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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, 2007
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
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
 DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SANTANDER BANCORP
  PART 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
    
    
    77Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    129Item 9A. Controls and Procedures
    
    
    129Item 9B. Other Information
    
    
    130PART III
    
    
    130Item 10. Directors, Executive Officers and Corporate Governance
    
    
    130Item 11. Executive Compensation
    
    
    130Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    130Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    130Item 14. Principal Accountant Fees and Services
    
    
    130PART IV
    
    
    131Item 15. Exhibits, Financial Statement Schedules
    
    
    131SIGNATURES
    
    
    132EXHIBIT INDEX
    
    
    133EX-10.18 SALES AND LEASEBACK AGREEMENTEX-10.19 OPTION AGREEMENTEX-10.20 MERGE AGREEMENTEX-10.21 REGULATIONS FOR FIRST AND SECOND CYCLE OF THE SHARE PLANEX-12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21 LIST OF SUBSIDIARIESEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-31.3 SECTION 302 CERTIFICATION OF THE CAOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO, CFO AND AO
  2




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Santander BanCorp
 
 PART I
 
 ITEM 1. BUSINESS
 General
     Banco Santander Puerto Rico
   Santander Mortgage Corporation
  3




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Santander International Bank of Puerto Rico, Inc.
  Santander Securities Corporation
  Santander Asset Management Corporation
  Santander Insurance Agency, Inc.
  Santander Financial Services, Inc.
  4




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Island Insurance Corporation
  Santander PR Capital Trust I
  Operations
   Commercial Banking
 Retail Banking
 Wholesale Banking
 Mortgage Banking
 Consumer Finance.
 Treasury and Investments
 5




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Wealth Management
 http://www.santandernet.com
 Forward Looking Statements
 .
   6




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REGULATION AND SUPERVISION
 Holding Company Operations  Federal Regulation
 General
 Bank Holding Company Activities and Other Limitations.
       7




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USA Patriot Act of 2001
    Privacy Policies
  Dividend Restrictions
    Federal Home Loan Bank System
  8




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Limitations on Transactions with Affiliates
     9




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Capital Requirements
   Sarbanes-Oxley
     10




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Banking Operations
 General
     11




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Ownership and Control
   FDIC Capital Requirements
     12




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Cross-Guarantees
  FDIC Deposit Insurance Assessments
     13




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Standards for Safety and Soundness
  Community Reinvestment
  Office of Foreign Assets Control Regulation
  14




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Brokered Deposits
  Federal Limitations on Activities and Investments
  Interstate Branching
 de novo.
 de novo
 Banking Operations-Puerto Rico Regulation
 General
   15




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16




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IBC Act
     Mortgage Banking Operations
   17




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Broker Dealer Operations
  Insurance Operations
   Recent Puerto Rico Legislation
     Employees
  18




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Availability at our website
 www.santandernet.com
 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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##### Table of Contents



Cash
    
    BookDividends
    
    ValuePeriod
    
    High
    
    Low
    
    per Share
    
    per Share20071st Quarter
    
    $
    19.79
    
    
    $
    17.49
    
    
    $
    0.16
    
    
    $
    12.562nd Quarter
    
    
    18.87
    
    
    
    14.45
    
    
    
    0.16
    
    
    
    12.263rd Quarter
    
    
    15.14
    
    
    
    10.30
    
    
    
    0.16
    
    
    
    11.364th Quarter
    
    
    8.76
    
    
    
    7.90
    
    
    
    0.16
    
    
    
    11.5020061st Quarter
    
    $
    25.98
    
    
    $
    20.10
    
    
    $
    0.16
    
    
    $
    12.062nd Quarter
    
    
    25.23
    
    
    
    22.47
    
    
    
    0.16
    
    
    
    11.933rd Quarter
    
    
    24.45
    
    
    
    18.89
    
    
    
    0.16
    
    
    
    12.354th Quarter
    
    
    19.80
    
    
    
    17.46
    
    
    
    0.16
    
    
    
    12.42
  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 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands, except per data share)CONDENSED STATEMENTS OF OPERATIONSInterest income
    
    $
    674,210
    
    
    $
    618,320
    
    
    $
    439,605
    
    
    $
    363,822
    
    
    $
    335,784Interest expense
    
    
    362,531
    
    
    
    327,714
    
    
    
    212,583
    
    
    
    140,762
    
    
    
    132,612Net interest income
    
    
    311,679
    
    
    
    290,606
    
    
    
    227,022
    
    
    
    223,060
    
    
    
    203,172Security gains
    
    
    1,265
    
    
    
    
    
    
    
    17,842
    
    
    
    11,475
    
    
    
    10,790(Loss) gain on extinghuishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,959
    )
    
    
    
    
    
    
    13,638Broker-dealer, asset management and insurance fees
    
    
    68,265
    
    
    
    56,973
    
    
    
    53,016
    
    
    
    51,113
    
    
    
    49,526Other income
    
    
    78,590
    
    
    
    61,496
    
    
    
    60,459
    
    
    
    54,651
    
    
    
    36,207Operating expenses
    
    
    344,016
    
    
    
    277,783
    
    
    
    221,386
    
    
    
    217,377
    
    
    
    223,815Provision for loan losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270
    
    
    
    49,745Income tax provision (benefit)
    
    
    4,204
    
    
    
    22,540
    
    
    
    30,788
    
    
    
    9,724
    
    
    
    (46
    )Net (loss) income
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928
    
    
    $
    39,819PER PREFERRED SHARE DATAOutstanding shares:Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,610,008End of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash Dividend per Share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2.73PER COMMON SHARE DATA*Net (loss) income
    
    $
    (0.78
    )
    
    $
    0.93
    
    
    $
    1.71
    
    
    $
    1.86
    
    
    $
    0.70Book value
    
    $
    11.50
    
    
    $
    12.42
    
    
    $
    12.19
    
    
    $
    11.86
    
    
    $
    10.20Outstanding shares:Average
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,661,248End of period
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104Cash Dividend per Share
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.49
    
    
    $
    0.44AVERAGE BALANCESLoans held for sale and loans, net of allowance for loan losses
    
    $
    6,900,764
    
    
    $
    6,439,205
    
    
    $
    5,871,433
    
    
    $
    4,723,538
    
    
    $
    4,009,801Allowance for loan losses (1)
    
    
    125,897
    
    
    
    87,465
    
    
    
    67,956
    
    
    
    73,518
    
    
    
    64,909Earning assets
    
    
    8,530,213
    
    
    
    8,262,748
    
    
    
    7,882,180
    
    
    
    7,300,735
    
    
    
    6,453,419Total assets
    
    
    9,195,712
    
    
    
    8,820,630
    
    
    
    8,285,992
    
    
    
    7,634,471
    
    
    
    6,797,701Deposits
    
    
    5,221,999
    
    
    
    5,054,687
    
    
    
    5,082,520
    
    
    
    4,153,245
    
    
    
    3,749,684Borrowings
    
    
    3,089,947
    
    
    
    2,876,720
    
    
    
    2,415,172
    
    
    
    2,811,152
    
    
    
    2,322,957Preferred equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,175Common equity
    
    
    573,536
    
    
    
    563,593
    
    
    
    576,226
    
    
    
    495,963
    
    
    
    526,660PERIOD END BALANCESLoans held for sale and loans, net of allowance for loans losses
    
    $
    6,911,380
    
    
    $
    6,836,693
    
    
    $
    5,954,890
    
    
    $
    5,490,120
    
    
    $
    4,136,670Allowance for loan losses (1)
    
    
    166,952
    
    
    
    106,863
    
    
    
    66,842
    
    
    
    69,177
    
    
    
    69,693Earning assets
    
    
    8,519,773
    
    
    
    8,598,703
    
    
    
    7,933,139
    
    
    
    8,069,346
    
    
    
    7,079,888Total assets
    
    
    9,160,213
    
    
    
    9,188,168
    
    
    
    8,271,948
    
    
    
    8,323,647
    
    
    
    7,366,656Deposits
    
    
    5,160,703
    
    
    
    5,313,974
    
    
    
    5,224,650
    
    
    
    4,748,139
    
    
    
    4,142,228Borrowings
    
    
    3,138,730
    
    
    
    2,954,515
    
    
    
    2,212,245
    
    
    
    2,863,367
    
    
    
    2,595,033Common equity
    
    
    536,536
    
    
    
    579,220
    
    
    
    568,527
    
    
    
    553,346
    
    
    
    475,706
 Continued on the following page
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Continued from the previous page
 Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)SELECTED RATIOSPerformance:Net interest margin (2)
    
    
    3.74
    %
    
    
    3.63
    %
    
    
    3.02
    %
    
    
    3.33
    %
    
    
    3.42
    %Efficiency ratio (3)
    
    
    66.32
    %
    
    
    66.82
    %
    
    
    62.97
    %
    
    
    62.78
    %
    
    
    67.06
    %Return on average total assets
    
    
    (0.39
    )%
    
    
    0.49
    %
    
    
    0.96
    %
    
    
    1.14
    %
    
    
    0.59
    %Return on average common equity
    
    
    (6.32
    )%
    
    
    7.66
    %
    
    
    13.85
    %
    
    
    17.53
    %
    
    
    5.54
    %Dividend payout
    
    
    (82.05
    )%
    
    
    68.82
    %
    
    
    37.43
    %
    
    
    26.34
    %
    
    
    62.86
    %Average net loans/average total deposits
    
    
    132.15
    %
    
    
    127.39
    %
    
    
    115.52
    %
    
    
    113.73
    %
    
    
    106.94
    %Average earning assets/average total assets
    
    
    92.76
    %
    
    
    93.68
    %
    
    
    95.13
    %
    
    
    95.63
    %
    
    
    94.94
    %Average stockholders equity/average assets
    
    
    6.24
    %
    
    
    6.39
    %
    
    
    6.95
    %
    
    
    6.50
    %
    
    
    8.69
    %Fee income to average assets
    
    
    1.26
    %
    
    
    1.20
    %
    
    
    1.15
    %
    
    
    1.18
    %
    
    
    1.30
    %Capital:Tier I capital to risk-adjusted assets
    
    
    7.43
    %
    
    
    7.87
    %
    
    
    9.09
    %
    
    
    8.63
    %
    
    
    8.47
    %Total capital to risk-adjusted assets
    
    
    10.56
    %
    
    
    10.93
    %
    
    
    12.30
    %
    
    
    11.05
    %
    
    
    10.03
    %Leverage Ratio
    
    
    5.38
    %
    
    
    5.81
    %
    
    
    6.50
    %
    
    
    6.43
    %
    
    
    5.89
    %Asset quality:Non-performing loans to total loans
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %
    
    
    2.34
    %Annualized net charge-offs to average loans
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %
    
    
    0.91
    %Allowance for loan losses to period-end loans
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %
    
    
    1.66
    %Allowance for loan losses to non-performing loans
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %
    
    
    70.85
    %Allowance for loan losses to non-performing loans plus
accruing loans past-due 90 days or more
    
    
    55.36
    %
    
    
    83.62
    %
    
    
    87.17
    %
    
    
    76.11
    %
    
    
    69.16
    %Non-performing assets to total assets
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %
    
    
    1.40
    %Recoveries to charge-offs
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %
    
    
    22.12
    %EARNINGS TO FIXED CHARGES:Excluding interest on deposits
    
    
    0.82
    x
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    x
    
    
    1.51
    xIncluding interest on deposits
    
    
    0.91
    x
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    x
    
    
    1.30
    xEARNINGS TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:Excluding interest on deposits
    
    
    0.82
    x
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    x
    
    
    1.38
    xIncluding interest on deposits
    
    
    0.91
    x
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    x
    
    
    1.23
    xOTHER DATA AT END OF PERIODCustomer financial assets under management
    
    $
    13,263,000
    
    
    $
    14,154,000
    
    
    $
    12,960,000
    
    
    $
    12,827,700
    
    
    $
    10,669,700Full services branches
    
    
    61
    
    
    
    61
    
    
    
    64
    
    
    
    65
    
    
    
    66Consumer retail branches
    
    
    68
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    Total branches
    
    
    129
    
    
    
    131
    
    
    
    64
    
    
    
    65
    
    
    
    66ATMs
    
    
    140
    
    
    
    144
    
    
    
    149
    
    
    
    150
    
    
    
    141
 
 *
    
    Share and per share data is based on the average number of shares outstanding during the periods, after
giving retroactive effect in 2003, to the 10% stock dividend declared on July 9, 2004.Basic and diluted earning per share are the same.(1)
    
    After retroactive reclassification adjustment of the allowance for losses on off balance sheet items in 2004 corresponding to the year ended December 31, 2003.(2)
    
    On a tax equivalent basis.(3)
    
    Operating expenses less 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 sale of POS and Trust division
in 2007, gain on sale of FDIC assessment credits and gain on tax credit purchased
in 2006, (loss) gain on extinguishment of debt in 2003 and 2005 and gain on sale of building in 2004. 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  Santander Mortgage Corporation (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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
    
    Banco Santander Puerto Rico sold in 2007 its merchant business to an unrelated third party
resulting in a pre-tax gain of $12.3 million that was recognized in the fourth quarter of
2007. This transaction eliminates the need for additional capital investment to support
system enhancements required by the business and results in cost efficiencies in processing
and personnel expenses. Through a marketing alliance with the unrelated third party, BSPR
expects to offer better merchant products and services to its client base and to promote
growth in demand deposit accounts, an attractive source of funding.
    
    BSPR sold in 2006 to an unaffiliated third party the servicing rights with respect to the less
profitable and more labor and system intensive lines of its trust business. For the year
ended December 31, 2007, a gain of $454,000 was recognized as a result of the transferred
accounts to the third party. BSPR will continue to offer trust services related to transfer
and paying agent and IRA accounts. This transaction avoided additional capital investment
in the trust business and reduced a significant portion of the labor force dedicated to the
business.
    
    The Corporation maintains strict controls on operating expenses and an efficiency plan
driven to lower its current efficiency ratio. The efficiency ratio, excluding goodwill and
other intangible assets impairment charges and stock incentive compensation expense
sponsored by Santander Spain, experienced an improvement of 376 basis points to reach
63.06% for the year ended December 31, 2007 from 66.82% for the year ended December 31,
2006.
    
    The Corporation merged as of January 1, 2008 its mortgage banking subsidiary into the
Bank to obtain cost efficiencies and broaden the array of products that current mortgage
specialists are offering.
    
    The Corporation will continue to monitor non-performing assets and to deploy significant
resources to manage the non-performing loan portfolio. Management expects to improve its
collection efforts by devoting more full time employees and outside resources.
Concurrently, management will continue with its stringent underwriting and lending
criteria.
   
    
    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 Spain to the participants and is classified as a liability
plan. Accordingly, the Corporation accrues a liability and recognizes monthly
compensation expense over the fourteen month vesting period through January 2008. The
Corporation recognized compensation expense under this plan amounting to $10.3 million and
$0.8 million in 2007 and 2006, respectively, at which time the liability will be
reclassified into capital as a capital contribution. The settlement of this plan will be
made by Santander Spain.
    
    The grant of 100 shares of Santander Spain stock to all employees of Santander Groups
operating entities as part of this years celebration of Santander Groups 150th
Anniversary distributed during August of 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.
 30




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##### Table of Contents




    
    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 expiring in 2009 and another expiring in 2010. This plan provides for settlement in
stock of Santander Spain 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 $0.2 million in 2007.
   
    
    non-cash impairment charges on the consumer finance business of $43.3 million resulting
in an overall net loss on Santander Financial Services, Inc. of $58.5 million for the year
ended December 31, 2007;
    
    a gain of $12.3 million recognized during the fourth quarter due to the sale of the
Banks merchant business to an unrelated third party during the first quarter of 2007.
    
    an increase in the provision for loan losses of $82.2 million or 125.4% for the year
ended December 31, 2007 compared to 2006. The $167.0 million allowance for loan losses as
of December 31, 2007 represents 2.36% of total loans, 56.70% of non-performing loans and
82.32% of non-performing loans excluding loans secured by real estate;
    
    the provision for loan losses represented 168.5% of the net charge-offs for the year
December 31, 2007;
    
    net interest margin expansion of 11 basis points to 3.74% for the year ended December
31, 2007 as compared to the prior year;
    
    an increase in net interest income on a tax equivalent basis of 6.6% to $319.2 million
for the year December 31, 2007 when compared to the prior year;
    
    an increase in non-interest income of $29.7 million or 25.0% for the year ended December
31, 2007, attributed mainly to gain on merchant business sold, higher fees in
broker-dealer, asset management and insurance fees, an early cancellation penalty on
certain client structured certificates of deposit, and an increase in gain on sale of
loans, trading gains and mortgage servicing rights recognized;
    
    an increase of $8.9 million or 3.2% in operating expenses, for the year ended December
31, 2007, excluding goodwill and other intangibles impairment charges and stock incentive
compensation expense sponsored by Santander Spain, when compared to 2006;
    
    after-tax compensation expense related to stock incentive plans sponsored by Santander
Spain, of $9.0 million for the year ended December 31, 2007;
    
    a non-cash charge of $23.1 million related to establishing a valuation allowance
against its deferred tax assets from its consumer finance business, mainly related to the
goodwill and other intangibles impairment charges and allowance for loan losses;
    
    sale of two properties and a certain parking spaces to an unrelated third party under a
sales and lease-back transaction resulting in gain of $32.6 million which was deferred and
is being amortized as a reduction of rent expense over the term of the related lease
agreements; and
 31




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
    
    The common stock dividend for the quarter ended December 31, 2007 was $0.16 resulting in
a current annualized dividend yield of 7.4%.
          32




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##### Table of Contents



Critical Accounting Policies
  Allowance for Loan Losses
     33




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##### Table of Contents



Valuation of Certain Financial Instruments
   Transfers of Financial Assets
 Income taxes
 34




---



##### Table of Contents



Goodwill and other intangible assets
    35




---



##### Table of Contents



Market Multiple Approach
 Comparable Transaction Approach
 Discounted Cash Flow Approach
   36




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Pension and Other Postemployment Benefits
    37




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##### Table of Contents



Results of Operations
   2007
    
    
    2006
    
    
    2005(Dollars in thousands)Components of net (loss) income:Net interest income
    
    $
    311,679
    
    
    $
    290,606
    
    
    $
    227,022Provision for loan losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400Other income
    
    
    148,120
    
    
    
    118,469
    
    
    
    125,358Other operating expenses
    
    
    344,016
    
    
    
    277,783
    
    
    
    221,386Provision for income tax
    
    
    4,204
    
    
    
    22,540
    
    
    
    30,788Net (loss) income
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806
 2007 compared to 2006.
 2006 compared to 2005.
 Net Interest Income
    38




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##### Table of Contents



2007
    
    
    2006
    
    
    2005(Dollars in thousands)Interest income  tax equivalent basis
    
    $
    681,755
    
    
    $
    627,306
    
    
    $
    450,664Interest expense
    
    
    (362,531
    )
    
    
    (327,714
    )
    
    
    (212,583
    )Net interest income  tax equivalent basis
    
    $
    319,224
    
    
    $
    299,592
    
    
    $
    238,081Net interest margin  tax equivalent basis (1)
    
    
    3.74
    %
    
    
    3.63
    %
    
    
    3.02
    %
 
 (1)
    
    Net interest margin for any period equals tax-equivalent net interest income divided by average interest-earning
assets for such period. 2007 compared to 2006
     2006 compared to 2005.
 39




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40




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##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest bearing deposits
    
    $
    85,278
    
    
    $
    3,343
    
    
    
    3.92
    %
    
    $
    94,890
    
    
    $
    4,439
    
    
    
    4.68
    %
    
    $
    133,622
    
    
    $
    4,065
    
    
    
    3.04
    %Federal funds sold and securities
purchased under agreements to resell
    
    
    68,477
    
    
    
    3,456
    
    
    
    5.05
    %
    
    
    91,049
    
    
    
    4,531
    
    
    
    4.98
    %
    
    
    135,928
    
    
    
    4,187
    
    
    
    3.08
    %Total interest-bearing deposits
    
    
    153,755
    
    
    
    6,799
    
    
    
    4.42
    %
    
    
    185,939
    
    
    
    8,970
    
    
    
    4.82
    %
    
    
    269,550
    
    
    
    8,252
    
    
    
    3.06
    %U.S. Treasury securities
    
    
    91,384
    
    
    
    4,090
    
    
    
    4.48
    %
    
    
    58,137
    
    
    
    2,759
    
    
    
    4.75
    %
    
    
    8,353
    
    
    
    262
    
    
    
    3.14
    %Obligations
of other U.S. government
agencies and corporations
    
    
    635,219
    
    
    
    29,561
    
    
    
    4.65
    %
    
    
    744,923
    
    
    
    36,417
    
    
    
    4.89
    %
    
    
    857,421
    
    
    
    42,275
    
    
    
    4.93
    %Obligations of government of Puerto Rico
and political subdivisions
    
    
    95,781
    
    
    
    5,113
    
    
    
    5.34
    %
    
    
    90,478
    
    
    
    4,982
    
    
    
    5.51
    %
    
    
    80,529
    
    
    
    4,323
    
    
    
    5.37
    %Collateralized mortgage obligations and
mortgage backed securities
    
    
    588,719
    
    
    
    28,422
    
    
    
    4.83
    %
    
    
    692,986
    
    
    
    32,965
    
    
    
    4.76
    %
    
    
    747,944
    
    
    
    32,200
    
    
    
    4.31
    %Other
    
    
    64,591
    
    
    
    4,076
    
    
    
    6.31
    %
    
    
    51,080
    
    
    
    2,595
    
    
    
    5.08
    %
    
    
    46,950
    
    
    
    1,672
    
    
    
    3.56
    %Total investment securities
    
    
    1,475,694
    
    
    
    71,262
    
    
    
    4.83
    %
    
    
    1,637,604
    
    
    
    79,718
    
    
    
    4.87
    %
    
    
    1,741,197
    
    
    
    80,732
    
    
    
    4.64
    %Loans :Commercial
    
    
    2,474,268
    
    
    
    172,671
    
    
    
    6.98
    %
    
    
    2,562,821
    
    
    
    175,214
    
    
    
    6.84
    %
    
    
    3,220,447
    
    
    
    178,994
    
    
    
    5.56
    %Construction
    
    
    481,174
    
    
    
    38,479
    
    
    
    8.00
    %
    
    
    302,370
    
    
    
    26,242
    
    
    
    8.68
    %
    
    
    202,226
    
    
    
    15,418
    
    
    
    7.62
    %Consumer
    
    
    658,137
    
    
    
    79,531
    
    
    
    12.08
    %
    
    
    577,652
    
    
    
    63,542
    
    
    
    11.00
    %
    
    
    511,094
    
    
    
    48,631
    
    
    
    9.52
    %Consumer Finance
    
    
    608,366
    
    
    
    139,075
    
    
    
    22.86
    %
    
    
    523,610
    
    
    
    118,077
    
    
    
    22.55
    %
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    2,692,448
    
    
    
    166,192
    
    
    
    6.17
    %
    
    
    2,425,611
    
    
    
    146,558
    
    
    
    6.04
    %
    
    
    1,887,420
    
    
    
    110,994
    
    
    
    5.88
    %Lease financing
    
    
    112,268
    
    
    
    7,746
    
    
    
    6.90
    %
    
    
    134,606
    
    
    
    8,985
    
    
    
    6.68
    %
    
    
    118,202
    
    
    
    7,643
    
    
    
    6.47
    %Gross loans
    
    
    7,026,661
    
    
    
    603,694
    
    
    
    8.59
    %
    
    
    6,526,670
    
    
    
    538,618
    
    
    
    8.25
    %
    
    
    5,939,389
    
    
    
    361,680
    
    
    
    6.09
    %Allowance for loan losses
    
    
    (125,897
    )
    
    
    
    
    
    
    
    
    
    
    (87,465
    )
    
    
    
    
    
    
    
    
    
    
    (67,956
    )Loans, net
    
    
    6,900,764
    
    
    
    603,694
    
    
    
    8.75
    %
    
    
    6,439,205
    
    
    
    538,618
    
    
    
    8.36
    %
    
    
    5,871,433
    
    
    
    361,680
    
    
    
    6.16
    %Total interest-earning assets/ interest
income (tax-equivalent basis)
    
    
    8,530,213
    
    
    
    681,755
    
    
    
    7.99
    %
    
    
    8,262,748
    
    
    
    627,306
    
    
    
    7.59
    %
    
    
    7,882,180
    
    
    
    450,664
    
    
    
    5.72
    %Total non-interest-earning assets
    
    
    665,499
    
    
    
    
    
    
    
    
    
    
    
    557,882
    
    
    
    
    
    
    
    
    
    
    
    403,812Total assets
    
    $
    9,195,712
    
    
    
    
    
    
    
    
    
    
    $
    8,820,630
    
    
    
    
    
    
    
    
    
    
    $
    8,285,992Liabilities and stockholders equityInterest-bearing liabilities:Savings and NOW accounts
    
    $
    1,715,631
    
    
    $
    51,785
    
    
    
    3.02
    %
    
    $
    1,861,167
    
    
    $
    49,470
    
    
    
    2.66
    %
    
    $
    1,945,095
    
    
    $
    38,939
    
    
    
    2.00
    %Other time deposits
    
    
    1,419,185
    
    
    
    65,810
    
    
    
    4.64
    %
    
    
    1,362,653
    
    
    
    57,648
    
    
    
    4.23
    %
    
    
    1,476,996
    
    
    
    46,488
    
    
    
    3.15
    %Brokered deposits
    
    
    1,401,310
    
    
    
    73,820
    
    
    
    5.27
    %
    
    
    1,282,704
    
    
    
    66,262
    
    
    
    5.17
    %
    
    
    996,741
    
    
    
    36,785
    
    
    
    3.69
    %Total Interest-bearing deposits
    
    
    4,536,126
    
    
    
    191,415
    
    
    
    4.22
    %
    
    
    4,506,524
    
    
    
    173,380
    
    
    
    3.85
    %
    
    
    4,418,832
    
    
    
    122,212
    
    
    
    2.77
    %Borrowings
    
    
    2,805,003
    
    
    
    153,951
    
    
    
    5.49
    %
    
    
    2,611,231
    
    
    
    138,500
    
    
    
    5.30
    %
    
    
    2,295,932
    
    
    
    85,740
    
    
    
    3.73
    %Term Notes
    
    
    38,223
    
    
    
    1,278
    
    
    
    3.34
    %
    
    
    40,883
    
    
    
    1,460
    
    
    
    3.57
    %
    
    
    37,158
    
    
    
    1,229
    
    
    
    3.31
    %Subordinated Notes
    
    
    246,721
    
    
    
    15,887
    
    
    
    6.44
    %
    
    
    224,606
    
    
    
    14,374
    
    
    
    6.40
    %
    
    
    82,082
    
    
    
    3,402
    
    
    
    4.14
    %Total interest-bearing liabilities
interest expense
    
    
    7,626,073
    
    
    
    362,531
    
    
    
    4.75
    %
    
    
    7,383,244
    
    
    
    327,714
    
    
    
    4.44
    %
    
    
    6,834,004
    
    
    
    212,583
    
    
    
    3.11
    %Total non interest-bearing liabilities
    
    
    996,103
    
    
    
    
    
    
    
    
    
    
    
    873,793
    
    
    
    
    
    
    
    
    
    
    
    875,762Total liabilities
    
    
    8,622,176
    
    
    
    
    
    
    
    
    
    
    
    8,257,037
    
    
    
    
    
    
    
    
    
    
    
    7,709,766Stockholders Equity
    
    
    573,536
    
    
    
    
    
    
    
    
    
    
    
    563,593
    
    
    
    
    
    
    
    
    
    
    
    576,226Total liabilities and stockholders equity
    
    $
    9,195,712
    
    
    
    
    
    
    
    
    
    
    $
    8,820,630
    
    
    
    
    
    
    
    
    
    
    $
    8,285,992Net interest income
    
    
    
    
    
    $
    319,224
    
    
    
    
    
    
    
    
    
    
    $
    299,592
    
    
    
    
    
    
    
    
    
    
    $
    238,081Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.15
    %
    
    
    
    
    
    
    
    
    
    
    2.61
    %Cost of funding earning assets
    
    
    
    
    
    
    
    
    
    
    4.25
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %Net interest margin (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    3.02
    %
 41




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##### Table of Contents



Changes in Interest Income and Interest Expense-Volume and Rate Analysis
  2007 vs. 2006
    
    
    2006 vs. 2005Increase (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
    
    $
    (1,138
    )
    
    $
    63
    
    
    $
    (1,075
    )
    
    $
    (1,679
    )
    
    $
    2,023
    
    
    $
    344Time deposits with other banks
    
    
    (422
    )
    
    
    (674
    )
    
    
    (1,096
    )
    
    
    (1,400
    )
    
    
    1,774
    
    
    
    374Investment securities
    
    
    (7,823
    )
    
    
    (633
    )
    
    
    (8,456
    )
    
    
    (4,934
    )
    
    
    3,920
    
    
    
    (1,014
    )Loans, net
    
    
    39,688
    
    
    
    25,388
    
    
    
    65,076
    
    
    
    37,637
    
    
    
    139,301
    
    
    
    176,938Total interest income
    
    
    30,305
    
    
    
    24,144
    
    
    
    54,449
    
    
    
    29,624
    
    
    
    147,018
    
    
    
    176,642Interest Expense:Savings and NOW accounts
    
    
    (4,060
    )
    
    
    6,375
    
    
    
    2,315
    
    
    
    (1,744
    )
    
    
    12,275
    
    
    
    10,531Other time deposits
    
    
    8,455
    
    
    
    7,265
    
    
    
    15,720
    
    
    
    6,118
    
    
    
    34,519
    
    
    
    40,637Borrowings
    
    
    10,521
    
    
    
    4,930
    
    
    
    15,451
    
    
    
    12,993
    
    
    
    39,767
    
    
    
    52,760Long-term borrowings
    
    
    1,171
    
    
    
    160
    
    
    
    1,331
    
    
    
    7,798
    
    
    
    3,405
    
    
    
    11,203Total interest expense
    
    
    16,087
    
    
    
    18,730
    
    
    
    34,817
    
    
    
    25,165
    
    
    
    89,966
    
    
    
    115,131Net interest income (expense)  tax equivalent basis
    
    $
    14,218
    
    
    $
    5,414
    
    
    $
    19,632
    
    
    $
    4,459
    
    
    $
    57,052
    
    
    $
    61,511
   Provision for Loan Losses
 2007 compared to 2006.
 2006 compared to 2005.
 42




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##### Table of Contents



Other Income
   Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars In thousands)Bank service fees on deposit accounts
    
    $
    13,603
    
    
    $
    13,349
    
    
    $
    12,883Other service fees:Credit card fees
    
    
    10,872
    
    
    
    17,870
    
    
    
    15,242Mortgage-servicing fees
    
    
    3,010
    
    
    
    2,554
    
    
    
    2,283Trust fees
    
    
    1,914
    
    
    
    3,004
    
    
    
    2,912Other fees
    
    
    17,802
    
    
    
    12,301
    
    
    
    8,952Broker-dealer, asset management and insurance fees
    
    
    68,265
    
    
    
    56,973
    
    
    
    53,016Gain on sale of securities, net
    
    
    1,265
    
    
    
    
    
    
    
    17,842Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,959
    )Gain on sale of loans
    
    
    6,658
    
    
    
    1,994
    
    
    
    7,876Trading gains
    
    
    2,831
    
    
    
    1,243
    
    
    
    277Gain (loss) on derivatives
    
    
    249
    
    
    
    (478
    )
    
    
    1,963Other gains, net
    
    
    18,644
    
    
    
    4,428
    
    
    
    4,774Other
    
    
    3,007
    
    
    
    5,231
    
    
    
    3,297$
    148,120
    
    
    $
    118,469
    
    
    $
    125,358
  Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Broker-dealer
    
    $
    32,147
    
    
    $
    25,269
    
    
    $
    25,542Asset management
    
    
    24,362
    
    
    
    19,969
    
    
    
    20,119Total Santander Securities and subsidiary
    
    
    56,509
    
    
    
    45,238
    
    
    
    45,661Insurance
    
    
    11,756
    
    
    
    11,735
    
    
    
    7,355Total
    
    $
    68,265
    
    
    $
    56,973
    
    
    $
    53,016
 2007 compared to 2006.
  43




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##### Table of Contents



2006 compared to 2005.
   44




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##### Table of Contents



Operating Expenses
  Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Salaries
    
    $
    72,927
    
    
    $
    78,945
    
    
    $
    58,547Pension and other benefits
    
    
    72,815
    
    
    
    55,428
    
    
    
    48,775Expenses deferred as loan origination costs
    
    
    (11,484
    )
    
    
    (12,662
    )
    
    
    (12,320
    )Total personnel costs
    
    
    134,258
    
    
    
    121,711
    
    
    
    95,002Occupancy costs
    
    
    23,767
    
    
    
    22,476
    
    
    
    16,811Equipment expenses
    
    
    4,427
    
    
    
    4,797
    
    
    
    3,802EDP servicing expense, amortization and technical services
    
    
    39,255
    
    
    
    40,084
    
    
    
    31,589Communications
    
    
    10,923
    
    
    
    11,358
    
    
    
    8,232Business promotion
    
    
    15,621
    
    
    
    11,613
    
    
    
    11,065Goodwill and other intangibles impairment charges
    
    
    43,349
    
    
    
    
    
    
    
    Other taxes
    
    
    12,334
    
    
    
    11,514
    
    
    
    8,443Other operating expenses:Professional fees
    
    
    14,330
    
    
    
    12,589
    
    
    
    9,844Amortization of intangibles
    
    
    3,828
    
    
    
    4,081
    
    
    
    1,697Printing and supplies
    
    
    2,137
    
    
    
    1,939
    
    
    
    1,775Credit card expenses
    
    
    6,198
    
    
    
    10,741
    
    
    
    8,844Insurance
    
    
    4,029
    
    
    
    2,810
    
    
    
    2,461Examinations & FDIC assessment
    
    
    2,194
    
    
    
    1,914
    
    
    
    1,809Transportation and travel
    
    
    2,981
    
    
    
    2,802
    
    
    
    2,242Repossessed assets provision and expenses
    
    
    7,482
    
    
    
    1,879
    
    
    
    1,871Collections and related legal costs
    
    
    1,239
    
    
    
    1,542
    
    
    
    1,461All other
    
    
    15,664
    
    
    
    13,933
    
    
    
    14,438Other operating expenses
    
    
    60,082
    
    
    
    54,230
    
    
    
    46,442Non personnel expenses
    
    
    209,758
    
    
    
    156,072
    
    
    
    126,384Total Operating Expenses
    
    $
    344,016
    
    
    $
    277,783
    
    
    $
    221,386Efficiency ratio-on a tax equivalent basis
    
    
    66.32
    %
    
    
    66.82
    %
    
    
    62.97
    %Personnel cost to average assets
    
    
    1.46
    %
    
    
    1.38
    %
    
    
    1.15
    %Other operating expenses to average assets
    
    
    2.28
    %
    
    
    1.77
    %
    
    
    1.53
    %Assets per employee
    
    $
    3,494
    
    
    $
    3,929
    
    
    $
    5,199
 2007 compared to 2006.
  45




---



##### Table of Contents



2006 compared to 2005.
    Income Taxes
   46




---



##### Table of Contents



2007 compared to 2006.
  2006 compared to 2005.
 47




---



##### Table of Contents



Financial Condition
 Assets
   Short Term Investments and Interest-bearing Deposits in Other Financial Institutions
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Interest-bearing deposits
    
    $
    6,606
    
    
    $
    52,235
    
    
    $
    109,867Federal funds sold
    
    
    82,434
    
    
    
    35,412
    
    
    
    15,000Securities purchased under agreements to resell
    
    
    
    
    
    
    37,995
    
    
    
    77,429$
    89,040
    
    
    $
    125,642
    
    
    $
    202,296
 Investment Portfolio
      48




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAvailable for Sale
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)U.S. Treasury
    
    $
    64,455
    
    
    $
    64,455
    
    
    $
    63,995
    
    
    $
    63,995
    
    
    $
    24,576
    
    
    $
    24,576U.S. Agency Notes
    
    
    609,223
    
    
    
    609,223
    
    
    
    658,340
    
    
    
    658,340
    
    
    
    727,199
    
    
    
    727,199P.R. Government Obligations
    
    
    49,288
    
    
    
    49,288
    
    
    
    55,942
    
    
    
    55,942
    
    
    
    53,600
    
    
    
    53,600Mortgage-backed Securities
    
    
    545,182
    
    
    
    545,182
    
    
    
    631,437
    
    
    
    631,437
    
    
    
    754,231
    
    
    
    754,231Foreign Securities
    
    
    50
    
    
    
    50
    
    
    
    75
    
    
    
    75
    
    
    
    75
    
    
    
    75$
    1,268,198
    
    
    $
    1,268,198
    
    
    $
    1,409,789
    
    
    $
    1,409,789
    
    
    $
    1,559,681
    
    
    $
    1,559,681
  49




---



##### Table of Contents



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
    
    
    
    5.00
    %
    
    $
    375,625
    
    
    
    3.90
    %
    
    $
    240,235
    
    
    
    5.28
    %
    
    $
    333,093
    
    
    
    5.01
    %
    
    $
    1,332,757
    
    
    $
    1,332,757
    
    
    
    4.24
    %
 December 31, 2006After 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
    
    $
    63,995
    
    
    
    5.14
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    63,995
    
    
    $
    63,995
    
    
    
    5.14
    %U.S. Agency Notes
    
    
    188,503
    
    
    
    4.82
    %
    
    
    469,837
    
    
    
    3.89
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658,340
    
    
    
    658,340
    
    
    
    4.15
    %P.R. Government
Obligations
    
    
    948
    
    
    
    3.85
    %
    
    
    15,482
    
    
    
    4.26
    %
    
    
    24,565
    
    
    
    5.28
    %
    
    
    14,947
    
    
    
    5.79
    %
    
    
    55,942
    
    
    
    55,942
    
    
    
    5.10
    %Mortgage-backed
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    631,437
    
    
    
    4.99
    %
    
    
    631,437
    
    
    
    631,437
    
    
    
    4.99
    %Foreign Securities
    
    
    25
    
    
    
    7.50
    %
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75
    
    
    
    5.60
    %Other Securities
    
    
    50,710
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,710
    
    
    
    50,710
    
    
    
    5.50
    %Total Securities
    
    $
    304,181
    
    
    
    5.00
    %
    
    $
    485,369
    
    
    
    3.90
    %
    
    $
    24,565
    
    
    
    5.28
    %
    
    $
    646,384
    
    
    
    5.01
    %
    
    $
    1,460,499
    
    
    $
    1,460,499
    
    
    
    4.64
    %
 December 31, 2005After 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
    
    $
    24,576
    
    
    
    3.85
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    24,576
    
    
    $
    24,576
    
    
    
    3.85
    %U.S. Agency Notes
    
    
    254,610
    
    
    
    2.96
    %
    
    
    259,152
    
    
    
    3.68
    %
    
    
    213,437
    
    
    
    4.15
    %
    
    
    
    
    
    
    
    
    
    
    727,199
    
    
    
    727,199
    
    
    
    3.57
    %P.R. Government
Obligations
    
    
    12,790
    
    
    
    4.93
    %
    
    
    9,877
    
    
    
    4.07
    %
    
    
    27,215
    
    
    
    4.83
    %
    
    
    3,718
    
    
    
    6.35
    %
    
    
    53,600
    
    
    
    53,600
    
    
    
    4.82
    %Mortgage-backed
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754,231
    
    
    
    5.00
    %
    
    
    754,231
    
    
    
    754,231
    
    
    
    5.00
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    5.60
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75
    
    
    
    5.60
    %Other Securities
    
    
    41,862
    
    
    
    5.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,862
    
    
    
    41,862
    
    
    
    5.00
    %Total Securities
    
    $
    333,838
    
    
    
    3.36
    %
    
    $
    269,104
    
    
    
    3.70
    %
    
    $
    240,652
    
    
    
    4.22
    %
    
    $
    757,949
    
    
    
    5.01
    %
    
    $
    1,601,543
    
    
    $
    1,601,543
    
    
    
    4.33
    %
 50




---



##### Table of Contents



Loan Portfolio
  Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% 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
    
    $
    1,614,751
    
    
    
    22.8
    %
    
    $
    1,662,566
    
    
    
    23.9
    %
    
    $
    1,574,459
    
    
    
    26.1
    %
    
    $
    1,439,609
    
    
    
    25.9
    %
    
    $
    1,354,879
    
    
    
    32.2
    %Agricultural
    
    
    63,204
    
    
    
    0.9
    %
    
    
    59,315
    
    
    
    0.9
    %
    
    
    61,531
    
    
    
    1.0
    %
    
    
    62,198
    
    
    
    1.1
    %
    
    
    62,925
    
    
    
    1.5
    %SBA
    
    
    63,825
    
    
    
    0.9
    %
    
    
    66,734
    
    
    
    1.0
    %
    
    
    69,763
    
    
    
    1.2
    %
    
    
    72,963
    
    
    
    1.3
    %
    
    
    72,060
    
    
    
    1.7
    %Factor liens
    
    
    18,252
    
    
    
    0.3
    %
    
    
    20,553
    
    
    
    0.3
    %
    
    
    16,696
    
    
    
    0.3
    %
    
    
    16,818
    
    
    
    0.3
    %
    
    
    18,291
    
    
    
    0.4
    %Other
    
    
    4,688
    
    
    
    0.1
    %
    
    
    6,965
    
    
    
    0.1
    %
    
    
    40,072
    
    
    
    0.7
    %
    
    
    11,978
    
    
    
    0.2
    %
    
    
    2,754
    
    
    
    0.1
    %Retail commercial banking
    
    
    1,764,720
    
    
    
    25.0
    %
    
    
    1,816,133
    
    
    
    26.2
    %
    
    
    1,762,521
    
    
    
    29.3
    %
    
    
    1,603,566
    
    
    
    28.8
    %
    
    
    1,510,909
    
    
    
    35.9
    %Corporate banking
    
    
    765,310
    
    
    
    10.8
    %
    
    
    673,566
    
    
    
    9.7
    %
    
    
    1,205,664
    
    
    
    20.0
    %
    
    
    1,598,443
    
    
    
    28.8
    %
    
    
    753,839
    
    
    
    17.9
    %Construction
    
    
    484,237
    
    
    
    6.8
    %
    
    
    435,182
    
    
    
    6.3
    %
    
    
    213,705
    
    
    
    3.5
    %
    
    
    199,799
    
    
    
    3.6
    %
    
    
    209,655
    
    
    
    5.0
    %Lease Financing
    
    
    92,641
    
    
    
    1.3
    %
    
    
    132,655
    
    
    
    1.9
    %
    
    
    125,168
    
    
    
    2.1
    %
    
    
    112,152
    
    
    
    2.0
    %
    
    
    105,849
    
    
    
    2.5
    %Total
Commercial
    
    
    3,106,908
    
    
    
    43.9
    %
    
    
    3,057,536
    
    
    
    44.1
    %
    
    
    3,307,058
    
    
    
    54.9
    %
    
    
    3,513,960
    
    
    
    63.2
    %
    
    
    2,580,252
    
    
    
    61.3
    %Consumer:Personal (installment and other
loans)
    
    
    433,490
    
    
    
    6.1
    %
    
    
    412,952
    
    
    
    5.9
    %
    
    
    397,169
    
    
    
    6.6
    %
    
    
    319,204
    
    
    
    5.7
    %
    
    
    287,590
    
    
    
    6.8
    %Automobile
    
    
    
    
    
    
    0.0
    %
    
    
    2
    
    
    
    0.0
    %
    
    
    610
    
    
    
    0.0
    %
    
    
    6,434
    
    
    
    0.1
    %
    
    
    21,232
    
    
    
    0.5
    %Credit Cards
    
    
    240,858
    
    
    
    3.4
    %
    
    
    193,260
    
    
    
    2.8
    %
    
    
    169,416
    
    
    
    2.8
    %
    
    
    128,622
    
    
    
    2.3
    %
    
    
    95,362
    
    
    
    2.3
    %Consumer Finance
    
    
    611,114
    
    
    
    8.6
    %
    
    
    625,266
    
    
    
    9.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total Consumer
    
    
    1,285,462
    
    
    
    18.1
    %
    
    
    1,231,480
    
    
    
    17.7
    %
    
    
    567,195
    
    
    
    9.4
    %
    
    
    454,260
    
    
    
    8.2
    %
    
    
    404,184
    
    
    
    9.6
    %Mortgage:Residential
    
    
    2,682,362
    
    
    
    37.9
    %
    
    
    2,649,128
    
    
    
    38.1
    %
    
    
    2,141,358
    
    
    
    35.6
    %
    
    
    1,583,418
    
    
    
    28.5
    %
    
    
    1,219,091
    
    
    
    29.0
    %Commercial
    
    
    3,600
    
    
    
    0.1
    %
    
    
    5,412
    
    
    
    0.1
    %
    
    
    6,121
    
    
    
    0.1
    %
    
    
    7,659
    
    
    
    0.1
    %
    
    
    2,836
    
    
    
    0.1
    %Total Mortgage
    
    
    2,685,962
    
    
    
    38.0
    %
    
    
    2,654,540
    
    
    
    38.2
    %
    
    
    2,147,479
    
    
    
    35.7
    %
    
    
    1,591,077
    
    
    
    28.6
    %
    
    
    1,221,927
    
    
    
    29.1
    %Total Loans, net of unearned interest
and deferred fees
    
    $
    7,078,332
    
    
    
    100.0
    %
    
    $
    6,943,556
    
    
    
    100.0
    %
    
    $
    6,021,732
    
    
    
    100.0
    %
    
    $
    5,559,297
    
    
    
    100.0
    %
    
    $
    4,206,363
    
    
    
    100.0
    %
   51




---



##### Table of Contents



Allowance for Loan Losses
        52




---



##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Balance at beginning of year
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693
    
    
    $
    56,906Allowance acquired (Island Finance)
    
    
    
    
    
    
    35,104
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270
    
    
    
    49,916254,687
    
    
    
    167,529
    
    
    
    89,577
    
    
    
    95,963
    
    
    
    106,822Losses charged to the allowance:Commercial and industrial
    
    
    10,375
    
    
    
    9,792
    
    
    
    8,044
    
    
    
    19,250
    
    
    
    9,198Construction
    
    
    2,710
    
    
    
    
    
    
    
    1,438
    
    
    
    
    
    
    
    499Mortgage
    
    
    1,768
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    29,281
    
    
    
    16,679
    
    
    
    17,351
    
    
    
    18,969
    
    
    
    36,544Consumer Finance
    
    
    44,484
    
    
    
    38,345
    
    
    
    
    
    
    
    
    
    
    
    Leasing
    
    
    2,742
    
    
    
    2,071
    
    
    
    986
    
    
    
    1,658
    
    
    
    1,43491,360
    
    
    
    66,887
    
    
    
    27,819
    
    
    
    39,877
    
    
    
    47,675Recoveries:Commercial and industrial
    
    
    1,192
    
    
    
    2,463
    
    
    
    1,686
    
    
    
    5,271
    
    
    
    4,478Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433Mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Consumer
    
    
    904
    
    
    
    1,677
    
    
    
    2,646
    
    
    
    7,341
    
    
    
    5,127Consumer Finance
    
    
    1,088
    
    
    
    1,314
    
    
    
    
    
    
    
    
    
    
    
    Leasing
    
    
    441
    
    
    
    767
    
    
    
    752
    
    
    
    479
    
    
    
    5013,625
    
    
    
    6,221
    
    
    
    5,084
    
    
    
    13,091
    
    
    
    10,546Net loans charged-off
    
    
    87,735
    
    
    
    60,666
    
    
    
    22,735
    
    
    
    26,786
    
    
    
    37,129Balance at end of year
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693Ratios:Allowance for loan losses to year-end loans
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %
    
    
    1.66
    %Recoveries to charge-offs
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %
    
    
    22.12
    %Net charge-offs to average loans
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %
    
    
    0.91
    %Allowance for loan losses to net charge-offs
    
    
    190.29
    %
    
    
    176.15
    %
    
    
    294.00
    %
    
    
    258.26
    %
    
    
    187.71
    %Allowance for loan losses to non-performing
loans
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %
    
    
    70.85
    %Provision for loan losses to:Net charge-offs
    
    
    168.49
    %
    
    
    108.11
    %
    
    
    89.73
    %
    
    
    98.07
    %
    
    
    134.44
    %Average loans
    
    
    2.10
    %
    
    
    1.00
    %
    
    
    0.34
    %
    
    
    0.55
    %
    
    
    1.23
    %
  53




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##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Balance at beginning of year
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269
    
    
    $
    879
    
    
    $
    1,050Provision (credit) for unfunded lending
commitments and stand by letters of credit
    
    
    (29
    )
    
    
    198
    
    
    
    397
    
    
    
    390
    
    
    
    (171
    )Balance at end of year
    
    $
    1,835
    
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269
    
    
    $
    879
 2007 compared to 2006.
    2006 compared to 2005
   54




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##### Table of Contents



Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003% 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
    
    $
    29,883
    
    
    
    35.8
    %
    
    $
    29,846
    
    
    
    49.3
    %
    
    $
    27,765
    
    
    
    49.3
    %
    
    $
    29,469
    
    
    
    57.6
    %
    
    $
    26,219
    
    
    
    53.8
    %Construction
    
    
    23,735
    
    
    
    6.8
    %
    
    
    3,128
    
    
    
    3.5
    %
    
    
    1,456
    
    
    
    3.5
    %
    
    
    1,208
    
    
    
    3.6
    %
    
    
    1,194
    
    
    
    5.0
    %Consumer
    
    
    33,641
    
    
    
    9.5
    %
    
    
    20,099
    
    
    
    9.4
    %
    
    
    30,664
    
    
    
    9.4
    %
    
    
    30,832
    
    
    
    8.2
    %
    
    
    33,751
    
    
    
    9.6
    %Consumer Finance
    
    
    68,359
    
    
    
    8.6
    %
    
    
    41,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    7,379
    
    
    
    38.0
    %
    
    
    9,249
    
    
    
    35.7
    %
    
    
    2,415
    
    
    
    35.7
    %
    
    
    4,250
    
    
    
    28.6
    %
    
    
    3,318
    
    
    
    29.1
    %Lease financing
    
    
    1,292
    
    
    
    1.3
    %
    
    
    555
    
    
    
    2.1
    %
    
    
    2,128
    
    
    
    2.1
    %
    
    
    2,068
    
    
    
    2.0
    %
    
    
    2,922
    
    
    
    2.5
    %Unallocated
    
    
    2,663
    
    
    
    
    
    
    
    2,705
    
    
    
    
    
    
    
    2,414
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    2,289
    
    
    
    $
    166,952
    
    
    
    100.0
    %
    
    $
    106,863
    
    
    
    100.0
    %
    
    $
    66,842
    
    
    
    100.0
    %
    
    $
    69,177
    
    
    
    100.0
    %
    
    $
    69,693
    
    
    
    100.0
    %
   Liabilities
    55




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##### Table of Contents



th
    Year ended December 31,2007
    
    
    2006
    
    
    2005% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAverage
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    AverageBalance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost(Dollars in thousands)Savings deposits
    
    $
    1,715,631
    
    
    
    19.9
    %
    
    
    3.02
    %
    
    $
    1,861,167
    
    
    
    22.5
    %
    
    
    2.66
    %
    
    $
    1,945,095
    
    
    
    25.2
    %
    
    
    2.00
    %Time deposits
    
    
    2,820,495
    
    
    
    32.7
    %
    
    
    4.95
    %
    
    
    2,645,357
    
    
    
    32.0
    %
    
    
    4.68
    %
    
    
    2,473,737
    
    
    
    32.1
    %
    
    
    3.37
    %Interest-bearing deposits
    
    
    4,536,126
    
    
    
    52.6
    %
    
    
    4.22
    %
    
    
    4,506,524
    
    
    
    54.6
    %
    
    
    3.85
    %
    
    
    4,418,832
    
    
    
    57.3
    %
    
    
    2.77
    %Federal funds, repos, and
commercial paper and other borrowings
    
    
    2,805,003
    
    
    
    32.5
    %
    
    
    5.49
    %
    
    
    2,611,231
    
    
    
    31.6
    %
    
    
    5.30
    %
    
    
    2,295,932
    
    
    
    29.8
    %
    
    
    3.73
    %Term and subordinated notes
    
    
    284,944
    
    
    
    3.3
    %
    
    
    6.02
    %
    
    
    265,489
    
    
    
    3.2
    %
    
    
    5.96
    %
    
    
    119,240
    
    
    
    1.5
    %
    
    
    3.74
    %Total borrowings
    
    
    3,089,947
    
    
    
    35.8
    %
    
    
    5.54
    %
    
    
    2,876,720
    
    
    
    34.8
    %
    
    
    5.36
    %
    
    
    2,415,172
    
    
    
    31.3
    %
    
    
    3.73
    %Total interest-bearing liabilities
    
    
    7,626,073
    
    
    
    88.4
    %
    
    
    4.75
    %
    
    
    7,383,244
    
    
    
    89.4
    %
    
    
    4.44
    %
    
    
    6,834,004
    
    
    
    88.6
    %
    
    
    3.11
    %Non-interest-bearing deposits
    
    
    685,875
    
    
    
    8.0
    %
    
    
    0.00
    %
    
    
    548,163
    
    
    
    6.6
    %
    
    
    0.00
    %
    
    
    663,688
    
    
    
    8.6
    %
    
    
    0.00
    %Other liabilities
    
    
    310,228
    
    
    
    3.6
    %
    
    
    0.00
    %
    
    
    325,620
    
    
    
    3.9
    %
    
    
    0.00
    %
    
    
    212,074
    
    
    
    2.8
    %
    
    
    0.00
    %Total non-interest-bearing liabilities
    
    
    996,103
    
    
    
    11.6
    %
    
    
    0.00
    %
    
    
    873,783
    
    
    
    10.6
    %
    
    
    0.00
    %
    
    
    875,762
    
    
    
    11.4
    %
    
    
    0.00
    %Total Liabilities
    
    $
    8,622,176
    
    
    
    100.0
    %
    
    
    4.20
    %
    
    $
    8,257,027
    
    
    
    100.0
    %
    
    
    3.97
    %
    
    $
    7,709,766
    
    
    
    100.0
    %
    
    
    2.76
    %
  56




---



##### Table of Contents



Year ended December 31,Average Total Deposits
    
    2007
    
    
    2006
    
    
    2005(Dollars in thousands)Private Demand
    
    $
    684,923
    
    
    $
    547,416
    
    
    $
    626,829Public Demand
    
    
    953
    
    
    
    747
    
    
    
    36,859Non-interest bearing
    
    
    685,876
    
    
    
    548,163
    
    
    
    663,688Savings Accounts
    
    
    657,044
    
    
    
    792,791
    
    
    
    859,623NOW and Super NOW accounts
    
    
    401,104
    
    
    
    412,696
    
    
    
    470,595Government NOW accounts
    
    
    657,483
    
    
    
    655,680
    
    
    
    614,877Total Savings Accounts
    
    
    1,715,631
    
    
    
    1,861,167
    
    
    
    1,945,095Time deposits:Under $100,000
    
    
    262,561
    
    
    
    259,255
    
    
    
    231,916$100,000 and over
    
    
    2,557,934
    
    
    
    2,386,102
    
    
    
    2,241,821Total Time Deposits
    
    
    2,820,495
    
    
    
    2,645,357
    
    
    
    2,473,737Total Interest Bearing Deposits
    
    
    4,536,126
    
    
    
    4,506,524
    
    
    
    4,418,832Total Deposits
    
    $
    5,222,002
    
    
    $
    5,054,687
    
    
    $
    5,082,520
   2007
    
    
    2006(Dollars in thousands)Three months or less
    
    $
    1,105,405
    
    
    $
    896,638Over three months through six months
    
    
    365,957
    
    
    
    302,716Over six months through twelve months
    
    
    79,576
    
    
    
    377,998Over twelve months
    
    
    948,841
    
    
    
    963,659Total
    
    $
    2,499,779
    
    
    $
    2,541,011
  57




---



##### Table of Contents



Capital and Dividends
         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, 2007:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    696,909
    
    
    
    10.56
    %
    
    
    >
    
    
    $
    528,134
    
    
    
    >8.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    647,482
    
    
    
    10.91
    %
    
    
    >
    
    
    
    474,647
    
    
    
    >8.00
    %
    
    
    >
    
    
    $
    593,309
    
    
    
    >10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    490,259
    
    
    
    7.43
    %
    
    
    >
    
    
    
    264,067
    
    
    
    >4.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    573,022
    
    
    
    9.66
    %
    
    
    >
    
    
    
    237,324
    
    
    
    >4.00
    %
    
    
    >
    
    
    
    355,986
    
    
    
    >6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    490,259
    
    
    
    5.38
    %
    
    
    >
    
    
    
    273,297
    
    
    
    >3.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    573,022
    
    
    
    6.84
    %
    
    
    >
    
    
    
    251,493
    
    
    
    >3.00
    %
    
    
    >
    
    
    
    419,155
    
    
    
    >5.00
    %December 31, 2006:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    723,269
    
    
    
    10.93
    %
    
    
    >
    
    
    $
    529,191
    
    
    
    >8.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    651,350
    
    
    
    11.10
    %
    
    
    >
    
    
    
    469,346
    
    
    
    >8.00
    %
    
    
    >
    
    
    $
    586,683
    
    
    
    >10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    520,794
    
    
    
    7.87
    %
    
    
    >
    
    
    
    264,596
    
    
    
    >4.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    583,941
    
    
    
    9.95
    %
    
    
    >
    
    
    
    234,673
    
    
    
    >4.00
    %
    
    
    >
    
    
    
    352,010
    
    
    
    >6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    520,794
    
    
    
    5.81
    %
    
    
    >
    
    
    
    269,000
    
    
    
    >3.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    583,941
    
    
    
    7.15
    %
    
    
    >
    
    
    
    244,857
    
    
    
    >3.00
    %
    
    
    >
    
    
    
    408,095
    
    
    
    >5.00
    %December 31, 2005:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    726,939
    
    
    
    12.30
    %
    
    
    >
    
    
    $
    472,889
    
    
    
    >8.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    638,181
    
    
    
    11.05
    %
    
    
    >
    
    
    
    462,187
    
    
    
    >8.00
    %
    
    
    >
    
    
    $
    577,734
    
    
    
    >10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    537,319
    
    
    
    9.09
    %
    
    
    >
    
    
    
    236,445
    
    
    
    >4.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    570,056
    
    
    
    9.87
    %
    
    
    >
    
    
    
    231,093
    
    
    
    >4.00
    %
    
    
    >
    
    
    
    346,640
    
    
    
    >6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    537,319
    
    
    
    6.51
    %
    
    
    >
    
    
    
    247,593
    
    
    
    >3.00
    %
    
    
    
    
    
    
    N/ABanco Santander
    
    
    570,056
    
    
    
    6.98
    %
    
    
    >
    
    
    
    245,222
    
    
    
    >3.00
    %
    
    
    >
    
    
    
    408,703
    
    
    
    >5.00
    %
 59




---



##### Table of Contents



Goodwill and Intangible Assets
  2007
    
    
    2006
    
    
    2005(Dollars in millions)Mortgage Servicing Rights
    
    $
    9.6
    
    
    $
    8.4
    
    
    $
    8.0Advisory Servicing Rights
    
    
    1.6
    
    
    
    1.8
    
    
    
    1.3Intangible Pension Asset
    
    
    
    
    
    
    
    
    
    
    0.8Trade Name
    
    
    18.3
    
    
    
    23.7
    
    
    
    Customer Relationships
    
    
    
    
    
    
    9.7
    
    
    
    Non-compete Agreement
    
    
    0.7
    
    
    
    3.8
    
    
    
    Goodwill:Retail Banking
    
    
    10.5
    
    
    
    10.5
    
    
    
    10.5Wealth Management
    
    
    24.3
    
    
    
    24.3
    
    
    
    24.3Consumer Finance
    
    
    86.7
    
    
    
    113.5
    
    
    
    $
    151.7
    
    
    $
    195.7
    
    
    $
    44.9
     60




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##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments due by Periodas of December 31, 2007MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Contractual Obligations:Federal funds purchased and
other borrowings
    
    $
    1,952,110
    
    
    $
    1,952,110
    
    
    $
    
    
    
    $
    
    
    
    $
    Securities sold under
agreements to repurchase
    
    
    635,597
    
    
    
    60,597
    
    
    
    375,000
    
    
    
    
    
    
    
    200,000Commercial paper
    
    
    284,482
    
    
    
    284,482
    
    
    
    
    
    
    
    
    
    
    
    Subordinated notes
    
    
    247,170
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247,170Term notes
    
    
    19,371
    
    
    
    
    
    
    
    4,265
    
    
    
    15,106
    
    
    
    Operating lease obligations
    
    
    130,902
    
    
    
    22,976
    
    
    
    34,438
    
    
    
    8,912
    
    
    
    64,576Pension plan contribution
    
    
    1,875
    
    
    
    1,875
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,271,507
    
    
    $
    2,322,040
    
    
    $
    413,703
    
    
    $
    24,018
    
    
    $
    511,746Other Commercial Commitments:Lines of credit and
financial guarantees written
    
    
    134,470
    
    
    
    68,138
    
    
    
    1,076
    
    
    
    64,905
    
    
    
    351Commitments to extend credit
    
    
    1,530,017
    
    
    
    1,530,017
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,664,487
    
    
    $
    1,598,155
    
    
    $
    1,076
    
    
    $
    64,905
    
    
    $
    351
 61




---



##### 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



Industry Risk
    Government Risk
  63




---



##### Table of Contents



Non-performing Assets and Past Due Loans
  Year ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(Dollars in thousands)Commercial, Industrial and Agricultural
    
    $
    21,236
    
    
    $
    15,549
    
    
    $
    14,326
    
    
    $
    27,975
    
    
    $
    30,884Construction
    
    
    141,140
    
    
    
    3,966
    
    
    
    3,414
    
    
    
    11,200
    
    
    
    10,085Mortgage
    
    
    80,805
    
    
    
    51,341
    
    
    
    45,292
    
    
    
    36,252
    
    
    
    42,107Consumer
    
    
    10,818
    
    
    
    7,590
    
    
    
    4,747
    
    
    
    6,808
    
    
    
    9,312Consumer Finance
    
    
    37,412
    
    
    
    24,731
    
    
    
    
    
    
    
    
    
    
    
    Lease Financing
    
    
    2,334
    
    
    
    2,783
    
    
    
    3,340
    
    
    
    2,715
    
    
    
    4,027Restructured Loans
    
    
    693
    
    
    
    892
    
    
    
    2,560
    
    
    
    2,560
    
    
    
    1,953Total non-performing loans
    
    
    294,438
    
    
    
    106,852
    
    
    
    73,679
    
    
    
    87,510
    
    
    
    98,368Total repossessed assets
    
    
    16,447
    
    
    
    6,173
    
    
    
    2,706
    
    
    
    3,937
    
    
    
    4,989Non-performing assets
    
    $
    310,885
    
    
    $
    113,025
    
    
    $
    76,385
    
    
    $
    91,447
    
    
    $
    103,357Accruing loans past-due 90 days or more
    
    $
    7,162
    
    
    $
    20,938
    
    
    $
    2,999
    
    
    $
    3,377
    
    
    $
    2,404Non-performing loans to total loans
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %
    
    
    2.34
    %Non-performing loans plus accruing loans
past due 90 days or more to total loans
    
    
    4.26
    %
    
    
    1.84
    %
    
    
    1.27
    %
    
    
    1.63
    %
    
    
    2.40
    %Non-performing assets to total assets
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %
    
    
    1.40
    %Interest lost
    
    $
    7,708
    
    
    $
    3,112
    
    
    $
    2,111
    
    
    $
    2,351
    
    
    $
    3,127
       64




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##### Table of Contents



Potential Problem Loans
  Asset and Liability Management
  Market Risk and Interest Rate Sensitivity
  65




---



##### Table of Contents



Interest Rate SensitivityAs of December 31, 20070 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
    
    $
    290,217
    
    
    $
    28,862
    
    
    $
    330,651
    
    
    $
    537,509
    
    
    $
    76,080
    
    
    $
    
    
    
    $
    137,938
    
    
    $
    1,401,257Deposits with Other
Banks
    
    
    84,346
    
    
    
    3,750
    
    
    
    
    
    
    
    4,840
    
    
    
    
    
    
    
    
    
    
    
    114,200
    
    
    
    207,136Loan Portfolio:Commercial
    
    
    1,287,996
    
    
    
    296,796
    
    
    
    377,155
    
    
    
    217,772
    
    
    
    241,901
    
    
    
    95,604
    
    
    
    105,447
    
    
    
    2,622,671Construction
    
    
    454,391
    
    
    
    2,981
    
    
    
    11,964
    
    
    
    8,789
    
    
    
    3,773
    
    
    
    2,668
    
    
    
    (329
    )
    
    
    484,237Consumer
    
    
    373,869
    
    
    
    221,742
    
    
    
    444,105
    
    
    
    199,976
    
    
    
    47,133
    
    
    
    
    
    
    
    (1,363
    )
    
    
    1,285,462Mortgage
    
    
    79,902
    
    
    
    248,428
    
    
    
    640,813
    
    
    
    564,096
    
    
    
    1,016,001
    
    
    
    135,308
    
    
    
    1,414
    
    
    
    2,685,962Fixed and Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    473,488
    
    
    
    473,488Total Assets
    
    
    2,570,721
    
    
    
    802,559
    
    
    
    1,804,688
    
    
    
    1,532,982
    
    
    
    1,384,888
    
    
    
    233,580
    
    
    
    830,795
    
    
    
    9,160,213LIABILITIES AND STOCKHOLDERS EQUITY:External Funds Purchased:Commercial Paper
    
    
    284,482
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    284,482Repurchase Agreements
    
    
    10,591
    
    
    
    125,006
    
    
    
    300,000
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    635,597Federal Funds and
other borrowings
    
    
    1,945,000
    
    
    
    7,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,952,110Deposits:Certificates of Deposit
    
    
    1,260,506
    
    
    
    972,574
    
    
    
    463,859
    
    
    
    62,126
    
    
    
    24,602
    
    
    
    3,585
    
    
    
    (15,691
    )
    
    
    2,771,561Demand Deposits and
Savings Accounts
    
    
    111,566
    
    
    
    
    
    
    
    157,543
    
    
    
    485,801
    
    
    
    
    
    
    
    
    
    
    
    547
    
    
    
    755,457Transactional Accounts
    
    
    335,905
    
    
    
    231,007
    
    
    
    563,528
    
    
    
    503,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,633,685Senior and
Subordinated Debt
    
    
    
    
    
    
    
    
    
    
    4,815
    
    
    
    10,681
    
    
    
    251,045
    
    
    
    
    
    
    
    
    
    
    
    266,541Other Liabilities and
Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    860,780
    
    
    
    860,780Total Liabilities and
Capital
    
    
    3,948,050
    
    
    
    1,335,697
    
    
    
    1,489,745
    
    
    
    1,261,853
    
    
    
    275,647
    
    
    
    3,585
    
    
    
    845,636
    
    
    
    9,160,213Off-Balance Sheet
Financial InformationInterest Rate Swaps
(Assets)
    
    
    2,416,936
    
    
    
    437,363
    
    
    
    651,674
    
    
    
    1,089,162
    
    
    
    223,906
    
    
    
    6,000
    
    
    
    
    
    
    
    4,825,041Interest Rate Swaps
(Liabilities)
    
    
    (2,950,660
    )
    
    
    (427,524
    )
    
    
    (281,459
    )
    
    
    (1,071,974
    )
    
    
    (87,424
    )
    
    
    (6,000
    )
    
    
    
    
    
    
    (4,825,041
    )Caps
    
    
    7,381
    
    
    
    5,855
    
    
    
    629
    
    
    
    
    
    
    
    897
    
    
    
    
    
    
    
    
    
    
    
    14,762Caps Final Maturity
    
    
    (7,381
    )
    
    
    (5,855
    )
    
    
    (629
    )
    
    
    
    
    
    
    (897
    )
    
    
    
    
    
    
    
    
    
    
    (14,762
    )GAP
    
    
    (1,911,053
    )
    
    
    (523,299
    )
    
    
    685,158
    
    
    
    288,317
    
    
    
    1,245,723
    
    
    
    229,995
    
    
    
    (14,841
    )
    
    
    Cumulative GAP
    
    $
    (1,911,053
    )
    
    $
    (2,434,352
    )
    
    $
    (1,749,194
    )
    
    $
    (1,460,877
    )
    
    $
    (215,154
    )
    
    $
    14,841
    
    
    $
    
    
    
    $
    Cumulative GAP to
earning assets
    
    
    -22.00
    %
    
    
    -28.02
    %
    
    
    -20.14
    %
    
    
    -16.82
    %
    
    
    -2.48
    %
    
    
    0.17
    %
    66




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##### Table of Contents



NET INTEREST MARGIN SHOCK REPORTDecember 31, 2007(In millions)
    
    -200 BPs
    
    -100 BPs
    
    -50 BPs
    
    Base Case
    
    +50 BPs
    
    +100 BPs
    
    +200 BPsGross Interest Margin
    
    $
    399.2
    
    
    $
    379.2
    
    
    $
    368.3
    
    
    $
    357.1
    
    
    $
    345.4
    
    
    $
    332.5
    
    
    $
    307.9Sensitivity
    
    $
    42.1
    
    
    $
    22.1
    
    
    $
    11.2
    
    
    
    
    
    
    $
    (11.7
    )
    
    $
    (24.6
    )
    
    $
    (49.2
    )
 MARKET VALUE SHOCK REPORTDecember 31, 2007(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
    
    $
    738.8
    
    
    $
    711.0
    
    
    $
    674.3
    
    
    $
    632.3
    
    
    $
    580.9
    
    
    $
    535.9
    
    
    $
    445.3Sensitivity
    
    $
    106.5
    
    
    $
    78.7
    
    
    $
    42.0
    
    
    
    
    
    
    $
    (51.4
    )
    
    $
    (96.4
    )
    
    $
    (187.0
    )
  67




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##### Table of Contents



Derivatives
   68




---



##### Table of Contents



Hedging Activities:
  December 31, 2007OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesInterest 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
    )
 December 31, 2006OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesForeign Currency
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    36Interest Rate Swaps
    
    
    825,000
    
    
    
    (351
    )
    
    
    
    
    
    
    (214
    )Fair Value HedgesInterest Rate Swaps
    
    
    1,189,740
    
    
    
    (22,065
    )
    
    
    64
    
    
    
    Totals
    
    $
    2,014,740
    
    
    $
    (22,416
    )
    
    $
    64
    
    
    $
    (178
    )
 December 31, 2005OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesForeign Currency
    
    $
    117,725
    
    
    $
    2,182
    
    
    $
    
    
    
    $
    (36
    )Interest Rate Swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,369Fair Value HedgesInterest Rate Swaps
    
    
    1,408,772
    
    
    
    (26,880
    )
    
    
    28
    
    
    
    Totals
    
    $
    1,526,497
    
    
    $
    (24,698
    )
    
    $
    28
    
    
    $
    1,333
 
 *
    
    The notional amount represents the gross sum of long and short**
    
    Net of tax Cash Flow Hedges:
  69




---



##### Table of Contents



Fair Value Hedges:
    Derivative instruments not designated as hedging instruments:
  70




---



##### Table of Contents



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
 December 31, 2006Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    3,628,108
    
    
    $
    (421
    )
    
    $
    (592
    )Interest Rate Caps
    
    
    70,984
    
    
    
    3
    
    
    
    2Other
    
    
    1,988
    
    
    
    9
    
    
    
    49Equity Derivatives
    
    
    307,056
    
    
    
    
    
    
    
    Totals
    
    $
    4,008,136
    
    
    $
    (409
    )
    
    $
    (541
    )
 December 31, 2005Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    2,176,521
    
    
    $
    171
    
    
    $
    (344
    )Interest Rate Caps
    
    
    73,422
    
    
    
    2
    
    
    
    13Other
    
    
    7,270
    
    
    
    (40
    )
    
    
    (43
    )Equity Derivatives
    
    
    269,917
    
    
    
    
    
    
    
    2,310Totals
    
    $
    2,527,130
    
    
    $
    133
    
    
    $
    1,936
 
 *
    
    The notional amount represents the gross sum of long and short Liquidity Risk
   71




---



##### Table of Contents



th
   72




---



##### Table of Contents



Standard
    
    Fitch& Poors
    
    IBCAShort-term funding
    
    
    A-1+
    
    
    
    F1+Long-term funding
    
    AA
    
    AA-
   Maturity and Interest Rate Sensitivity of Interest-Earning Assets as of December 31, 2007
  As of December 31, 2007Maturities 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
    
    $
    207,136
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    207,136Investment Portfolio
    
    
    319,079
    
    
    
    868,159
    
    
    
    
    
    
    
    214,019
    
    
    
    
    
    
    
    1,401,257Loans:Commercial
    
    
    1,073,164
    
    
    
    538,553
    
    
    
    265,949
    
    
    
    440,974
    
    
    
    211,390
    
    
    
    2,530,030Construction
    
    
    193,792
    
    
    
    15,015
    
    
    
    216,466
    
    
    
    
    
    
    
    58,964
    
    
    
    484,237Consumer
    
    
    223,911
    
    
    
    266,960
    
    
    
    
    
    
    
    183,478
    
    
    
    
    
    
    
    674,349Consumer Finance
    
    
    204,741
    
    
    
    362,480
    
    
    
    18,530
    
    
    
    8,848
    
    
    
    16,514
    
    
    
    611,113Mortgage
    
    
    328,331
    
    
    
    1,204,910
    
    
    
    
    
    
    
    1,152,721
    
    
    
    
    
    
    
    2,685,962Leasing
    
    
    30,058
    
    
    
    56,373
    
    
    
    4,213
    
    
    
    1,978
    
    
    
    19
    
    
    
    92,641Total
    
    $
    2,580,212
    
    
    $
    3,312,450
    
    
    $
    505,158
    
    
    $
    2,002,018
    
    
    $
    286,887
    
    
    $
    8,686,725
 73




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##### Table of Contents



Capital Expenditures
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Headquarters/branches
    
    $
    1,770
    
    
    $
    1,217
    
    
    $
    4,194Data processing equipment
    
    
    1,438
    
    
    
    2,907
    
    
    
    2,583Software
    
    
    1,981
    
    
    
    5,818
    
    
    
    6,111Office furniture and equipment
    
    
    1,257
    
    
    
    2,161
    
    
    
    3,138Total
    
    $
    6,446
    
    
    $
    12,103
    
    
    $
    16,026
  Environmental Matters
   Puerto Rico Income Taxes
    74




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##### Table of Contents



United States Income Taxes
  75




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##### Table of Contents



CERTIFICATION PURSUANT TO SECTION 303A.12(a) OF THE
NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
  
 
 
 76




---



##### Table of Contents



(DELOITTE LOGO)
    
    Delottte & Touche LLPTorre Chardón350 Chardón Avenue - Suite 700San Juan, PR 00918-2140USATel: +1 787 759 7171Fax: +1 787 756 6340www.deloitte.com
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Member ofDeloitte Touche Tohmatsu




---



##### Table of Contents








---



##### Table of Contents



(DELOITTE LOGO)
    
    Deloitte & Touche LLPTorre Chardón350 Chardón Avenue - Suite 700San Juan, PR 00918-2140USATel: +1 787 759 7171Fax: +1 787 756 6340www.deloitte.com
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
 
  
 76-c


Member
ofDeloitte Touche Tohmatsu




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Santander BanCorp and Subsidiaries
 Consolidated Balance Sheets-December 31, 2007 and 2006
 2007
    
    
    2006ASSETSCash and Cash Equivalents:Cash and due from banks
    
    $
    118,096
    
    
    $
    125,077Interest-bearing deposits
    
    
    1,167
    
    
    
    780Federal funds sold and securities purchased under agreements to resell
    
    
    82,434
    
    
    
    73,407Total cash and cash equivalents
    
    
    201,697
    
    
    
    199,264Interest-Bearing Deposits
    
    
    5,439
    
    
    
    51,455Trading Securities, at fair valueSecurities pledged that can be repledged
    
    
    15,965
    
    
    
    Other trading securities
    
    
    52,535
    
    
    
    50,792Total trading securities
    
    
    68,500
    
    
    
    50,792Investment Securities Available for Sale,at fair value:Securities pledged that can be repledged
    
    
    667,361
    
    
    
    867,944Other investment securities available for sale
    
    
    600,837
    
    
    
    541,845Total investment securities available for sale
    
    
    1,268,198
    
    
    
    1,409,789Other Investment Securities,at amortized cost
    
    
    64,559
    
    
    
    50,710Loans Held for Sale,net
    
    
    141,902
    
    
    
    196,277Loans,net
    
    
    6,769,478
    
    
    
    6,640,416Accrued Interest Receivable
    
    
    80,029
    
    
    
    102,244Premises and Equipment,net
    
    
    29,523
    
    
    
    56,299Goodwill
    
    
    121,482
    
    
    
    148,300Intangible Assets
    
    
    30,203
    
    
    
    47,427Other Assets
    
    
    379,203
    
    
    
    235,195$
    9,160,213
    
    
    $
    9,188,168LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non interest-bearing
    
    $
    755,457
    
    
    $
    746,089Interest-bearing
    
    
    4,405,246
    
    
    
    4,567,885Total deposits
    
    
    5,160,703
    
    
    
    5,313,974Federal Funds Purchased and Other Borrowings
    
    
    1,952,110
    
    
    
    1,628,400Securities Sold Under Agreements to Repurchase
    
    
    635,597
    
    
    
    830,569Commercial Paper Issued
    
    
    284,482
    
    
    
    209,549Term Notes
    
    
    19,371
    
    
    
    41,529Subordinated Capital Notes
    
    
    247,170
    
    
    
    244,468Accrued Interest Payable
    
    
    77,356
    
    
    
    91,245Other Liabilities
    
    
    246,888
    
    
    
    249,214Total liabilities
    
    
    8,623,677
    
    
    
    8,608,948Contingencies and Commitments (Notes 12, 16, 17, 20 and 21)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 in December 2007 and 2006
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    308,373
    
    
    
    304,171Treasury stock at cost, 4,011,260 shares in December 2007 and 2006
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss, net of tax
    
    
    (24,478
    )
    
    
    (44,213
    )Retained earnings:Reserve fund
    
    
    139,250
    
    
    
    137,511Undivided profits
    
    
    54,317
    
    
    
    122,677Total stockholders equity
    
    
    536,536
    
    
    
    579,220$
    9,160,213
    
    
    $
    9,188,168
  77




---



Santander BanCorp and Subsidiaries
 Consolidated Statements of Operations
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005Interest Income:Loans
    
    $
    599,581
    
    
    $
    535,327
    
    
    $
    359,415Investment securities
    
    
    67,830
    
    
    
    74,023
    
    
    
    71,938Interest-bearing deposits
    
    
    3,344
    
    
    
    4,439
    
    
    
    4,065Federal funds sold and securities purchased under agreements to resell
    
    
    3,455
    
    
    
    4,531
    
    
    
    4,187Total interest income
    
    
    674,210
    
    
    
    618,320
    
    
    
    439,605Interest Expense:Deposits
    
    
    191,415
    
    
    
    173,380
    
    
    
    122,212Securities sold under agreements to repurchase and other borrowings
    
    
    155,229
    
    
    
    139,960
    
    
    
    86,969Subordinated capital notes
    
    
    15,887
    
    
    
    14,374
    
    
    
    3,402Total interest expense
    
    
    362,531
    
    
    
    327,714
    
    
    
    212,583Net interest income
    
    
    311,679
    
    
    
    290,606
    
    
    
    227,022Provision for Loan Losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400Net interest income after provision for loan losses
    
    
    163,855
    
    
    
    225,023
    
    
    
    206,622Other Income:Bank service charges, fees and other
    
    
    47,201
    
    
    
    49,078
    
    
    
    42,272Broker-dealer, asset management and insurance fees
    
    
    68,265
    
    
    
    56,973
    
    
    
    53,016Gain on sale of securities
    
    
    1,265
    
    
    
    
    
    
    
    17,842Loss on extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (5,959
    )Gain on sale of loans
    
    
    6,658
    
    
    
    1,994
    
    
    
    7,876Other income
    
    
    24,731
    
    
    
    10,424
    
    
    
    10,311Total other income
    
    
    148,120
    
    
    
    118,469
    
    
    
    125,358Other Operating Expenses:Salaries and employee benefits
    
    
    134,258
    
    
    
    121,711
    
    
    
    95,002Occupancy costs
    
    
    23,767
    
    
    
    22,476
    
    
    
    16,811Equipment expenses
    
    
    4,427
    
    
    
    4,797
    
    
    
    3,802EDP servicing, amortization and technical assistance
    
    
    39,255
    
    
    
    40,084
    
    
    
    31,589Communication expenses
    
    
    10,923
    
    
    
    11,358
    
    
    
    8,232Business promotion
    
    
    15,621
    
    
    
    11,613
    
    
    
    11,065Goodwill and other intangibles impairment charges
    
    
    43,349
    
    
    
    
    
    
    
    Other taxes
    
    
    12,334
    
    
    
    11,514
    
    
    
    8,443Other operating expenses
    
    
    60,082
    
    
    
    54,230
    
    
    
    46,442Total other operating expenses
    
    
    344,016
    
    
    
    277,783
    
    
    
    221,386(Loss) income before provision for income tax
    
    
    (32,041
    )
    
    
    65,709
    
    
    
    110,594Provision for Income Tax
    
    
    4,204
    
    
    
    22,540
    
    
    
    30,788Net (Loss) Income Available to Common Shareholders
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806Basic and Diluted (Loss) Earnings per Common Share
    
    $
    (0.78
    )
    
    $
    0.93
    
    
    $
    1.71
  78




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Santander BanCorp and Subsidiaries
 Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005Common 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
    
    
    304,171
    
    
    
    304,171
    
    
    
    304,171Capital contribution
    
    
    4,202
    
    
    
    
    
    
    
    Balance at end of year
    
    
    308,373
    
    
    
    304,171
    
    
    
    304,171Treasury 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
    
    
    (44,213
    )
    
    
    (41,591
    )
    
    
    (6,818
    )Unrealized net gain (loss) on investment securities available
for sale, net of tax
    
    
    18,227
    
    
    
    (587
    )
    
    
    (34,031
    )Unrealized net (loss) gain on cash flow hedges, net of tax
    
    
    (1,023
    )
    
    
    (178
    )
    
    
    1,333Minimum pension benefit (liability), net of tax
    
    
    2,531
    
    
    
    (1,750
    )
    
    
    (2,075
    )Adoption of SFAS No. 158, net of tax
    
    
    
    
    
    
    (107
    )
    
    
    Balance at end of year
    
    
    (24,478
    )
    
    
    (44,213
    )
    
    
    (41,591
    )Reserve Fund:Balance at beginning of year
    
    
    137,511
    
    
    
    133,759
    
    
    
    126,820Transfer from undivided profits
    
    
    1,739
    
    
    
    3,752
    
    
    
    6,939Balance at end of year
    
    
    139,250
    
    
    
    137,511
    
    
    
    133,759Undivided Profits:Balance at beginning of year
    
    
    122,677
    
    
    
    113,114
    
    
    
    70,099Net (loss) income
    
    
    (36,245
    )
    
    
    43,169
    
    
    
    79,806Transfer to reseve fund
    
    
    (1,739
    )
    
    
    (3,752
    )
    
    
    (6,939
    )Deferred tax benefit amortization
    
    
    (3
    )
    
    
    (5
    )
    
    
    (3
    )Common stock cash dividends
    
    
    (29,849
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Cummulative effect of adoption of FIN No.48
    
    
    (524
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    54,317
    
    
    
    122,677
    
    
    
    113,114Total stockholders equity
    
    $
    536,536
    
    
    $
    579,220
    
    
    $
    568,527
  79




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Comprehensive Income
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005Comprehensive (loss) incomeNet (loss) income
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on investment securities available for sale, net of tax
    
    
    18,170
    
    
    
    (926
    )
    
    
    (18,298
    )Reclassification adjustment for gains (losses) included in net (loss) income, net of tax
    
    
    57
    
    
    
    339
    
    
    
    (15,733
    )Unrealized gains (losses) on investment securities available for sale, net of tax
    
    
    18,227
    
    
    
    (587
    )
    
    
    (34,031
    )Unrealized (loss) gain on derivative used for cash flow hedges, net of tax
    
    
    (1,023
    )
    
    
    (178
    )
    
    
    1,333Minimum pension benefit (liability), net of tax
    
    
    2,531
    
    
    
    (1,750
    )
    
    
    (2,075
    )Total other comprehensive income (loss), net of tax
    
    
    19,735
    
    
    
    (2,515
    )
    
    
    (34,773
    )Comprehensive (loss) income
    
    $
    (16,510
    )
    
    $
    40,654
    
    
    $
    45,033
  80




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##### Table of Contents



Santander BanCorp and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806Adjustments to reconcile net (loss) income to net cash used in operating activities:Depreciation and amortization
    
    
    16,276
    
    
    
    17,595
    
    
    
    13,184Deferred tax (benefit) provision
    
    
    (23,833
    )
    
    
    (2,123
    )
    
    
    2,854Provision for loan losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400Goodwill and other intangibles impairment charges
    
    
    43,349
    
    
    
    
    
    
    
    Gain on sale of securities
    
    
    (1,265
    )
    
    
    
    
    
    
    (17,842
    )Gain on sale of loans
    
    
    (6,658
    )
    
    
    (1,994
    )
    
    
    (7,876
    )Gain on sale of mortgage-servicing rights
    
    
    (132
    )
    
    
    (170
    )
    
    
    (83
    )(Gain) loss on derivatives
    
    
    (249
    )
    
    
    477
    
    
    
    (1,964
    )Trading gains
    
    
    (2,831
    )
    
    
    (1,243
    )
    
    
    (277
    )Net (discount) premium amortization (accretion) on securities
    
    
    (6,782
    )
    
    
    (3,421
    )
    
    
    3,586Net (discount) premium amortization (accretion) on loans
    
    
    (1,793
    )
    
    
    (3,994
    )
    
    
    1,155Stocks granted to employees
    
    
    4,202
    
    
    
    
    
    
    
    Purchases and originations of loans held for sale
    
    
    (556,838
    )
    
    
    (908,272
    )
    
    
    (748,086
    )Proceeds from sales of loans
    
    
    305,183
    
    
    
    180,463
    
    
    
    253,902Repayments of loans held for sale
    
    
    22,511
    
    
    
    6,579
    
    
    
    12,196Proceeds from sales of trading securities
    
    
    2,553,127
    
    
    
    9,750,934
    
    
    
    1,609,771Purchases of trading securities
    
    
    (2,576,040
    )
    
    
    (9,755,086
    )
    
    
    (1,612,989
    )Net change in:Decrease (increase) in accrued interest receivable
    
    
    22,215
    
    
    
    (24,280
    )
    
    
    (33,280
    )Increase in other assets
    
    
    (116,664
    )
    
    
    (70,230
    )
    
    
    (10,303
    )(Decrease) increase in accrued interest payable
    
    
    (13,889
    )
    
    
    26,085
    
    
    
    42,494(Decrease) increase in other liabilities
    
    
    (37,657
    )
    
    
    31,899
    
    
    
    19,708Total adjustments
    
    
    (229,944
    )
    
    
    (691,198
    )
    
    
    (453,450
    )Net cash used in operating activities
    
    
    (266,189
    )
    
    
    (648,029
    )
    
    
    (373,644
    )CASH FLOWS FROM INVESTING ACTIVITIES:Decrease (increase) in interest-bearing deposits
    
    
    46,016
    
    
    
    49,578
    
    
    
    (51,034
    )Proceeds from sales of investment securities available for sale
    
    
    149,413
    
    
    
    
    
    
    
    906,150Proceeds from maturities of investment securities available for sale
    
    
    36,258,629
    
    
    
    29,621,084
    
    
    
    23,250,923Purchases of investment securities available for sale
    
    
    (36,323,477
    )
    
    
    (29,591,661
    )
    
    
    (23,949,534
    )Purchases of other investments
    
    
    (13,849
    )
    
    
    (8,848
    )
    
    
    (4,362
    )Repayment of securities and securities called
    
    
    100,631
    
    
    
    125,448
    
    
    
    173,462(Payments on) proceeds from derivative transactions
    
    
    (434
    )
    
    
    (392
    )
    
    
    2,303Purchases of mortgage loans
    
    
    
    
    
    
    
    
    
    
    (289,881
    )Net decrease in loans
    
    
    15,083
    
    
    
    359,889
    
    
    
    292,987Proceeds from sales of mortgage-servicing rights
    
    
    132
    
    
    
    170
    
    
    
    83Proceeds from sale of buildings
    
    
    56,750
    
    
    
    
    
    
    
    Payment for the acquisition of net assets of consumer finance company, net
of cash and cash equivalents acquired
    
    
    
    
    
    
    (740,761
    )
    
    
    Payment for the acquisition of net assets of insurance company, net of cash
and cash equivalents acquired
    
    
    
    
    
    
    (2,074
    )
    
    
    Purchases of premises and equipment
    
    
    (3,694
    )
    
    
    (5,611
    )
    
    
    (9,076
    )Net cash provided by (used in) investing activities
    
    
    285,200
    
    
    
    (193,178
    )
    
    
    322,021
  81




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) increase in deposits
    
    
    (168,296
    )
    
    
    89,349
    
    
    
    489,835Net increase (decrease) in federal funds purchased and other borrowings
    
    
    323,710
    
    
    
    859,554
    
    
    
    (11,488
    )Net decrease in securities sold under agreements to repurchase
    
    
    (194,972
    )
    
    
    (117,198
    )
    
    
    (401,677
    )Net increase (decrease) in commercial paper issued
    
    
    74,933
    
    
    
    (124,770
    )
    
    
    (295,225
    )Net (decrease) increase in term notes
    
    
    (22,158
    )
    
    
    1,314
    
    
    
    8,758Issuance of subordinated capital notes
    
    
    54
    
    
    
    124,078
    
    
    
    49,852Dividends paid
    
    
    (29,849
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Net cash provided by (used in) financing activities
    
    
    (16,578
    )
    
    
    802,478
    
    
    
    (189,794
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    2,433
    
    
    
    (38,729
    )
    
    
    (241,417
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    199,264
    
    
    
    237,993
    
    
    
    479,410CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    201,697
    
    
    $
    199,264
    
    
    $
    237,993
 (Concluded)
  82




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Notes to Consolidated Financial Statements
Years Ended December 31, 2007, 2006 and 2005
 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
   83




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##### Table of Contents



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 other
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 results of operations. 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
    84




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Loans Held for Sale
  Loans
     Acquired Loans
   85




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##### Table of Contents



Off-Balance Sheet Instruments
    Allowance for Loan Losses
      86




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##### Table of Contents



Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
   Premises and Equipment
  Other Real Estate
  Goodwill and Intangible Assets
  87




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##### Table of Contents



Mortgage-servicing Rights
   Mortgage Banking
    88




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##### Table of Contents



Trust Services
   Broker-dealer and Asset Management Commissions
  Insurance Commissions
  Treasury Stock
  Income Taxes
   Earnings Per Common Share
  89




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Statements of Cash Flows
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Cash paid during the year for:Interest
    
    $
    376,420
    
    
    $
    301,619
    
    
    $
    195,157Income taxes
    
    $
    23,648
    
    
    $
    34,937
    
    
    $
    6,713Noncash transactions:Long term incentive plans (See Note 18)
    
    $
    14,762
    
    
    $
    
    
    
    $
    Minimum pension benefit (liability) (See Note 17)
    
    $
    2,531
    
    
    $
    (1,750
    )
    
    $
    (2,075
    )Initial adoption of SFAS No. 158 (See Note 17)
    
    $
    
    
    
    $
    (107
    )
    
    $
    Capital
Contribution
    
    $
    4,202
    
    
    $
    
    
    
    $
 Recent Accounting Pronouncements that Affect the Corporation
  
    
    FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48).  In
July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty
in tax positions. This Interpretation requires that the Corporation recognize in the
financial statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the position. In
evaluating the more-likely-than-not recognition threshold, a Corporation should presume the
tax position will be subject to examination by a taxing authority with full knowledge of
all relevant information. The provisions of FIN 48 were effective on January 1, 2007 and
resulted in a reduction of retained earnings of $524,000.
  
    
    SFAS No. 157, Fair Value Measurements.In September 2006, the FASB issued SFAS No.
157, Fair Value Measurements, which provides enhanced guidance for using fair value to
measure assets and liabilities. SFAS No. 157 establishes a common definition of fair value,
provides a framework for measuring fair value under U.S. GAAP and expands disclosure
requirements about fair value measurements. SFAS No. 157 is effective for financial
statements issued in fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Corporation is currently evaluating the impact, if any, the
adoption of SFAS No. 157 will have on the Corporations consolidated financial statements,
including disclosures.
    
    SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities-
including an amendment of FASB Statements No. 115.In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which
permits entities to choose to measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting provisions.
This statement is effective as of the beginning of an entitys first fiscal year that
begins after November 15, 2007. The Corporation is currently evaluating the impact, if any,
the adoption of SFAS No. 159 will have on the Corporations consolidated financial
statements, including disclosures.
    
    FSP FIN No. 39-1 Amendment of FASB Interpretation No. 39In April 2007, the FASB
issued Staff Position FSP FIN No. 39-1, which defines right of setoff and specifies what
conditions must be met for a derivative contract to qualify for this right of setoff. It
also addresses the applicability of a right of setoff to derivative instruments and
clarifies the circumstances in which it is appropriate to offset amounts recognized for
those instruments in the statement of financial position. In addition, this FSP permits the
offsetting of fair value amounts recognized for multiple derivative instruments executed
with the same counterparty under a master netting arrangement and fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the obligation to
return cash collateral (a payable) arising from the same master netting arrangement as the
derivative instruments. This
interpretation is effective for fiscal years beginning after November 15, 2007, with early
application permitted. The
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adoption of FSP FIN No. 39-1 in 2008 did not have a material
impact on the Corporations consolidated financial statements and disclosures.
 
    
    SOP 07-01Clarification of the Scope of the Audit and Accounting Guide Investment
Companies and Accounting by Parent Companies and Equity Method Investors for Investments in
Investment Companies.The Statement of Position 07-1 (SOP 07-01), issued in June 2007,
provides guidance for determining whether an entity is within the scope of the American
Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for
Investment Companies (the AICPA Guide). Additionally, it provides guidance as to whether
a parent company or an equity method investor can apply the specialized industry accounting
principles of the AICPA Guide. SOP 07-01 was to be effective for fiscal years beginning on
or after December 15, 2007. On February of 2008, the FASB issued a final staff position
that indefinitely defers the effective dates of SOP 07-01 and, for entities that meet the
definition of an investment company in SOP 07-01, of FSP FIN 46(R)-7, Application of
FASB Interpretation No. 46(R) to Investment Companies. The FASB decision was in response
to several implementation issues that arose after SOP 07-01 was issued. Nevertheless,
management is evaluating the impact, if any, that the adoption of SOP 07-01 may have on its
consolidated financial statements and disclosures.
    
    FSP FIN No. 46(R)  7 Application of FASB Interpretation No. 46(R) to Investment
Companies.In May 2007, the FASB issued Staff Position FSP FIN No.46(R) -7, which amends
the scope of the exception on FIN No.46(R) to indicate that investments accounted for at
fair value, in accordance with the specialized accounting guidance in the AICPA Guide, are
not subject to consolidation under FIN No. 46(R). Management is evaluating the impact, if
any, that the adoption of this interpretation may have on its consolidated financial
statements and disclosures. As indicated under the guidance of SOP 07-01, which was
previously described, the implementation of FSP FIN No. 46(R) -7 is indefinitely delayed
until further notification by the FASB.
    
    SFAS No. 141-R Statement of Financial Accounting Standards No. 141(R), Business
Combinations (a revision of SFAS No. 141.)In December 2007, the FASB issued SFAS No.
141(R) Business Combinations. SFAS No. 141(R) will significantly change how entities
apply the acquisition method to business combinations. The most significant changes
affecting how the Corporation will account for business combinations under this statement
include the following: the acquisition date will be the date the acquirer obtains control;
all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling
interests in the acquiree will be stated at fair value on the acquisition date; assets or
liabilities arising from noncontractual contingencies will be measured at their acquisition
date at fair value only if it is more likely than not that they meet the definition of an
asset or liability on the acquisition date; adjustments subsequently made to the
provisional amounts recorded on the acquisition date will be made retroactively during a
measurement period not to exceed one year; acquisition-related restructuring costs that do
not meet the criteria in SFAS No. 146 Accounting for Costs Associated with Exit or
Disposal Activities will be expensed as incurred; transaction costs will be expensed as
incurred; reversals of deferred income tax valuation allowances and income tax
contingencies will be recognized in earnings subsequent to the measurement period; and the
allowance for loan losses of an acquiree will not be permitted to be recognized by the
acquirer. Additionally, SFAS 141(R) will require new and modified disclosures surrounding
subsequent changes to acquisition-related contingencies, contingent consideration,
noncontrolling interests, acquisition-related transaction costs, fair values and cash flows
not expected to be collected for acquired loans, and an enhanced goodwill rollforward. The
Corporation will be required to prospectively apply SFAS 141(R) to all business
combinations completed on or after January 1, 2009. Early adoption is not permitted. For
business combinations in which the acquisition date was before the effective date, the
provisions of SFAS 141(R) will apply to the subsequent accounting for deferred income tax
valuation allowances and income tax contingencies and will require any changes in those
amounts to be recorded in earnings. Management will be evaluating the effects that SFAS
141(R) will have on the financial condition, results of operations, liquidity, and the
disclosures that will be presented on the consolidated financial statements.
    
    SFAS No. 160 Statement of Financial Accounting Standards No. 160, Noncontrolling
Interest in Consolidated Financial Statements, an amendment of ARB No. 51.In December
2007, the FASB issued SFAS No. 160, which amends ARB No. 51, to establish accounting and
reporting standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 will require entities to classify
noncontrolling interests as a component of stockholders equity on the consolidated
financial statements and will require subsequent changes in ownership interests in a
subsidiary to be accounted for as an equity transaction. Additionally, SFAS No. 160 will
require entities to recognize a gain or loss upon the loss of control of a subsidiary and
to remeasure any ownership interest retained at fair value on that date. This statement
also requires expanded disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS 160 is
effective on a prospective basis for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, except for the presentation and disclosure
requirements, which are required to be applied retrospectively. Early
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adoption is not permitted. Management will be evaluating the effects, if any, that the
adoption of this statement will have on its consolidated financial statements.
 
    
    Staff Accounting Bulletin No. 109 (SAB 109) Written Loan Commitments Recorded at Fair
Value through Earnings.On November 5, 2007, the SEC issued Staff Accounting Bulletin No.
109 (SAB 109), which requires that the fair value of a written loan commitment that is
marked to market through earnings should include the future cash flows related to the
loans servicing rights. However, the fair value measurement of a written loan commitment
still must exclude the expected net cash flows related to internally developed intangible
assets (such as customer relationship intangible assets). SAB 109 applies to two types of
loan commitments: (1) written mortgage loan commitments for loans that will be
held-for-sale when funded that are marked to market as derivatives under FAS 133
(derivative loan commitments); and (2) other written loan commitments that are accounted
for at fair value through earnings under Statement 159s fair-value election. SAB 109
supersedes SAB 105, which applied only to derivative loan commitments and allowed the
expected future cash flows related to the associated servicing of the loan to be recognized
only after the servicing asset had been contractually separated from the underlying loan by
sale or securitization of the loan with servicing retained. SAB 109 will be applied
prospectively to derivative loan commitments issued or modified in fiscal quarters
beginning after December 15, 2007. The Corporation is currently evaluating the potential
impact of adopting this SAB 109.
    
    Staff Position (FSP) FAS 140-d, Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions"(FSP FAS 140-d).In February 2008, the FASB issued FASB
Staff Position (FSP) FAS 140-d, Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions. The objective of this FSP is to provide implementation
guidance on whether the security transfer and contemporaneous repurchase financing
involving the transferred financial asset must be evaluated as one linked transaction or
two separate de-linked transactions. Current practice records the transfer as a sale and
the repurchase agreement as a financing. The FSP requires the recognition of the transfer
and the repurchase agreement as one linked transaction, unless all of the following
criteria are met: (1) the initial transfer and the repurchase financing are not
contractually contingent on one another; (2) the initial transferor has full recourse upon
default, and the repurchase agreements price is fixed and not at fair value; (3) the
financial asset is readily obtainable in the marketplace and the transfer and repurchase
financing are executed at market rates; and (4) the maturity of the repurchase financing is
before the maturity of the financial asset. The scope of this FSP is limited to transfers
and subsequent repurchase financings that are entered into contemporaneously or in
contemplation of one another. The FSP will be effective for the Corporation on January 1,
2009. Early adoption is prohibited. The Corporation will be evaluating the potential impact
of adopting this FSP.
 2. Trading Securities:
  92




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3. Investment Securities Available for Sale:
  December 31, 2007Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States Government:Within one year
    
    $
    317,974
    
    
    $
    137
    
    
    $
    233
    
    
    $
    317,878
    
    
    
    3.63
    %After one year to five years
    
    
    354,281
    
    
    
    1,703
    
    
    
    184
    
    
    
    355,800
    
    
    
    3.91
    %672,255
    
    
    
    1,840
    
    
    
    417
    
    
    
    673,678
    
    
    
    3.78
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    1,370
    
    
    
    
    
    
    
    3
    
    
    
    1,367
    
    
    
    3.99
    %After one year to five years
    
    
    20,245
    
    
    
    
    
    
    
    470
    
    
    
    19,775
    
    
    
    4.44
    %After five years to ten years
    
    
    15,186
    
    
    
    84
    
    
    
    159
    
    
    
    15,111
    
    
    
    5.21
    %Over ten years
    
    
    13,091
    
    
    
    62
    
    
    
    118
    
    
    
    13,035
    
    
    
    5.73
    %49,892
    
    
    
    146
    
    
    
    750
    
    
    
    49,288
    
    
    
    5.00
    %Mortgage-backed securities:After five years but within ten years
    
    
    232,420
    
    
    
    
    
    
    
    7,296
    
    
    
    225,124
    
    
    
    4.40
    %Over ten years
    
    
    324,112
    
    
    
    
    
    
    
    4,054
    
    
    
    320,058
    
    
    
    5.41
    %556,532
    
    
    
    
    
    
    
    11,350
    
    
    
    545,182
    
    
    
    4.99
    %Foreign
securities:After one year to five years
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %$
    1,278,729
    
    
    $
    1,986
    
    
    $
    12,517
    
    
    $
    1,268,198
    
    
    
    4.35
    %
 December 31, 2006Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States Government:Within one year
    
    $
    252,497
    
    
    $
    29
    
    
    $
    28
    
    
    $
    252,498
    
    
    
    4.90
    %After one year to five years
    
    
    485,258
    
    
    
    
    
    
    
    15,421
    
    
    
    469,837
    
    
    
    3.89
    %737,755
    
    
    
    29
    
    
    
    15,449
    
    
    
    722,335
    
    
    
    4.24
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    950
    
    
    
    
    
    
    
    2
    
    
    
    948
    
    
    
    3.85
    %After one year to five years
    
    
    16,005
    
    
    
    
    
    
    
    523
    
    
    
    15,482
    
    
    
    4.26
    %After five years to ten years
    
    
    24,966
    
    
    
    6
    
    
    
    407
    
    
    
    24,565
    
    
    
    5.28
    %Over ten years
    
    
    14,781
    
    
    
    166
    
    
    
    
    
    
    
    14,947
    
    
    
    5.79
    %56,702
    
    
    
    172
    
    
    
    932
    
    
    
    55,942
    
    
    
    5.10
    %Mortgage-backed securities:Over ten years
    
    
    653,521
    
    
    
    
    
    
    
    22,084
    
    
    
    631,437
    
    
    
    4.99
    %Foreign
Securities:Within one year
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    7.50
    %After one year to five years
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %75
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    5.60
    %$
    1,448,053
    
    
    $
    201
    
    
    $
    38,465
    
    
    $
    1,409,789
    
    
    
    4.57
    %
 93




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##### Table of Contents



Less 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
    
    
    5
    
    
    $
    228,590
    
    
    $
    57
    
    
    
    4
    
    
    $
    152,132
    
    
    $
    360
    
    
    
    9
    
    
    $
    380,722
    
    
    $
    417Commonwealth of Puerto
Rico and its subdivisions
    
    
    1
    
    
    
    9,162
    
    
    
    118
    
    
    
    18
    
    
    
    30,420
    
    
    
    632
    
    
    
    19
    
    
    
    39,582
    
    
    
    750Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    545,182
    
    
    
    11,350
    
    
    
    31
    
    
    
    545,182
    
    
    
    11,3506
    
    
    $
    237,752
    
    
    $
    175
    
    
    
    53
    
    
    $
    727,734
    
    
    $
    12,342
    
    
    
    59
    
    
    $
    965,486
    
    
    $
    12,517
      94




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##### Table of Contents



4. Assets Pledged:
  2007
    
    
    2006(Dollars in thousands)Investment
Securities available for sale
    
    
    415,278
    
    
    
    356,728Loans
    
    
    306,557
    
    
    
    313,582Other
    
    
    
    
    
    
    22,004$
    721,835
    
    
    $
    692,314
   5. Loans:
  2007
    
    
    2006(Dollars in thousands)Commercial and industrial
    
    $
    2,530,806
    
    
    $
    2,489,959Consumer
    
    
    672,888
    
    
    
    604,619Consumer Finance
    
    
    946,209
    
    
    
    849,036Leasing
    
    
    98,987
    
    
    
    143,836Construction
    
    
    486,284
    
    
    
    438,573Mortgage
    
    
    2,539,811
    
    
    
    2,453,4297,274,985
    
    
    
    6,979,452Unearned income and deferred fees/costs:Commercial
and Industrial
    
    
    (3,459
    )
    
    
    (8,404
    )Consumer Finance
    
    
    (335,096
    )
    
    
    (223,769
    )Allowance for loan losses
    
    
    (166,952
    )
    
    
    (106,863
    )Loans, net
    
    $
    6,769,478
    
    
    $
    6,640,416
 95




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##### Table of Contents



2007
    
    
    2006(Dollars in thousands)Impaired loans with related allowance
    
    $
    152,907
    
    
    $
    19,069Impaired loans that did not require allowance
    
    
    52,681
    
    
    
    38,170Total impaired loans
    
    $
    205,588
    
    
    $
    57,239Allowance for impaired loans
    
    $
    25,594
    
    
    $
    4,360Impaired loans measured based on fair value of collateral
    
    $
    81,260
    
    
    $
    57,239Impaired loans measured based on discounted cash flows
    
    $
    124,328
    
    
    $
    Interest income recognized on impaired loans
    
    $
    705
    
    
    $
    419
   2007
    
    
    2006
    
    
    2005(Dollars in thousands)Principal balance as of December 31
    
    $
    294,438
    
    
    $
    106,852
    
    
    $
    73,679Interest income which would have been recorded had the
loans not been classified as non-accruing
    
    $
    7,708
    
    
    $
    3,112
    
    
    $
    2,111Loans past due ninety days or more and still accruing interest
    
    $
    7,162
    
    
    $
    20,938
    
    
    $
    2,999
 96




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##### Table of Contents



6. Allowance for Loan Losses:
  Year ended December 31,2007
    
    
    2006
    
    
    2005(Dollars in thousands)Balance at beginning of year
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177Allowance acquired (Island Finance)
    
    
    
    
    
    
    35,104
    
    
    
    Provision for loan losses
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400254,687
    
    
    
    167,529
    
    
    
    89,577Losses charged to the allowance:Commercial and industrial
    
    
    10,375
    
    
    
    9,792
    
    
    
    8,044Construction
    
    
    2,710
    
    
    
    
    
    
    
    1,438Mortgage
    
    
    1,768
    
    
    
    
    
    
    
    Consumer
    
    
    29,281
    
    
    
    16,679
    
    
    
    17,351Consumer Finance
    
    
    44,484
    
    
    
    38,345
    
    
    
    Leasing
    
    
    2,742
    
    
    
    2,071
    
    
    
    98691,360
    
    
    
    66,887
    
    
    
    27,819Recoveries:Commercial and industrial
    
    
    1,192
    
    
    
    2,463
    
    
    
    1,686Consumer
    
    
    904
    
    
    
    1,677
    
    
    
    2,646Consumer Finance
    
    
    1,088
    
    
    
    1,314
    
    
    
    Leasing
    
    
    441
    
    
    
    767
    
    
    
    7523,625
    
    
    
    6,221
    
    
    
    5,084Net loans charged-off
    
    
    87,735
    
    
    
    60,666
    
    
    
    22,735Balance at end of year
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842
 7. Premises and Equipment:
  Useful lifein years
    
    2007
    
    
    2006(Dollars in thousands)Land
    
    
    
    $
    5,273
    
    
    $
    6,926Buildings
    
    50
    
    
    9,940
    
    
    
    39,875Equipment
    
    3-10
    
    
    43,498
    
    
    
    52,399Leasehold improvements
    
    Various
    
    
    27,030
    
    
    
    29,71385,741
    
    
    
    128,913Accumulated depreciation and amortization
    
    
    
    
    (56,218
    )
    
    
    (72,614
    )Premises and
Equipment, net
    
    
    
    $
    29,523
    
    
    $
    56,299
   97




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##### Table of Contents



8. Goodwill and Other Intangible Assets:
 Goodwill
  2007
    
    
    2006(Dollars in thousands)Commercial Banking
    
    $
    10,537
    
    
    $
    10,537Wealth Management
    
    
    24,254
    
    
    
    24,254Consumer Finance
    
    
    86,691
    
    
    
    113,509$
    121,482
    
    
    $
    148,300
   98




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##### Table of Contents



Other Intangible Assets
  2007
    
    
    2006(Dollars in thousands)Commercial Banking  Mortgage-servicing rights
    
    $
    9,631
    
    
    $
    8,433Wealth Management  Advisory-servicing rights
    
    
    1,572
    
    
    
    1,750Consumer Finance:Trade name
    
    
    18,300
    
    
    
    23,700Customer relationships
    
    
    
    
    
    
    9,717Non-compete agreements
    
    
    700
    
    
    
    3,827$
    30,203
    
    
    $
    47,427
    Year
    
    Amortization(in thousands)2008
    
    $
    2,5532009
    
    
    2,4622010
    
    
    2,1492011
    
    
    1,7682012
    
    
    1,415Thereafter
    
    
    1,556$
    11,903
 99




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##### Table of Contents



9. Other Assets:
  2007
    
    
    2006(Dollars in thousands)Deferred tax assets, net (Note 15)
    
    $
    37,199
    
    
    $
    23,796Accounts receivable
    
    
    217,993
    
    
    
    109,877Securities sold not delivered, net
    
    
    
    
    
    
    2,945Repossesed assets
    
    
    16,448
    
    
    
    6,173Software, net
    
    
    8,069
    
    
    
    9,214Prepaid expenses
    
    
    14,224
    
    
    
    17,437Customers liabilities on acceptances
    
    
    783
    
    
    
    3,938Derivative assets
    
    
    79,969
    
    
    
    59,260Other
    
    
    4,518
    
    
    
    2,555$
    379,203
    
    
    $
    235,195
  10. Deposits:
   Year
    
    Amount(In thousands)2008
    
    $
    1,844,1502009
    
    
    99,9882010
    
    
    215,4282011
    
    
    124,0702012
    
    
    120,626Thereafter
    
    
    367,299$
    2,771,561
 100




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Carrying
    
    
    Interest
    
    
    Carrying
    
    
    Interest
    
    
    Carrying
    
    
    InterestAmount
    
    
    Expense
    
    
    Amount
    
    
    Expense
    
    
    Amount
    
    
    Expense(Dollars in thousands)Non interest bearingPrivate demand
    
    $
    755,077
    
    
    $
    
    
    
    $
    745,685
    
    
    $
    
    
    
    $
    644,794
    
    
    $
    Public demand
    
    
    380
    
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    27,431
    
    
    
    755,457
    
    
    
    
    
    
    
    746,089
    
    
    
    
    
    
    
    672,225
    
    
    
    Savings depositsSavings
    
    
    608,195
    
    
    
    20,673
    
    
    
    707,695
    
    
    
    21,668
    
    
    
    855,579
    
    
    
    18,072NOW and other transactions
    
    
    1,025,490
    
    
    
    31,112
    
    
    
    1,053,612
    
    
    
    27,802
    
    
    
    1,090,342
    
    
    
    19,5631,633,685
    
    
    
    51,785
    
    
    
    1,761,307
    
    
    
    49,470
    
    
    
    1,945,921
    
    
    
    37,635Certificates of depositsUnder $100,000
    
    
    271,782
    
    
    
    13,715
    
    
    
    265,567
    
    
    
    12,833
    
    
    
    244,504
    
    
    
    8,592$100,000 and over
    
    
    2,499,779
    
    
    
    125,915
    
    
    
    2,541,011
    
    
    
    111,077
    
    
    
    2,362,000
    
    
    
    75,9852,771,561
    
    
    
    139,630
    
    
    
    2,806,578
    
    
    
    123,910
    
    
    
    2,606,504
    
    
    
    84,577$
    5,160,703
    
    
    $
    191,415
    
    
    $
    5,313,974
    
    
    $
    173,380
    
    
    $
    5,224,650
    
    
    $
    122,212
 11. Other Borrowings:
  December 31, 2007Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    1,952,110
    
    
    $
    635,597
    
    
    $
    284,482Average indebtedness outstanding during the year
    
    $
    1,669,534
    
    
    $
    756,117
    
    
    $
    379,351Maximum amount outstanding during the year
    
    $
    2,000,220
    
    
    $
    851,578
    
    
    $
    676,957Average interest rate for the year
    
    
    5.49
    %
    
    
    5.48
    %
    
    
    5.48
    %Average interest rate at year-end
    
    
    5.02
    %
    
    
    5.43
    %
    
    
    5.31
    %
 December 31, 2006Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    1,628,400
    
    
    $
    830,569
    
    
    $
    209,549Average indebtedness outstanding during the year
    
    $
    1,317,477
    
    
    $
    919,899
    
    
    $
    373,855Maximum amount outstanding during the year
    
    $
    1,828,400
    
    
    $
    986,759
    
    
    $
    750,000Average interest rate for the year
    
    
    5.36
    %
    
    
    5.31
    %
    
    
    5.09
    %Average interest rate at year-end
    
    
    5.41
    %
    
    
    5.45
    %
    
    
    5.33
    %
 101




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006(In thousands)Federal funds purchased and other borrowings:Within thirty days
    
    $
    502,110
    
    
    $
    Thirty to ninety days
    
    
    825,000
    
    
    
    Over ninety days
    
    
    625,000
    
    
    
    1,628,400Total
    
    $
    1,952,110
    
    
    $
    1,628,400Securities sold under agreements to repurchase:Within thirty days
    
    $
    10,591
    
    
    $
    480,563Over ninety days
    
    
    625,006
    
    
    
    350,006Total
    
    $
    635,597
    
    
    $
    830,569Commercial paper issued:Within thirty days
    
    $
    284,482
    
    
    $
    209,549
   WeightedWeighted-Fair Value of
    
    
    AverageBalance of
    
    
    Underlying
    
    
    MaturityBorrowings
    
    
    Securities
    
    
    in Months(Dollars in thousands)JP Morgan Chase Bank, N.A.
    
    $
    375,000
    
    
    $
    396,540
    
    
    
    23.05Lehman Brothers Special Financing, Inc.
    
    
    255,590
    
    
    
    279,786
    
    
    
    49.09First Puerto Rico Daily Liquidity Fund, Inc.
    
    
    5,007
    
    
    
    7,000
    
    
    
    0.07$
    635,597
    
    
    $
    683,326
    
    
    
    33.34
 102




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##### Table of Contents



December 31, 2007Carrying
    
    
    
    
    
    
    Fair
    
    
    Weighted-Value of
    
    
    
    
    
    
    Value of
    
    
    AverageUnderlying
    
    
    Balance of
    
    
    Underlying
    
    
    InterestUnderlying Securities
    
    Securities
    
    
    Borrowings
    
    
    Securities
    
    
    Rate(Dollars in thousands)Obligations of U.S. Government agencies and corporations
    
    $
    270,821
    
    
    $
    250,006
    
    
    $
    270,821
    
    
    
    4.79
    %Mortgage-backed securities
    
    
    412,505
    
    
    
    385,591
    
    
    
    412,505
    
    
    
    5.22
    %Total
    
    $
    683,326
    
    
    $
    635,597
    
    
    $
    683,326
    
    
    
    5.05
    %
 December 31, 2006Carrying
    
    
    
    
    
    
    Fair
    
    
    Weighted-Value of
    
    
    
    
    
    
    Value of
    
    
    AverageUnderlying
    
    
    Balance of
    
    
    Underlying
    
    
    InterestUnderlying Securities
    
    Securities
    
    
    Borrowings
    
    
    Securities
    
    
    Rate(Dollars in thousands)Obligations of U.S. Government agencies and corporations
    
    $
    309,367
    
    
    $
    287,569
    
    
    $
    309,367
    
    
    
    5.66
    %Mortgage-backed securities
    
    
    558,577
    
    
    
    543,000
    
    
    
    558,577
    
    
    
    5.31
    %Total
    
    $
    867,944
    
    
    $
    830,569
    
    
    $
    867,944
    
    
    
    5.44
    %
 12. Subordinated Capital Notes, Term Notes and Trust Preferred Securities:
 Subordinated Capital Notes
  2007
    
    
    2006(Dollars in thousands)Subordinated notes with fixed interest of 6.30% maturing June 1, 2032
    
    $
    73,260
    
    
    $
    71,749Subordinated notes with fixed interest of 6.10% maturing June 1, 2032
    
    
    50,236
    
    
    
    49,099Subordinated notes with fixed interest of 6.75% maturing July 1, 2036
    
    
    125,000
    
    
    
    125,000248,496
    
    
    
    245,848Unamortized discount
    
    
    (1,326
    )
    
    
    (1,380
    )$
    247,170
    
    
    $
    244,468
 103




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##### Table of Contents



Term Notes
  2007
    
    
    2006(Dollars in thousands)Term notes
maturing January 29, 2010 linked to the S&P 500 index
    
    $
    4,815
    
    
    $
    30,000Term notes maturing May 31, 2011 with fixed interest 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
    
    
    
    47,000Unamortized discount
    
    
    (2,444
    )
    
    
    (5,471
    )$
    19,371
    
    
    $
    41,529
  Trust Preferred Securities
  13. Reserve Fund:
  14. Common Stock Transactions:
    104




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##### Table of Contents



15. Income Tax:
      2007
    
    
    2006
    
    
    2005(Dollars in thousands)Current tax provision
    
    $
    28,037
    
    
    $
    24,663
    
    
    $
    27,934Deferred tax (benefit) provision
    
    
    (23,833
    )
    
    
    (2,123
    )
    
    
    2,854Provision for income tax
    
    $
    4,204
    
    
    $
    22,540
    
    
    $
    30,788
  2007
    
    
    2006
    
    
    2005Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in thousands)Income tax at statutory rate
    
    $
    (12,496
    )
    
    
    (39
    %)
    
    $
    25,626
    
    
    
    39
    %
    
    $
    43,131
    
    
    
    39
    %Benefits of net tax-exempt income
    
    
    (6,249
    )
    
    
    (19
    %)
    
    
    (5,684
    )
    
    
    (9
    %)
    
    
    (10,250
    )
    
    
    (9
    %)Lapse of
statutes of limitations
    
    
    (1,571
    )
    
    
    (5
    %)
    
    
    (2,000
    )
    
    
    (3
    %)
    
    
    (3,700
    )
    
    
    (3
    %)Effect of surtaxes
    
    
    
    
    
    
    0
    %
    
    
    2,269
    
    
    
    3
    %
    
    
    1,867
    
    
    
    1
    %Deferred tax valuation allowance
    
    
    23,103
    
    
    
    72
    %Other
    
    
    1,417
    
    
    
    4
    %
    
    
    2,329
    
    
    
    4
    %
    
    
    (260
    )
    
    
    0
    %Provision for income tax
    
    $
    4,204
    
    
    
    13
    %
    
    $
    22,540
    
    
    
    34
    %
    
    $
    30,788
    
    
    
    28
    %
 105




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##### Table of Contents



2007
    
    
    2006(Dollars in thousands)Deferred Tax Assets-Unrealized
loss on investment securities available for sale
    
    $
    2,902
    
    
    $
    12,375Allowance for loan losses
    
    
    28,680
    
    
    
    5,188Long term incentive plans
    
    
    6,788
    
    
    
    2,788Deferred gain on sale of properties
    
    
    4,966
    
    
    
    170Postretirement and pension benefits
    
    
    9,961
    
    
    
    11,579Amortization
of intangibles and impairment charges
    
    
    3,047
    
    
    
    Insurance cancellations
    
    
    2,255
    
    
    
    1,135Other
    
    
    5,785
    
    
    
    3,33764,384
    
    
    
    36,572Deferred Tax Liabilities-Net deferred
loan origination costs
    
    
    (1,160
    )
    
    
    (1,155
    )Unrealized gain on derivatives
    
    
    
    
    
    
    (337
    )Amortization of intangibles
    
    
    
    
    
    
    (8,718
    )Mortgage-servicing rights and other
    
    
    (2,922
    )
    
    
    (2,566
    )(4,082
    )
    
    
    (12,776
    )Valuation allowance
    
    
    (23,103
    )
    
    
    Deferred tax
asset, net
    
    $
    37,199
    
    
    $
    23,796
   (in thousands)Balance at January 1, 2007
    
    $
    12,676Additions for tax positions of prior years
    
    
    2,980Additions for tax positions of current year
    
    
    2,422Lapse of statutes of limitations
    
    
    (1,571
    )Balance at December 31, 2007
    
    $
    16,507
      106




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##### Table of Contents



16. Contingencies and Commitments:
   Year
    
    Leases
    
    
    Other commitments
    
    
    Total(In thousands)2008
    
    $
    14,914
    
    
    $
    8,062
    
    
    $
    22,9762009
    
    
    13,204
    
    
    
    
    
    
    
    13,2042010
    
    
    11,395
    
    
    
    
    
    
    
    11,3952011
    
    
    9,839
    
    
    
    
    
    
    
    9,8392012
    
    
    8,912
    
    
    
    
    
    
    
    8,912Thereafter
    
    
    64,576
    
    
    
    
    
    
    
    64,576$
    122,840
    
    
    $
    8,062
    
    
    $
    130,902
 17. Employee Benefits Plan:
 Pension Plan
       107




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##### Table of Contents



Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (16
    )
    
    $
    
    
    
    $
    (16
    )Net actuarial loss
    
    
    25,505
    
    
    
    52
    
    
    
    25,557$
    25,489
    
    
    $
    52
    
    
    $
    25,541
  Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (2
    )
    
    $
    
    
    
    $
    (2
    )Net actuarial loss
    
    
    717
    
    
    
    8
    
    
    
    725$
    715
    
    
    $
    8
    
    
    $
    723
 108




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##### Table of Contents



2007
    
    
    2006(Dollars in thousands)Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    39,444
    
    
    $
    38,287Service cost-benefits earned during the year
    
    
    
    
    
    
    1,762Interest cost on projected benefit obligation
    
    
    2,279
    
    
    
    2,369Actuarial (gain) loss
    
    
    (3,243
    )
    
    
    3,558Benefit distributions
    
    
    (1,557
    )
    
    
    (1,333
    )Effect of plan curtailment
    
    
    
    
    
    
    (5,199
    )Projected benefit obligation at end of year
    
    
    36,923
    
    
    
    39,444Change in plan assets:Fair value of plan assets at beginning of year
    
    
    30,266
    
    
    
    25,833Actual return on plan assets
    
    
    1,288
    
    
    
    3,090Employer contributions
    
    
    5,743
    
    
    
    2,676Benefit distributions
    
    
    (1,557
    )
    
    
    (1,333
    )Fair value of plan assets at end of year
    
    
    35,740
    
    
    
    30,266Funded status
    
    
    (1,183
    )
    
    
    (9,178
    )Unrecognized net actuarial gain
    
    
    6,756
    
    
    
    8,984Unrecognized transition amount
    
    
    (16
    )
    
    
    (18
    )Prepaid (accrued) pension benefit
    
    $
    5,557
    
    
    $
    (212
    )Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (1,183
    )
    
    $
    (8,966
    )Accumulated other comprehensive income
    
    
    6,740
    
    
    
    8,966Net amount recognized
    
    $
    5,557
    
    
    $
    (Decrease) increase in minimum liability included in
other comprehensive income
    
    $
    (2,225
    )
    
    $
    1,228Projected benefit obligation
    
    $
    36,923
    
    
    $
    39,444Accumulated benefit obligation
    
    $
    36,923
    
    
    $
    39,444Fair value of plan assets
    
    $
    35,740
    
    
    $
    30,266
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Service cost during the year
    
    $
    
    
    
    $
    1,762
    
    
    $
    1,670Interest cost on projected benefit obligation
    
    
    2,279
    
    
    
    2,369
    
    
    
    2,106Expected return on assets
    
    
    (2,718
    )
    
    
    (2,228
    )
    
    
    (2,210
    )Net amortization
    
    
    411
    
    
    
    773
    
    
    
    525Curtailment loss
    
    
    
    
    
    
    754
    
    
    
    Net periodic pension cost
    
    $
    (28
    )
    
    $
    3,430
    
    
    $
    2,091
 109




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##### Table of Contents



2007
    
    2006
    
    2005Discount rate
    
    
    6.50
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    3.00
    %
    
    
    3.00
    %
  2007
    
    2006
    
    2005Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    3.00
    %
    
    
    3.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2007
    
    2006Asset Category:Equity securities
    
    
    56
    %
    
    
    62
    %Debt securities
    
    
    38
    %
    
    
    36
    %Other
    
    
    6
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
  110




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##### Table of Contents



2007
    
    
    2006(Dollars in thousands)Change in projected benefit obligationProjected benefit obligation at beginning of year
    
    $
    32,889
    
    
    $
    32,967Interest cost on projected benefit obligation
    
    
    1,838
    
    
    
    1,998Actuarial loss
    
    
    195
    
    
    
    1,751Benefit distributions
    
    
    (1,991
    )
    
    
    (3,827
    )Projected benefit obligation at end of year
    
    
    32,931
    
    
    
    32,889Change in plan assets:Fair value of plan assets at beginning of year
    
    
    25,385
    
    
    
    24,725Actual return on plan assets
    
    
    1,991
    
    
    
    1,797Employer contributions
    
    
    2,240
    
    
    
    2,690Benefit distributions
    
    
    (1,991
    )
    
    
    (3,827
    )Fair value of plan assets at end of year
    
    
    27,625
    
    
    
    25,385Funded status
    
    
    (5,306
    )
    
    
    (7,504
    )Contributions after measurement date and/or
before end of year
    
    
    610
    
    
    
    Unrecognized actuarial gain
    
    
    18,749
    
    
    
    20,549Prepaid pension benefit
    
    $
    14,053
    
    
    $
    13,045Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (4,696
    )
    
    $
    (7,504
    )Accumulated other comprehensive income
    
    
    18,749
    
    
    
    20,549Net amount recognized
    
    $
    14,053
    
    
    $
    13,045(Decrease) increase in minimum liability included
in other comprehensive income
    
    $
    (1,801
    )
    
    $
    1,640Projected benefit obligation
    
    $
    32,931
    
    
    $
    32,889Accumulated benefit obligation
    
    $
    32,931
    
    
    $
    32,889Fair value of plan assets
    
    $
    27,625
    
    
    $
    25,385
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Interest cost on projected benefit obligation
    
    $
    1,838
    
    
    $
    1,998
    
    
    $
    1,936Expected return on assets
    
    
    (2,170
    )
    
    
    (2,199
    )
    
    
    (2,092
    )Net amortization
    
    
    513
    
    
    
    513
    
    
    
    440Net periodic pension cost
    
    $
    181
    
    
    $
    312
    
    
    $
    284
 111




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##### Table of Contents



2007
    
    2006
    
    2005Discount rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    0.00
    %
    
    
    0.00
    %
  2007
    
    
    2006
    
    
    2005Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    0.00
    %
    
    
    0.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2007
    
    2006Asset Category:Equity securities
    
    
    57
    %
    
    
    56
    %Debt securities
    
    
    36
    %
    
    
    37
    %Other
    
    
    7
    %
    
    
    7
    %Total
    
    
    100
    %
    
    
    100
    %
   112




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Corporations
    
    BCHPlan
    
    Plan(Dollars in thousands)2008
    
    $
    1,581
    
    
    $
    1,8162009
    
    
    1,618
    
    
    
    1,8972010
    
    
    1,694
    
    
    
    2,0612011
    
    
    1,782
    
    
    
    2,3942012
    
    
    1,866
    
    
    
    2,7762013 through 2017
    
    
    10,797
    
    
    
    15,815
 Savings Plan
  18.
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 Spain to the participants and is classified as a liability
plan. Accordingly, the Corporation accrues a liability and recognizes monthly
compensation expense over the fourteen month vesting period through January 2008. The
Corporation recognized compensation expense under this plan amounting to $10.3 million and
$0.8 million in 2007 and 2006, respectively. The cost of this plan will be reimbursed to
the Corporation by Santander Spain, at which time the liability will be reclassified into
capital as a capital contribution.
    
    The grant of 100 shares of Santander Spain stock to all
employees of Santander Spains
operating entities as part of this years celebration of Santander Group 150th Anniversary
distributed during August of 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.
    
    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 expiring in 2009 and another expiring in 2010. This plan provides for settlement in
or stock of Santander Spain 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 $0.2 million in 2007.
 113




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##### Table of Contents



19. Related Party Transactions:
  2007
    
    2006
    
    2005(Dollars in thousands)Deposits from related parties
    
    $
    17,344
    
    
    $
    60,062
    
    
    $
    40,905Interest-bearing deposits with affiliates
    
    
    1,106
    
    
    
    555
    
    
    
    389Other borrowings with an affiliate
    
    
    
    
    
    
    
    
    
    
    118,846Loans to directors, officers, and related parties
(on substantially the same terms and credit risks
as loans to third parties)
    
    
    3,288
    
    
    
    4,388
    
    
    
    5,929Technical assistance income for services rendered
    
    
    2,769
    
    
    
    2,893
    
    
    
    2,214EDP services received
    
    
    13,461
    
    
    
    14,527
    
    
    
    11,841Technical assistance expense for software development
    
    
    199
    
    
    
    595
    
    
    
    384Rental income
    
    
    441
    
    
    
    319
    
    
    
    Fair value of derivative financial instruments
purchased from affiliates
    
    
    (26,917
    )
    
    
    21,780
    
    
    
    19,286Fair value of derivative financial instruments
sold to affiliates
    
    
    354
    
    
    
    1,000
    
    
    
    118
 114




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20. Derivative Financial Instruments:
  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Loss* for theNotional
    
    
    
    
    
    
    ended
    
    
    year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2007
    
    
    Dec. 31, 2007(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    650,000
    
    
    $
    (2,027
    )
    
    $
    
    
    
    $
    (1,023
    )FAIR VALUE HEDGESInterest rate swaps
    
    
    937,863
    
    
    
    (4,425
    )
    
    
    (465
    )
    
    
    OTHER DERIVATIVESOptions
    
    
    133,562
    
    
    
    22,590
    
    
    
    134
    
    
    
    Embedded options on stock-indexed deposits
    
    
    133,562
    
    
    
    (22,590
    )
    
    
    (134
    )
    
    
    Interest rate caps
    
    
    7,381
    
    
    
    7
    
    
    
    (58
    )
    
    
    Customer interest rate caps
    
    
    7,381
    
    
    
    (7
    )
    
    
    58
    
    
    
    Customer interest rate swaps
    
    
    1,496,798
    
    
    
    44,380
    
    
    
    44,432
    
    
    
    Interest rate swaps
    
    
    1,498,381
    
    
    
    (43,589
    )
    
    
    (44,068
    )
    
    
    Interest rate swaps
    
    
    242,000
    
    
    
    (534
    )
    
    
    315
    
    
    
    Loan commitments
    
    
    1,451
    
    
    
    45
    
    
    
    35
    
    
    
    $
    249
    
    
    $
    (1,023
    )
 
 *
    
    Net of tax  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Income (Loss)*Notional
    
    
    
    
    
    
    ended
    
    
    for the year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2006
    
    
    Dec. 31, 2006(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    825,000
    
    
    $
    (351
    )
    
    $
    
    
    
    $
    (214
    )Foreign currency swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36FAIR VALUE HEDGESInterest rate swaps
    
    
    1,189,740
    
    
    
    (22,065
    )
    
    
    64
    
    
    
    OTHER DERIVATIVESOptions
    
    
    153,528
    
    
    
    33,512
    
    
    
    7,057
    
    
    
    Embedded options on stock-indexed deposits
    
    
    153,528
    
    
    
    (33,512
    )
    
    
    (7,057
    )
    
    
    Interest rate caps
    
    
    36,889
    
    
    
    68
    
    
    
    12
    
    
    
    Customer interest rate caps
    
    
    34,095
    
    
    
    (65
    )
    
    
    (10
    )
    
    
    Customer interest rate swaps
    
    
    1,619,554
    
    
    
    (52
    )
    
    
    3,021
    
    
    
    Interest rate swaps
    
    
    1,621,555
    
    
    
    479
    
    
    
    (3,216
    )
    
    
    Interest rate swaps
    
    
    387,000
    
    
    
    (849
    )
    
    
    (397
    )Loan commitments
    
    
    1,988
    
    
    
    9
    
    
    
    49
    
    
    
    $
    (477
    )
    
    $
    (178
    )
 
 *
    
    Net of tax 115




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116




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21. Financial Instruments with Off-Balance Sheet Risk:
    2007
    
    
    2006(Dollars in thousands)Standby letters of credit and financial guarantees written
    
    $
    134,470
    
    
    $
    184,959Commitments to extend credit, approved loans not yet
disbursed and unused lines of credit
    
    $
    1,530,017
    
    
    $
    1,666,490
   117




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22. Fair Value of Financial Instruments:
   Cash and Cash Equivalents and Interest-bearing Deposits
  Trading Securities, Investment Securities Available for Sale and Other Investments
  Loans
     Accrued Interest Receivable
  Deposits
  118




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Federal Funds Purchased and Other Borrowings
  Securities Sold under Agreement to Repurchase
  Commercial Paper Issued
  Subordinated Capital Notes and Term Notes
  Accrued Interest Payable
  Standby Letters of Credit and Commitments to Extend Credit
  Interest Rate Swap Agreements and Caps
  119




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##### Table of Contents



2007
    
    
    2006Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Consolidated balance sheets financial instruments:Cash, cash equivalents and all interest-bearing deposits
    
    $
    207,136
    
    
    $
    207,136
    
    
    $
    250,719
    
    
    $
    250,719Trading securities
    
    $
    68,500
    
    
    $
    68,500
    
    
    $
    50,792
    
    
    $
    50,792Investment securities available for sale
    
    $
    1,268,198
    
    
    $
    1,268,198
    
    
    $
    1,409,789
    
    
    $
    1,409,789Other investment securities
    
    $
    64,559
    
    
    $
    64,559
    
    
    $
    50,710
    
    
    $
    50,710Loans held for sale
    
    $
    141,902
    
    
    $
    141,902
    
    
    $
    196,277
    
    
    $
    196,277Loans
    
    $
    6,769,478
    
    
    $
    7,137,915
    
    
    $
    6,640,416
    
    
    $
    6,829,732Accrued interest receivable
    
    $
    80,029
    
    
    $
    80,029
    
    
    $
    102,244
    
    
    $
    102,244Deposits:Non interest-bearing
    
    $
    755,457
    
    
    $
    755,457
    
    
    $
    746,089
    
    
    $
    746,089Interest-bearing
    
    
    4,405,246
    
    
    
    4,404,647
    
    
    
    4,567,885
    
    
    
    4,582,696Total
    
    $
    5,160,703
    
    
    $
    5,160,104
    
    
    $
    5,313,974
    
    
    $
    5,328,785Federal funds purchased and other borrowings
    
    $
    1,952,110
    
    
    $
    1,952,110
    
    
    $
    1,628,400
    
    
    $
    1,628,400Securities sold under agreements to repurchase
    
    $
    635,597
    
    
    $
    635,597
    
    
    $
    830,569
    
    
    $
    830,569Commercial paper issued
    
    $
    284,482
    
    
    $
    284,502
    
    
    $
    209,549
    
    
    $
    210,935Subordinated capital and term notes
    
    $
    266,541
    
    
    $
    285,982
    
    
    $
    285,997
    
    
    $
    303,843Accrued interest payable
    
    $
    77,356
    
    
    $
    77,356
    
    
    $
    91,245
    
    
    $
    91,245
 2007
    
    
    2006Contract 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
    
    $
    134,470
    
    
    $
    (1,479
    )
    
    $
    184,959
    
    
    $
    (2,241
    )Commitments to extend credit, approved loans
not yet disbursed and unused lines of credit
    
    $
    1,530,017
    
    
    $
    (1,530
    )
    
    $
    1,666,490
    
    
    $
    (1,667
    )
 23. Significant Group Concentrations of Credit Risk:
  120




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24. Regulatory Matters:
    December 31, 2007Required
    
    ActualAmount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    528,134
    
    
    
    8
    %
    
    $
    696,909
    
    
    
    10.56
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    264,067
    
    
    
    4
    %
    
    $
    490,259
    
    
    
    7.43
    %Leverage Ratio
    
    $
    273,298
    
    
    
    3
    %
    
    $
    490,259
    
    
    
    5.38
    %
 December 31, 2006Required
    
    ActualAmount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    529,191
    
    
    
    8
    %
    
    $
    723,269
    
    
    
    10.93
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    264,596
    
    
    
    4
    %
    
    $
    520,794
    
    
    
    7.87
    %Leverage Ratio
    
    $
    269,000
    
    
    
    3
    %
    
    $
    520,794
    
    
    
    5.81
    %
 121




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December 31, 2007Required
    
    Actual
    
    Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    474,647
    
    
    
    8
    %
    
    $
    647,482
    
    
    
    10.91
    %
    
    
    >
    
    
    
    10
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    237,324
    
    
    
    4
    %
    
    $
    573,022
    
    
    
    9.66
    %
    
    
    >
    
    
    
    6
    %Leverage Ratio
    
    $
    251,493
    
    
    
    3
    %
    
    $
    573,022
    
    
    
    6.84
    %
    
    
    >
    
    
    
    5
    %
 December 31, 2006Required
    
    Actual
    
    Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    469,346
    
    
    
    8
    %
    
    $
    651,350
    
    
    
    11.10
    %
    
    
    >
    
    
    
    10
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    234,673
    
    
    
    4
    %
    
    $
    583,941
    
    
    
    9.95
    %
    
    
    >
    
    
    
    6
    %Leverage Ratio
    
    $
    244,857
    
    
    
    3
    %
    
    $
    583,941
    
    
    
    7.15
    %
    
    
    >
    
    
    
    5
    %
 122




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##### Table of Contents



25. Segment Information:
 Types of Products and Services
  Measurement of Segment Profit or Loss and Segment Assets
   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
    
    
    
    537,792
    
    
    
    (492,326
    )
    
    
    9,160,213
 December 31, 2006Commercial
    
    Mortgage
    
    Consumer
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    Banking
    
    Finance
    
    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external
revenue
    
    $
    311,451
    
    
    $
    175,877
    
    
    $
    121,159
    
    
    $
    80,630
    
    
    $
    49,865
    
    
    $
    64,956
    
    
    $
    (67,149
    )
    
    $
    736,789Intersegment revenue
    
    
    11,472
    
    
    
    8,698
    
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    45,579
    
    
    
    (67,149
    )
    
    
    Interest income
    
    
    268,806
    
    
    
    162,572
    
    
    
    118,154
    
    
    
    80,275
    
    
    
    2,283
    
    
    
    41,359
    
    
    
    (55,129
    )
    
    
    618,320Interest expense
    
    
    87,654
    
    
    
    90,423
    
    
    
    34,738
    
    
    
    113,878
    
    
    
    3,183
    
    
    
    46,096
    
    
    
    (48,258
    )
    
    
    327,714Depreciation and
amortization
    
    
    5,567
    
    
    
    1,852
    
    
    
    3,633
    
    
    
    776
    
    
    
    1,030
    
    
    
    4,737
    
    
    
    
    
    
    
    17,595Segment income
(loss)
before income tax
    
    
    95,180
    
    
    
    60,595
    
    
    
    (1,287
    )
    
    
    (38,101
    )
    
    
    13,185
    
    
    
    (56,442
    )
    
    
    (7,421
    )
    
    
    65,709Segment assets
    
    
    3,929,196
    
    
    
    2,715,577
    
    
    
    805,173
    
    
    
    1,684,649
    
    
    
    100,585
    
    
    
    506,587
    
    
    
    (553,599
    )
    
    
    9,188,168
 123




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December 31, 2005Commercial
    
    Mortgage
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    Banking
    
    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external revenue
    
    $
    246,704
    
    
    $
    173,477
    
    
    $
    90,838
    
    
    $
    49,714
    
    
    $
    21,270
    
    
    $
    (17,040
    )
    
    $
    564,963Intersegment revenue
    
    
    10,237
    
    
    
    2,025
    
    
    
    
    
    
    
    1,452
    
    
    
    3,326
    
    
    
    (17,040
    )
    
    
    Interest income
    
    
    208,098
    
    
    
    164,261
    
    
    
    77,447
    
    
    
    1,697
    
    
    
    (638
    )
    
    
    (11,260
    )
    
    
    439,605Interest expense
    
    
    59,348
    
    
    
    60,998
    
    
    
    96,100
    
    
    
    2,003
    
    
    
    5,629
    
    
    
    (11,495
    )
    
    
    212,583Depreciation and
amortization
    
    
    5,774
    
    
    
    1,808
    
    
    
    642
    
    
    
    731
    
    
    
    4,229
    
    
    
    
    
    
    
    13,184Segment income (loss)
before income tax
    
    
    67,257
    
    
    
    98,249
    
    
    
    (9,956
    )
    
    
    13,835
    
    
    
    (57,861
    )
    
    
    (930
    )
    
    
    110,594Segment assets
    
    
    3,536,945
    
    
    
    2,837,931
    
    
    
    1,887,680
    
    
    
    90,109
    
    
    
    210,134
    
    
    
    (290,851
    )
    
    
    8,271,948
 Reconciliation of Segment Information to Consolidated Amounts
  2007
    
    
    2006
    
    
    2005(Dollars in thousands)Revenues:Total revenues for reportable segments
    
    $
    826,235
    
    
    $
    733,421
    
    
    $
    557,040Other revenues
    
    
    46,671
    
    
    
    70,517
    
    
    
    24,963Elimination of intersegment revenues
    
    
    (50,576
    )
    
    
    (67,149
    )
    
    
    (17,040
    )Total consolidated revenues
    
    $
    822,330
    
    
    $
    736,789
    
    
    $
    564,963Total income before tax of reportable segments
    
    $
    42,167
    
    
    $
    127,299
    
    
    $
    167,609Income (loss) before tax of other segments
    
    
    (66,544
    )
    
    
    (54,169
    )
    
    
    (56,085
    )Elimination of intersegment profits
    
    
    (7,664
    )
    
    
    (7,421
    )
    
    
    (930
    )Consolidated income before tax
    
    $
    (32,041
    )
    
    $
    65,709
    
    
    $
    110,594Assets:Total assets for reportable segments
    
    $
    9,114,747
    
    
    $
    9,146,499
    
    
    $
    8,257,552Assets not attributed to segments
    
    
    537,792
    
    
    
    595,268
    
    
    
    305,247Elimination of intersegment assets
    
    
    (492,326
    )
    
    
    (553,599
    )
    
    
    (290,851
    )Total consolidated assets
    
    $
    9,160,213
    
    
    $
    9,188,168
    
    
    $
    8,271,948
 124




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26. Quarterly Results (Unaudited):
  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
    )
 Quarters Ended 2006March 31
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    132,084
    
    
    $
    158,534
    
    
    $
    162,086
    
    
    $
    165,616Net Interest Income
    
    
    62,786
    
    
    
    77,856
    
    
    
    74,708
    
    
    
    75,256Net Interest Income after Provision
for Loan Losses
    
    
    55,248
    
    
    
    61,881
    
    
    
    54,308
    
    
    
    53,586Income before Provision for Income Tax
    
    
    21,951
    
    
    
    18,383
    
    
    
    9,692
    
    
    
    15,683Net Income
    
    
    13,356
    
    
    
    11,028
    
    
    
    8,726
    
    
    
    10,059Earnings per Common Share
    
    
    0.29
    
    
    
    0.23
    
    
    
    0.19
    
    
    
    0.22
 Quarters Ended 2005March 31
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    101,388
    
    
    $
    104,050
    
    
    $
    112,470
    
    
    $
    121,697Net Interest Income
    
    
    56,108
    
    
    
    54,262
    
    
    
    55,577
    
    
    
    61,075Net Interest Income after Provision
for Loan Losses
    
    
    49,408
    
    
    
    50,212
    
    
    
    50,927
    
    
    
    56,075Income before Provision for Income Tax
    
    
    33,130
    
    
    
    28,016
    
    
    
    23,693
    
    
    
    25,755Net Income
    
    
    25,914
    
    
    
    19,633
    
    
    
    17,395
    
    
    
    16,864Earnings per Common Share
    
    
    0.56
    
    
    
    0.42
    
    
    
    0.37
    
    
    
    0.36
 125




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##### Table of Contents



27. Santander BanCorp (Parent Company Only) Financial Information :
   Santander Bancorp
Balance Sheet Information December 31, 2007 and 2006
 2007
    
    
    2006ASSETSCash and due from banks
    
    $
    11,875
    
    
    $
    15,890Interest-bearing deposits
    
    
    30,079
    
    
    
    51,000Total cash and cash equivalents
    
    
    41,954
    
    
    
    66,890Loans
    
    
    235,469
    
    
    
    262,824Investment in Subsidiaries
    
    
    755,670
    
    
    
    786,731Accrued Interest Receivable
    
    
    6,534
    
    
    
    10,414Other Assets
    
    
    921
    
    
    
    787$
    1,040,548
    
    
    $
    1,127,646LIABILITIES AND STOCKHOLDERS EQUITYBorrowings
    
    $
    235,000
    
    
    $
    275,000Subordinated Capital Notes
    
    
    251,045
    
    
    
    248,343Accrued Interest Payable
    
    
    5,830
    
    
    
    9,290Other Liabilities
    
    
    10,073
    
    
    
    14,202Total liabilities
    
    
    501,948
    
    
    
    546,835STOCKHOLDERS 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, 2007 and 2006
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    556,192
    
    
    
    552,195Treasury stock at cost, 4,011,260 shares at December 31, 2007 and 2006
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss from unconsolidated subsidiaries, net of tax
    
    
    (24,478
    )
    
    
    (44,213
    )Retained earnings-Undivided loss
    
    
    (52,188
    )
    
    
    13,755Total stockholders equity
    
    
    538,600
    )
    
    
    580,811$
    1,040,548
    
    
    $
    1,127,646
 126




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##### Table of Contents



Santander BanCorp
Statements of Operations Information
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005Interest Income:Loans
    
    $
    17,883
    
    
    $
    42,472
    
    
    $
    5,629Interest-bearing deposits
    
    
    1,867
    
    
    
    1,952
    
    
    
    848Total interest income
    
    
    19,750
    
    
    
    44,424
    
    
    
    6,477Interest Expense:Borrowings
    
    
    13,931
    
    
    
    34,661
    
    
    
    4,253Term and subordinated capital notes
    
    
    16,157
    
    
    
    14,619
    
    
    
    3,402Total interest expense
    
    
    30,088
    
    
    
    49,280
    
    
    
    7,655Net interest loss
    
    
    (10,338
    )
    
    
    (4,856
    )
    
    
    (1,178
    )Other
(Loss) Income:Derivative
(loss) gains
    
    
    (10
    )
    
    
    40
    
    
    
    (122
    )Equity in (losses) earnings of subsidiaries
    
    
    (24,524
    )
    
    
    50,327
    
    
    
    83,617Total other
(loss) income
    
    
    (24,534
    )
    
    
    50,367
    
    
    
    83,495Other Operating Expenses:Professional fees
    
    
    844
    
    
    
    1,419
    
    
    
    1,149Other taxes
    
    
    (615
    )
    
    
    475
    
    
    
    285Other operating expenses
    
    
    774
    
    
    
    376
    
    
    
    202Total other operating expenses
    
    
    1,003
    
    
    
    2,270
    
    
    
    1,636(Loss) Income before provision (benefit) for income tax
    
    
    (35,875
    )
    
    
    43,241
    
    
    
    80,681Provision
(Benefit) for Income Tax
    
    
    (88
    )
    
    
    16
    
    
    
    (55
    )Net (Loss) Income
    
    $
    (35,787
    )
    
    $
    43,225
    
    
    $
    80,736
 127




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##### Table of Contents



Santander BanCorp
 Statements of Cash Flows Information
Years Ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (35,787
    )
    
    $
    43,225
    
    
    $
    80,736Adjustments
to reconcile net (loss) income to net cash provided by operating activities:Equity in losses (earnings) of subsidiaries, net of dividends received
    
    
    54,487
    
    
    
    (15,684
    )
    
    
    (51,225
    )Deferred tax (benefit) provision
    
    
    (88
    )
    
    
    16
    
    
    
    (55
    )Decrease (increase) in other assets and accrued interest receivable
    
    
    3,746
    
    
    
    (6,564
    )
    
    
    (3,759
    )(Decrease) increase in other liabilities and accrued interest payable
    
    
    (7,502
    )
    
    
    8,314
    
    
    
    9,560Total adjustments
    
    
    50,643
    
    
    
    (13,918
    )
    
    
    (45,479
    )Net cash provided by operating activities
    
    
    14,856
    
    
    
    29,307
    
    
    
    35,257CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease (increase) in loans
    
    
    27,355
    
    
    
    (123,389
    )
    
    
    (96,435
    )Investment in subsidiary
    
    
    
    
    
    
    (147,029
    )
    
    
    Net cash provided by (used in) investing activities
    
    
    27,355
    
    
    
    (270,418
    )
    
    
    (96,435
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of borrowings
    
    
    235,000
    
    
    
    1,000,000
    
    
    
    118,846Repayment of borrowings
    
    
    (275,000
    )
    
    
    (843,846
    )
    
    
    (30,000
    )Issuance of subordinated capital notes
    
    
    2,702
    
    
    
    127,370
    
    
    
    48,385Dividends paid
    
    
    (29,849
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Net cash (used in) provided by financing activities
    
    
    (67,147
    )
    
    
    253,675
    
    
    
    107,382NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (24,936
    )
    
    
    12,564
    
    
    
    46,204CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    66,890
    
    
    
    54,326
    
    
    
    8,122CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    41,954
    
    
    $
    66,890
    
    
    $
    54,326
 128




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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
     129




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##### Table of Contents



Change in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  
 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
  130




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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, 2007 and 2006Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006, and 2005Consolidated Statements of Changes in Stockholders Equity
for the Years Ended December 31, 2007, 2006 and 2005Consolidated
Statements of Comprehensive (Loss) Income
for the Years Ended December 31, 2007, 2006 and 2005Consolidated Statements of Cash Flows for the Years
Ended December 31 2007, 2006 and 2005Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
 (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 133 of this report are
filed herewith or are incorporated herein by reference.
 131




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##### Table of Contents



SIGNATURES
  SANTANDER BANCORP
        (REGISTRANT)Dated:      03/17/2008
    By:
    /s/ JOSE RAMON GONZALEZDirector and Vice ChairmanPresident and Chief Executive Officer Dated:      03/17/2008
    By:
    /s/ CARLOS M. GARCIADirectorSenior Executive Vice President and
Chief Operating Officer Dated:      03/17/2008
    By:
    /s/ MARIA CALERODirectorExecutive Vice President and
Chief Accounting Officer  /s/ GONZALO DE LAS HERAS
    
    Chairman
    
    03/17/2008/s/ JESUS M. ZABALZA
    
    Director
    
    03/17/2008/s/ VICTOR ARBULU
    
    Director
    
    03/17/2008/s/ ROBERTO VALENTIN
    
    Director
    
    03/17/2008/s/ STEPHEN FERRISS
    
    Director
    
    03/17/2008
 132




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description
    
    Reference(2.0)
    
    Agreement and Plan of Merger-Banco Santander Puerto Rico and
Santander BanCorp
    
    Exhibit 3.3 8-A12B(2.1)
    
    Stock Purchase Agreement Santander BanCorp and Banco Santander
Central Hispano, S.A.
    
    Exhibit 2.1 10K-12/31/00(2.2)
    
    Stock Purchase Agreement dated as of November 28, 2003 by and among
Santander BanCorp, Administración de Bancos Latinoamericanos
Santander, S.L. and Santander Securities Corporation
    
    Exhibit 2.2 10Q-06/30/04(2.3)
    
    Settlement Agreement between Santander BanCorp and Administración
de Bancos Latinoamericanos Santander, S.L.
    
    Exhibit 2.3 10Q-06/30/04(3.1)
    
    Articles of Incorporation
    
    Exhibit 3.1 8-A12B(3.2)
    
    Bylaws
    
    Exhibit 3.1 8-A12B(4.1)
    
    Authoring and Enabling Resolutions 7% Noncumulative Perpetual
Monthly Income Preferred Stock, Series A
    
    Exhibit 4.1 10Q-06/30/04(4.2)
    
    Offering Circular for $30,000,000 Banco Santander PR Stock Market Growth
Notes Linked to the S&P 500 Index
    
    Exhibit 4.6 10Q-03/31/04(4.3)
    
    Private Placement Memorandum Santander BanCorp $75,000,000 6.30%
Subordinated Notes
    
    Exhibit 4.3 10KA-12/31/04(4.4)
    
    Private Placement Memorandum Santander BanCorp $50,000,000 6.10%
Subordinated Notes
    
    Exhibit 4.4 10K-12/31/05(4.5)
    
    Indenture dated as of February 28, 2006, between the Santander BanCorp and
Banco Popular de Puerto Rico
    
    Exhibit 4.6 10Q-03/31/06(4.6)
    
    First Supplemental Indenture, dated as of February 28, 2006, between Santander
Bancorp and Banco Popular de Puerto Rico
    
    Exhibit 4.7 10Q-03/31/06(4.7)
    
    Amended and Restated Declaration of Trust and Trust Agreement, dated as of
February 28, 2006, among Santander BanCorp, Banco Popular de Puerto Rico
Wilmintong Trust Company, the Administrative Trustees named therein and
the holders from time to time, of the undivided beneficial ownership interest in
The Assets of the Trust.
    
    Exhibit 4.8 10-Q-03/31/06(4.8)
    
    Guarantee Agreement, dated as of February 28, 2006 between Santander
BanCorp and Banco Popular de Puerto Rico
    
    Exhibit 4.9 10-Q-03/31/06(4.9)
    
    Global Capital Securities Certificate
    
    Exhibit 4.10 10Q-03/31/06(4.10)
    
    Certificate of Junior Subordinated Debenture
    
    Exhibit 4.11 10Q-03/31/06(10.1)
    
    Contract for Systems Maintenance between ALTEC & Banco
Santander Puerto Rico
    
    Exhibit 10A 10K-12/31/02(10.2)
    
    Employment Contract-José Ramón González
    
    Exhibit 10.1 8K-01/04/07(10.3)
    
    Employment Contract-Carlos M. García
    
    Exhibit 10.2 8K-01/04/07(10.4)
    
    Deferred Compensation Contract-María Calero
    
    Exhibit 10C 10K-12/31/02(10.5)
    
    Information Processing Services Agreement between America Latina
Tecnología de Mexico, SA and Banco Santander Puerto Rico, Santander
International Bank of Puerto Rico and Santander Investment International
Bank, Inc.
    
    Exhibit 10A 10Q-06/30/03(10.6)
    
    Employment Contract-Roberto Córdova
    
    Exhibit 10.3 10Q-03/31/05(10.7)
    
    Employment Contract-Bartolomé Vélez
    
    Exhibit 10.7 10K-12/31/06(10.8)
    
    Employment Contract-Lillian Díaz
    
    Exhibit 10.5 10Q-03/31/05(10.9)
    
    Technology Assignment Agreement between CREFISA, Inc. and Banco
Santander Puerto Rico
    
    Exhibit 10.12 10KA-12/31/04(10.10)
    
    Altair System License Agreement between CREFISA, Inc. and Banco
Santander Puerto Rico
    
    Exhibit 10.13 10KA-12/31/04(10.11)
    
    2005 Employee Stock Option Plan
    
    Exhibit B Def14-03/26/05(10.12)
    
    Asset Purchase Agreement by and among Wells Fargo & Company, Island
Finance Puerto Rico, Inc., Island Finance Sales Finance Corporation and
Santander BanCorp and Santander Financial Services, Inc. for the purpose
and sale of certain assets of Island Finance Puerto Rico, Inc. and Island
Finance Sales Corporation dated as of January 22, 2006.
    
    Exhibit 10.1 8K-01/25/06
 133




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##### Table of Contents



EXHIBIT INDEX  Cont
 Exhibit No.
    
    Exhibit Description
    
    Reference(10.13)
    
    Employment Contract-Tomás Torres
    
    Exhibit 10.16 10Q-09/30/06(10.14)
    
    Employment Contract-Eric Delgado
    
    Exhibit 10.17 10Q-09/30/06(10.15)
    
    Agreement of Benefits Coverage Agreed with Officers of Grupo Santander
    
    Exhibit 10.18 10K-12/31/06(10.16)
    
    Employment Contract-Justo Muñoz
    
    Exhibit 10.18 10Q-06/30/07(10.17)
    
    Bridge Facility Agreement among Santander BanCorp, Santander Financial
Services, Inc. and National Australia Bank Limited.
    
    Exhibit 10.1 8K-10/09/07(10.18)
    
    Sales and Leaseback Agreement with Corporación Hato Rey Uno
and Corporación Hato Rey Dos for the Banks two principal
properties and certain parking spaces
    
    Exhibit 10.18(10.19)
    
    Option Agreement among Crefisa, Inc., D&D Investment Group, S.E.,
and Quisqueya 12, Inc.
    
    Exhibit 10.19(10.20)
    
    Merge Agreement among Banco Santander Puerto Rico and Santander
Mortgage Corporation
    
    Exhibit 10.20(10.21)
    
    Regulations for the first and second cycle of The Share Plan (Long Term
Incentive Plan) among Santander BanCorp and Santander Spain
    
    Exhibit 10.21(12)
    
    Computation of Ratio of Earnings to Fixed Charges
    
    Exhibit 12(14)
    
    Code of Ethics
    
    Exhibit 14 10-KA-12/31/04(21)
    
    Subsidiaries of the Registrants
    
    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 Operating Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.2(31.3)
    
    Certification from the Chief Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.3(32.1)
    
    Certification from the Chief Executive Officer, Chief Operating Officer and
Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
    
    Exhibit 32.1
 134