
    )
    
    
    (56,658
    )Premises and Equipment, net
    
    
    
    
    
    $
    20,179
    
    
    $
    19,368
   102




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8. Real Estate Held for Sale:
   9. Goodwill and Other Intangible Assets:
 Goodwill
  2009
    
    
    2008(Dollars in thousands)Commercial Banking
    
    $
    10,537
    
    
    $
    10,537Wealth Management
    
    
    24,254
    
    
    
    24,254Consumer Finance
    
    
    86,691
    
    
    
    86,691$
    121,482
    
    
    $
    121,482
   103




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AccumulatedGross Amount
    
    
    Impairment Charges
    
    
    Carrying Amount(Dollars in thousands)Balance at beginning of the year
    
    $
    148,300
    
    
    $
    26,818
    
    
    $
    121,482Balance at end of the year
    
    $
    148,300
    
    
    $
    26,818
    
    
    $
    121,482
 Other Intangible Assets
  2009
    
    
    2008(Dollars in thousands)Commercial Banking  Mortgage-servicing rights
    
    $
    9,686
    
    
    $
    10,175Wealth Management  Advisory-servicing rights
    
    
    962
    
    
    
    1,267Consumer Finance:Trade name
    
    
    18,300
    
    
    
    18,300Non-compete agreement
    
    
    
    
    
    
    100$
    28,948
    
    
    $
    29,842
   104




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2009Accumulated
    
    
    AccumulatedGross Amount
    
    
    Amortization
    
    
    Impairment Charges
    
    
    Carrying Amount(Dollars in thousands)Commercial Banking  Mortgage-servicing
rights
    
    $
    20,286
    
    
    $
    10,600
    
    
    $
    
    
    
    $
    9,686Wealth Management  Advisory-servicing rights
    
    
    3,050
    
    
    
    2,088
    
    
    
    
    
    
    
    962Consumer Finance:Trade name
    
    
    23,700
    
    
    
    
    
    
    
    5,400
    
    
    
    18,300$
    47,036
    
    
    $
    12,688
    
    
    $
    5,400
    
    
    $
    28,948
 2008Accumulated
    
    
    AccumulatedGross Amount
    
    
    Amortization
    
    
    Impairment Charges
    
    
    Carrying Amount(Dollars in thousands)Commercial Banking  Mortgage-servicing
rights
    
    $
    18,382
    
    
    $
    8,207
    
    
    $
    
    
    
    $
    10,175Wealth Management  Advisory-servicing rights
    
    
    3,050
    
    
    
    1,783
    
    
    
    
    
    
    
    1,267Consumer Finance:Trade name
    
    
    23,700
    
    
    
    
    
    
    
    5,400
    
    
    
    18,300Non-compete agreements
    
    
    5,300
    
    
    
    3,256
    
    
    
    1,944
    
    
    
    100$
    50,432
    
    
    $
    13,246
    
    
    $
    7,344
    
    
    $
    29,842
   Year
    
    Amortization( in thousands)2010
    
    $
    2,4982011
    
    
    2,3512012
    
    
    1,9982013
    
    
    1,3472014
    
    
    1,129Thereafter
    
    
    1,325$
    10,648
 105




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10. Other Assets:
  2009
    
    
    2008(Dollars in thousands)Deferred tax assets, net (See note 17)
    
    $
    54,793
    
    
    $
    56,542Accounts receivable, net of allowance for
claim receivable
of $25.1 million in 2008
    
    
    45,368
    
    
    
    40,581Repossesed assets, net
    
    
    34,486
    
    
    
    22,306Software, net
    
    
    7,643
    
    
    
    7,295Prepaid expenses
    
    
    13,272
    
    
    
    13,835Prepaid FDIC insurance
    
    
    25,764
    
    
    
    Income tax credit, net
    
    
    15,350
    
    
    
    19,645Customers liabilities on acceptances
    
    
    391
    
    
    
    610Derivative assets (See note 22)
    
    
    118,788
    
    
    
    197,192Confirming advances
    
    
    113,692
    
    
    
    122,540Other
    
    
    5,916
    
    
    
    5,337$
    435,463
    
    
    $
    485,883
    106




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##### Table of Contents



11. Deposits:
   Year
    
    Amount(In thousands)2010
    
    $
    1,564,0842011
    
    
    64,8292012
    
    
    25,0102013
    
    
    6,3752014
    
    
    7,272Thereafter
    
    
    1,493$
    1,669,063
  2009
    
    
    2008
    
    
    2007Carrying
    

    Interest
    

    Carrying
    
    Interest
    
    Carrying

    
    InterestAmount
    

    Expense
    
    Amount
    
    Expense
    
    Amount
    
    Expense(Dollars in thousands)Non interest bearingPrivate demand
    
    $
    698,488
    
    
    $
    
    
    
    $
    692,681
    
    
    $
    
    
    
    $
    755,077
    
    
    $
    Public demand
    
    
    281
    
    
    
    
    
    
    
    282
    
    
    
    
    
    
    
    380
    
    
    
    698,769
    
    
    
    
    
    
    
    692,963
    
    
    
    
    
    
    
    755,457
    
    
    
    Savings depositsSavings
    
    
    827,032
    
    
    
    9,369
    
    
    
    675,885
    
    
    
    16,923
    
    
    
    608,195
    
    
    
    20,673NOW and other transactions
    
    
    1,200,696
    
    
    
    9,647
    
    
    
    1,029,206
    
    
    
    18,021
    
    
    
    1,025,490
    
    
    
    31,1122,027,728
    
    
    
    19,016
    
    
    
    1,705,091
    
    
    
    34,944
    
    
    
    1,633,685
    
    
    
    51,785Certificates of depositsUnder $100,000
    
    
    165,302
    
    
    
    6,940
    
    
    
    254,368
    
    
    
    8,886
    
    
    
    271,782
    
    
    
    13,715$100,000 and over
    
    
    1,503,761
    
    
    
    53,517
    
    
    
    2,362,480
    
    
    
    108,622
    
    
    
    2,499,779
    
    
    
    127,1601,669,063
    
    
    
    60,457
    
    
    
    2,616,848
    
    
    
    117,508
    
    
    
    2,771,561
    
    
    
    140,875$
    4,395,560
    
    
    $
    79,473
    
    
    $
    5,014,902
    
    
    $
    152,452
    
    
    $
    5,160,703
    
    
    $
    192,660
 107




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##### Table of Contents



12. Other Borrowings:
  December 31, 2009Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    50,000
    
    
    $
    
    
    
    $
    67,482Average indebtedness outstanding during the year
    
    $
    14,824
    
    
    $
    76,849
    
    
    $
    90,454Maximum amount outstanding during the year
    
    $
    50,000
    
    
    $
    375,000
    
    
    $
    175,000Average interest rate for the year
    
    
    0.21
    %
    
    
    4.42
    %
    
    
    1.34
    %Average interest rate at year-end
    
    
    0.21
    %
    
    
    0.00
    %
    
    
    0.48
    %
 December 31, 2008Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    2,040
    
    
    $
    375,000
    
    
    $
    50,985Average indebtedness outstanding during the year
    
    $
    190,097
    
    
    $
    523,873
    
    
    $
    209,480Maximum amount outstanding during the year
    
    $
    751,000
    
    
    $
    625,006
    
    
    $
    625,000Average interest rate for the year
    
    
    4.21
    %
    
    
    4.87
    %
    
    
    3.60
    %Average interest rate at year-end
    
    
    0.09
    %
    
    
    4.35
    %
    
    
    0.75
    %
  December 31, 2009
    
    
    December 31, 2008(In thousands)Federal funds purchased and other borrowings:Within thirty days
    
    $
    50,000
    
    
    $
    Over ninety days
    
    
    
    
    
    
    2,040Total
    
    $
    50,000
    
    
    $
    2,040Securities sold under agreements to repurchase:Within thirty days
    
    $
    
    
    
    $
    Thirty to ninety days
    
    
    
    
    
    
    75,000Over ninety days
    
    
    
    
    
    
    300,000Total
    
    $
    
    
    
    $
    375,000Commercial paper issued:Within thirty days
    
    $
    67,482
    
    
    $
    50,985
 108




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December 31, 2008Weighted-Fair Value of
    
    
    AverageBalance of
    
    
    Underlying
    
    
    MaturityBorrowings
    
    
    Securities
    
    
    in Months(Dollars in thousands)JP Morgan Chase Bank, N.A.
    
    $
    375,000
    
    
    $
    408,650
    
    
    
    10.98
  December 31, 2008Carrying
    
    
    
    
    
    
    Fair
    
    
    Weighted-
    
    
    Weighted-Value of
    
    
    
    
    
    
    Value of
    
    
    Average
    
    
    AverageUnderlying
    
    
    Balance of
    
    
    Underlying
    
    
    Interest Rate
    
    
    Interest RateUnderlying Securities
    
    Securities
    
    
    Borrowings
    
    
    Securities
    
    
    Securities
    
    
    Borrowings(Dollars in thousands)Mortgage-backed securities
    
    $
    408,650
    
    
    $
    375,000
    
    
    $
    408,650
    
    
    
    5.12
    %
    
    
    4.35
    %
 13. Federal Home Loan Bank Advances:
  December 31, 2009
    
    
    December 31, 2008(Dollars in thousands)Non-callable advances at 2.63% average fixed rate with maturities during 2009

    
    $
    
    
    
    $
    310,000Non-callable advances at 2.33% and 2.98% average fixed rate with maturities during 2010
    
    
    735,000
    
    
    
    500,000Non-callable advances at 3.85% average fixed rate with maturities during 2011
    
    
    325,000
    
    
    
    325,000Non-callable
advances at 4.28% average floating rate tied to 3-month LIBOR with maturities during 2009
    
    
    
    
    
    
    50,000$
    1,060,000
    
    
    $
    1,185,000
  109




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14. Term Notes, Subordinated Capital Notes and Trust Preferred Securities:
  2009
    
    
    2008(Dollars in thousands)Term notes
maturing January 29, 2010 linked to the S&P 500 index
    
    $
    4,815
    
    
    $
    4,815Term notes maturing May 31, 2011 with a spread of 0.25%:Linked to
the S&P 500
    
    
    4,000
    
    
    
    4,000Linked to the Dow Jones Euro STOXX 50
    
    
    3,000
    
    
    
    3,000Term notes maturing May 25, 2012 linked to the Euro STOXX 50
    
    
    5,000
    
    
    
    5,000Term notes maturing May 25, 2012 linked to the NIKKEI
    
    
    5,000
    
    
    
    5,00021,815
    
    
    
    21,815Unamortized discount
    
    
    (1,234
    )
    
    
    (1,848
    )$
    20,581
    
    
    $
    19,967
 Subordinated Capital Notes
  2009
    
    
    2008(Dollars in thousands)Subordinated notes with fixed interest of 7.50% maturing December 10, 2028
    
    $
    60,000
    
    
    $
    60,000Subordinated notes with fixed interest of 6.30% maturing June 1, 2032, at fair value
    
    
    73,122
    
    
    
    72,076Subordinated notes with fixed interest of 6.10% maturing June 1, 2032, at fair value
    
    
    47,429
    
    
    
    46,206Subordinated notes with fixed interest of 6.75% maturing July 1, 2036
    
    
    129,000
    
    
    
    129,000309,551
    
    
    
    307,282Unamortized discount
    
    
    (860
    )
    
    
    (890
    )$
    308,691
    
    
    $
    306,392
 Trust Preferred Securities
  15. Reserve Fund:
  110




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16. Common Stock Transactions:
    17. Income Tax:
     2009
    
    
    2008
    
    
    2007(Dollars in thousands)Current tax provision
    
    $
    11,870
    
    
    $
    11,559
    
    
    $
    28,037Deferred tax benefit
    
    
    (535
    )
    
    
    (18,083
    )
    
    
    (23,833
    )Provision (benefit) for income tax
    
    $
    11,335
    
    
    $
    (6,524
    )
    
    $
    4,204
  111




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2009
    
    
    2008
    
    
    2007Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in thousands)Income tax at statutory rate
    
    $
    21,544
    
    
    
    41
    %
    
    $
    1,563
    
    
    
    39
    %
    
    $
    (12,496
    )
    
    
    (39
    %)Benefits of  net tax exempt income
    
    
    (2,379
    )
    
    
    (5
    %)
    
    
    (5,917
    )
    
    
    (148
    %)
    
    
    (6,247
    )
    
    
    (19
    %)Deferred tax valuation allowance change
    
    
    (6,146
    )
    
    
    (12
    %)
    
    
    (2,458
    )
    
    
    (61
    %)
    
    
    23,103
    
    
    
    72
    %Adjustment in deferred tax due to change in tax rate
    
    
    1,583
    
    
    
    3
    %Other
    
    
    (3,267
    )
    
    
    (6
    %)
    
    
    288
    
    
    
    7
    %
    
    
    (156
    )
    
    
    0
    %Provision (benefit) for income tax
    
    $
    11,335
    
    
    
    21
    %
    
    $
    (6,524
    )
    
    
    (163
    %)
    
    $
    4,204
    
    
    
    14
    %
  2009
    
    
    2008(Dollars in thousands)Deferred Tax Assets:Valuation of mortgage loans
    
    $
    2,639
    
    
    $
    2,869Allowance for loan losses
    
    
    43,618
    
    
    
    39,613Long term incentive plans
    
    
    2,198
    
    
    
    3,939Deferred gain on sale of properties
    
    
    4,274
    
    
    
    4,560Postretirement and pension benefits
    
    
    14,931
    
    
    
    18,126Reserve for insurance cancellations
    
    
    1,510
    
    
    
    1,499Valuation on claim receivable
    
    
    
    
    
    
    9,797Alternative minimum tax
    
    
    2,372Reserve for
repossessed assets
    
    
    6,557
    
    
    
    3,071Other
    
    
    4,647
    
    
    
    6,87882,746
    
    
    
    90,352Deferred Tax Liabilities:Net deferred loan origination costs
    
    
    (533
    )
    
    
    (971
    )Unrealized gain on investment securities available for sale
    
    
    (94
    )
    
    
    (1,777
    )Unrealized gain on derivatives
    
    
    (508
    )
    
    
    (1,972
    )Valuation subordinated note
    
    
    (1,404
    )
    
    
    (2,620
    )Goodwill and other intangibles
    
    
    (7,792
    )
    
    
    Mortgage-servicing rights and other
    
    
    (3,033
    )
    
    
    (5,735
    )(13,364
    )
    
    
    (13,075
    )Valuation allowance
    
    
    (14,589
    )
    
    
    (20,735
    )Deferred tax asset, net
    
    $
    54,793
    
    
    $
    56,542
   112




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For the years endedDecember 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007(in thousands)Balance at begining of the year
    
    $
    31,570
    
    
    $
    16,507
    
    
    $
    12,676Gross increases for tax positions of prior years
    
    
    4,153
    
    
    
    15,429
    
    
    
    2,980Gross decreases for tax positions of prior year
    
    
    (1,664
    )
    
    
    (1,931
    )
    
    
    Gross increases for tax positions of current year
    
    
    4,564
    
    
    
    2,523
    
    
    
    2,424Release of contingencies
    
    
    (7,868
    )
    
    
    (958
    )
    
    
    (1,573
    )Balance at end of the year
    
    $
    30,755
    
    
    $
    31,570
    
    
    $
    16,507
   18. Contingencies and Commitments:
   Year
    
    Leases
    
    
    Other commitments
    
    
    Total(In thousands)2010
    
    $
    13,143
    
    
    $
    17,790
    
    
    $
    30,9332011
    
    
    11,590
    
    
    
    
    
    
    
    11,5902012
    
    
    10,564
    
    
    
    
    
    
    
    10,5642013
    
    
    9,842
    
    
    
    
    
    
    
    9,8422014
    
    
    9,128
    
    
    
    
    
    
    
    9,128Thereafter
    
    
    50,349
    
    
    
    
    
    
    
    50,349$
    104,616
    
    
    $
    17,790
    
    
    $
    122,406
 113




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##### Table of Contents



19. Employee Benefits Plan:
 Pension Plan
    PensionPlans(Dollars in thousands)Net transition asset
    
    $
    (13
    )Net loss
    
    
    38,291$
    38,278
  PensionPlans(Dollars in thousands)Amortization of net transition asset
    
    $
    (2
    )Amortization of net actuarial loss
    
    
    1,516$
    1,514
  2009
    
    
    2008(Dollars in thousands)Net loss (gain)
    
    $
    (2,908
    )
    
    $
    13,577Amortization of net gain
    
    
    (1,171
    )
    
    
    (231
    )Amortization of transition obligation
    
    
    2
    
    
    
    2Total recognized in other comprehensive income
    
    $
    (4,077
    )
    
    $
    13,348
 114




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##### Table of Contents



2009
    
    
    2008(Dollars in thousands)Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    40,415
    
    
    $
    36,923Interest cost
    
    
    2,359
    
    
    
    2,355Actuarial loss
    
    
    1,289
    
    
    
    2,820Benefits paid
    
    
    (1,898
    )
    
    
    (1,683
    )Projected benefit obligation at end of year
    
    
    42,165
    
    
    
    40,415Change in plan assets:Fair value of plan assets at beginning of year
    
    
    28,019
    
    
    
    35,740Actual return on plan assets
    
    
    6,297
    
    
    
    (8,028
    )Employer contributions
    
    
    1,833
    
    
    
    1,990Benefit paid
    
    
    (1,898
    )
    
    
    (1,683
    )Fair value of plan assets at end of year
    
    
    34,251
    
    
    
    28,019Funded status
    
    
    (7,914
    )
    
    
    (12,396
    )Net actuarial loss
    
    
    16,024
    
    
    
    20,103Net transition asset
    
    
    (13
    )
    
    
    (15
    )Net amount recognized
    
    $
    8,097
    
    
    $
    7,692Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability
    
    $
    (7,914
    )
    
    $
    (12,396
    )Accumulated other comprehensive income
    
    
    16,011
    
    
    
    20,088Net amount recognized
    
    $
    8,097
    
    
    $
    7,692(Decrease) increase in minimum liability included in
other comprehensive income
    
    $
    (4,077
    )
    
    $
    13,348Projected benefit obligation
    
    $
    42,165
    
    
    $
    40,415Accumulated benefit obligation
    
    $
    42,165
    
    
    $
    40,415Fair value of plan assets
    
    $
    34,251
    
    
    $
    28,019
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Interest cost
    
    $
    2,359
    
    
    $
    2,355
    
    
    $
    2,279Expected return on assets
    
    
    (2,100
    )
    
    
    (2,729
    )
    
    
    (2,718
    )Net loss amortization
    
    
    1,169
    
    
    
    229
    
    
    
    411Net periodic pension (benefit) cost
    
    $
    1,428
    
    
    $
    (145
    )
    
    $
    (28
    )
 115




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##### Table of Contents



2009
    
    
    2008
    
    
    2007Discount rate
    
    
    5.91
    %
    
    
    6.00
    %
    
    
    6.50
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
  2009
    
    
    2008
    
    
    2007Discount rate
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aExpected return on plan assets
    
    
    7.50
    %
    
    
    7.50
    %
    
    
    8.50
    %
   2009
    
    
    2008Asset Category:Equity securities
    
    
    53
    %
    
    
    50
    %Debt securities
    
    
    46
    %
    
    
    48
    %Other
    
    
    1
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  116




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##### Table of Contents



2009
    
    
    2008(Dollars in thousands)Change in projected benefit obligationProjected benefit obligation at beginning of year
    
    $
    32,746
    
    
    $
    32,931Interest cost
    
    
    1,840
    
    
    
    2,008Actuarial gain
    
    
    (76
    )
    
    
    (470
    )Benefits paid
    
    
    (2,062
    )
    
    
    (1,723
    )Projected benefit obligation at end of year
    
    
    32,448
    
    
    
    32,746Change in plan assets:Fair value of plan assets at beginning of year
    
    
    21,560
    
    
    
    27,625Actual return on plan assets
    
    
    4,792
    
    
    
    (6,298
    )Employer contributions
    
    
    2,003
    
    
    
    1,956Benefits paid
    
    
    (2,062
    )
    
    
    (1,723
    )Fair value of plan assets at end of year
    
    
    26,293
    
    
    
    21,560Funded status
    
    
    (6,155
    )
    
    
    (11,186
    )Net actuarial loss
    
    
    22,267
    
    
    
    26,281Net amount recognized
    
    $
    16,112
    
    
    $
    15,095Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (6,155
    )
    
    $
    (11,186
    )Accumulated other comprehensive income
    
    
    22,267
    
    
    
    26,281Net amount recognized
    
    $
    16,112
    
    
    $
    15,095(Decrease) increase in minimum liability included
in other comprehensive income
    
    $
    (4,014
    )
    
    $
    7,532Projected benefit obligation
    
    $
    32,448
    
    
    $
    32,746Accumulated benefit obligation
    
    $
    32,448
    
    
    $
    32,746Fair value of plan assets
    
    $
    26,293
    
    
    $
    21,560
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Interest cost
    
    $
    1,840
    
    
    $
    1,853
    
    
    $
    1,838Expected return on assets
    
    
    (1,612
    )
    
    
    (2,092
    )
    
    
    (2,170
    )Net loss amortization
    
    
    758
    
    
    
    520
    
    
    
    513Net periodic pension cost
    
    $
    986
    
    
    $
    281
    
    
    $
    181
 117




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##### Table of Contents



2009
    
    
    2008(Dollars in thousands)Net loss (gain)
    
    $
    (3,257
    )
    
    $
    8,095Amortization of net loss (gain)
    
    
    (757
    )
    
    
    (563
    )Amortization of transition obligation (asset)
    
    
    
    
    
    
    Total recognized in other comprhensive income
    
    $
    (4,014
    )
    
    $
    7,532
  2009
    
    
    2008
    
    
    2007Discount rate
    
    
    5.80
    %
    
    
    6.00
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
  2009
    
    
    2008
    
    
    2007Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aExpected return on plan assets
    
    
    7.50
    %
    
    
    7.50
    %
    
    
    8.50
    %
   2009
    
    
    2008Asset Category:Equity securities
    
    
    53
    %
    
    
    49
    %Debt securities
    
    
    47
    %
    
    
    49
    %Other
    
    
    
    
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
   118




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##### Table of Contents



Corporations
    
    
    BCHPlan
    
    
    Plan(Dollars in thousands)2010
    
    $
    1,817
    
    
    $
    2,1192011
    
    
    1,860
    
    
    
    2,5342012
    
    
    1,918
    
    
    
    2,2032013
    
    
    2,000
    
    
    
    3,0282014
    
    
    2,029
    
    
    
    3,3492015 through 2019
    
    
    11,728
    
    
    
    15,357
  Assets Category
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalEquity Securities:US Large Cap
    
    $
    13,308
    
    
    $
    
    
    
    $
    
    
    
    $
    13,308US Small Cap
    
    
    8,597
    
    
    
    
    
    
    
    
    
    
    
    8,597International Large cap (a)
    
    
    5,950
    
    
    
    
    
    
    
    
    
    
    
    5,950Emerging Markets
    
    
    2,282
    
    
    
    
    
    
    
    
    
    
    
    2,282Cash
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    46Mutual Funds (b)
    
    
    5,762
    
    
    
    
    
    
    
    
    
    
    
    5,762Mortgage Back Securities
    
    
    
    
    
    
    3,451
    
    
    
    
    
    
    
    3,451US Corporate Bonds ( c)
    
    
    
    
    
    
    5,791
    
    
    
    
    
    
    
    5,791US Treasuries
    
    
    8,901
    
    
    
    
    
    
    
    
    
    
    
    8,901Municipal Bonds (d)
    
    
    
    
    
    
    5,333
    
    
    
    
    
    
    
    5,333Interest Bearing Deposits
    
    
    1,123
    
    
    
    
    
    
    
    
    
    
    
    1,123Total Assets at Fair Value
    
    $
    45,969
    
    
    $
    14,575
    
    
    $
    
    
    
    $
    60,544
 
 (a)
    
    These categories are comprised of actively managed exchange traded funds with
underlying investments in international large cap and emerging markets equity securities.(b)
    
    Approximately 27% of mutual funds invest in international bonds, 30% in US high yield
bonds, 21% in commodities, and 22% invest in real estate investments.(c)
    
    This category represents investment grade bonds of US issuers from diverse industries.(d)
    
    This category includes approximately 30% of Puerto Rico
municipal bonds and 70% in US municipal bonds. 119




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Determination of Fair Value
  Equity Securities and Funds
  Mortgage Backed Securities
  US Corporate Bonds
  US Government and Municipal Bonds
  Interest Bearing Deposits
  Savings Plans
  20. Long Term Incentive Plans:
  
    
    A long term incentive plan for certain eligible officers and key employees which
contains service, performance and market conditions. This plan provides for settlement in
cash or stock of Santander Group to the participants and is classified as a liability
plan. Accordingly, the Corporation accrued a liability and recognized monthly
compensation expense over the fourteen month vesting period through January 2008. The
Corporation recognized a reversal of compensation expense under this plan amounting to
$4.1 million due to a favorable change in plan valuation during the year ended December
31, 2008 and $10.3 million of compensation expense for the same period in 2007. As options
were exercised during 2008, $6.7 million was reclassified from liabilities to capital paid
in excess of par value, as a capital contribution.
 120




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
    
    The grant of 100 shares of Santander Spain stock to all employees of Santander Groups
operating entities as part of the celebration of Santander Group 150th Anniversary during
2007. The Corporation recognized compensation
expense under this plan amounting to $4.3 million in 2007. The shares granted were purchased
by an affiliate and recorded as a capital contribution in the Corporations 2007
consolidated statement of changes in stockholders equity.
    
    A long term incentive plan for certain eligible officers and key employees which
contains service, performance and market conditions. This plan comprehends two cycles,
one expired in 2009 and another expiring in 2010. This plan provides for settlement in
stock of Santander Group to the participants and is classified as an equity plan.
Accordingly, the Corporation recognizes monthly compensation expense over the two and
three year cycles and credits additional paid in capital. The Corporation recognized
compensation expense under this plan amounting to $2.0 million and 2.9 million and $0.2
million for the years ended December 31, 2009, 2008 and 2007, respectively.
    
    A long term incentive plan for certain eligible officers and key employees which
contains service, performance and market conditions. This plan comprehends one cycle
expiring in 2011. This plan provides for settlement in stock of Santander Group to the
participants and is classified as an equity plan. Accordingly, the Corporation recognizes
monthly compensation expense and credits additional paid in capital. The Corporation
recognized compensation expense under this plan amounting to $0.4 million for the year
ended December 31, 2009.
 21. Related Party Transactions:
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Deposits from related parties
    
    $
    789,845
    
    
    $
    695,948
    
    
    $
    17,344Interest-bearing deposits with affiliates
    
    
    1,441
    
    
    
    3,757
    
    
    
    1,106Other borrowings from an affiliate
    
    
    60,000
    
    
    
    60,000
    
    
    
    Loans to directors, officers, and related parties
(on substantially the same terms and credit risks
as loans to third parties)
    
    
    2,644
    
    
    
    2,604
    
    
    
    3,288Technical assistance income for services rendered
    
    
    4,016
    
    
    
    3,651
    
    
    
    2,769Operating expenses for EDP services received
    
    
    18,349
    
    
    
    17,288
    
    
    
    13,461Technical assistance expense for software development
    
    
    789
    
    
    
    753
    
    
    
    199Rental income
    
    
    573
    
    
    
    439
    
    
    
    441Fair value of derivative financial instruments
purchased from affiliates
    
    
    (102,129
    )
    
    
    (158,552
    )
    
    
    (26,917
    )Fair value of derivative financial instruments
sold to affiliates
    
    
    
    
    
    
    (1,417
    )
    
    
    354Loans sold to an affiliate
    
    
    142,017
    
    
    
    300,097
    
    
    
    10,465
 121




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22. Derivative Financial Instruments:
  Interest Rate Swaps
 Interest Rate Caps and Floors.
 Indexed Options.
 Loan Commitment
  Gain (Loss) forNotional
    
    
    
    
    
    
    the year endedValue
    
    
    Fair Value
    
    
    December 31, 2009(Dollars in thousands)ECONOMIC UNDESIGNATED HEDGESInterest rate swaps
    
    $
    125,000
    
    
    $
    (492
    )
    
    $
    (5,702
    )OTHER DERIVATIVESOptions
    
    
    105,450
    
    
    
    3,789
    
    
    
    16Embedded options on stock-indexed deposits
    
    
    105,450
    
    
    
    (3,789
    )
    
    
    (16
    )Interest rate caps
    
    
    390
    
    
    
    (8
    )
    
    
    5Customer interest rate caps
    
    
    390
    
    
    
    8
    
    
    
    (5
    )Customer interest rate swaps
    
    
    1,655,318
    
    
    
    112,031
    
    
    
    (64,416
    )Interest rate swaps-offsetting position of customer swaps
    
    
    1,675,319
    
    
    
    (111,811
    )
    
    
    64,810Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    (287
    )Loan commitments
    
    
    3,447
    
    
    
    (8
    )
    
    
    (101
    )$
    (5,696
    )
 122




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OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Gain* for theNotional
    
    
    
    
    
    
    ended
    
    
    year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2008
    
    
    Dec. 31, 2008(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,237ECONOMIC UNDESIGNATED HEDGESInterest rate swaps
    
    
    125,000
    
    
    
    5,210
    
    
    
    4,311
    
    
    
    OTHER DERIVATIVESOptions
    
    
    118,214
    
    
    
    3,774
    
    
    
    (18,995
    )
    
    
    Embedded options on stock-indexed deposits
    
    
    118,214
    
    
    
    (3,774
    )
    
    
    18,974
    
    
    
    Interest rate caps
    
    
    583
    
    
    
    (13
    )
    
    
    (20
    )
    
    
    Customer interest rate caps
    
    
    583
    
    
    
    13
    
    
    
    20
    
    
    
    Customer interest rate swaps
    
    
    1,729,209
    
    
    
    176,447
    
    
    
    130,778
    
    
    
    Interest rate swaps-offsetting position of customer swaps
    
    
    1,729,209
    
    
    
    (176,787
    )
    
    
    (131,991
    )
    
    
    Interest rate swaps
    
    
    90,000
    
    
    
    287
    
    
    
    821
    
    
    
    Loan commitments
    
    
    3,862
    
    
    
    93
    
    
    
    48
    
    
    
    $
    3,946
    
    
    $
    1,237
 
 *
    
    Net of tax     123




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124




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(Dollars in thousands)
    
    
    
    
    
    Assets DerivativesFair ValueBalance Sheet
    
    
    as ofLocation
    
    
    December 31, 2009
    
    
    December 31, 2008Derivatives
not designated as hedging instruments under FASB ASC Topic 815:Interest rate swaps
    
    Other assets
    
    $
    114,991
    
    
    $
    193,312Interest rate caps
    
    Other assets
    
    
    8
    
    
    
    13Options
    
    Other assets
    
    
    3,789
    
    
    
    3,774Loan commitment
    
    Other assets
    
    
    
    
    
    
    93Total
    
    
    
    
    
    $
    118,788
    
    
    $
    197,192
 Liabilities DerivativesFair ValueBalance Sheet
    
    
    as ofLocation
    
    
    December 31, 2009
    
    
    December 31, 2008Derivatives
not designated as hedging instruments under FASB ASC Topic 815:Interest rate swaps
    
    Other liabilities
    
    $
    115,263
    
    
    $
    187,525Interest rate caps
    
    Other liabilities
    
    
    8
    
    
    
    13Options
    
    Other liabilities
    
    
    3,789
    
    
    
    3,774Loan commitment
    
    Other liabilities
    
    
    8
    
    
    
    Total
    
    
    
    
    
    $
    119,068
    
    
    $
    191,312
  (Dollars in thousands)Gain or (Loss) recognized intLocation of Gain or (Loss)
    
    
    Income on derivativesrecognized in Income on
    
    
    for the year endedDerivatives

    
    
    December 31, 2009Derivatives not designated as hedging instruments under FASB ASC Topic 815:Interest rate swaps
    
    Interest Income (Expense)
    
    $
    6,020Interest rate swaps
    
    Other Income (Loss)
    
    
    (5,141
    )Loan commitment
    
    Other Income (Loss)
    
    
    (101
    )Total
    
    
    
    
    
    $
    778
 Contingent Features
  125




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23. Financial Instruments with Off-Balance Sheet Risk:
  Guarantees,
    2009
    
    
    2008(Dollars in thousands)Standby letters of credit and financial guarantees written
    
    $
    41,837
    
    
    $
    95,660Commitments
to extend credit, approved loans not yet disbursed and unused lines of credit
    
    $
    1,218,115
    
    
    $
    1,193,875
   126




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##### Table of Contents



24. Fair Value of Financial Instruments:
    (Dollars in thousands)Ending Balance as of
    
    
    
    
    
    Opening Balance as ofDecember 31, 2007
    
    
    Adoption Net
    
    
    January 1, 2008(Prior to Adoption)*
    
    
    Gain (Loss)

    
    
    (After Adoption)Impact of Electing the Fair Value Option under Topic 825:Callable Brokered Certificates of Deposits
    
    $
    (763,476
    )
    
    $
    64
    
    
    $
    (763,412
    )Subordinated Capital Notes
    
    
    (123,686
    )
    
    
    5,134
    
    
    
    (118,552
    )Cumulative-effect Adjustments (pre-tax)
    
    $
    (887,162
    )
    
    
    5,198
    
    
    $
    (881,964
    )Income Tax Impact
    
    
    
    
    
    
    (1,979
    )Cumulative-effect Adjustment Increase to Retained
Earmings, net of tax
    
    
    
    
    
    $
    3,219
 
 *
    
    Net of debt issue cost, placement fees and basis adjustments as of December 31, 2007 Fair Value Hierarchy
  Level 1
    
    Quoted prices in active markets for identical assets or
liabilities. Level 1 assets and liabilities include debt and
equity securities and derivative contracts that are traded in an
active exchange market, as well as certain U.S. treasury, other
U.S. government, agency mortgage-backed debt securities and FDIC
insured corporate bonds that are highly liquid and are actively
traded in over-the-counter markets.Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; 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 securities with quoted prices that are traded less
frequently than exchange-traded instruments, securities and
derivative contracts and financial liabilities 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. This category generally includes
certain mortgage-backed debt securities, corporate debt
securities, derivatives
 127




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contracts, callable brokered certificates
of deposits, subordinated notes and Puerto Rico open-ended funds.Level 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires
significant management judgment or estimation. This category
generally includes certain Puerto Rico corporate debt securities,
Puerto Rico closed-ended funds, and certain derivative contracts.
 Recurring Measurements
  (Dollars in thousands)
    
    2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Trading Securities
    
    $
    100
    
    
    $
    39,376
    
    
    $
    8,263
    
    
    $
    47,739Investment Securities Available for Sale
    
    
    323,638
    
    
    
    93,970
    
    
    
    
    
    
    
    417,608Derivative Assets
    
    
    
    
    
    
    118,541
    
    
    
    247
    
    
    
    118,788Total Assets reported at Fair Value
    
    $
    323,738
    
    
    $
    251,887
    
    
    $
    8,510
    
    
    $
    584,135Liabilities:Deposits (1)
    
    $
    
    
    
    $
    12,476
    
    
    $
    
    
    
    $
    12,476Subordinated Capital Notes (2)
    
    
    
    
    
    
    120,551
    
    
    
    
    
    
    
    120,551Derivative Liabilities
    
    
    
    
    
    
    118,813
    
    
    
    255
    
    
    
    119,068Total Liabilities reported at Fair Value
    
    $
    
    
    
    $
    251,840
    
    
    $
    255
    
    
    $
    252,095
 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Trading Securities
    
    $
    117
    
    
    $
    35,083
    
    
    $
    29,519
    
    
    $
    64,719Investment Securities Available for Sale
    
    
    171,916
    
    
    
    630,196
    
    
    
    
    
    
    
    802,112Derivative Assets
    
    
    463
    
    
    
    195,993
    
    
    
    736
    
    
    
    197,192Total Assets reported at Fair Value
    
    $
    172,496
    
    
    $
    861,272
    
    
    $
    30,255
    
    
    $
    1,064,023Liabilities:Deposits (1)
    
    $
    
    
    
    $
    101,401
    
    
    $
    
    
    
    $
    101,401Subordinated Capital Notes (2)
    
    
    
    
    
    
    118,282
    
    
    
    
    
    
    
    118,282Derivative Liabilities
    
    
    
    
    
    
    190,669
    
    
    
    643
    
    
    
    191,312Total Liabilities reported at Fair Value
    
    $
    
    
    
    $
    410,352
    
    
    $
    643
    
    
    $
    410,995
 
 (1)
    
    Amounts represent certain callable brokered certificates of deposits for which the Corporation has elected the fair value optionunder FASB ASC Topic 825.(2)
    
    Amounts represent certain subordinated capital notes for which the Corporation has elected the fair value option under FASB ASC Topic 825.   128




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(Dollars in thousands)
 Net realized/unrealizedloss included in
    
    
    Transfers
    
    
    Purchases,
    
    
    
    
    
    
    UnrealizedBalance
    
    
    
    
    
    
    Other
    
    
    in and/or
    
    
    issuances
    
    
    Balance
    
    
    lossesJanuary 1,
    
    
    
    
    
    
    Comprehensive
    
    
    out of
    
    
    and
    
    
    December 31,
    
    
    still2009
    
    
    Earnings
    
    
    Income
    
    
    Level 3
    
    
    settlements
    
    
    2009
    
    
    held (2)Trading Securities (1)
    
    $
    29,519
    
    
    $
    (1,824
    )
    
    $
    
    
    
    $
    
    
    
    $
    (19,432
    )
    
    $
    8,263
    
    
    $
    7Derivatives, net
    
    
    93
    
    
    
    (101
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )
    
    
    (101
    )$
    29,612
    
    
    $
    (1,925
    )
    
    $
    
    
    
    $
    
    
    
    $
    (19,432
    )
    
    $
    8,255
    
    
    $
    (94
    )
 Net realized/unrealizedgains included in
    
    
    Transfers
    
    
    Purchases,
    
    
    
    
    
    
    UnrealizedBalance
    
    
    
    
    
    
    Other
    
    
    in and/or
    
    
    issuances
    
    
    Balance
    
    
    gains (loss)January 1,
    
    
    
    
    
    
    Comprehensive
    
    
    out of
    
    
    and
    
    
    December 31,
    
    
    still2008
    
    
    Earnings
    
    
    Income
    
    
    Level 3
    
    
    settlements
    
    
    2008
    
    
    held (2)Trading Securities (1)
    
    $
    20,150
    
    
    $
    1,888
    
    
    $
    
    
    
    $
    
    
    
    $
    7,481
    
    
    $
    29,519
    
    
    $
    45Derivatives, net
    
    
    45
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93$
    20,195
    
    
    $
    1,936
    
    
    $
    
    
    
    $
    
    
    
    $
    7,481
    
    
    $
    29,612
    
    
    $
    138
 
 (1)
    
    Changes in fair value and gains and losses from sales for these instruments are recorded in other income while interest revenue and expense are included in
the net interest income based on the contractual coupons on the consolidated statements of income. The amounts above do not include interest.(2)
    
    Represents the amount of total gains or losses for the period, included in earmings, attributable to the change in unrealized gains (losses)
relating to assets and liabilities classified as Level 3 that are still held at December 31, 2009 and 2008.  (Dollars in thousands)
 Total Gains (Losses)For the year endedDecember 31, 2009
    
    
    December 31, 2008Trading
    
    
    Net
    
    
    Trading
    
    
    NetSecurities
    
    
    Derivatives
    
    
    Securities
    
    
    DerivativesClassification of gains and losses (realized/unrealized)
included in earnings for the period :Other income (loss)
    
    $
    (1,824
    )
    
    $
    (101
    )
    
    $
    1,888
    
    
    $
    48
  129




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##### Table of Contents



(Dollars in thousands)
 Changes in Unrealized Gains (Loss)For the year endedDecember 31, 2009
    
    
    December 31, 2008Trading
    
    
    Net
    
    
    Trading
    
    
    NetSecurities
    
    
    Derivatives
    
    
    Securities
    
    
    DerivativesClassification of unrealized gains (losses)
included in earnings for the period :Other income
    
    $
    7
    
    
    $
    (101
    )
    
    $
    45
    
    
    $
    93
 Determination of Fair Value
  Short-Term Financial Instruments
  Trading Securities
    (Dollars in thousands)
 Fair
    
    
    RedemptionValue
    
    
    FrequencyClosed-ended funds (1)
    
    $
    7,037,646
    
    
    N/AOpen-ended fixed income funds (2)
    
    
    1,644,909
    
    
    Daily, WeeklyOpen-ended equity funds (3)
    
    
    1,541,742
    
    
    Daily$
    10,224,297
 
 (1)
    
    These funds seek to provide shareholders with a high level of current income
consistent with the preservation of capital, its investment policies and prudent
investment management. These funds will invest not less than 67% of its assets in Puerto
Rico securities and up to 33% in U.S. securities. The fair value of the funds
investments, 130




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which include municipal securities  bonds issued by Puerto Rico and United
States governments and agencies, mortgage-backed securities, corporate bonds and
preferred stock, are obtained from third-party pricing services providers and by
broker-dealers. Market inputs utilized in the pricing evaluatiohin process include,
primarily, all or some of the following: benchmark yields, reported trades,
broker-dealers quotes, issuer spreads, two-sided markets, bid-offer price or spread,
benchmark securities, bids, offers, reference data, benchmark curves including but not
limited to Treasury benchmarks, LIBOR and swap curves, and industry and economic events.
Certain securities of the Fund for which quotations are not readily available from any
source, are valued at fair value by or under the direction of the Investment Adviser
utilizing quotations and other information concerning similar securities obtained from
recognized dealers. Short-term securities having a maturity of 60 days or less are
valued at amortized cost, which approximates fair value. All Puerto Rico fixed income
securities valuations provided by broker-dealers are priced using the average of two
quotes, if available.(2)
    
    These funds seek to provide shareholders with a high level of current income
consistent with the preservation of capital, its investment policies and prudent
investment management. There are two funds under this category, one hold not less than
67% of its assets in Puerto Rico securities and up to 33% in U.S. securities, and the
other hold not less than 20% of its assets in Puerto Rico securities and up to 80% in
non-Puerto Rico securities. The fair value of the funds investments, which include
municipal securities  bonds issued by Puerto Rico and United States governments and
agencies, mortgage-backed securities, corporate bonds and preferred stock, are obtained
from third-party pricing services providers and by broker-dealers. Market inputs
utilized in the pricing evaluation process include, primarily, all or some of the
following: benchmark yields, reported trades, broker-dealers quotes, issuer spreads,
two-sided markets, bid-offer price or spread, benchmark securities, bids, offers,
reference data, benchmark curves including but not limited to Treasury benchmarks, LIBOR
and swap curves, and industry and economic events. Certain securities of the Fund for
which quotations are not readily available from any source, are valued at fair value by
or under the direction of the Investment Adviser utilizing quotations and other
information concerning similar securities obtained from recognized dealers. Short-term
securities having a maturity of 60 days or less are valued at amortized cost, which
approximates fair value. All Puerto Rico fixed income securities valuations provided by
broker-dealers are priced using the average of two quotes, if available.(3)
    
    These funds seek to provide shareholders long-term growth of capital. These funds
will invest up to 80% of its assets in common stock and other equity securities of U.S.
and foreign companies with small, medium and large market capitalization, including
exchanged-traded funds. One of the funds can also invest in alternative investments.
Each fund will invest at least 20% of its assets in Puerto Rico securities. The fair
value of the securities is determined on the basis of the valuations provided by dealers
or independent pricing services. Equity securities are valued at the official closing
price of, or the last reported sales price on, the exchange or market on which such
securities are traded, as of the close of business on the day the securities are being
valued, or lacking any sales, at the last available bid price. Certain securities of the
Fund for which quotations are not readily available from any source, are valued at fair
value by or under the direction of the Investment Adviser utilizing quotations and other
information concerning similar securities obtained from recognized dealers. Short-term
securities having a maturity of 60 days or less are valued at amortized cost, which
approximates fair value. All Puerto Rico fixed income securities valuations provided by
broker-dealers are priced using the average of two quotes, if available. Investment Securities Available for Sale
  Other Investment Securities
  131




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##### Table of Contents



Loans Held for Sale
  Loans
   Derivatives
     Deposits and Subordinated Capital Notes
   132




---



##### Table of Contents



Securities Sold under Agreements to Repurchase and Federal Home Loan Bank Advances
  Term Notes
  Standby Letters Of Credit and Commitments to Extend Credit
  Non-Recurring Measurements for Assets
  (Dollars in thousands)
 Carrying Value as of December 31, 2009UsingCarrying
    
    
    Quoted Prices in
    
    
    Significant
    
    
    Significant
    
    
    ValuationValue
    
    
    Active Markets for
    
    
    Other
    
    
    Unobservable
    
    
    Allowanceas of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    as ofDec. 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Dec. 31, 2009Loans, net(1)
    
    $
    183,691
    
    
    $
    
    
    
    $
    
    
    
    $
    183,691
    
    
    $
    27,811Repossesed Assets (2)
    
    
    25,182
    
    
    
    
    
    
    
    
    
    
    
    25,182
    
    
    
    7,021$
    208,873
    
    
    $
    
    
    
    $
    
    
    
    $
    208,873
    
    
    $
    34,832
 
 (1)
    
    Amount represented loans measured for impairment during the period based on the fair value of the collateral using the practical expedient in
FASB ASC Topic 310.(2)
    
    Amount represented real estate owned properties measured for impairment during the period based on the fair value of the collateral accordance
with the adoption of FASB ASC Topic 820. 133




---



##### Table of Contents



Carrying Value as of December 31, 2008UsingCarriying
    
    Quoted Prices in
    
    Significant
    
    Significant
    
    ValuationValue
    
    Active Markets for
    
    Other
    
    Unobservable
    
    Allowanceas of
    
    Identical Assets
    
    Observable Inputs
    
    Inputs
    
    as of(Dollars in thousands)
    
    Dec. 31, 2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    Dec. 31, 2008Loans, net(1)
    
    $
    59,152
    
    
    $
    
    $
    
    $
    59,152
    
    
    $
    18,410
 
 (1)
    
    Amount represented loans measured for impairment during the period based on the fair value of the collateral using the practical expedient in
FASB ASC Topic 310. Callable Brokered Certificates of Deposits and Subordinated Capital Notes
   For the year endedDecember 31, 2009Changes in
    
    
    Changes in
    
    
    Total Changes inFair Value
    
    
    Fair Value
    
    
    Fair Valueincluded in
    
    
    included in
    
    
    included in(Dollars in thousands)
    
    Interest Expense
    
    
    Other Income
    
    
    EarningsCallable Brokered Certificates of Deposits
    
    $
    (1,959
    )
    
    $
    662
    
    
    $
    (1,297
    )Subordinated Capital Notes
    
    
    (7,775
    )
    
    
    (2,269
    )
    
    
    (10,044
    )Total
    
    $
    (9,734
    )
    
    $
    (1,607
    )
    
    $
    (11,341
    )
 134




---



##### Table of Contents



(Dollars in thousands)
 For the year endedDecember 31, 2008Changes in
    
    
    Changes in
    
    
    Total Changes inFair Value
    
    
    Fair Value
    
    
    Fair Valueincluded in
    
    
    included in
    
    
    included inInterest Expense
    
    
    Other Income
    
    
    EarningsCallable Brokered Certificates of Deposits
    
    $
    (18,245
    )
    
    $
    (4,159
    )
    
    $
    (22,404
    )Subordinated Capital Notes
    
    
    (7,775
    )
    
    
    270
    
    
    
    (7,505
    )Total
    
    $
    (26,020
    )
    
    $
    (3,889
    )
    
    $
    (29,909
    )
  (Dollars in thousands)
 For the year endedDecember 31, 2009
    
    
    December 31, 2008Gain (Loss)
    
    
    Gain (Loss)
    
    
    Total
    
    
    Gain (Loss)
    
    
    Gain (Loss)
    
    
    Totalrelated
    
    
    not related
    
    
    Gains
    
    
    related
    
    
    not related
    
    
    GainsCredit Risk
    
    
    Credit Risk
    
    
    (Losses)
    
    
    Credit Risk
    
    
    Credit Risk
    
    
    (Losses)Subordinated Capital Notes
    
    $
    (8,223
    )
    
    $
    (1,821
    )
    
    $
    (10,044
    )
    
    $
    6,667
    
    
    $
    (14,172
    )
    
    $
    (7,505
    )
 FASB ASC Topic 825 Disclosures about Fair Value of Financial Instruments
  135




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Consolidated balance sheets financial
instruments:ASSETS:Other investment securities
    
    $
    55,431
    
    
    $
    55,431
    
    
    $
    61,632
    
    
    $
    61,632Loans held for sale
    
    $
    26,726
    
    
    $
    26,643
    
    
    $
    38,459
    
    
    $
    38,740Loans (1)
    
    $
    5,034,942
    
    
    $
    4,725,493
    
    
    $
    5,929,499
    
    
    $
    5,862,539LIABILITIES:Deposits  interest-bearing
    
    $
    3,696,791
    
    
    $
    3,698,246
    
    
    $
    4,321,939
    
    
    $
    4,311,104Securities sold under agreements to repurchase
    
    $
    
    
    
    $
    
    
    
    $
    375,000
    
    
    $
    365,314Federal Home Loan Bank Advances
    
    $
    1,060,000
    
    
    $
    1,070,542
    
    
    $
    1,185,000
    
    
    $
    1,159,619Subordinated capital note (2)
    
    $
    189,000
    
    
    $
    197,979
    
    
    $
    189,000
    
    
    $
    203,516Term notes
    
    $
    20,581
    
    
    $
    21,030
    
    
    $
    19,967
    
    
    $
    22,977
 December 31, 2009
    
    
    December 31, 2008Contract or
    
    
    
    
    
    
    Contract orNotional
    
    
    
    
    
    
    NotionalAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Off balance sheet financial instruments:Standby letters of credit and financial
guarantees written
    
    $
    41,837
    
    
    $
    (254
    )
    
    $
    95,660
    
    
    $
    (1,102
    )Commitments to extend credit, approved loans
not yet disbursed and unused lines of credit
    
    $
    1,218,115
    
    
    $
    (1,218
    )
    
    $
    1,193,875
    
    
    $
    (1,194
    )
 
 (1)
    
    This amount does not include loans measured for impairment during the period based on the fair value of the collateral using the
practical expedient in FASB ASC Topic 310.(2)
    
    This amount does not include subordinated capital notes of $120.6 million and $118.3 million as of December 31, 2009 and 2008,
respectively, measured at fair value under FSAB ASC Topic 825. 25. Significant Group Concentrations of Credit Risk:
  136




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##### Table of Contents



26. Regulatory Matters:
    December 31, 2009Required
    
    
    ActualAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    393,865
    
    
    
    8
    %
    
    $
    765,629
    
    
    
    15.55
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    196,932
    
    
    
    4
    %
    
    $
    521,842
    
    
    
    10.60
    %Leverage Ratio
    
    $
    196,075
    
    
    
    3
    %
    
    $
    521,842
    
    
    
    7.98
    %
 December 31, 2008Required
    
    
    ActualAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    453,114
    
    
    
    8
    %
    
    $
    726,863
    
    
    
    12.83
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    226,557
    
    
    
    4
    %
    
    $
    476,268
    
    
    
    8.41
    %Leverage Ratio
    
    $
    234,278
    
    
    
    3
    %
    
    $
    476,268
    
    
    
    6.10
    %
  137




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##### Table of Contents



December 31, 2009Required
    
    
    Actual
    
    
    Well-CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    352,244
    
    
    
    8
    %
    
    $
    686,964
    
    
    
    15.60
    %
    
    
    ≥              10%Tier I Capital (to Risk Weighted Assets)
    
    $
    176,122
    
    
    
    4
    %
    
    $
    571,380
    
    
    
    12.98
    %
    
    

≥                  6%Leverage Ratio
    
    $
    195,403
    
    
    
    3
    %
    
    $
    571,380
    
    
    
    8.77
    %
    
    

≥                   5%
 December 31, 2008Required
    
    
    Actual
    
    
    Well-CapitalizedAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    411,725
    
    
    
    8
    %
    
    $
    662,161
    
    
    
    12.87
    %
    
    
    ≥            10%Tier I Capital (to Risk Weighted Assets)
    
    $
    205,863
    
    
    
    4
    %
    
    $
    537,395
    
    
    
    10.44
    %
    
    

≥                  6%Leverage Ratio
    
    $
    234,488
    
    
    
    3
    %
    
    $
    537,395
    
    
    
    6.88
    %
    
    

≥                  5%
 27. Segment Information:
 Types of Products and Services
  Measurement of Segment Profit or Loss and Segment Assets
   138




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##### Table of Contents



December 31, 2009Commercial
    
    
    Mortgage
    
    
    Consumer
    
    
    Treasury and
    
    
    Wealth
    
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    
    Banking
    
    
    Finance
    
    
    Investments
    
    
    Management
    
    
    Other
    
    
    Eliminations
    
    
    Total(Dollars in thousands)Total external revenue
    
    $
    215,301
    
    
    $
    159,323
    
    
    $
    138,794
    
    
    $
    23,259
    
    
    $
    64,333
    
    
    $
    53,355
    
    
    $
    (49,761
    )
    
    $
    604,604Intersegment revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,595
    
    
    
    189
    
    
    
    46,977
    
    
    
    (49,761
    )
    
    
    Interest income
    
    
    174,868
    
    
    
    151,728
    
    
    
    135,588
    
    
    
    17,505
    
    
    
    2,688
    
    
    
    42,377
    
    
    
    (42,596
    )
    
    
    482,158Interest expense
    
    
    16,657
    
    
    
    49,293
    
    
    
    26,180
    
    
    
    32,900
    
    
    
    926
    
    
    
    39,247
    
    
    
    (34,772
    )
    
    
    130,431Depreciation and
amortization
    
    
    4,452
    
    
    
    2,669
    
    
    
    876
    
    
    
    870
    
    
    
    1,500
    
    
    
    2,084
    
    
    
    
    
    
    
    12,451Segment income (loss)
before income tax
    
    
    27,681
    
    
    
    82,566
    
    
    
    15,892
    
    
    
    (19,662
    )
    
    
    21,782
    
    
    
    (65,135
    )
    
    
    (10,514
    )
    
    
    52,610Segment assets
    
    
    2,541,267
    
    
    
    2,446,855
    
    
    
    681,855
    
    
    
    595,807
    
    
    
    133,882
    
    
    
    1,379,671
    
    
    
    (1,012,901
    )
    
    
    6,766,436
 December 31, 2008Commercial
    
    
    Mortgage
    
    
    Consumer
    
    
    Treasury and
    
    
    Wealth
    
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    
    Banking
    
    
    Finance
    
    
    Investments
    
    
    Management
    
    
    Other
    
    
    Eliminations
    
    
    Total(Dollars in thousands)Total external revenue
    
    $
    308,646
    
    
    $
    166,480
    
    
    $
    142,986
    
    
    $
    53,627
    
    
    $
    73,145
    
    
    $
    49,416
    
    
    $
    (45,694
    )
    
    $
    748,606Intersegment revenue
    
    
    17,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557
    
    
    
    27,817
    
    
    
    (45,694
    )
    
    
    Interest income
    
    
    257,835
    
    
    
    165,729
    
    
    
    142,428
    
    
    
    50,930
    
    
    
    2,941
    
    
    
    22,002
    
    
    
    (41,094
    )
    
    
    600,771Interest expense
    
    
    64,700
    
    
    
    73,179
    
    
    
    27,160
    
    
    
    89,669
    
    
    
    2,249
    
    
    
    20,875
    
    
    
    (33,383
    )
    
    
    244,449Depreciation and
amortization
    
    
    4,367
    
    
    
    2,538
    
    
    
    2,988
    
    
    
    945
    
    
    
    1,307
    
    
    
    2,951
    
    
    
    
    
    
    
    15,096Segment income (loss)
before income tax
    
    
    29,911
    
    
    
    79,906
    
    
    
    6,262
    
    
    
    (69,225
    )
    
    
    22,027
    
    
    
    (57,163
    )
    
    
    (7,711
    )
    
    
    4,007Segment assets
    
    
    3,641,521
    
    
    
    2,679,466
    
    
    
    659,054
    
    
    
    1,210,654
    
    
    
    149,149
    
    
    
    631,091
    
    
    
    (1,073,359
    )
    
    
    7,897,576
 December 31, 2007Commercial
    
    
    Mortgage
    
    
    Consumer
    
    
    Treasury and
    
    
    Wealth
    
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    
    Banking
    
    
    Finance
    
    
    Investments
    
    
    Management
    
    
    Other
    
    
    Eliminations
    
    
    Total(Dollars in thousands)Total external revenue
    
    $
    351,120
    
    
    $
    190,889
    
    
    $
    144,027
    
    
    $
    75,821
    
    
    $
    64,378
    
    
    $
    46,671
    
    
    $
    (50,576
    )
    
    $
    822,330Intersegment revenue
    
    
    9,458
    
    
    
    13,571
    
    
    
    
    
    
    
    
    
    
    
    2,074
    
    
    
    25,473
    
    
    
    (50,576
    )
    
    
    Interest income
    
    
    299,105
    
    
    
    168,238
    
    
    
    140,881
    
    
    
    71,418
    
    
    
    2,667
    
    
    
    24,607
    
    
    
    (32,706
    )
    
    
    674,210Interest expense
    
    
    99,409
    
    
    
    102,038
    
    
    
    36,898
    
    
    
    116,669
    
    
    
    3,613
    
    
    
    30,081
    
    
    
    (26,177
    )
    
    
    362,531Depreciation and
amortization
    
    
    4,092
    
    
    
    2,066
    
    
    
    3,645
    
    
    
    816
    
    
    
    1,220
    
    
    
    4,437
    
    
    
    
    
    
    
    16,276Segment income (loss)
before income tax
    
    
    79,406
    
    
    
    51,596
    
    
    
    (57,991
    )
    
    
    (47,203
    )
    
    
    16,359
    
    
    
    (66,544
    )
    
    
    (7,664
    )
    
    
    (32,041
    )Segment assets
    
    
    4,014,385
    
    
    
    2,752,186
    
    
    
    684,115
    
    
    
    1,533,832
    
    
    
    130,229
    
    
    
    541,792
    
    
    
    (492,326
    )
    
    
    9,164,213
 139




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##### Table of Contents



Reconciliation of Segment Information to Consolidated Amounts
  2009
    
    
    2008
    
    
    2007(Dollars in thousands)Revenues:Total revenues for reportable segments
    
    $
    601,010
    
    
    $
    744,884
    
    
    $
    826,235Other revenues
    
    
    53,355
    
    
    
    49,416
    
    
    
    46,671Elimination of intersegment revenues
    
    
    (49,761
    )
    
    
    (45,694
    )
    
    
    (50,576
    )Total consolidated revenues
    
    $
    604,604
    
    
    $
    748,606
    
    
    $
    822,330Total income before tax of reportable segments
    
    $
    128,259
    
    
    $
    68,881
    
    
    $
    42,167Loss before tax of other segments
    
    
    (65,135
    )
    
    
    (57,163
    )
    
    
    (66,544
    )Elimination of intersegment profits
    
    
    (10,514
    )
    
    
    (7,711
    )
    
    
    (7,664
    )Consolidated income (loss) before tax
    
    $
    52,610
    
    
    $
    4,007
    
    
    $
    (32,041
    )Assets:Total assets for reportable segments
    
    $
    6,399,666
    
    
    $
    8,339,844
    
    
    $
    9,114,747Assets not attributed to segments
    
    
    1,379,671
    
    
    
    631,091
    
    
    
    541,792Elimination of intersegment assets
    
    
    (1,012,901
    )
    
    
    (1,073,359
    )
    
    
    (492,326
    )Total consolidated assets
    
    $
    6,766,436
    
    
    $
    7,897,576
    
    
    $
    9,164,213
 140




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##### Table of Contents



28. Quarterly Results (Unaudited):
  Quarters Ended 2009March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    128,675
    
    
    $
    120,076
    
    
    $
    118,080
    
    
    $
    115,327Net Interest Income
    
    
    84,393
    
    
    
    86,175
    
    
    
    88,055
    
    
    
    93,104Net Interest Income after Provision
for Loan Losses
    
    
    43,293
    
    
    
    52,439
    
    
    
    47,366
    
    
    
    56,133Income (Loss) before Provision for Income Tax
    
    
    (716
    )
    
    
    20,910
    
    
    
    7,666
    
    
    
    24,750Net Income (Loss)
    
    
    (31
    )
    
    
    12,084
    
    
    
    10,471
    
    
    
    18,751Earnings (Loss) per Common Share
    
    
    
    
    
    
    0.26
    
    
    
    0.22
    
    
    
    0.40
 Quarters Ended 2008March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    159,029
    
    
    $
    153,436
    
    
    $
    148,011
    
    
    $
    140,295Net Interest Income
    
    
    84,599
    
    
    
    91,045
    
    
    
    92,406
    
    
    
    88,272Net Interest Income after Provision
for Loan Losses
    
    
    45,024
    
    
    
    52,530
    
    
    
    46,846
    
    
    
    36,399Income (Loss) before Provision for Income Tax
    
    
    25,939
    
    
    
    7,281
    
    
    
    (18,493
    )
    
    
    (10,720
    )Net Income (Loss)
    
    
    17,722
    
    
    
    6,516
    
    
    
    (8,162
    )
    
    
    (5,545
    )Earnings (Loss) per Common Share
    
    
    0.38
    
    
    
    0.14
    
    
    
    (0.18
    )
    
    
    (0.11
    )
 Quarters Ended 2007March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    167,077
    
    
    $
    168,242
    
    
    $
    170,149
    
    
    $
    168,742Net Interest Income
    
    
    79,402
    
    
    
    78,197
    
    
    
    76,039
    
    
    
    78,041Net Interest Income after Provision
for Loan Losses
    
    
    57,378
    
    
    
    47,347
    
    
    
    28,689
    
    
    
    30,441Income (Loss) before Provision for Income Tax
    
    
    19,383
    
    
    
    5,505
    
    
    
    (55,011
    )
    
    
    (1,918
    )Net Income (Loss)
    
    
    11,729
    
    
    
    4,096
    
    
    
    (50,099
    )
    
    
    (1,971
    )Earnings (Loss) per Common Share
    
    
    0.25
    
    
    
    0.09
    
    
    
    (1.07
    )
    
    
    (0.05
    )
 141




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##### Table of Contents



29. Santander BanCorp (Parent Company Only) Financial Information :
   Santander Bancorp
 Balance Sheet Information
December 31, 2009 and 2008
 2009
    
    
    2008ASSETSCash and due from banks
    
    $
    3,528
    
    
    $
    3,430Interest-bearing deposits
    
    
    21,600
    
    
    
    Total cash and cash equivalents
    
    
    25,128
    
    
    
    3,430Loans
    
    
    191,361
    
    
    
    221,256Investment in Subsidiaries
    
    
    821,637
    
    
    
    772,249Accrued Interest Receivable
    
    
    5,680
    
    
    
    5,928Other Assets
    
    
    506
    
    
    
    9,297$
    1,044,312
    
    
    $
    1,012,160LIABILITIES AND STOCKHOLDERS EQUITYBorrowings
    
    $
    190,000
    
    
    $
    200,000Subordinated Capital Notes,including $120.6 million and $118.3 million at fair value in
2009 and 2008, respectively
    
    
    248,691
    
    
    
    246,392Accrued Interest Payable
    
    
    5,666
    
    
    
    7,724Other Liabilities
    
    
    3,460
    
    
    
    5,195Total liabilities
    
    
    447,817
    
    
    
    459,311STOCKHOLDERS EQUITY:Common stock, $2.50 par value; 200,000,000 shares authorized, 50,650,364 shares issued;
46,639,104 shares outstanding at December 31, 2009 and 2008
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    566,286
    
    
    
    565,165Treasury stock at cost, 4,011,260 shares at December 31, 2009 and 2008
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss from unconsolidated subsidiaries, net of tax
    
    
    (20,695
    )
    
    
    (22,563
    )Deficit
    
    
    (8,170
    )
    
    
    (48,827
    )Total stockholders equity
    
    
    596,495
    
    
    
    552,849$
    1,044,312
    
    
    $
    1,012,160
 142




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##### Table of Contents



Santander BanCorp
 Statements of Operations Information
Years Ended December 31, 2009, 2008 and 2007
 2009
    
    
    2008
    
    
    2007Interest Income:Loans
    
    $
    11,271
    
    
    $
    13,914
    
    
    $
    17,883Interest-bearing deposits
    
    
    143
    
    
    
    818
    
    
    
    1,867Total interest income
    
    
    11,414
    
    
    
    14,732
    
    
    
    19,750Interest Expense:Borrowings
    
    
    7,454
    
    
    
    7,549
    
    
    
    13,931Term and subordinated capital notes
    
    
    10,494
    
    
    
    13,325
    
    
    
    16,157Total interest expense
    
    
    17,948
    
    
    
    20,874
    
    
    
    30,088Net interest loss
    
    
    (6,534
    )
    
    
    (6,142
    )
    
    
    (10,338
    )Provision for loan losses
    
    
    
    
    
    
    740
    
    
    
    Net interest loss after provision for loan losses
    
    
    (6,534
    )
    
    
    (6,882
    )
    
    
    (10,338
    )Other Income (Loss) :Derivative gains (losses)
    
    
    (7,972
    )
    
    
    6,770
    
    
    
    (10
    )Equity in earnings (losses) of subsidiaries
    
    
    54,539
    
    
    
    15,017
    
    
    
    (24,524
    )Total other income (loss)
    
    
    46,567
    
    
    
    21,787
    
    
    
    (24,534
    )Other Operating Expenses:Professional fees
    
    
    737
    
    
    
    881
    
    
    
    844Other taxes
    
    
    574
    
    
    
    586
    
    
    
    (615
    )Other operating expenses
    
    
    1,170
    
    
    
    911
    
    
    
    774Total other operating expenses
    
    
    2,481
    
    
    
    2,378
    
    
    
    1,003Income (loss) before provision (benefit) for income tax
    
    
    37,552
    
    
    
    12,527
    
    
    
    (35,875
    )(Benefit) Provision for Income Tax
    
    
    (3,109
    )
    
    
    2,723
    
    
    
    (88
    )Net Income (Loss)
    
    $
    40,661
    
    
    $
    9,804
    
    
    $
    (35,787
    )
 143




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##### Table of Contents



Santander BanCorp
 Statements of Cash Flows InformationYears Ended December 31, 2009, 2008 and 2007(Dollars in thousands)2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    40,661
    
    
    $
    9,804
    
    
    $
    (35,787
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Equity in (earnings) losses of subsidiaries, net of dividends received
    
    
    (48,539
    )
    
    
    48,868
    
    
    
    54,487Deferred tax (benefit) provision
    
    
    (3,109
    )
    
    
    2,723
    
    
    
    (88
    )Provision for loan losses
    
    
    
    
    
    
    740
    
    
    
    Loss (gain) on derivatives
    
    
    7,972
    
    
    
    (6,770
    )
    
    
    10Net discount accretion on debt
    
    
    30
    
    
    
    32
    
    
    
    55Net premiun amortization on loans
    
    
    72
    
    
    
    109
    
    
    
    177Decrease (increase) in other assets and accrued interest receivable
    
    
    5,472
    
    
    
    (5,083
    )
    
    
    3,968(Decrease) increase in other liabilities and accrued interest payable
    
    
    (684
    )
    
    
    4,479
    
    
    
    (5,087
    )Total adjustments
    
    
    (38,786
    )
    
    
    45,098
    
    
    
    53,522Net cash provided by operating activities
    
    
    1,875
    
    
    
    54,902
    
    
    
    17,735CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease in loans
    
    
    29,823
    
    
    
    13,364
    
    
    
    27,178Investment in subsidiary
    
    
    
    
    
    
    (55,000
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    29,823
    
    
    
    (41,636
    )
    
    
    27,178CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of borrowings
    
    
    190,000
    
    
    
    200,000
    
    
    
    235,000Repayment of borrowings
    
    
    (200,000
    )
    
    
    (235,000
    )
    
    
    (275,000
    )Dividends paid
    
    
    
    
    
    
    (16,790
    )
    
    
    (29,849
    )Net cash used in financing activities
    
    
    (10,000
    )
    
    
    (51,790
    )
    
    
    (69,849
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    21,698
    
    
    
    (38,524
    )
    
    
    (24,936
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    3,430
    
    
    
    41,954
    
    
    
    66,890CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    25,128
    
    
    $
    3,430
    
    
    $
    41,954
 30. Subsequent Events:
   144




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
     Change in Internal Control Over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
  145




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##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.santandernet.com www.santandernet.com
 
 ITEM 11.
    
    EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  146




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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 A.
    
    The following documents are incorporated by reference from Item 8 hereof:
 (1)
    
    Consolidated Financial Statements:


     Reports of Independent Registered Public Accounting FirmConsolidated Balance Sheets at December 31, 2009 and 2008Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008, and 2007


     Consolidated Statements of Changes in Stockholders Equity
for the Years Ended December 31, 2009, 2008 and 2007Consolidated Statements of Comprehensive (Loss) Income
for the Years Ended December 31, 2009, 2008 and 2007Consolidated Statements of Cash Flows for the Years
Ended December 31 2009, 2008 and 2007Notes to Consolidated Financial Statements
December 31, 2009, 2008 and 2007(2)
    
    Financial Statement Schedules are not presented because the information
is not applicable or is included in the Consolidated Financial Statements described
in A (1) above or in the notes thereto.(3)
    
    The exhibits listed on the Exhibit Index on page 154 of this report are
filed herewith or are incorporated herein by reference.
 147




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##### Table of Contents



SIGNATURES
  SANTANDER BANCORP
(REGISTRANT)Dated:      03/05/2010
    By:

/S/ JUAN MORENO BLANCOPresident and Chief Executive OfficerDated:      03/05/2010
    By:

/S/ ROBERTO JARAExecutive Vice President andChief Accounting Officer  S:\ GONZALO DE LAS HERAS
    
    Chairman
    
    03/05/2010S:\ JESUS M. ZABALZA
    
    Director
    
    03/05/2010S:\ VICTOR ARBULU
    
    Director
    
    03/05/2010S:\ ROBERTO VALENTIN
    
    Director
    
    03/05/2010S:\ STEPHEN FERRISS
    
    Director
    
    03/05/2010S:\ MARIA CALERO
    
    Director
    
    03/05/2010S:\ JOSE R. GONZALEZ
    
    Director
    
    03/05/2010
 148




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Reference(3.1)
    
    Amendment to the Articles of Incorporation
    
    Exhibit 3.1-10Q-06/30/09(10.0)
    
    Code of Ethics
    
    Exhibit 8-K-04/01/09(10.1)
    
    Loan Agreement Agreement between Santander BanCorp, Santander Financial
Services, Inc. and Banco Santander Puerto Rico
    
    Exhibit 8K-01/27/10(12)
    
    Computation of Ratio of Earnings to Fixed Charges
    
    Exhibit 12(21)
    
    Subsidiaries of Registrant
    
    Exhibit 21(31.1)
    
    Certification from the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.1(31.2)
    
    Certification from the Chief Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.2(32.1)
    
    Certification from the Chief Executive Officer and Chief Accounting
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    Exhibit 32.2
 149