##### Table of Contents



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, 2006
Commission File: 001-15849
 SANTANDER BANCORP
  
 Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
 Name of each exchange onTitle of each class
    
    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
  o þ o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SANTANDER BANCORP
  PART I
    
    
    
    
    3Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    19Item 1B.
    
    Unresolved Staff Comments
    
    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    24PART II
    
    
    
    
    24Item 5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
    
    
    24Item 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
    
    
    59Item 8.
    
    Financial Statements and Supplementary Data
    
    
    73Item 9.
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    125Item 9A.
    
    Controls and Procedures
    
    
    125Item 9B.
    
    Other Information
    
    
    126PART IIIItem 10.
    
    Directors, Executive Officers and Corporate
Governance
    
    
    126Item 11.
    
    Executive Compensation
    
    
    126Item 12.
    
    Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    126Item 13.
    
    Certain Relationships and Related Transactions, and
Director Independence
    
    
    126Item 14.
    
    Principal Accountant Fees and Services
    
    
    126PART IVItem 15.
    
    Exhibits, Financial Statement Schedules
    
    
    127SIGNATURESEXHIBIT INDEXEX-10.7 EMPLOYMENT CONTRACT - BARTOLOME VELEZEX-10.18 AGREEMENT OF BENEFITS COVERAGEEX-12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESEX-21 SUBSIDIARIES OF THE REGISTRANTEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF COOEX-31.3 SECTION 302 CERTIFICATION OF CAOEX-32.1 SECTION 906 CERTIFICATION OF CEO,COO,CAO
  2




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




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antander International Bank
  Santander Securities
  Santander Asset Management Corporation
  Santander Insurance Agency
  Santander Financial Services
  Island Insurance Corporation
  4




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Santander PR Capital Trust I
  Operations
   Commercial Banking
 Retail Banking
 Wholesale Banking
 Mortgage Banking
 Consumer Finance.
 Treasury and Investments
 Wealth Management
 5




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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
  Brokered Deposits
  Federal Limitations on Activities and Investments
  14




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




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IBC Act
  16




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Mortgage Banking Operations
   Broker Dealer Operations
  17




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Insurance Operations
   Availability at our website
 www.santandernet.com
 18




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ITEM 1A. RISK FACTORS
  General business, economic and political conditions.
  Competition.
  Interest rate risk.
  19




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Credit Risk.
  Changes in market prices of managed assets.
 Changes in accounting standards.
  Federal and state regulations.
 20




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Governmental fiscal and monetary policy.
   Liquidity risk.
 Operational risk.
 Reputational risk.
 Merger risk.
 Litigation risk.
  Fiscal Reform and the Current Economic Condition of the Commonwealth of Puerto Rico.
  21




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Downgrades of Commonwealth of Puerto Rico debt obligations.
    22




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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Banco Santander Main Building,
 Santander Operations Facility,
 
 ITEM 3. LEGAL PROCEEDINGS
   23




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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
  Cash
    
    BookDividends
    
    ValuePeriod
    
    High
    
    Low
    
    per Share
    
    per Share20061st 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
    
    
    
    12.4220051st Quarter
    
    $
    33.93
    
    
    $
    26.33
    
    
    $
    0.16
    
    
    $
    11.682nd Quarter
    
    
    27.93
    
    
    
    20.88
    
    
    
    0.16
    
    
    
    12.253rd Quarter
    
    
    29.75
    
    
    
    23.97
    
    
    
    0.16
    
    
    
    12.164th Quarter
    
    
    29.47
    
    
    
    24.00
    
    
    
    0.16
    
    
    
    12.22
  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 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands, except per data share)CONDENSED INCOME STATEMENTSInterest income
    
    $
    618,320
    
    
    $
    439,605
    
    
    $
    363,822
    
    
    $
    335,784
    
    
    $
    387,249Interest expense
    
    
    327,714
    
    
    
    212,583
    
    
    
    140,762
    
    
    
    132,612
    
    
    
    179,748Net interest income
    
    
    290,606
    
    
    
    227,022
    
    
    
    223,060
    
    
    
    203,172
    
    
    
    207,501Security gains
    
    
    
    
    
    
    17,842
    
    
    
    11,475
    
    
    
    10,790
    
    
    
    12,236(Loss) gain on extinguishment of debt
    
    
    
    
    
    
    (5,959
    )
    
    
    
    
    
    
    13,638
    
    
    
    Broker-dealer, asset management and insurance fees
    
    
    56,973
    
    
    
    53,016
    
    
    
    51,113
    
    
    
    49,526
    
    
    
    35,277Other income
    
    
    61,496
    
    
    
    60,459
    
    
    
    54,651
    
    
    
    36,207
    
    
    
    52,545Operating expenses
    
    
    277,783
    
    
    
    221,386
    
    
    
    217,377
    
    
    
    223,815
    
    
    
    210,739Provision for loan losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270
    
    
    
    49,745
    
    
    
    63,630Income tax provision (benefit)
    
    
    22,540
    
    
    
    30,788
    
    
    
    9,724
    
    
    
    (46
    )
    
    
    4,907Net income
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928
    
    
    $
    39,819
    
    
    $
    28,283PER PREFERRED SHARE DATAOutstanding shares:Average
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,610,008
    
    
    
    2,610,008End of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,610,008Cash Dividend per Share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2.73
    
    
    $
    1.75PER COMMON SHARE DATA*Net income
    
    $
    0.93
    
    
    $
    1.71
    
    
    $
    1.86
    
    
    $
    0.70
    
    
    $
    0.50Book value
    
    $
    12.42
    
    
    $
    12.19
    
    
    $
    11.86
    
    
    $
    10.20
    
    
    $
    12.79Outstanding shares:Average
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,661,248
    
    
    
    47,310,217End of period
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,806,604Cash Dividend per Share
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.49
    
    
    $
    0.44
    
    
    $
    0.44AVERAGE BALANCESLoans held for sale and loans, net of allowance for loan losses
    
    $
    6,439,205
    
    
    $
    5,871,433
    
    
    $
    4,723,538
    
    
    $
    4,009,801
    
    
    $
    4,385,433Allowance for loan losses (1)
    
    
    87,465
    
    
    
    67,956
    
    
    
    73,518
    
    
    
    64,909
    
    
    
    57,633Earning assets
    
    
    8,262,748
    
    
    
    7,882,180
    
    
    
    7,300,735
    
    
    
    6,453,419
    
    
    
    6,629,265Total assets
    
    
    8,820,630
    
    
    
    8,285,992
    
    
    
    7,634,471
    
    
    
    6,797,701
    
    
    
    7,013,135Deposits
    
    
    5,054,687
    
    
    
    5,082,520
    
    
    
    4,153,245
    
    
    
    3,749,684
    
    
    
    4,096,818Borrowings
    
    
    2,876,720
    
    
    
    2,415,172
    
    
    
    2,811,152
    
    
    
    2,322,957
    
    
    
    2,167,700Preferred equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,175
    
    
    
    65,250Common equity
    
    
    563,593
    
    
    
    576,226
    
    
    
    495,963
    
    
    
    526,660
    
    
    
    552,803PERIOD END BALANCESLoans held for sale and loans, net of allowance for loans losses
    
    $
    6,836,693
    
    
    $
    5,954,890
    
    
    $
    5,490,120
    
    
    $
    4,136,670
    
    
    $
    4,044,425Allowance for loan losses (1)
    
    
    106,863
    
    
    
    66,842
    
    
    
    69,177
    
    
    
    69,693
    
    
    
    56,906Earning assets
    
    
    8,598,703
    
    
    
    7,933,139
    
    
    
    8,069,346
    
    
    
    7,079,888
    
    
    
    7,073,541Total assets
    
    
    9,188,168
    
    
    
    8,271,948
    
    
    
    8,323,647
    
    
    
    7,366,656
    
    
    
    7,375,771Deposits
    
    
    5,313,974
    
    
    
    5,224,650
    
    
    
    4,748,139
    
    
    
    4,142,228
    
    
    
    4,499,431Borrowings
    
    
    2,954,515
    
    
    
    2,212,245
    
    
    
    2,863,367
    
    
    
    2,595,033
    
    
    
    2,130,593Preferred equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,250Common equity
    
    
    579,220
    
    
    
    568,527
    
    
    
    553,346
    
    
    
    475,706
    
    
    
    533,205
 Continued on the following page
 26




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Continued from the previous page
 Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)SELECTED RATIOSPerformance:Net interest margin (2)
    
    
    3.63
    %
    
    
    3.02
    %
    
    
    3.33
    %
    
    
    3.42
    %
    
    
    3.33
    %Efficiency ratio (3)
    
    
    66.82
    %
    
    
    62.97
    %
    
    
    62.78
    %
    
    
    67.06
    %
    
    
    68.31
    %Return on average total assets
    
    
    0.49
    %
    
    
    0.96
    %
    
    
    1.14
    %
    
    
    0.59
    %
    
    
    0.40
    %Return on average common equity
    
    
    7.66
    %
    
    
    13.85
    %
    
    
    17.53
    %
    
    
    5.54
    %
    
    
    3.84
    %Dividend payout
    
    
    68.82
    %
    
    
    37.43
    %
    
    
    26.34
    %
    
    
    62.86
    %
    
    
    88.00
    %Average net loans/average total deposits
    
    
    127.39
    %
    
    
    115.52
    %
    
    
    113.73
    %
    
    
    106.94
    %
    
    
    107.04
    %Average earning assets/average total assets
    
    
    93.68
    %
    
    
    95.13
    %
    
    
    95.63
    %
    
    
    94.94
    %
    
    
    94.53
    %Average stockholders equity/average assets
    
    
    6.39
    %
    
    
    6.95
    %
    
    
    6.50
    %
    
    
    8.69
    %
    
    
    8.81
    %Fee income to average assets
    
    
    1.20
    %
    
    
    1.15
    %
    
    
    1.18
    %
    
    
    1.30
    %
    
    
    1.08
    %Capital:Tier I capital to risk-adjusted assets
    
    
    7.87
    %
    
    
    9.09
    %
    
    
    8.63
    %
    
    
    8.47
    %
    
    
    11.51
    %Total capital to risk-adjusted assets
    
    
    10.93
    %
    
    
    12.30
    %
    
    
    11.05
    %
    
    
    10.03
    %
    
    
    12.71
    %Leverage Ratio
    
    
    5.81
    %
    
    
    6.50
    %
    
    
    6.43
    %
    
    
    5.89
    %
    
    
    8.37
    %Asset quality:Non-performing loans to total loans
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %
    
    
    2.34
    %
    
    
    3.01
    %Annualized net charge-offs to average loans
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %
    
    
    0.91
    %
    
    
    1.32
    %Allowance for loan losses to period-end loans
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %
    
    
    1.66
    %
    
    
    1.39
    %Allowance for loan losses to non-performing loans
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %
    
    
    70.85
    %
    
    
    46.10
    %Allowance for loan losses to non-performing loans plus
accruing loans past-due 90 days or more
    
    
    83.62
    %
    
    
    87.17
    %
    
    
    76.11
    %
    
    
    69.16
    %
    
    
    44.68
    %Non-performing assets to total assets
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %
    
    
    1.40
    %
    
    
    1.91
    %Recoveries to charge-offs
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %
    
    
    22.12
    %
    
    
    15.77
    %EARNINGS TO FIXED CHARGES:Excluding interest on deposits
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    x
    
    
    1.51
    x
    
    
    1.34
    xIncluding interest on deposits
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    x
    
    
    1.30
    x
    
    
    1.18
    xEARNINGS TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:Excluding interest on deposits
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    x
    
    
    1.38
    x
    
    
    1.27
    xIncluding interest on deposits
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    x
    
    
    1.23
    x
    
    
    1.15
    xOTHER DATA AT END OF PERIODCustomer financial assets under management
    
    $
    14,154,000
    
    
    $
    12,960,000
    
    
    $
    12,827,700
    
    
    $
    10,669,700
    
    
    $
    9,242,600Full services branches
    
    
    61
    
    
    
    64
    
    
    
    65
    
    
    
    66
    
    
    
    66Consumer Financial branches
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total branches
    
    
    131
    
    
    
    64
    
    
    
    65
    
    
    
    66
    
    
    
    66ATMs
    
    
    144
    
    
    
    149
    
    
    
    150
    
    
    
    141
    
    
    
    139
 
 *
    
    Share and per share data is based on the average number of shares outstanding during the periods, after
giving retroactive effect in 2003 and 2002, to the 10% stock dividends declared on July 9, 2004.
Basic and diluted earning per share are the same.(1)
    
    After retroactive reclassification adjustment of allowance for losses on off balance sheet items for the years ended December 31, 2003 and 2002.(2)
    
    On a tax equivalent basis.(3)
    
    Operating expenses divided by net interest income on a tax equivalent basis, plus other income excluding securities gains and losses, gain on sale of FDIC
assessement credits and gain on tax credits purchased in 2006, (loss) gain on extinguisment 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
    
    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
   28




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Overview of Managements Discussion and Analysis of Financial Condition and Results of Operations
         29




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Ten monthsEndedSantander Financial Services
    
    December 31, 2006($ in thousands)Condensed Statement of IncomeInterest income
    
    $
    118,154Interest expense
    
    
    (34,738
    )Net interest income
    
    
    83,416Provision for loan losses
    
    
    (43,208
    )Net interest income after provision for loan losses
    
    
    40,208Other income
    
    
    3,006Operating expenses
    
    
    (44,501
    )Loss before tax
    
    
    (1,287
    )Income tax benefit
    
    
    (486
    )Net loss of Santander Financial
    
    $
    (801
    )Other Selected InformationTotal assets
    
    $
    805,173Net loans
    
    
    583,986Allowance for loan losses
    
    
    41,281Non performing loans
    
    
    24,731Net interest margin
    
    
    16.59
    %Other indirect enterprise information:Credit insurance commissions, net of income tax
    
    $
    2,894Interest expense mark-up (to Santander BanCorp), net of income tax
    
    $
    2,505
 Critical Accounting Policies
  Allowance for Loan Losses
   31




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Valuation of Certain Financial Instruments
   Transfers of Financial Assets
 32




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Income taxes
  Goodwill and other intangible assets
   33




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Market Multiple Approach
 Comparable Transaction Approach
 Discounted Cash Flow Approach
    34




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Pension and Other Postemployment Benefits
    Results of Operations
   35




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2006
    
    
    2005
    
    
    2004(Dollars in thousands)Components of net income:Net interest income
    
    $
    290,606
    
    
    $
    227,022
    
    
    $
    223,060Provision for loan losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270Other income
    
    
    118,469
    
    
    
    125,358
    
    
    
    117,239Other operating expenses
    
    
    277,783
    
    
    
    221,386
    
    
    
    217,377Provision for income tax
    
    
    22,540
    
    
    
    30,788
    
    
    
    9,724Net income
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928
 2006 compared to 2005.
 2005 compared to 2004
 Net Interest Income
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Interest income  tax equivalent basis
    
    $
    627,306
    
    
    $
    450,664
    
    
    $
    383,984Interest expense
    
    
    (327,714
    )
    
    
    (212,583
    )
    
    
    (140,762
    )Net interest income  tax equivalent basis
    
    $
    299,592
    
    
    $
    238,081
    
    
    $
    243,222Net interest margin  tax equivalent basis (1)
    
    
    3.63
    %
    
    
    3.02
    %
    
    
    3.33
    %
 
 (1)
    
    Net interest margin for any period equals tax-equivalent net interest income divided by average interest-earning
assets for such period. 2006 compared to 2005.
 36




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2005 compared to 2004
   37




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38




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##### Table of Contents



Year ended December 31,2006
    
    
    2005
    
    
    2004Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest bearing deposits
    
    $
    94,890
    
    
    $
    4,439
    
    
    
    4.68
    %
    
    $
    133,622
    
    
    $
    4,065
    
    
    
    3.04
    %
    
    $
    71,547
    
    
    $
    1,054
    
    
    
    1.47
    %Federal funds sold and securities
purchased under agreements to resell
    
    
    91,049
    
    
    
    4,531
    
    
    
    4.98
    %
    
    
    135,928
    
    
    
    4,187
    
    
    
    3.08
    %
    
    
    209,719
    
    
    
    3,123
    
    
    
    1.49
    %Total interest-bearing deposits
    
    
    185,939
    
    
    
    8,970
    
    
    
    4.82
    %
    
    
    269,550
    
    
    
    8,252
    
    
    
    3.06
    %
    
    
    281,266
    
    
    
    4,177
    
    
    
    1.49
    %U.S. Treasury securities
    
    
    58,137
    
    
    
    2,759
    
    
    
    4.75
    %
    
    
    8,353
    
    
    
    262
    
    
    
    3.14
    %
    
    
    5,650
    
    
    
    75
    
    
    
    1.33
    %Obligations of other U.S. government
agencies and corporations
    
    
    744,923
    
    
    
    36,417
    
    
    
    4.89
    %
    
    
    857,421
    
    
    
    42,275
    
    
    
    4.93
    %
    
    
    1,174,965
    
    
    
    66,536
    
    
    
    5.66
    %Obligations of government of Puerto Rico
and political subdivisions
    
    
    90,478
    
    
    
    4,982
    
    
    
    5.51
    %
    
    
    80,529
    
    
    
    4,323
    
    
    
    5.37
    %
    
    
    43,962
    
    
    
    3,512
    
    
    
    7.99
    %Collateralized mortgage obligations and
mortgage backed securities
    
    
    692,986
    
    
    
    32,965
    
    
    
    4.76
    %
    
    
    747,944
    
    
    
    32,200
    
    
    
    4.31
    %
    
    
    1,030,725
    
    
    
    43,055
    
    
    
    4.18
    %Other
    
    
    51,080
    
    
    
    2,595
    
    
    
    5.08
    %
    
    
    46,950
    
    
    
    1,672
    
    
    
    3.56
    %
    
    
    40,629
    
    
    
    2,650
    
    
    
    6.52
    %Total investment securities
    
    
    1,637,604
    
    
    
    79,718
    
    
    
    4.87
    %
    
    
    1,741,197
    
    
    
    80,732
    
    
    
    4.64
    %
    
    
    2,295,931
    
    
    
    115,828
    
    
    
    5.04
    %Loans :Commercial
    
    
    2,562,821
    
    
    
    175,214
    
    
    
    6.84
    %
    
    
    3,220,447
    
    
    
    178,994
    
    
    
    5.56
    %
    
    
    2,670,644
    
    
    
    127,809
    
    
    
    4.79
    %Construction
    
    
    302,370
    
    
    
    26,242
    
    
    
    8.68
    %
    
    
    202,226
    
    
    
    15,418
    
    
    
    7.62
    %
    
    
    205,861
    
    
    
    10,848
    
    
    
    5.27
    %Consumer
    
    
    577,652
    
    
    
    63,542
    
    
    
    11.00
    %
    
    
    511,094
    
    
    
    48,631
    
    
    
    9.52
    %
    
    
    420,002
    
    
    
    45,800
    
    
    
    10.90
    %Consumer Finance
    
    
    523,610
    
    
    
    118,077
    
    
    
    22.55
    %Mortgage
    
    
    2,425,611
    
    
    
    146,558
    
    
    
    6.04
    %
    
    
    1,887,420
    
    
    
    110,994
    
    
    
    5.88
    %
    
    
    1,389,517
    
    
    
    71,610
    
    
    
    5.15
    %Lease financing
    
    
    134,606
    
    
    
    8,985
    
    
    
    6.68
    %
    
    
    118,202
    
    
    
    7,643
    
    
    
    6.47
    %
    
    
    111,032
    
    
    
    7,912
    
    
    
    7.13
    %Gross loans
    
    
    6,526,670
    
    
    
    538,618
    
    
    
    8.25
    %
    
    
    5,939,389
    
    
    
    361,680
    
    
    
    6.09
    %
    
    
    4,797,056
    
    
    
    263,979
    
    
    
    5.50
    %Allowance for loan losses
    
    
    (87,465
    )
    
    
    
    
    
    
    
    
    
    
    (67,956
    )
    
    
    
    
    
    
    
    
    
    
    (73,518
    )Loans, net
    
    
    6,439,205
    
    
    
    538,618
    
    
    
    8.36
    %
    
    
    5,871,433
    
    
    
    361,680
    
    
    
    6.16
    %
    
    
    4,723,538
    
    
    
    263,979
    
    
    
    5.59
    %Total interest-earning assets/ interest
income (tax-equivalent basis)
    
    
    8,262,748
    
    
    
    627,306
    
    
    
    7.59
    %
    
    
    7,882,180
    
    
    
    450,664
    
    
    
    5.72
    %
    
    
    7,300,735
    
    
    
    383,984
    
    
    
    5.26
    %Total non-interest-earning assets
    
    
    557,882
    
    
    
    
    
    
    
    
    
    
    
    403,812
    
    
    
    
    
    
    
    
    
    
    
    333,736Total assets
    
    $
    8,820,630
    
    
    
    
    
    
    
    
    
    
    $
    8,285,992
    
    
    
    
    
    
    
    
    
    
    $
    7,634,471Liabilities and stockholders equityInterest-bearing liabilities:Savings and NOW accounts
    
    $
    1,861,167
    
    
    $
    49,470
    
    
    
    2.66
    %
    
    $
    1,945,095
    
    
    $
    38,939
    
    
    
    2.00
    %
    
    $
    1,916,270
    
    
    $
    25,416
    
    
    
    1.33
    %Other time deposits
    
    
    1,362,653
    
    
    
    57,648
    
    
    
    4.23
    %
    
    
    1,476,996
    
    
    
    46,488
    
    
    
    3.15
    %
    
    
    1,193,078
    
    
    
    23,932
    
    
    
    2.01
    %Brokered deposits
    
    
    1,282,704
    
    
    
    66,262
    
    
    
    5.17
    %
    
    
    996,741
    
    
    
    36,785
    
    
    
    3.69
    %
    
    
    387,682
    
    
    
    10,931
    
    
    
    2.82
    %Total Interest-bearing deposits
    
    
    4,506,524
    
    
    
    173,380
    
    
    
    3.85
    %
    
    
    4,418,832
    
    
    
    122,212
    
    
    
    2.77
    %
    
    
    3,497,030
    
    
    
    60,279
    
    
    
    1.72
    %Borrowings
    
    
    2,611,231
    
    
    
    138,500
    
    
    
    5.30
    %
    
    
    2,295,932
    
    
    
    85,740
    
    
    
    3.73
    %
    
    
    2,648,854
    
    
    
    74,261
    
    
    
    2.80
    %Term Notes
    
    
    40,883
    
    
    
    1,460
    
    
    
    3.57
    %
    
    
    37,158
    
    
    
    1,229
    
    
    
    3.31
    %
    
    
    132,947
    
    
    
    5,640
    
    
    
    4.24
    %Subordinated Notes
    
    
    224,606
    
    
    
    14,374
    
    
    
    6.40
    %
    
    
    82,082
    
    
    
    3,402
    
    
    
    4.14
    %
    
    
    29,351
    
    
    
    582
    
    
    
    1.98
    %Total interest-bearing liabilities
interest expense
    
    
    7,383,244
    
    
    
    327,714
    
    
    
    4.44
    %
    
    
    6,834,004
    
    
    
    212,583
    
    
    
    3.11
    %
    
    
    6,308,182
    
    
    
    140,762
    
    
    
    2.23
    %Total non interest-bearing liabilities
    
    
    873,793
    
    
    
    
    
    
    
    
    
    
    
    875,762
    
    
    
    
    
    
    
    
    
    
    
    830,326Total liabilities
    
    
    8,257,037
    
    
    
    
    
    
    
    
    
    
    
    7,709,766
    
    
    
    
    
    
    
    
    
    
    
    7,138,508Stockholders Equity
    
    
    563,593
    
    
    
    
    
    
    
    
    
    
    
    576,226
    
    
    
    
    
    
    
    
    
    
    
    495,963Total liabilities and stockholders equity
    
    $
    8,820,630
    
    
    
    
    
    
    
    
    
    
    $
    8,285,992
    
    
    
    
    
    
    
    
    
    
    $
    7,634,471Net interest income
    
    
    
    
    
    $
    299,592
    
    
    
    
    
    
    
    
    
    
    $
    238,081
    
    
    
    
    
    
    
    
    
    
    $
    243,222Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.15
    %
    
    
    
    
    
    
    
    
    
    
    2.61
    %
    
    
    
    
    
    
    
    
    
    
    3.03
    %Cost of funding earning assets
    
    
    
    
    
    
    
    
    
    
    3.97
    %
    
    
    
    
    
    
    
    
    
    
    2.70
    %
    
    
    
    
    
    
    
    
    
    
    1.93
    %Net interest margin (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    3.63
    %
    
    
    
    
    
    
    
    
    
    
    3.02
    %
    
    
    
    
    
    
    
    
    
    
    3.33
    %
 39




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##### Table of Contents



Changes in Interest Income and Interest Expense-Volume and Rate Analysis
  2006 vs. 2005
    
    
    2005 vs. 2004Increase (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 purchased and securities
purchased under agreements to resell
    
    $
    (1,679
    )
    
    $
    2,023
    
    
    $
    344
    
    
    $
    (1,390
    )
    
    $
    2,454
    
    
    $
    1,064Time deposits with other banks
    
    
    (1,400
    )
    
    
    1,774
    
    
    
    374
    
    
    
    1,352
    
    
    
    1,659
    
    
    
    3,011Investment securities
    
    
    (4,934
    )
    
    
    3,920
    
    
    
    (1,014
    )
    
    
    (26,289
    )
    
    
    (8,807
    )
    
    
    (35,096
    )Loans, net
    
    
    37,637
    
    
    
    139,301
    
    
    
    176,938
    
    
    
    68,768
    
    
    
    28,933
    
    
    
    97,701Total interest income
    
    
    29,624
    
    
    
    147,018
    
    
    
    176,642
    
    
    
    42,441
    
    
    
    24,239
    
    
    
    66,680Interest Expense:Savings and NOW accounts
    
    
    (1,744
    )
    
    
    12,275
    
    
    
    10,531
    
    
    
    388
    
    
    
    13,135
    
    
    
    13,523Other time deposits
    
    
    6,118
    
    
    
    34,519
    
    
    
    40,637
    
    
    
    25,060
    
    
    
    23,350
    
    
    
    48,410Borrowings
    
    
    12,993
    
    
    
    39,767
    
    
    
    52,760
    
    
    
    (10,835
    )
    
    
    22,314
    
    
    
    11,479Long-term borrowings
    
    
    7,798
    
    
    
    3,405
    
    
    
    11,203
    
    
    
    (1,671
    )
    
    
    80
    
    
    
    (1,591
    )Total interest expense
    
    
    25,165
    
    
    
    89,966
    
    
    
    115,131
    
    
    
    12,942
    
    
    
    58,879
    
    
    
    71,821Net interest income (expense)  tax
equivalent basis
    
    $
    4,459
    
    
    $
    57,052
    
    
    $
    61,511
    
    
    $
    29,499
    
    
    $
    (34,640
    )
    
    $
    (5,141
    )
   Provision for Loan Losses
 2006 compared to 2005.
 2005 compared to 2004.
 40




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##### Table of Contents



Other Income
   Year ended December 31,2006
    
    
    2005
    
    
    2004(Dollars In thousands)Bank service fees on deposit accounts
    
    $
    13,432
    
    
    $
    12,883
    
    
    $
    12,776Other service fees:Credit card fees
    
    
    17,870
    
    
    
    15,242
    
    
    
    12,841Mortgage-servicing fees
    
    
    2,554
    
    
    
    2,283
    
    
    
    1,828Trust fees
    
    
    3,004
    
    
    
    2,912
    
    
    
    2,951Other fees
    
    
    12,218
    
    
    
    8,952
    
    
    
    8,581Broker-dealer, asset management and
insurance fees
    
    
    56,973
    
    
    
    53,016
    
    
    
    51,113Gain on sale of securities, net
    
    
    
    
    
    
    17,842
    
    
    
    11,475Loss on extinguishment of debt
    
    
    
    
    
    
    (5,959
    )
    
    
    Gain on sale of loans
    
    
    1,994
    
    
    
    7,876
    
    
    
    431Trading gains
    
    
    1,243
    
    
    
    277
    
    
    
    124(Loss) gain on derivatives
    
    
    (478
    )
    
    
    1,963
    
    
    
    3,459Other gains, net
    
    
    4,428
    
    
    
    4,774
    
    
    
    8,139Other
    
    
    5,231
    
    
    
    3,297
    
    
    
    3,521$
    118,469
    
    
    $
    125,358
    
    
    $
    117,239
  Year ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)Broker-dealer
    
    $
    25,269
    
    
    $
    25,542
    
    
    $
    30,180Asset management
    
    
    19,969
    
    
    
    20,119
    
    
    
    15,901Total Santander Securities and subsidiary
    
    
    45,238
    
    
    
    45,661
    
    
    
    46,081Insurance
    
    
    11,735
    
    
    
    7,355
    
    
    
    5,032Total
    
    $
    56,973
    
    
    $
    53,016
    
    
    $
    51,113
 2006 compared to 2005.
  41




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##### Table of Contents



2005 compared to 2004.
      42




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##### Table of Contents



Operating Expenses
  Year ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)Salaries
    
    $
    78,945
    
    
    $
    58,547
    
    
    $
    57,376Pension and other benefits
    
    
    55,428
    
    
    
    48,775
    
    
    
    49,458Expenses deferred as loan origination costs
    
    
    (12,662
    )
    
    
    (12,320
    )
    
    
    (15,252
    )Total personnel costs
    
    
    121,711
    
    
    
    95,002
    
    
    
    91,582Occupancy costs
    
    
    22,476
    
    
    
    16,811
    
    
    
    13,959Equipment expenses
    
    
    4,797
    
    
    
    3,802
    
    
    
    3,775EDP servicing expense, amortization and
technical services
    
    
    40,084
    
    
    
    31,589
    
    
    
    34,462Communications
    
    
    11,358
    
    
    
    8,232
    
    
    
    8,976Business promotion
    
    
    11,613
    
    
    
    11,065
    
    
    
    10,435Other taxes
    
    
    11,514
    
    
    
    8,443
    
    
    
    8,584Other operating expenses:Professional fees
    
    
    12,589
    
    
    
    9,844
    
    
    
    12,235Amortization of intangibles
    
    
    4,081
    
    
    
    1,697
    
    
    
    1,170Printing and supplies
    
    
    1,939
    
    
    
    1,775
    
    
    
    1,725Credit card expenses
    
    
    10,741
    
    
    
    8,844
    
    
    
    7,561Insurance
    
    
    2,810
    
    
    
    2,461
    
    
    
    2,113Examinations & FDIC assessment
    
    
    1,914
    
    
    
    1,809
    
    
    
    1,108Transportation and travel
    
    
    2,802
    
    
    
    2,242
    
    
    
    2,044Repossessed assets provision and expenses
    
    
    1,879
    
    
    
    1,871
    
    
    
    2,758Collections and related legal costs
    
    
    1,542
    
    
    
    1,461
    
    
    
    2,464All other
    
    
    13,933
    
    
    
    14,438
    
    
    
    12,426Other operating expenses
    
    
    54,230
    
    
    
    46,442
    
    
    
    45,604Non personnel expenses
    
    
    156,072
    
    
    
    126,384
    
    
    
    125,795Total Operating Expenses
    
    $
    277,783
    
    
    $
    221,386
    
    
    $
    217,377Efficiency ratio-on a tax equivalent basis
    
    
    66.82
    %
    
    
    62.97
    %
    
    
    62.78
    %Personnel cost to average assets
    
    
    1.38
    %
    
    
    1.15
    %
    
    
    1.20
    %Other operating expenses to average assets
    
    
    1.77
    %
    
    
    1.53
    %
    
    
    1.65
    %Assets per employee
    
    $
    3,929
    
    
    $
    5,199
    
    
    $
    4,797
 2006 compared to 2005.
 43




---



##### Table of Contents



2005 compared to 2004
     Income Taxes
  44




---



##### Table of Contents



2006 compared to 2005.
 2005 compared to 2004.
 Financial Condition
 Assets
    45




---



##### Table of Contents



Short Term Investments and Interest-bearing Deposits in Other Financial Institutions
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Interest-bearing deposits
    
    $
    52,235
    
    
    $
    109,867
    
    
    $
    92,612Federal funds sold
    
    
    35,412
    
    
    
    15,000
    
    
    
    231,500Securities purchased
under agreements to
resell
    
    
    37,995
    
    
    
    77,429
    
    
    
    95,150$
    125,642
    
    
    $
    202,296
    
    
    $
    419,262
 Investment Portfolio
    Accounting for Certain Investments in Debt and Equity Securities
  46




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAvailable for Sale
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)U.S. Treasury
    
    $
    63,995
    
    
    $
    63,995
    
    
    $
    24,576
    
    
    $
    24,576
    
    
    $
    7,578
    
    
    $
    7,578U.S. Agency Notes
    
    
    658,340
    
    
    
    658,340
    
    
    
    727,199
    
    
    
    727,199
    
    
    
    1,427,931
    
    
    
    1,427,931P.R. Government
Obligations
    
    
    55,942
    
    
    
    55,942
    
    
    
    53,600
    
    
    
    53,600
    
    
    
    52,688
    
    
    
    52,688Mortgage-backed
Securities
    
    
    631,437
    
    
    
    631,437
    
    
    
    754,231
    
    
    
    754,231
    
    
    
    489,785
    
    
    
    489,785Foreign Securities
    
    
    75
    
    
    
    75
    
    
    
    75
    
    
    
    75
    
    
    
    150
    
    
    
    150$
    1,409,789
    
    
    $
    1,409,789
    
    
    $
    1,559,681
    
    
    $
    1,559,681
    
    
    $
    1,978,132
    
    
    $
    1,978,132
  47




---



##### Table of Contents



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
    
    
    
    750
    %
    
    
    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
    %
 December 31, 2004After 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
    
    $
    7,578
    
    
    
    2.16
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    7,578
    
    
    $
    7,578
    
    
    
    2.16
    %U.S. Agency Notes
    
    
    3,057
    
    
    
    2.24
    %
    
    
    1,062,627
    
    
    
    4.56
    %
    
    
    362,247
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    1,427,931
    
    
    
    1,427,931
    
    
    
    4.45
    %P.R. Government Obligations
    
    
    8,470
    
    
    
    4.42
    %
    
    
    22,189
    
    
    
    4.51
    %
    
    
    13,800
    
    
    
    4.24
    %
    
    
    8,229
    
    
    
    6.42
    %
    
    
    52,688
    
    
    
    52,688
    
    
    
    4.73
    %Mortgage-backed Securities
    
    
    
    
    
    
    
    
    
    
    890
    
    
    
    8.36
    %
    
    
    75
    
    
    
    9.50
    %
    
    
    488,820
    
    
    
    4.30
    %
    
    
    489,785
    
    
    
    489,785
    
    
    
    4.31
    %Foreign Securities
    
    
    75
    
    
    
    6.98
    %
    
    
    75
    
    
    
    5.60
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    150
    
    
    
    6.29
    %Other Securities
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    1.72
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,500
    
    
    
    37,500
    
    
    
    1.72
    %Total Securities
    
    $
    19,180
    
    
    
    4.94
    %
    
    $
    1,123,281
    
    
    
    4.29
    %
    
    $
    376,122
    
    
    
    4.13
    %
    
    $
    497,049
    
    
    
    4.33
    %
    
    $
    2,015,632
    
    
    $
    2,015,632
    
    
    
    4.41
    %
 48




---



##### Table of Contents



Loan Portfolio
  Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial, industrial and agriculturalRetail commercial bankingMiddle-market
    
    $
    1,662,566
    
    
    
    23.9
    %
    
    $
    1,574,459
    
    
    
    26.1
    %
    
    $
    1,439,609
    
    
    
    25.9
    %
    
    $
    1,354,879
    
    
    
    32.2
    %
    
    $
    1,220,996
    
    
    
    29.8
    %Agricultural
    
    
    59,315
    
    
    
    0.9
    %
    
    
    61,531
    
    
    
    1.0
    %
    
    
    62,198
    
    
    
    1.1
    %
    
    
    62,925
    
    
    
    1.5
    %
    
    
    67,768
    
    
    
    1.7
    %SBA
    
    
    66,734
    
    
    
    1.0
    %
    
    
    69,763
    
    
    
    1.2
    %
    
    
    72,963
    
    
    
    1.3
    %
    
    
    72,060
    
    
    
    1.7
    %
    
    
    74,160
    
    
    
    1.8
    %Factor liens
    
    
    20,553
    
    
    
    0.3
    %
    
    
    16,696
    
    
    
    0.3
    %
    
    
    16,818
    
    
    
    0.3
    %
    
    
    18,291
    
    
    
    0.4
    %
    
    
    14,026
    
    
    
    0.3
    %Other
    
    
    6,965
    
    
    
    0.1
    %
    
    
    40,072
    
    
    
    0.7
    %
    
    
    11,978
    
    
    
    0.2
    %
    
    
    2,754
    
    
    
    0.1
    %
    
    
    4,699
    
    
    
    0.1
    %Retail commercial banking
    
    
    1,816,133
    
    
    
    26.2
    %
    
    
    1,762,521
    
    
    
    29.3
    %
    
    
    1,603,566
    
    
    
    28.8
    %
    
    
    1,510,909
    
    
    
    35.9
    %
    
    
    1,381,649
    
    
    
    33.7
    %Corporate banking
    
    
    673,566
    
    
    
    9.7
    %
    
    
    1,205,664
    
    
    
    20.0
    %
    
    
    1,598,443
    
    
    
    28.8
    %
    
    
    753,839
    
    
    
    17.9
    %
    
    
    585,946
    
    
    
    14.3
    %Construction
    
    
    435,182
    
    
    
    6.3
    %
    
    
    213,705
    
    
    
    3.5
    %
    
    
    199,799
    
    
    
    3.6
    %
    
    
    209,655
    
    
    
    5.0
    %
    
    
    309,505
    
    
    
    7.5
    %Lease Financing
    
    
    132,655
    
    
    
    1.9
    %
    
    
    125,168
    
    
    
    2.1
    %
    
    
    112,152
    
    
    
    2.0
    %
    
    
    105,849
    
    
    
    2.5
    %
    
    
    92,993
    
    
    
    2.3
    %Total Commercial
    
    
    3,057,536
    
    
    
    44.1
    %
    
    
    3,307,058
    
    
    
    54.9
    %
    
    
    3,513,960
    
    
    
    63.2
    %
    
    
    2,580,252
    
    
    
    61.3
    %
    
    
    2,370,093
    
    
    
    57.8
    %ConsumerPersonal (installment and other loans)
    
    
    412,952
    
    
    
    5.9
    %
    
    
    397,169
    
    
    
    6.6
    %
    
    
    319,204
    
    
    
    5.7
    %
    
    
    287,590
    
    
    
    6.8
    %
    
    
    379,678
    
    
    
    9.3
    %Automobile
    
    
    2
    
    
    
    0.0
    %
    
    
    610
    
    
    
    0.0
    %
    
    
    6,434
    
    
    
    0.1
    %
    
    
    21,232
    
    
    
    0.5
    %
    
    
    48,384
    
    
    
    1.2
    %Credit Cards
    
    
    193,260
    
    
    
    2.8
    %
    
    
    169,416
    
    
    
    2.8
    %
    
    
    128,622
    
    
    
    2.3
    %
    
    
    95,362
    
    
    
    2.3
    %
    
    
    102,463
    
    
    
    2.5
    %Consumer Finance
    
    
    625,266
    
    
    
    9.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total Consumer
    
    
    1,231,480
    
    
    
    17.7
    %
    
    
    567,195
    
    
    
    9.4
    %
    
    
    454,260
    
    
    
    8.2
    %
    
    
    404,184
    
    
    
    9.6
    %
    
    
    530,525
    
    
    
    12.9
    %MortgageResidential
    
    
    2,649,128
    
    
    
    38.1
    %
    
    
    2,141,358
    
    
    
    35.6
    %
    
    
    1,583,418
    
    
    
    28.5
    %
    
    
    1,219,091
    
    
    
    29.0
    %
    
    
    1,196,231
    
    
    
    29.2
    %Commercial
    
    
    5,412
    
    
    
    0.1
    %
    
    
    6,121
    
    
    
    0.1
    %
    
    
    7,659
    
    
    
    0.1
    %
    
    
    2,836
    
    
    
    0.1
    %
    
    
    4,482
    
    
    
    0.1
    %Total Mortgage
    
    
    2,654,540
    
    
    
    38.2
    %
    
    
    2,147,479
    
    
    
    35.7
    %
    
    
    1,591,077
    
    
    
    28.6
    %
    
    
    1,221,927
    
    
    
    29.1
    %
    
    
    1,200,713
    
    
    
    29.3
    %Total Loans, net of unearned interest
and deferred fees
    
    $
    6,943,556
    
    
    
    100.0
    %
    
    $
    6,021,732
    
    
    
    100.0
    %
    
    $
    5,559,297
    
    
    
    100.0
    %
    
    $
    4,206,363
    
    
    
    100.0
    %
    
    $
    4,101,331
    
    
    
    100.0
    %
  Allowance for Loan Losses
  49




---



##### Table of Contents



50




---



##### Table of Contents



Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)Balance at beginning of year
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693
    
    
    $
    56,906
    
    
    $
    51,738Allowance acquired (Island Finance)
    
    
    35,104
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270
    
    
    
    49,916
    
    
    
    63,699167,529
    
    
    
    89,577
    
    
    
    95,963
    
    
    
    106,822
    
    
    
    115,437Losses charged to the allowance:Commercial and industrial
    
    
    9,792
    
    
    
    8,044
    
    
    
    19,250
    
    
    
    9,198
    
    
    
    19,158Construction
    
    
    
    
    
    
    1,438
    
    
    
    
    
    
    
    499
    
    
    
    1,528Consumer
    
    
    16,679
    
    
    
    17,351
    
    
    
    18,969
    
    
    
    36,544
    
    
    
    45,676Consumer Finance
    
    
    38,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Leasing
    
    
    2,071
    
    
    
    986
    
    
    
    1,658
    
    
    
    1,434
    
    
    
    3,12566,887
    
    
    
    27,819
    
    
    
    39,877
    
    
    
    47,675
    
    
    
    69,487Recoveries:Commercial and industrial
    
    
    2,463
    
    
    
    1,686
    
    
    
    5,271
    
    
    
    4,478
    
    
    
    3,443Construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    433
    
    
    
    18Mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    1Consumer
    
    
    1,677
    
    
    
    2,646
    
    
    
    7,341
    
    
    
    5,127
    
    
    
    7,044Consumer Finance
    
    
    1,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Leasing
    
    
    767
    
    
    
    752
    
    
    
    479
    
    
    
    501
    
    
    
    4506,221
    
    
    
    5,084
    
    
    
    13,091
    
    
    
    10,546
    
    
    
    10,956Net loans charged-off
    
    
    60,666
    
    
    
    22,735
    
    
    
    26,786
    
    
    
    37,129
    
    
    
    58,531Balance at end of year
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693
    
    
    $
    56,906Ratios:Allowance for loan losses to year-end loans
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %
    
    
    1.66
    %
    
    
    1.39
    %Recoveries to charge-offs
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %
    
    
    22.12
    %
    
    
    15.77
    %Net charge-offs to average loans
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %
    
    
    0.91
    %
    
    
    1.32
    %Allowance for loan losses to net charge-offs
    
    
    176.15
    %
    
    
    294.00
    %
    
    
    258.26
    %
    
    
    187.71
    %
    
    
    97.22
    %Allowance for loan losses to non-performing
loans
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %
    
    
    70.85
    %
    
    
    46.10
    %Provision for loan losses to:Net charge-offs
    
    
    108.11
    %
    
    
    89.73
    %
    
    
    98.07
    %
    
    
    134.44
    %
    
    
    108.83
    %Average loans
    
    
    1.00
    %
    
    
    0.34
    %
    
    
    0.55
    %
    
    
    1.23
    %
    
    
    1.43
    %
  Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)Balance at beginning of year
    
    $
    1,666
    
    
    $
    1,269
    
    
    $
    879
    
    
    $
    1,050
    
    
    $
    1,119Provision for credit losses
    
    
    198
    
    
    
    397
    
    
    
    390
    
    
    
    (171
    )
    
    
    (69
    )Balance at end of year
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269
    
    
    $
    879
    
    
    $
    1,050
 2006 compared to 2005
 51




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2005 compared to 2004
      52




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##### Table of Contents



Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002% 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
    
    $
    29,846
    
    
    
    35.9
    %
    
    $
    27,765
    
    
    
    49.3
    %
    
    $
    29,469
    
    
    
    57.6
    %
    
    $
    26,219
    
    
    
    53.8
    %
    
    $
    21,415
    
    
    
    48.0
    %Construction
    
    
    3,128
    
    
    
    6.3
    %
    
    
    1,456
    
    
    
    3.5
    %
    
    
    1,208
    
    
    
    3.6
    %
    
    
    1,194
    
    
    
    5.0
    %
    
    
    4,149
    
    
    
    7.5
    %Consumer
    
    
    20,099
    
    
    
    8.7
    %
    
    
    30,664
    
    
    
    9.4
    %
    
    
    30,832
    
    
    
    8.2
    %
    
    
    33,751
    
    
    
    9.6
    %
    
    
    29,711
    
    
    
    12.9
    %Consumer Finance
    
    
    41,281
    
    
    
    9.0
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    9,249
    
    
    
    38.2
    %
    
    
    2,415
    
    
    
    35.7
    %
    
    
    4,250
    
    
    
    28.6
    %
    
    
    3,318
    
    
    
    29.1
    %
    
    
    124
    
    
    
    29.3
    %Lease financing
    
    
    555
    
    
    
    1.9
    %
    
    
    2,128
    
    
    
    2.1
    %
    
    
    2,068
    
    
    
    2.0
    %
    
    
    2,922
    
    
    
    2.5
    %
    
    
    1,833
    
    
    
    2.3
    %Unallocated
    
    
    2,705
    
    
    
    
    
    
    
    2,414
    
    
    
    
    
    
    
    1,350
    
    
    
    
    
    
    
    2,289
    
    
    
    
    
    
    
    (326
    )
    
    
    $
    106,863
    
    
    
    100.0
    %
    
    $
    66,842
    
    
    
    100.0
    %
    
    $
    69,177
    
    
    
    100.0
    %
    
    $
    69,693
    
    
    
    100.0
    %
    
    $
    56,906
    
    
    
    100.0
    %
   Liabilities
   53




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Year ended December 31,2006
    
    
    2005
    
    
    2004% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAverage
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    AverageBalance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost(Dollars in thousands)Savings deposits
    
    $
    1,861,167
    
    
    
    22.5
    %
    
    
    2.66
    %
    
    $
    1,945,095
    
    
    
    25.2
    %
    
    
    2.00
    %
    
    $
    1,916,270
    
    
    
    26.8
    %
    
    
    1.33
    %Time deposits
    
    
    2,645,357
    
    
    
    32.0
    %
    
    
    4.68
    %
    
    
    2,473,737
    
    
    
    32.1
    %
    
    
    3.37
    %
    
    
    1,580,760
    
    
    
    22.1
    %
    
    
    2.21
    %Interest-bearing deposits
    
    
    4,506,524
    
    
    
    54.6
    %
    
    
    3.85
    %
    
    
    4,418,832
    
    
    
    57.3
    %
    
    
    2.77
    %
    
    
    3,497,030
    
    
    
    48.9
    %
    
    
    1.73
    %Federal funds, repos, and
commercial paper and other
borrowings
    
    
    2,611,231
    
    
    
    31.6
    %
    
    
    5.30
    %
    
    
    2,295,932
    
    
    
    29.8
    %
    
    
    3.73
    %
    
    
    2,648,854
    
    
    
    37.1
    %
    
    
    2.80
    %Term and subordinated notes
    
    
    265,489
    
    
    
    3.2
    %
    
    
    5.96
    %
    
    
    119,240
    
    
    
    1.5
    %
    
    
    3.74
    %
    
    
    162,298
    
    
    
    2.3
    %
    
    
    3.83
    %Total borrowings
    
    
    2,876,720
    
    
    
    34.8
    %
    
    
    5.36
    %
    
    
    2,415,172
    
    
    
    31.3
    %
    
    
    3.73
    %
    
    
    2,811,152
    
    
    
    39.4
    %
    
    
    2.86
    %Total interest-bearing liabilities
    
    
    7,383,244
    
    
    
    89.4
    %
    
    
    4.44
    %
    
    
    6,834,004
    
    
    
    88.6
    %
    
    
    3.11
    %
    
    
    6,308,182
    
    
    
    88.3
    %
    
    
    2.23
    %Non-interest-bearing deposits
    
    
    548,163
    
    
    
    6.6
    %
    
    
    0.00
    %
    
    
    663,688
    
    
    
    8.6
    %
    
    
    0.00
    %
    
    
    656,215
    
    
    
    9.3
    %
    
    
    0.00
    %Other liabilities
    
    
    325,620
    
    
    
    3.9
    %
    
    
    0.00
    %
    
    
    212,074
    
    
    
    2.8
    %
    
    
    0.00
    %
    
    
    174,111
    
    
    
    2.4
    %
    
    
    0.00
    %Total non-interest-bearing liabilities
    
    
    873,783
    
    
    
    10.6
    %
    
    
    0.00
    %
    
    
    875,762
    
    
    
    11.4
    %
    
    
    0.00
    %
    
    
    830,326
    
    
    
    11.7
    %
    
    
    0.00
    %Total Liabilities
    
    $
    8,257,027
    
    
    
    100.0
    %
    
    
    3.97
    %
    
    $
    7,709,766
    
    
    
    100.0
    %
    
    
    2.76
    %
    
    $
    7,138,508
    
    
    
    100.0
    %
    
    
    1.97
    %
   Year ended December 31,Average Total Deposits
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Private Demand
    
    $
    547,416
    
    
    $
    626,829
    
    
    $
    595,012Public Demand
    
    
    747
    
    
    
    36,859
    
    
    
    61,203Non-interest bearing
    
    
    548,163
    
    
    
    663,688
    
    
    
    656,215Savings Accounts
    
    
    792,791
    
    
    
    859,623
    
    
    
    786,006NOW and Super NOW accounts
    
    
    412,696
    
    
    
    470,595
    
    
    
    527,954Government NOW accounts
    
    
    655,680
    
    
    
    614,877
    
    
    
    602,310Total Savings Accounts
    
    
    1,861,167
    
    
    
    1,945,095
    
    
    
    1,916,270Time deposits:Under $100,000
    
    
    259,255
    
    
    
    231,916
    
    
    
    215,446$100,000 and over
    
    
    2,386,102
    
    
    
    2,241,821
    
    
    
    1,365,304Total Time Deposits
    
    
    2,645,357
    
    
    
    2,473,737
    
    
    
    1,580,750Total Interest Bearing Deposits
    
    
    4,506,524
    
    
    
    4,418,832
    
    
    
    3,497,020Total Deposits
    
    $
    5,054,687
    
    
    $
    5,082,520
    
    
    $
    4,153,235
 54




---



##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Three months or less
    
    $
    896,638
    
    
    $
    842,274Over three months through six months
    
    
    302,716
    
    
    
    288,137Over six months through twelve months
    
    
    377,998
    
    
    
    381,474Over twelve months
    
    
    963,659
    
    
    
    850,115Total
    
    $
    2,541,011
    
    
    $
    2,362,000
     Capital and Dividends
      55




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56




---



##### 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, 2006:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    723,269
    
    
    
    10.93
    %
    
    
    3$529,191
    
    
    
    38.00
    %
    
    
    N/ABanco Santander
    
    
    651,350
    
    
    
    11.10
    %
    
    
    3  469,346
    
    
    
    38.00
    %
    
    
    3586,683
    
    
    
    310.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    520,794
    
    
    
    7.87
    %
    
    
    3  264,596
    
    
    
    34.00
    %
    
    
    N/ABanco Santander
    
    
    583,941
    
    
    
    9.95
    %
    
    
    3  234,673
    
    
    
    34.00
    %
    
    
    3352,010
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    520,794
    
    
    
    5.81
    %
    
    
    3  269,000
    
    
    
    33.00
    %
    
    
    N/ABanco Santander
    
    
    583,941
    
    
    
    7.15
    %
    
    
    3  244,857
    
    
    
    33.00
    %
    
    
    3408,095
    
    
    
    >5.00
    %December 31, 2005:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    726,939
    
    
    
    12.30
    %
    
    
    3$472,889
    
    
    
    38.00
    %
    
    
    N/ABanco Santander
    
    
    638,181
    
    
    
    11.05
    %
    
    
    3  462,187
    
    
    
    38.00
    %
    
    
    3577,734
    
    
    
    310.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    537,319
    
    
    
    9.09
    %
    
    
    3  236,445
    
    
    
    34.00
    %
    
    
    N/ABanco Santander
    
    
    570,056
    
    
    
    9.87
    %
    
    
    3  231,093
    
    
    
    34.00
    %
    
    
    3346,640
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    537,319
    
    
    
    6.51
    %
    
    
    3  247,593
    
    
    
    33.00
    %
    
    
    N/ABanco Santander
    
    
    570,056
    
    
    
    6.98
    %
    
    
    3  245,222
    
    
    
    33.00
    %
    
    
    3408,703
    
    
    
    >5.00
    %December 31, 2004:Total Capital (to Risk Weighted Assets)Santander BanCorp
    
    $
    647,799
    
    
    
    11.05
    %
    
    
    3$468,849
    
    
    
    38.00
    %
    
    
    N/ABanco Santander
    
    
    604,003
    
    
    
    9.78
    %
    
    
    3  494,003
    
    
    
    38.00
    %
    
    
    3617,504
    
    
    
    3 10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    505,650
    
    
    
    8.63
    %
    
    
    3  234,424
    
    
    
    34.00
    %
    
    
    N/ABanco Santander
    
    
    537,161
    
    
    
    8.70
    %
    
    
    3  247,002
    
    
    
    34.00
    %
    
    
    3370,503
    
    
    
    36.00
    %Leverage (to average assets)Santander BanCorp
    
    
    505,650
    
    
    
    6.43
    %
    
    
    3  235,607
    
    
    
    33.00
    %
    
    
    N/ABanco Santander
    
    
    537,161
    
    
    
    6.90
    %
    
    
    3  233,389
    
    
    
    33.00
    %
    
    
    3388,982
    
    
    
    >5.00
    %
 57




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##### Table of Contents



Goodwill and Intangible Assets
  2006
    
    
    2005
    
    
    2004(Dollars in millions)Mortgage Servicing Rights
    
    $
    8.4
    
    
    $
    8.0
    
    
    $
    6.5Advisory Servicing Rights
    
    
    1.8
    
    
    
    1.3
    
    
    
    1.5Intangible Pension Asset
    
    
    
    
    
    
    0.8
    
    
    
    Trade Name
    
    
    23.7
    
    
    
    
    
    
    
    Customer Relationships
    
    
    9.7
    
    
    
    
    
    
    
    Non-compete Agreement
    
    
    3.8
    
    
    
    
    
    
    
    Goodwill
    
    
    148.3
    
    
    
    34.8
    
    
    
    34.8$
    195.7
    
    
    $
    44.9
    
    
    $
    42.8
 Contractual Obligations and Commercial Commitments
  Payments due by Periodas of December 31, 2006MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Contractual Obligations:Federal funds purchased and
other borrowings
    
    $
    1,628,400
    
    
    $
    1,153,400
    
    
    $
    475,000
    
    
    $
    
    
    
    $
    Securities sold under
agreements to repurchase
    
    
    830,569
    
    
    
    480,563
    
    
    
    150,006
    
    
    
    
    
    
    
    200,000Commercial paper
    
    
    209,549
    
    
    
    209,549
    
    
    
    
    
    
    
    
    
    
    
    Subordinated notes
    
    
    244,468
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244,468Term notes
    
    
    41,529
    
    
    
    
    
    
    
    
    
    
    
    41,529
    
    
    
    Operating lease obligations
    
    
    57,534
    
    
    
    18,703
    
    
    
    14,694
    
    
    
    9,401
    
    
    
    14,736Pension plan contribution
    
    
    7,690
    
    
    
    7,690
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,019,739
    
    
    $
    1,869,905
    
    
    $
    639,700
    
    
    $
    50,930
    
    
    $
    459,204Other Commercial Commitments:Lines of credit and
financial guarantees written
    
    
    184,959
    
    
    
    87,995
    
    
    
    31,359
    
    
    
    64,562
    
    
    
    1,043Commitments to extend credit
    
    
    1,666,490
    
    
    
    1,666,490
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,851,449
    
    
    $
    1,754,485
    
    
    $
    31,359
    
    
    $
    64,562
    
    
    $
    1,043
 58




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##### Table of Contents



Recent Accounting Pronouncements
  
 ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Risk Management
  Credit Risk Management and Loan Quality
          59




---



##### Table of Contents



Industry Risk
    Government Risk
  60




---



##### Table of Contents



Non-performing Assets and Past Due Loans
  Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)Commercial, Industrial and
Agricultural
    
    $
    15,549
    
    
    $
    14,326
    
    
    $
    27,975
    
    
    $
    30,884
    
    
    $
    35,369Construction
    
    
    3,966
    
    
    
    3,414
    
    
    
    11,200
    
    
    
    10,085
    
    
    
    31,248Mortgage
    
    
    51,341
    
    
    
    45,292
    
    
    
    36,252
    
    
    
    42,107
    
    
    
    36,071Consumer
    
    
    7,590
    
    
    
    4,747
    
    
    
    6,808
    
    
    
    9,312
    
    
    
    15,930Consumer Finance
    
    
    24,731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease Financing
    
    
    2,783
    
    
    
    3,340
    
    
    
    2,715
    
    
    
    4,027
    
    
    
    3,735Restructured Loans
    
    
    892
    
    
    
    2,560
    
    
    
    2,560
    
    
    
    1,953
    
    
    
    1,085Total non-performing loans
    
    
    106,852
    
    
    
    73,679
    
    
    
    87,510
    
    
    
    98,368
    
    
    
    123,438Total repossessed assets
    
    
    6,173
    
    
    
    2,706
    
    
    
    3,937
    
    
    
    4,989
    
    
    
    17,563Non-performing assets
    
    $
    113,025
    
    
    $
    76,385
    
    
    $
    91,447
    
    
    $
    103,357
    
    
    $
    141,001Accruing loans past-due 90 days or
more
    
    $
    20,938
    
    
    $
    2,999
    
    
    $
    3,377
    
    
    $
    2,404
    
    
    $
    3,928Non-performing loans to total loans
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %
    
    
    2.34
    %
    
    
    3.01
    %Non-performing loans plus accruing
loans
past due 90 days or more to
total loans
    
    
    1.84
    %
    
    
    1.27
    %
    
    
    1.63
    %
    
    
    2.40
    %
    
    
    3.11
    %Non-performing assets to total
assets
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %
    
    
    1.40
    %
    
    
    1.91
    %Interest lost
    
    $
    3,112
    
    
    $
    2,111
    
    
    $
    2,351
    
    
    $
    3,127
    
    
    $
    2,338
     61




---



##### Table of Contents



Potential Problem Loans
  Asset and Liability Management
  Market Risk and Interest Rate Sensitivity
   62




---



##### Table of Contents



Interest Rate SensitivityAs of December 31, 20060 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
    
    $
    249,837
    
    
    $
    5,958
    
    
    $
    320,188
    
    
    $
    733,037
    
    
    $
    89,525
    
    
    $
    
    
    
    $
    112,746
    
    
    $
    1,511,291Deposits with Other Banks
    
    
    146,323
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104,396
    
    
    
    250,719Loan Portfolio:Commercial
    
    
    1,326,426
    
    
    
    287,435
    
    
    
    337,930
    
    
    
    315,527
    
    
    
    232,311
    
    
    
    60,821
    
    
    
    61,904
    
    
    
    2,622,354Construction
    
    
    415,938
    
    
    
    871
    
    
    
    4,207
    
    
    
    11,775
    
    
    
    
    
    
    
    
    
    
    
    2,429
    
    
    
    435,220Consumer
    
    
    303,159
    
    
    
    256,245
    
    
    
    491,118
    
    
    
    153,945
    
    
    
    30,141
    
    
    
    
    
    
    
    (3,128
    )
    
    
    1,231,480Mortgage
    
    
    79,753
    
    
    
    261,164
    
    
    
    662,583
    
    
    
    566,504
    
    
    
    927,507
    
    
    
    152,467
    
    
    
    4,524
    
    
    
    2,654,502Fixed and Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482,602
    
    
    
    482,602Total Assets
    
    
    2,521,436
    
    
    
    811,673
    
    
    
    1,816,026
    
    
    
    1,780,788
    
    
    
    1,279,484
    
    
    
    213,288
    
    
    
    765,473
    
    
    
    9,188,168LIABILITIES AND STOCKHOLDERS EQUITY:External Funds Purchased:Commercial Paper
    
    
    209,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209,549Repurchase Agreements
    
    
    480,563
    
    
    
    150,006
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830,569Federal Funds and other
borrowings
    
    
    1,350,000
    
    
    
    278,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,628,400Deposits:Certificates of Deposit
    
    
    952,811
    
    
    
    855,646
    
    
    
    698,608
    
    
    
    280,069
    
    
    
    41,465
    
    
    
    113
    
    
    
    (22,134
    )
    
    
    2,806,578Demand Deposits and
Savings Accounts
    
    
    123,429
    
    
    
    74,359
    
    
    
    24,479
    
    
    
    547,618
    
    
    
    
    
    
    
    
    
    
    
    (23,796
    )
    
    
    746,089Transactional Accounts
    
    
    431,253
    
    
    
    224,240
    
    
    
    533,777
    
    
    
    572,036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,761,306Senior and Subordinated Debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,640
    
    
    
    254,358
    
    
    
    
    
    
    
    
    
    
    
    285,998Other Liabilities and Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    919,679
    
    
    
    919,679Total Liabilities and Capital
    
    
    3,547,605
    
    
    
    1,582,651
    
    
    
    1,256,864
    
    
    
    1,631,363
    
    
    
    295,823
    
    
    
    113
    
    
    
    873,749
    
    
    
    9,188,168Off-Balance Sheet
Financial InformationInterest Rate Swaps (Assets)
    
    
    3,005,786
    
    
    
    755,448
    
    
    
    1,384,779
    
    
    
    280,856
    
    
    
    215,980
    
    
    
    
    
    
    
    
    
    
    
    5,642,849Interest Rate Swaps (Liabilities)
    
    
    (3,338,295
    )
    
    
    (1,197,653
    )
    
    
    (1,029,427
    )
    
    
    (13,906
    )
    
    
    (63,568
    )
    
    
    
    
    
    
    
    
    
    
    (5,642,849
    )Caps
    
    
    38,704
    
    
    
    22,907
    
    
    
    7,510
    
    
    
    832
    
    
    
    1,031
    
    
    
    
    
    
    
    
    
    
    
    70,984Caps Final Maturity
    
    
    (38,704
    )
    
    
    (22,907
    )
    
    
    (7,510
    )
    
    
    (832
    )
    
    
    (1,031
    )
    
    
    
    
    
    
    
    
    
    
    (70,984
    )GAP
    
    
    (1,358,678
    )
    
    
    (1,213,183
    )
    
    
    914,514
    
    
    
    416,375
    
    
    
    1,136,073
    
    
    
    213,175
    
    
    
    (108,276
    )
    
    
    Cumulative GAP
    
    $
    (1,358,678
    )
    
    $
    (2,571,861
    )
    
    $
    (1,657,347
    )
    
    $
    (1,240,972
    )
    
    $
    (104,899
    )
    
    $
    108,276
    
    
    $
    
    
    
    $
    Cumulative GAP to earning assets
    
    
    -15.61
    %
    
    
    -29.54
    %
    
    
    -19.04
    %
    
    
    -14.25
    %
    
    
    -1.20
    %
    
    
    1.24
    %
     63




---



##### Table of Contents



Derivatives
   64




---



##### Table of Contents



Hedging Activities:
  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
 December 31, 2004OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesInterest Rate Swaps
    
    $
    100,000
    
    
    $
    (2,242
    )
    
    $
    
    
    
    $
    3,463Fair Value HedgesInterest Rate Swaps
    
    
    618,648
    
    
    
    (9,764
    )
    
    
    579
    
    
    
    Totals
    
    $
    718,648
    
    
    $
    (12,006
    )
    
    $
    579
    
    
    $
    3,463
 
 *
    
    The notional amount represents the gross sum of long and short**
    
    Net of tax Cash Flow Hedges:
  65




---



##### Table of Contents



Fair Value Hedges:
    Derivative instruments not designated as hedging instruments:
  66




---



##### Table of Contents



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
 December 31, 2004Notional
    
    
    
    
    
    
    Gain(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)Interest Rate ContractsInterest Rate Swaps
    
    $
    335,426
    
    
    $
    568
    
    
    $
    (69
    )Interest Rate Caps
    
    
    67,971
    
    
    
    (16
    )
    
    
    22Other
    
    
    2,415
    
    
    
    3
    
    
    
    3Equity Derivatives
    
    
    138,895
    
    
    
    
    
    
    
    2,924Totals
    
    $
    544,707
    
    
    $
    555
    
    
    $
    2,880
 
 *
    
    The notional amount represents the gross sum of long and short  Liquidity Risk
  67




---



##### Table of Contents



Standard
    
    Fitch& Poors
    
    IBCAShort-term funding
    
    A-1
    
    F1+Long-term funding
    
    A
    
    AA-
  68




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##### Table of Contents



Maturity and Interest Rate Sensitivity of Interest-Earning Assets as of December 31, 2006
  As of December 31, 2006Maturities 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
    
    $
    250,719
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    250,719Investment Portfolio
    
    
    255,796
    
    
    
    1,053,225
    
    
    
    
    
    
    
    202,270
    
    
    
    
    
    
    
    1,511,291Loans:Commercial
    
    
    1,034,660
    
    
    
    588,253
    
    
    
    321,983
    
    
    
    351,744
    
    
    
    193,059
    
    
    
    2,489,699Construction
    
    
    181,309
    
    
    
    15,982
    
    
    
    229,866
    
    
    
    
    
    
    
    8,063
    
    
    
    435,220Consumer
    
    
    319,369
    
    
    
    258,308
    
    
    
    
    
    
    
    28,537
    
    
    
    
    
    
    
    606,214Consumer Finance
    
    
    240,042
    
    
    
    346,964
    
    
    
    31,759
    
    
    
    1,645
    
    
    
    4,856
    
    
    
    625,266Mortgage
    
    
    340,919
    
    
    
    1,229,087
    
    
    
    
    
    
    
    1,084,496
    
    
    
    
    
    
    
    2,654,502Leasing
    
    
    56,626
    
    
    
    65,204
    
    
    
    7,493
    
    
    
    3,291
    
    
    
    41
    
    
    
    132,655Total
    
    $
    2,679,440
    
    
    $
    3,557,023
    
    
    $
    591,101
    
    
    $
    1,671,983
    
    
    $
    206,019
    
    
    $
    8,705,566
 Capital Expenditures
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Headquarters/branches
    
    $
    1,217
    
    
    $
    4,194
    
    
    $
    2,478Data processing equipment
    
    
    2,907
    
    
    
    2,583
    
    
    
    2,071Software
    
    
    5,818
    
    
    
    6,111
    
    
    
    5,096Office furniture and equipment
    
    
    2,161
    
    
    
    3,138
    
    
    
    1,947Total
    
    $
    12,103
    
    
    $
    16,026
    
    
    $
    11,592
  69




---



##### Table of Contents



Environmental Matters
   Puerto Rico Income Taxes
       70




---



##### Table of Contents



United States Income Taxes
  71




---



##### Table of Contents



CERTIFICATION PURSUANT TO SECTION 303A.12(a) OF THE
NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
  By:
    /s/ José Ramón GonzálezPresident and Chief Executive OfficerBy:
    /s/ Carlos M. GarcíaSenior Executive Vice President andChief Operating OfficerBy:
    /s/ María CaleroExecutive Vice President andChief Accounting Officer 72




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 
   REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Member of
Deloitte Touche Tohmatsu
 73




---



##### Table of Contents



Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  
  
 74




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal
ControlIntegrated Framework
 
  
 74.01




---



##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Balance Sheets-December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCash and Cash Equivalents:Cash and due from banks
    
    $
    125,077
    
    
    $
    136,731Interest-bearing deposits
    
    
    780
    
    
    
    8,833Federal funds sold and securities purchased under agreements to resell
    
    
    73,407
    
    
    
    92,429Total cash and cash equivalents
    
    
    199,264
    
    
    
    237,993Interest-Bearing Deposits
    
    
    51,455
    
    
    
    101,034Trading Securities, at fair value
    
    
    50,792
    
    
    
    37,679Investment Securities Available for Sale,at fair value:Securities pledged that can be repledged
    
    
    867,944
    
    
    
    995,032Other investment securities available for sale
    
    
    541,845
    
    
    
    564,649Total investment securities available for sale
    
    
    1,409,789
    
    
    
    1,559,681Other Investment Securities,at amortized cost
    
    
    50,710
    
    
    
    41,862Loans Held for Sale,net
    
    
    196,277
    
    
    
    213,102Loans,net
    
    
    6,640,416
    
    
    
    5,741,788Accrued Interest Receivable
    
    
    102,244
    
    
    
    77,962Premises and Equipment,net
    
    
    56,299
    
    
    
    55,867Goodwill
    
    
    148,300
    
    
    
    34,791Intangible Assets
    
    
    47,427
    
    
    
    10,092Other Assets
    
    
    235,195
    
    
    
    160,097$
    9,188,168
    
    
    $
    8,271,948LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non interest-bearing
    
    $
    746,089
    
    
    $
    672,225Interest-bearing
    
    
    4,567,885
    
    
    
    4,552,425Total deposits
    
    
    5,313,974
    
    
    
    5,224,650Federal Funds Purchased and Other Borrowings
    
    
    1,628,400
    
    
    
    768,846Securities Sold Under Agreements to Repurchase
    
    
    830,569
    
    
    
    947,767Commercial Paper Issued
    
    
    209,549
    
    
    
    334,319Term Notes
    
    
    41,529
    
    
    
    40,215Subordinated Capital Notes
    
    
    244,468
    
    
    
    121,098Accrued Interest Payable
    
    
    91,245
    
    
    
    65,160Other Liabilities
    
    
    249,214
    
    
    
    201,366Total liabilities
    
    
    8,608,948
    
    
    
    7,703,421Contingencies and Commitments (Notes 4, 11, 12, 14, 15, 16 and 17)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 2006 and 2005
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    304,171
    
    
    
    304,171Treasury stock at cost, 4,011,260 shares in December 2006 and 2005
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss, net of taxes
    
    
    (44,213
    )
    
    
    (41,591
    )Retained earnings:Reserve fund
    
    
    137,511
    
    
    
    133,759Undivided profits
    
    
    122,677
    
    
    
    113,114Total stockholders equity
    
    
    579,220
    
    
    
    568,527$
    9,188,168
    
    
    $
    8,271,948
  75




---



##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Income
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Interest Income:Loans
    
    $
    535,327
    
    
    $
    359,415
    
    
    $
    261,744Investment securities
    
    
    74,023
    
    
    
    71,938
    
    
    
    97,901Interest-bearing deposits
    
    
    4,439
    
    
    
    4,065
    
    
    
    1,054Federal funds sold and securities purchased under agreements to resell
    
    
    4,531
    
    
    
    4,187
    
    
    
    3,123Total interest income
    
    
    618,320
    
    
    
    439,605
    
    
    
    363,822Interest Expense:Deposits
    
    
    173,380
    
    
    
    122,212
    
    
    
    60,279Securities sold under agreements to repurchase and other borrowings
    
    
    139,960
    
    
    
    86,969
    
    
    
    79,901Subordinated capital notes
    
    
    14,374
    
    
    
    3,402
    
    
    
    582Total interest expense
    
    
    327,714
    
    
    
    212,583
    
    
    
    140,762Net interest income
    
    
    290,606
    
    
    
    227,022
    
    
    
    223,060Provision for Loan Losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270Net interest income after provision for loan losses
    
    
    225,023
    
    
    
    206,622
    
    
    
    196,790Other Income:Bank service charges, fees and other
    
    
    49,078
    
    
    
    42,272
    
    
    
    38,977Broker-dealer, asset management and insurance fees
    
    
    56,973
    
    
    
    53,016
    
    
    
    51,113Gain on sale of securities
    
    
    
    
    
    
    17,842
    
    
    
    11,475Loss on extinguishment of debt
    
    
    
    
    
    
    (5,959
    )
    
    
    Gain on sale of loans
    
    
    1,994
    
    
    
    7,876
    
    
    
    431Gain on sale of building
    
    
    
    
    
    
    
    
    
    
    2,754Other income
    
    
    10,424
    
    
    
    10,311
    
    
    
    12,489Total other income
    
    
    118,469
    
    
    
    125,358
    
    
    
    117,239Other Operating Expenses:Salaries and employee benefits
    
    
    121,711
    
    
    
    95,002
    
    
    
    91,582Occupancy costs
    
    
    22,476
    
    
    
    16,811
    
    
    
    13,959Equipment expenses
    
    
    4,797
    
    
    
    3,802
    
    
    
    3,775EDP servicing, amortization and technical assistance
    
    
    40,084
    
    
    
    31,589
    
    
    
    34,462Communication expenses
    
    
    11,358
    
    
    
    8,232
    
    
    
    8,976Business promotion
    
    
    11,613
    
    
    
    11,065
    
    
    
    10,435Other taxes
    
    
    11,514
    
    
    
    8,443
    
    
    
    8,584Other operating expenses
    
    
    54,230
    
    
    
    46,442
    
    
    
    45,604Total other operating expenses
    
    
    277,783
    
    
    
    221,386
    
    
    
    217,377Income before provision for income tax
    
    
    65,709
    
    
    
    110,594
    
    
    
    96,652Provision for Income Tax
    
    
    22,540
    
    
    
    30,788
    
    
    
    9,724Net Income Available to Common Shareholders
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928Basic and Diluted Earnings per Common Share
    
    $
    0.93
    
    
    $
    1.71
    
    
    $
    1.86
  76




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Common Stock:Balance at beginning of year
    
    
    126,626
    
    
    
    126,626
    
    
    
    116,026Stock dividend distributed
    
    
    
    
    
    
    
    
    
    
    10,600Balance 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
    
    
    
    211,742Stock dividend distributed
    
    
    
    
    
    
    
    
    
    
    92,429Balance at end of year
    
    
    304,171
    
    
    
    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 taxes:Balance at beginning of year
    
    
    (41,591
    )
    
    
    (6,818
    )
    
    
    (19,465
    )Unrealized net (loss) gain on investment securities available
for sale, net of tax
    
    
    (587
    )
    
    
    (34,031
    )
    
    
    9,094Unrealized net (loss) gain on cash flow hedges, net of tax
    
    
    (178
    )
    
    
    1,333
    
    
    
    3,463Minimum pension (liability) benefit, net of tax
    
    
    (1,750
    )
    
    
    (2,075
    )
    
    
    90Initial adoption of SFAS No. 158, net of tax
    
    
    (107
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    (44,213
    )
    
    
    (41,591
    )
    
    
    (6,818
    )Reserve Fund:Balance at beginning of year
    
    
    133,759
    
    
    
    126,820
    
    
    
    118,919Transfer from undivided profits
    
    
    3,752
    
    
    
    6,939
    
    
    
    7,901Balance at end of year
    
    
    137,511
    
    
    
    133,759
    
    
    
    126,820Undivided Profits:Balance at beginning of year
    
    
    113,114
    
    
    
    70,099
    
    
    
    116,036Net income
    
    
    43,169
    
    
    
    79,806
    
    
    
    86,928Transfer to reseve fund
    
    
    (3,752
    )
    
    
    (6,939
    )
    
    
    (7,901
    )Deferred tax benefit amortization
    
    
    (5
    )
    
    
    (3
    )
    
    
    (13
    )Common stock cash dividends
    
    
    (29,849
    )
    
    
    (29,849
    )
    
    
    (21,922
    )Stock dividend distributed
    
    
    
    
    
    
    
    
    
    
    (103,029
    )Balance at end of year
    
    
    122,677
    
    
    
    113,114
    
    
    
    70,099Total stockholders equity
    
    $
    579,220
    
    
    $
    568,527
    
    
    $
    553,346
  77




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Comprehensive Income
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Comprehensive incomeNet income
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928Other comprehensive (loss) income, net of tax:Unrealized (losses) gains on investment securities available for sale, net of tax
    
    
    (926
    )
    
    
    (18,298
    )
    
    
    18,526Reclassification adjustment for losses (gains) included in net income, net of tax
    
    
    339
    
    
    
    (15,733
    )
    
    
    (9,403
    )Unrealized losses on investment securities transferred to the held-to-
maturity category, net of amortization
    
    
    
    
    
    
    
    
    
    
    (29
    )Unrealized (losses) gains on investment securities available for sale, net of tax
    
    
    (587
    )
    
    
    (34,031
    )
    
    
    9,094Unrealized (losses) gains on derivative used for cash flow hedges, net of tax
    
    
    (178
    )
    
    
    1,333
    
    
    
    3,463Minimum pension (liability) benefit, net of tax
    
    
    (1,750
    )
    
    
    (2,075
    )
    
    
    90Total other comprehensive (loss) income, net of tax
    
    
    (2,515
    )
    
    
    (34,773
    )
    
    
    12,647Comprehensive income
    
    $
    40,654
    
    
    $
    45,033
    
    
    $
    99,575
  78




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Cash Flows
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928Adjustments to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    17,595
    
    
    
    13,184
    
    
    
    13,238Deferred tax (benefit) provision
    
    
    (2,123
    )
    
    
    2,854
    
    
    
    3,715Provision for loan losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270Gain on sale of building
    
    
    
    
    
    
    
    
    
    
    (2,754
    )Gain on sale of securities
    
    
    
    
    
    
    (17,842
    )
    
    
    (11,475
    )Gain on sale of loans
    
    
    (1,994
    )
    
    
    (7,876
    )
    
    
    (431
    )Gain on sale of mortgage-servicing rights
    
    
    (170
    )
    
    
    (83
    )
    
    
    (400
    )Losses (gains) on derivatives
    
    
    477
    
    
    
    (1,964
    )
    
    
    (3,459
    )Trading gains
    
    
    (1,243
    )
    
    
    (805
    )
    
    
    (1,193
    )Net (discount) premium amortization (accretion) on securities
    
    
    (3,421
    )
    
    
    3,586
    
    
    
    3,983Net (discount) premium amortization (accretion) on loans
    
    
    (3,994
    )
    
    
    1,155
    
    
    
    873Purchases and originations of loans held for sale
    
    
    (908,272
    )
    
    
    (748,086
    )
    
    
    (733,022
    )Proceeds from sales of loans
    
    
    180,463
    
    
    
    253,902
    
    
    
    195,465Repayments of loans held for sale
    
    
    6,579
    
    
    
    12,196
    
    
    
    35,233Proceeds from sales of trading securities
    
    
    9,750,934
    
    
    
    1,610,299
    
    
    
    2,207,495Purchases of trading securities
    
    
    (9,755,086
    )
    
    
    (1,612,989
    )
    
    
    (2,197,939
    )Net change in:Increase in accrued interest receivable
    
    
    (24,280
    )
    
    
    (33,280
    )
    
    
    (8,284
    )(Increase) decrease in other assets
    
    
    (70,230
    )
    
    
    (10,303
    )
    
    
    10,402Increase in accrued interest payable
    
    
    26,085
    
    
    
    42,494
    
    
    
    3,938Increase (decrease) in other liabilities
    
    
    24,436
    
    
    
    12,245
    
    
    
    (5,530
    )Total adjustments
    
    
    (698,661
    )
    
    
    (460,913
    )
    
    
    (463,875
    )Net cash used in operating activities
    
    
    (655,492
    )
    
    
    (381,107
    )
    
    
    (376,947
    )CASH FLOWS FROM INVESTING ACTIVITIES:Decrease (increase) in interest-bearing deposits
    
    
    49,578
    
    
    
    (51,034
    )
    
    
    (40,000
    )Proceeds from sales of investment securities available for sale
    
    
    
    
    
    
    906,150
    
    
    
    1,450,058Proceeds from maturities of investment securities available for sale
    
    
    29,621,084
    
    
    
    23,250,923
    
    
    
    1,595,155Purchases of investment securities available for sale
    
    
    (29,591,661
    )
    
    
    (23,949,534
    )
    
    
    (2,701,767
    )Proceeds from maturities of investment securities held to maturity
    
    
    
    
    
    
    
    
    
    
    47,994Purchases of investment securities held to maturity and other investments
    
    
    (8,848
    )
    
    
    (4,362
    )
    
    
    (69,739
    )Repayment of securities and securities called
    
    
    125,448
    
    
    
    173,462
    
    
    
    186,792(Payments on) proceeds from derivative transactions
    
    
    (392
    )
    
    
    2,303
    
    
    
    2,943Purchases of mortgage loans
    
    
    
    
    
    
    (289,881
    )
    
    
    (40,625
    )Net decrease (increase) in loans
    
    
    359,889
    
    
    
    292,987
    
    
    
    (836,288
    )Proceeds from sales of mortgage-servicing rights
    
    
    170
    
    
    
    83
    
    
    
    400Proceeds from sale of building
    
    
    
    
    
    
    
    
    
    
    14,000Payment 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
    
    
    (5,611
    )
    
    
    (9,076
    )
    
    
    (6,258
    )Net cash (used in) provided by investing activities
    
    
    (193,178
    )
    
    
    322,021
    
    
    
    (397,335
    )
 (Continued)
  79




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Cash Flows
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    
    89,349
    
    
    
    489,835
    
    
    
    611,945Net increase (decrease) in federal funds purchased and other borrowings
    
    
    859,554
    
    
    
    (11,488
    )
    
    
    430,334Net decrease in securities sold under agreements to repurchase
    
    
    (117,198
    )
    
    
    (401,677
    )
    
    
    (458,794
    )Net (decrease) increase in commercial paper issued
    
    
    (124,770
    )
    
    
    (295,225
    )
    
    
    374,640Net increase (decrease) in term notes
    
    
    1,314
    
    
    
    8,758
    
    
    
    (134,509
    )Issuance of subordinated capital notes
    
    
    124,078
    
    
    
    49,852
    
    
    
    58,765Dividends paid
    
    
    (22,386
    )
    
    
    (22,386
    )
    
    
    (21,922
    )Net cash provided by (used in) financing activities
    
    
    809,941
    
    
    
    (182,331
    )
    
    
    860,459NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (38,729
    )
    
    
    (241,417
    )
    
    
    86,177CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    237,993
    
    
    
    479,410
    
    
    
    393,233CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    199,264
    
    
    $
    237,993
    
    
    $
    479,410
 (Concluded)
  80




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##### Table of Contents



Santander BanCorp and Subsidiaries
 Notes to Consolidated Financial Statements
Years Ended December 31, 2006, 2005 and 2004
 1. Summary of Significant Accounting Policies and Other Matters:
   Nature of Operations and Use of Estimates
    Acquisition
   February 28, 2006(In thousands)Purchase price
    
    
    
    
    
    $
    742,000Loans
    
    $
    582,225Other Assets
    
    
    9,640Total Assets
    
    
    591,865Other Liabilities
    
    
    (2,974
    )Net Assets Acquired
    
    
    
    
    
    
    588,891Identified Intangibles
    
    
    
    
    
    
    39,600Goodwill
    
    
    
    
    
    $
    113,509
 81




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##### Table of Contents



Principles of Consolidation
  Cash and Cash equivalents
  Securities Purchased/Sold under Agreements to Resell/Repurchase
    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 earnings. 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
statement of income 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 taxes, in accumulated other comprehensive income (loss). The specific
identification
method is used to determine realized gains and losses on securities available for sale,
which are included in gain (loss) on sale of investment securities in the consolidated
statements of income.
    
    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.
  82




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##### Table of Contents



Derivative Financial Instruments
     Loans Held for Sale
  Loans
     83




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##### Table of Contents



Acquired Loans
      (In thousands)Outstanding contractual receivable balance at acquisition
    
    $
    23,149Cash flows expected to be collected at acquisition
    
    $
    14,129Basis in acquired receivable at acquisition
    
    $
    13,995Carrying amount of acquired receivables at December 31, 2006
    
    $
    8,248
  Off-Balance Sheet Instruments
  84




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##### Table of Contents



Allowance for Loan Losses
          Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
  85




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##### Table of Contents



Premises and Equipment
   Other Real Estate
  Goodwill and Intangible Assets
     86




---



##### Table of Contents



Mortgage-servicing Rights
   Mortgage Banking
    Trust Services
   Broker-dealer and Asset Management Commissions
  87




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##### Table of Contents



Insurance Commissions
  Treasury Stock
  Income Taxes
  Earnings Per Common Share
  Statements of Cash Flows
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Cash paid during the year for:Interest
    
    $
    301,619
    
    
    $
    195,157
    
    
    $
    136,824Income taxes
    
    $
    34,937
    
    
    $
    6,713
    
    
    $
    11,322Noncash transactions:Stock dividend (See Note 14)
    
    $
    
    
    
    $
    
    
    
    $
    103,029Minimum pension (liability) benefit (See Note 17)
    
    $
    1,750
    
    
    $
    2,075
    
    
    $
    (90
    )Initial adoption of SFAS No. 158 (See Note 17)
    
    $
    107
    
    
    $
    
    
    
    $
    
 88




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##### Table of Contents



Recent Accounting Pronouncements that Affect the Corporation
  
    
    SFAS No. 154, Accounting Changes and Error Corrections.In May 2005, the Financial
Accounting Standards Board (FASB) issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. The statement
applies to all voluntary changes in accounting principle, and changes the requirements for
accounting and reporting of a change in accounting principle. SFAS No. 154 requires
retrospective application to prior periods financial statements of a voluntary change in
accounting principle unless it is impracticable. SFAS No. 154 is the result of a broader
effort by the FASB to improve the comparability of cross-border financial reporting by
working with the International Accounting Standards Board toward development of a single
set of high-quality accounting standards. SFAS No. 154 requires that a change in method of
depreciation, amortization, or depletion for long-lived, non-financial assets be accounted
for as a change in accounting estimate that is effected by a change in accounting
principle. APB Opinion No. 20 previously required that such a change be reported as a
change in accounting principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The Statement
does not change the transition provisions of any existing accounting pronouncements,
including those that are in a transition phase as of the effective date of this statement.
The adoption of this statement did not have a material impact on the Corporations
financial condition, results of operations or cash flows.
    
    SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and 132R. In
September 2006, FASB issued SFAS No. 158, which requires recognition of a net liability or
asset to report the funded status of defined benefit pension and other postretirement plans
on the balance sheet and recognition (as a component of other comprehensive income) of
changes in the funded status in the year in which the changes occur. Additionally, SFAS No.
158 requires measurement of a plans assets and obligations as of the balance sheet date
and additional disclosures in the notes to the financial statements. The recognition and
disclosure provisions of SFAS No. 158 are effective for fiscal years ending after December
15, 2006, while the requirement to measure a plans assets and obligations as of the
balance sheet date is effective for fiscal years ending after December 15, 2008. The
standard was effective as of December 31, 2006 for the recognition of our plans funded
status. Upon adoption of the standard, to recognize the amounts currently recorded in the
consolidated statement of condition, the Corporation recorded an after-tax reduction of
accumulated other comprehensive income of $107,000. Additional disclosures required by the
new standard are included in Note 17.
    
    Staff Accounting Bulletin No. 108 (SAB 108), Financial Statements  Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements.In September 2006, the SEC issued SAB 108, which provides guidance
on the consideration of prior year misstatements in determining whether the current years
financial statements are materially misstated. In providing this guidance, the SEC staff
references both the iron curtain and rollover approaches to quantifying a current year
misstatement for purposes of determining materiality. The iron curtain approach focuses on
how the current years statement of financial condition would be affected in correcting
misstatements without considering the year in which the misstatement originated. The
rollover approach focuses on the amount of the misstatements that originated in the current
years income statement. The SEC staff indicates that registrants should quantify the
impact of correcting all misstatements, including both the carryover and reversing effects
of prior year misstatements, on the current year financial statements. This SAB was
effective for fiscal years ending after November 15, 2006. Registrants may either restate
their financials for any material misstatements arising from the application of this SAB or
recognize a cumulative effect of applying SAB 108 within the current year opening balance
in retained earnings. The adoption of this statement did not have a material impact on the
Corporations financial condition, results of operations or cash flows.The Corporation is evaluating the impact that the following recently issued accounting
pronouncements may have on its financial condition and results of operations.
 
    
    SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of SFAS
No. 140 and SFAS No. 133(SFAS 155). In February 2006, the FASB issued SFAS No. 155,
which permits the Corporation to elect to measure any hybrid financial instrument at fair
value (with changes in fair value recognized in earnings) if the hybrid instrument contains
an embedded derivative that would otherwise be required to be bifurcated and accounted for
separately under SFAS No. 133. The election to measure the hybrid instrument at fair value
is made on an instrument-by-instrument basis and is irreversible. The Statement is
effective for all instruments acquired, issued, or subject to a remeasurement event
occurring after the beginning of the Corporations fiscal year that begins after September
15,
 89




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##### Table of Contents



2006. The Corporation is currently evaluating the effects of the adoption of SFAS 155 on its
consolidated financial position and results of operations.
 
    
    SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment to SFAS No.
140.In March 2006, the FASB issued SFAS No. 156, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities to (1) require the recognition of a
servicing asset or servicing liability under specified circumstances, (2) require that, if
practicable, all separately recognized servicing assets and liabilities be initially
measured at fair value, (3) create a choice for subsequent measurement of each class of
servicing assets or liabilities by applying either the amortization method or the fair
value method, and (4) permit the one-time reclassification of securities identified as
offsetting exposure to changes in fair value of servicing assets or liabilities from
available-for-sale securities to trading securities under SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In addition, SFAS No. 156 amends SFAS
No. 140 to require significantly greater disclosure concerning recognized servicing assets
and liabilities. SFAS No. 156 is effective for all separately recognized servicing assets
and liabilities acquired or issued after the beginning of an entitys fiscal year that
begins after September 15, 2006, with early adoption permitted. The Corporation is
currently evaluating the effects of the adoption of SFAS 156 on its consolidated financial
position or results of operations.
    
    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 Companys financial reporting and disclosures.
    
    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 company 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 are effective for fiscal years beginning
after December 15, 2006. The Corporation does not expect the adoption of this statement to
have a material impact on its consolidated financial statements.
 2. Trading Securities:
  90




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3. Investment Securities Available for Sale:
  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 securitiesWithin 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
    %
 December 31, 2005Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States Government:Within one year
    
    $
    279,780
    
    
    $
    4
    
    
    $
    598
    
    
    $
    279,186
    
    
    
    3.40
    %After one year to five years
    
    
    268,511
    
    
    
    
    
    
    
    9,359
    
    
    
    259,152
    
    
    
    3.68
    %After five years to ten years
    
    
    219,920
    
    
    
    
    
    
    
    6,483
    
    
    
    213,437
    
    
    
    4.15
    %768,211
    
    
    
    4
    
    
    
    16,440
    
    
    
    751,775
    
    
    
    3.58
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    12,750
    
    
    
    43
    
    
    
    3
    
    
    
    12,790
    
    
    
    4.93
    %After one year to five years
    
    
    9,920
    
    
    
    11
    
    
    
    54
    
    
    
    9,877
    
    
    
    4.07
    %After five years to ten years
    
    
    27,604
    
    
    
    34
    
    
    
    423
    
    
    
    27,215
    
    
    
    4.83
    %Over ten years
    
    
    3,786
    
    
    
    10
    
    
    
    78
    
    
    
    3,718
    
    
    
    6.35
    %54,060
    
    
    
    98
    
    
    
    558
    
    
    
    53,600
    
    
    
    4.82
    %Mortgage-backed securities:Over ten years
    
    
    775,073
    
    
    
    
    
    
    
    20,842
    
    
    
    754,231
    
    
    
    5.00
    %Foreign securitiesAfter one year to five years
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    5.60
    %$
    1,597,419
    
    
    $
    102
    
    
    $
    37,840
    
    
    $
    1,559,681
    
    
    
    4.42
    %
 91




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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
    
    
    11
    
    
    $
    649,737
    
    
    $
    15,449
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    11
    
    
    $
    649,737
    
    
    $
    15,449Commonwealth of Puerto
Rico and its subdivisions
    
    
    6
    
    
    
    13,673
    
    
    
    223
    
    
    
    14
    
    
    
    21,508
    
    
    
    709
    
    
    
    20
    
    
    
    35,181
    
    
    
    932Mortgage-backed
securities
    
    
    1
    
    
    
    5,799
    
    
    
    139
    
    
    
    30
    
    
    
    625,638
    
    
    
    21,945
    
    
    
    31
    
    
    
    631,437
    
    
    
    22,08418
    
    
    $
    669,209
    
    
    $
    15,811
    
    
    
    44
    
    
    $
    647,146
    
    
    $
    22,654
    
    
    
    62
    
    
    $
    1,316,355
    
    
    $
    38,465
      92




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##### Table of Contents



4. Assets Pledged:
  2006
    
    
    2005(Dollars in thousands)Investment securities available for sale
    
    $
    356,728
    
    
    $
    321,789Loans
    
    
    313,582
    
    
    
    294,433Other
    
    
    22,004
    
    
    
    18,830$
    692,314
    
    
    $
    635,052
  5. Loans:
  2006
    
    
    2005(Dollars in thousands)Commercial and industrial
    
    $
    2,489,959
    
    
    $
    2,968,178Consumer
    
    
    604,619
    
    
    
    564,198Consumer Finance
    
    
    849,036
    
    
    
    Leasing
    
    
    143,836
    
    
    
    137,855Construction
    
    
    438,573
    
    
    
    217,304Mortgage
    
    
    2,453,429
    
    
    
    1,929,2036,979,452
    
    
    
    5,816,738Unearned income and deferred fees/costs
    
    
    (232,173
    )
    
    
    (8,108
    )Allowance for loan losses
    
    
    (106,863
    )
    
    
    (66,842
    )Loans, net
    
    $
    6,640,416
    
    
    $
    5,741,788
 93




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##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Impaired loans with related allowance
    
    $
    19,069
    
    
    $
    6,800Impaired loans that did not require allowance
    
    
    38,170
    
    
    
    41,976Total impaired loans
    
    $
    57,239
    
    
    $
    48,776Allowance for impaired loans
    
    $
    4,360
    
    
    $
    2,227Impaired loans measured based on fair value of collateral
    
    $
    57,239
    
    
    $
    48,776Impaired loans measured based on discounted cash flows
    
    $
    
    
    
    $
    Interest income recognized on impaired loans
    
    $
    419
    
    
    $
    24
   2006
    
    
    2005
    
    
    2004(Dollars in thousands)Principal balance as of December 31
    
    $
    106,852
    
    
    $
    73,679
    
    
    $
    87,510Interest income which would have been recorded had the
loans not been classified as non-accruing
    
    $
    3,112
    
    
    $
    2,111
    
    
    $
    2,351Loans past due ninety days or more and still accruing
interest
    
    $
    20,938
    
    
    $
    2,999
    
    
    $
    3,377
 94




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##### Table of Contents



6. Allowance for Loan Losses:
  Year ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693Allowance acquired (Island Finance)
    
    
    35,104
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270167,529
    
    
    
    89,577
    
    
    
    95,963Losses charged to the allowance:Commercial and industrial
    
    
    9,792
    
    
    
    8,044
    
    
    
    19,250Construction
    
    
    
    
    
    
    1,438
    
    
    
    Consumer
    
    
    16,679
    
    
    
    17,351
    
    
    
    18,969Consumer Finance
    
    
    38,345
    
    
    
    
    
    
    
    Leasing
    
    
    2,071
    
    
    
    986
    
    
    
    1,65866,887
    
    
    
    27,819
    
    
    
    39,877Recoveries:Commercial and industrial
    
    
    2,463
    
    
    
    1,686
    
    
    
    5,271Consumer
    
    
    1,677
    
    
    
    2,646
    
    
    
    7,341Consumer Finance
    
    
    1,314
    
    
    
    
    
    
    
    Leasing
    
    
    767
    
    
    
    752
    
    
    
    4796,221
    
    
    
    5,084
    
    
    
    13,091Net loans charged-off
    
    
    60,666
    
    
    
    22,735
    
    
    
    26,786Balance at end of year
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177
  7. Premises and Equipment:
  Useful lifein years
    
    2006
    
    
    2005(Dollars in thousands)Land
    
    
    
    $
    6,926
    
    
    $
    6,926Buildings
    
    50
    
    
    39,875
    
    
    
    39,278Equipment
    
    3-10
    
    
    52,399
    
    
    
    48,140Leasehold improvements
    
    Various
    
    
    29,713
    
    
    
    24,886128,913
    
    
    
    119,230Accumulated depreciation and amortization
    
    
    
    
    (72,614
    )
    
    
    (63,363
    )$
    56,299
    
    
    $
    55,867
  95




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##### Table of Contents



8. Goodwill and Other Intangible Assets:
 Goodwill
    2006
    
    
    2005(Dollars in thousands)Commercial Banking
    
    $
    10,537
    
    
    $
    10,537Wealth Management
    
    
    24,254
    
    
    
    24,254Consumer Finance
    
    
    113,509
    
    
    
    $
    148,300
    
    
    $
    34,791
  Other Intangible Assets
  2006
    
    
    2005(Dollars in thousands)Mortgage-servicing rights
    
    $
    8,433
    
    
    $
    7,974Advisory-servicing rights
    
    
    1,750
    
    
    
    1,300Intangible pension asset
    
    
    
    
    
    
    818Trade name
    
    
    23,700
    
    
    
    Customer relationships
    
    
    9,717
    
    
    
    Non-compete agreements
    
    
    3,827
    
    
    
    $
    47,427
    
    
    $
    10,092
  96




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##### Table of Contents



Year
    
    Amortization(in thousands)2007
    
    $
    4,7302008
    
    
    4,7302009
    
    
    3,1672010
    
    
    2,5592011
    
    
    2,411Thereafter
    
    
    6,130$
    23,727
 9. Other Assets:
  2006
    
    
    2005(Dollars in thousands)Deferred tax assets, net
    
    $
    23,796
    
    
    $
    19,635Accounts receivable
    
    
    109,877
    
    
    
    65,728Securities sold not delivered, net
    
    
    2,945
    
    
    
    72Other real estate
    
    
    6,173
    
    
    
    2,249Software, net
    
    
    9,214
    
    
    
    11,095Prepaid expenses
    
    
    17,437
    
    
    
    8,468Customers liabilities on acceptances
    
    
    3,938
    
    
    
    3,669Derivative assets
    
    
    59,260
    
    
    
    47,436Other
    
    
    2,555
    
    
    
    1,745$
    235,195
    
    
    $
    160,097
 10. Deposits:
   Year
    
    Amount(In thousands)2007
    
    $
    1,788,2042008
    
    
    154,6272009
    
    
    115,3432010
    
    
    165,9532011
    
    
    121,287Thereafter
    
    
    461,164$
    2,806,578
 97




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Carrying
    
    
    Interest
    
    
    Carrying
    
    
    Interest
    
    
    Carrying
    
    
    InterestAmount
    
    
    Expense
    
    
    Amount
    
    
    Expense
    
    
    Amount
    
    
    Expense(Dollars in thousands)Non interest bearingPrivate demand
    
    $
    745,685
    
    
    $
    
    
    
    $
    644,794
    
    
    $
    
    
    
    $
    697,722
    
    
    $
    Public demand
    
    
    404
    
    
    
    
    
    
    
    27,431
    
    
    
    
    
    
    
    46,297
    
    
    
    746,089
    
    
    
    
    
    
    
    672,225
    
    
    
    
    
    
    
    744,019
    
    
    
    Savings depositsSavings
    
    
    707,695
    
    
    
    21,668
    
    
    
    855,579
    
    
    
    18,072
    
    
    
    812,213
    
    
    
    15,123NOW and other transactions
    
    
    1,053,612
    
    
    
    27,802
    
    
    
    1,090,342
    
    
    
    19,563
    
    
    
    1,172,918
    
    
    
    9,7221,761,307
    
    
    
    49,470
    
    
    
    1,945,921
    
    
    
    37,635
    
    
    
    1,985,131
    
    
    
    24,845Certificates of depositsUnder $100,000
    
    
    265,567
    
    
    
    12,833
    
    
    
    244,504
    
    
    
    8,592
    
    
    
    225,849
    
    
    
    4,691$100,000 and over
    
    
    2,541,011
    
    
    
    111,077
    
    
    
    2,362,000
    
    
    
    75,985
    
    
    
    1,793,140
    
    
    
    30,7432,806,578
    
    
    
    123,910
    
    
    
    2,606,504
    
    
    
    84,577
    
    
    
    2,018,989
    
    
    
    35,434$
    5,313,974
    
    
    $
    173,380
    
    
    $
    5,224,650
    
    
    $
    122,212
    
    
    $
    4,748,139
    
    
    $
    60,279
 11. Other Borrowings:
  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
    %
 December 31, 2005Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    768,846
    
    
    $
    947,767
    
    
    $
    334,319Average indebtedness outstanding during the year
    
    $
    821,251
    
    
    $
    1,051,350
    
    
    $
    423,331Maximum amount outstanding during the year
    
    $
    975,155
    
    
    $
    1,565,269
    
    
    $
    830,000Average interest rate for the year
    
    
    3.37
    %
    
    
    4.24
    %
    
    
    3.20
    %Average interest rate at year-end
    
    
    4.26
    %
    
    
    4.71
    %
    
    
    4.35
    %
 98




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##### Table of Contents



December 31, 2006
    
    
    December 31, 2005(In thousands)Federal funds purchased and other
borrowings:Thirty to ninety days
    
    $
    
    
    
    $
    118,846Over ninety days
    
    
    1,628,400
    
    
    
    650,000Total
    
    $
    1,628,400
    
    
    $
    768,846Securities sold under agreements to repurchase:Within thirty days
    
    $
    480,563
    
    
    $
    597,761Over ninety days
    
    
    350,006
    
    
    
    350,006Total
    
    $
    830,569
    
    
    $
    947,767Commercial paper issued:Within thirty days
    
    $
    209,549
    
    
    $
    334,319
   Weighted-Fair Value of
    
    
    AverageBalance of
    
    
    Underlying
    
    
    MaturityBorrowings
    
    
    Securities
    
    
    in Months(Dollars in thousands)Barclays Bank PLC
    
    $
    229,056
    
    
    $
    235,246
    
    
    
    0.26Credit Suisse First Boston LLC
    
    
    98,841
    
    
    
    101,603
    
    
    
    0.33Federal Home Loan Bank New York
    
    
    100,000
    
    
    
    102,348
    
    
    
    15.52Lehman Brothers RS
    
    
    250,006
    
    
    
    271,894
    
    
    
    62.19UBS Financial Services Inc.
    
    
    152,666
    
    
    
    156,853
    
    
    
    0.30$
    830,569
    
    
    $
    867,944
    
    
    
    20.75
 99




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##### Table of Contents



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
    %
 December 31, 2005Carrying
    
    
    
    
    
    
    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
    
    $
    296,848
    
    
    $
    268,285
    
    
    $
    296,848
    
    
    
    5.43
    %Mortgage-backed securities
    
    
    698,184
    
    
    
    679,482
    
    
    
    698,184
    
    
    
    4.41
    %Total
    
    $
    995,032
    
    
    $
    947,767
    
    
    $
    995,032
    
    
    
    4.72
    %
 12. Subordinated Capital Notes, Term Notes and Trust Preferred Securities:
 Subordinated Capital Notes
  2006
    
    
    2005(Dollars in thousands)Subordinated notes with fixed interest of 6.30%
maturing June 1, 2032
    
    $
    71,749
    
    
    $
    72,034Subordinated notes with fixed interest of 6.10%
maturing June 1, 2032
    
    
    49,099
    
    
    
    49,522Subordinated notes with fixed interest of 7.00%
maturing June 1, 2036
    
    
    125,000
    
    
    
    245,848
    
    
    
    121,556Unamortized discount
    
    
    (1,380
    )
    
    
    (458
    )$
    244,468
    
    
    $
    121,098
 100




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##### Table of Contents



Term Notes
  2006
    
    
    2005(Dollars in thousands)Term notes maturing January 29, 2010 linked to the S&P 500 index
    
    $
    30,000
    
    
    $
    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
    
    
    
    5,00047,000
    
    
    
    47,000Unamortized discount
    
    
    (5,471
    )
    
    
    (6,785
    )$
    41,529
    
    
    $
    40,215
  Trust Preferred Securities
  13. Reserve Fund:
  14. Common Stock Transactions:
     101




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##### Table of Contents



15. Income Tax:
      2006
    
    
    2005
    
    
    2004(Dollars in thousands)Current tax provision
    
    $
    24,663
    
    
    $
    27,934
    
    
    $
    6,009Deferred tax (benefit) provision
    
    
    (2,123
    )
    
    
    2,854
    
    
    
    3,715Provision for income tax
    
    $
    22,540
    
    
    $
    30,788
    
    
    $
    9,724
 102




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##### Table of Contents



2006
    
    
    2005
    
    
    2004Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in thousands)Income tax at statutory rate
    
    $
    25,626
    
    
    
    39
    %
    
    $
    43,131
    
    
    
    39
    %
    
    $
    37,694
    
    
    
    39
    %Benefits of net tax-exempt income
    
    
    (5,684
    )
    
    
    -9
    %
    
    
    (10,250
    )
    
    
    -9
    %
    
    
    (23,296
    )
    
    
    -24
    %Release of income tax
contingencies
    
    
    (2,000
    )
    
    
    -3
    %
    
    
    (3,700
    )
    
    
    -3
    %
    
    
    (5,410
    )
    
    
    -6
    %Effect of surtaxes
    
    
    2,269
    
    
    
    3
    %
    
    
    1,867
    
    
    
    1
    %
    
    
    
    
    
    
    0
    %Other
    
    
    2,329
    
    
    
    4
    %
    
    
    (260
    )
    
    
    0
    %
    
    
    736
    
    
    
    1
    %Provision (benefit) for income tax
    
    $
    22,540
    
    
    
    34
    %
    
    $
    30,788
    
    
    
    28
    %
    
    $
    9,724
    
    
    
    10
    %
   2006
    
    
    2005(Dollars in thousands)Deferred Tax Assets-Unrealized loss on securities available for sale
    
    $
    12,375
    
    
    $
    12,438Allowance for loan losses
    
    
    5,188
    
    
    
    4,352Postretirement and pension benefits
    
    
    11,579
    
    
    
    10,392Other
    
    
    6,295
    
    
    
    2,98535,437
    
    
    
    30,167Deferred Tax Liabilities-Unrealized gain on derivatives
    
    
    337
    
    
    
    487Amortization of intangibles
    
    
    8,718
    
    
    
    4,604Difference in accounting treatment of certain loan origination
activities, mortgage-servicing rights and other
    
    
    2,586
    
    
    
    5,44111,641
    
    
    
    10,532Net deferred tax asset
    
    $
    23,796
    
    
    $
    19,635
  16. Contingencies and Commitments:
    103




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##### Table of Contents



Year
    
    Amount(In thousands)2007
    
    $
    18,7032008
    
    
    8,4152009
    
    
    6,2792010
    
    
    5,4332011
    
    
    3,968Thereafter
    
    
    14,736$
    57,534
 17. Pension Plans:
       Balancebefore AMPL &
    
    
    
    
    
    SFAS
    
    AdjustedSFAS NO. 158
    
    AMPL
    
    No. 158
    
    BalanceAdjustment
    
    Adjustment
    
    Adjustment
    
    Dec. 31, 2006(Dollars in thousands)Net prepaid pension Cost
    
    $
    12,833
    
    
    $
    
    
    
    $
    (12,833
    )
    
    $
    Pension Benefit Liabilities
    
    
    (27,465
    )
    
    
    (2,050
    )
    
    
    12,833
    
    
    
    (16,682
    )Postretirement Benefit Liability
    
    
    (945
    )
    
    
    
    
    
    
    (175
    )
    
    
    (1,120
    )Accumulated other comprehensive loss*
    
    
    16,754
    
    
    
    1,250
    
    
    
    107
    
    
    
    18,111
 
 *
    
    Net of tax 104




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##### Table of Contents



Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (18
    )
    
    $
    
    
    
    $
    (18
    )Net actuarial loss
    
    
    29,533
    
    
    
    175
    
    
    
    29,708$
    29,515
    
    
    $
    175
    
    
    $
    29,690
  Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (2
    )
    
    $
    
    
    
    $
    (2
    )Net actuarial loss
    
    
    907
    
    
    
    5
    
    
    
    912$
    905
    
    
    $
    5
    
    
    $
    910
 105




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##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    38,287
    
    
    $
    34,294Service cost-benefits earned during the year
    
    
    1,762
    
    
    
    1,670Interest cost on projected benefit obligation
    
    
    2,369
    
    
    
    2,106Plan change
    
    
    
    
    
    
    2,095Actuarial (gain) loss
    
    
    3,558
    
    
    
    (778
    )Benefit distributions
    
    
    (1,333
    )
    
    
    (1,100
    )Effect of plan curtailment
    
    
    (5,199
    )
    
    
    Projected benefit obligation at end of year
    
    
    39,444
    
    
    
    38,287Change in plan assets:Fair value of plan assets at beginning of year
    
    
    25,833
    
    
    
    25,253Actual return on plan assets
    
    
    3,090
    
    
    
    570Employer contributions
    
    
    2,676
    
    
    
    1,110Benefit distributions
    
    
    (1,333
    )
    
    
    (1,100
    )Fair value of plan assets at end of year
    
    
    30,266
    
    
    
    25,833Funded status
    
    
    (9,178
    )
    
    
    (12,454
    )Unrecognized net actuarial gain
    
    
    8,984
    
    
    
    12,198Unrecognized prior service cost
    
    
    
    
    
    
    818Unrecognized transition amount
    
    
    (18
    )
    
    
    (20
    )(Accrued)/prepaid pension benefit
    
    $
    (212
    )
    
    $
    542Amounts recognized on the consolidated balance
sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (8,966
    )
    
    $
    (8,013
    )Accumulated other comprehensive income
    
    
    8,966
    
    
    
    7,737Intangible pension assets
    
    
    
    
    
    
    818Net amount recognized
    
    $
    
    
    
    $
    542Increase in minimum liability included in
other comprehensive income
    
    $
    1,228
    
    
    $
    1,612Projected benefit obligation
    
    
    39,444
    
    
    
    38,287Accumulated benefit obligation
    
    
    39,444
    
    
    
    33,847Fair value of plan assets
    
    
    30,266
    
    
    
    25,833
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Service cost during the year
    
    $
    1,762
    
    
    $
    1,670
    
    
    $
    1,259Interest cost on projected benefit obligation
    
    
    2,369
    
    
    
    2,106
    
    
    
    1,892Expected return on assets
    
    
    (2,228
    )
    
    
    (2,210
    )
    
    
    (2,080
    )Net amortization
    
    
    773
    
    
    
    525
    
    
    
    372Curtailment loss
    
    
    754
    
    
    
    
    
    
    
    Net periodic pension cost
    
    $
    3,430
    
    
    $
    2,091
    
    
    $
    1,443
 106




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2006
    
    2005
    
    2004Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %
  2006
    
    2005
    
    2004Discount rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.25
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2006
    
    2005Asset Category:Equity securities
    
    
    62
    %
    
    
    62
    %Debt securities
    
    
    36
    %
    
    
    37
    %Other
    
    
    2
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
  107




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##### Table of Contents



2006
    
    
    2005(Dollars in thousands)Change in projected benefit obligationProjected benefit obligation at beginning of year
    
    $
    32,967
    
    
    $
    32,898Interest cost on projected benefit obligation
    
    
    1,998
    
    
    
    1,936Actuarial loss
    
    
    1,751
    
    
    
    547Benefit distributions
    
    
    (3,827
    )
    
    
    (2,414
    )Projected benefit obligation at end of year
    
    
    32,889
    
    
    
    32,967Change in plan assets:Fair value of plan assets at beginning of year
    
    
    24,725
    
    
    
    24,684Actual return on plan assets
    
    
    1,797
    
    
    
    409Employer contributions
    
    
    2,690
    
    
    
    2,046Benefit distributions
    
    
    (3,827
    )
    
    
    (2,414
    )Fair value of plan assets at end of year
    
    
    25,385
    
    
    
    24,725Funded status
    
    
    (7,504
    )
    
    
    (8,242
    )Unrecognized actuarial gain
    
    
    20,549
    
    
    
    18,909Prepaid pension benefit
    
    $
    13,045
    
    
    $
    10,667Amounts recognized on the consolidated balance
sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (7,504
    )
    
    $
    (8,242
    )Accumulated other comprehensive income
    
    
    20,549
    
    
    
    18,909Net amount recognized
    
    $
    13,045
    
    
    $
    10,667Increase in minimum liability included
in other comprehensive income
    
    $
    1,640
    
    
    $
    1,790Projected benefit obligation
    
    
    32,889
    
    
    
    32,967Accumulated benefit obligation
    
    
    32,889
    
    
    
    32,967Fair value of plan assets
    
    
    25,385
    
    
    
    24,725
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Interest cost on projected benefit obligation
    
    $
    1,998
    
    
    $
    1,936
    
    
    $
    1,990Expected return on assets
    
    
    (2,199
    )
    
    
    (2,092
    )
    
    
    (2,034
    )Net amortization
    
    
    513
    
    
    
    440
    
    
    
    391Net periodic pension cost
    
    $
    312
    
    
    $
    284
    
    
    $
    347
 108




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##### Table of Contents



2006
    
    2005
    
    2004Discount rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
  2006
    
    2005
    
    2004Discount rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected return on plan assets
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2006
    
    2005Asset Category:Equity securities
    
    
    56
    %
    
    
    66
    %Debt securities
    
    
    37
    %
    
    
    13
    %Other
    
    
    7
    %
    
    
    21
    %Total
    
    
    100
    %
    
    
    100
    %
    2005Banco Santander Puerto Rico Employees Retirement Plan
    
    
    6
    %Banco Central Hispano Puerto Rico Employees Pension Plan
    
    
    10
    %
 109




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##### Table of Contents



Corporation's
    
    BCHPlan
    
    Plan(Dollars in thousands)2007
    
    $
    1,222
    
    
    $
    2,2172008
    
    
    1,319
    
    
    
    1,8852009
    
    
    1,394
    
    
    
    1,9442010
    
    
    1,553
    
    
    
    2,0332011
    
    
    1,703
    
    
    
    2,9172012 through 2016
    
    
    11,641
    
    
    
    16,229
 18.
Long Term Incentive Plan:
   19. Related Party Transactions:
  2006
    
    2005
    
    2004(Dollars in thousands)Deposits from related parties
    
    $
    60,062
    
    
    $
    40,905
    
    
    $
    170,170Interest-bearing deposits with affiliates
    
    
    555
    
    
    
    389
    
    
    
    471Other borrowings with an affiliate
    
    
    
    
    
    
    118,846
    
    
    
    Loans to directors, officers, and related parties
(on substantially the same terms and credit risks
as loans to third parties)
    
    
    4,388
    
    
    
    5,929
    
    
    
    8,886Technical assistance income for services rendered
    
    
    2,893
    
    
    
    2,214
    
    
    
    2,400EDP services received
    
    
    14,527
    
    
    
    11,841
    
    
    
    10,224Technical assistance expense for software development
    
    
    595
    
    
    
    384
    
    
    
    700Rental income
    
    
    319
    
    
    
    
    
    
    
    Notional value of derivative financial instruments
purchased from affiliates
    
    
    1,705,623
    
    
    
    972,183
    
    
    
    116,432Notional value of derivative financial instruments
sold to affiliates
    
    
    330,000
    
    
    
    732,052
    
    
    
    52,350
  110




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##### Table of Contents



20. Derivative Financial Instruments:
  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Income* for theNotional
    
    
    
    
    
    
    ended
    
    
    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  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Income* for theNotional
    
    
    
    
    
    
    ended
    
    
    year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2005
    
    
    Dec. 31, 2005(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,369Foreign currency swaps
    
    
    117,725
    
    
    
    2,182
    
    
    
    
    
    
    
    (36
    )FAIR VALUE HEDGESInterest rate swaps
    
    
    1,408,772
    
    
    
    (26,880
    )
    
    
    28
    
    
    
    OTHER DERIVATIVESOptions
    
    
    135,150
    
    
    
    23,833
    
    
    
    11,711
    
    
    
    Embedded options on stock-indexed deposits
    
    
    (134,767
    )
    
    
    (23,833
    )
    
    
    (9,401
    )
    
    
    Interest rate caps
    
    
    37,571
    
    
    
    77
    
    
    
    131
    
    
    
    Customer interest rate caps
    
    
    (35,851
    )
    
    
    (75
    )
    
    
    (118
    )
    
    
    Customer interest rate swaps
    
    
    (901,760
    )
    
    
    (3,073
    )
    
    
    (2,136
    )
    
    
    Interest rate swaps
    
    
    920,761
    
    
    
    3,695
    
    
    
    2,243
    
    
    
    Interest rate swaps
    
    
    354,000
    
    
    
    (451
    )
    
    
    (451
    )Loan commitments
    
    
    7,270
    
    
    
    (40
    )
    
    
    (43
    )
    
    
    $
    1,964
    
    
    $
    1,333
 
 *
    
    Net of tax  111




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##### Table of Contents



112




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##### Table of Contents



21. Financial Instruments with Off-Balance Sheet Risk:
    2006
    
    
    2005(Dollars in thousands)Standby letters of credit and financial guarantees written
    
    $
    184,959
    
    
    $
    211,657Commitments to extend credit, approved loans not yet
disbursed and unused lines of credit
    
    $
    1,666,490
    
    
    $
    1,461,258
   113




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##### Table of Contents



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
  114




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##### Table of Contents



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
  115




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##### Table of Contents



2006
    
    
    2005Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Consolidated balance sheets financial
instruments:Cash, cash equivalents and all interest-
bearing deposits
    
    $
    250,719
    
    
    $
    250,719
    
    
    $
    339,027
    
    
    $
    339,027Trading securities
    
    $
    50,792
    
    
    $
    50,792
    
    
    $
    37,679
    
    
    $
    37,679Investment securities available for sale
    
    $
    1,409,789
    
    
    $
    1,409,789
    
    
    $
    1,559,681
    
    
    $
    1,559,681Other investment securities
    
    $
    50,710
    
    
    $
    50,710
    
    
    $
    41,862
    
    
    $
    41,862Loans held for sale
    
    $
    196,277
    
    
    $
    196,277
    
    
    $
    213,102
    
    
    $
    213,102Loans
    
    $
    6,640,416
    
    
    $
    6,829,732
    
    
    $
    5,741,788
    
    
    $
    5,834,452Accrued interest receivable
    
    $
    102,244
    
    
    $
    102,244
    
    
    $
    77,962
    
    
    $
    77,962Deposits:Non interest-bearing
    
    $
    746,089
    
    
    $
    746,089
    
    
    $
    672,225
    
    
    $
    672,225Interest-bearing
    
    
    4,567,885
    
    
    
    4,582,696
    
    
    
    4,552,425
    
    
    
    4,576,746Total
    
    $
    5,313,974
    
    
    $
    5,328,785
    
    
    $
    5,224,650
    
    
    $
    5,248,971Federal funds purchased and other borrowings
    
    $
    1,628,400
    
    
    $
    1,628,400
    
    
    $
    768,846
    
    
    $
    768,846Securities sold under agreements to repurchase
    
    $
    830,569
    
    
    $
    830,569
    
    
    $
    947,767
    
    
    $
    947,767Commercial paper issued
    
    $
    209,549
    
    
    $
    210,935
    
    
    $
    334,319
    
    
    $
    334,282Subordinated capital and term notes
    
    $
    285,997
    
    
    $
    303,843
    
    
    $
    161,313
    
    
    $
    161,921Accrued interest payable
    
    $
    91,245
    
    
    $
    91,245
    
    
    $
    65,160
    
    
    $
    65,160
 2006
    
    
    2005Contract 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
    
    $
    184,959
    
    
    $
    (2,241
    )
    
    $
    211,657
    
    
    $
    (1,424
    )Commitments to extend credit, approved loans
not yet disbursed and unused lines of credit
    
    $
    1,666,490
    
    
    $
    (1,667
    )
    
    $
    1,461,258
    
    
    $
    (1,461
    )
 23. Significant Group Concentrations of Credit Risk:
  116




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24. Regulatory Matters:
    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
    %
 December 31, 2005Required
    
    ActualAmount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    472,889
    
    
    
    8
    %
    
    $
    726,939
    
    
    
    12.30
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    236,445
    
    
    
    4
    %
    
    $
    537,319
    
    
    
    9.09
    %Leverage Ratio
    
    $
    247,593
    
    
    
    3
    %
    
    $
    537,319
    
    
    
    6.51
    %
 117




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##### Table of Contents



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
    %
 December 31, 2005Required
    
    Actual
    
    Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    462,187
    
    
    
    8
    %
    
    $
    638,181
    
    
    
    11.05
    %
    
    
    
    
    
    ≥
    10
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    231,093
    
    
    
    4
    %
    
    $
    570,056
    
    
    
    9.87
    %
    
    
    
    
    
    ≥
    6
    %Leverage Ratio
    
    $
    245,222
    
    
    
    3
    %
    
    $
    570,056
    
    
    
    6.98
    %
    
    
    
    
    
    ≥
    5
    %
 118




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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, 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
    
    
    8,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,603
    
    
    
    (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
 119




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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
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,544
    
    
    
    (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
 December 31, 2004Commercial
    
    Mortgage
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    Banking
    
    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external revenue
    
    $
    194,097
    
    
    $
    114,719
    
    
    $
    113,253
    
    
    $
    49,553
    
    
    $
    19,238
    
    
    $
    (9,799
    )
    
    $
    481,061Intersegment revenue
    
    
    5,440
    
    
    
    
    
    
    
    22
    
    
    
    6
    
    
    
    4,331
    
    
    
    (9,799
    )
    
    
    Interest income
    
    
    158,748
    
    
    
    108,333
    
    
    
    99,830
    
    
    
    1,313
    
    
    
    1,164
    
    
    
    (5,566
    )
    
    
    363,822Interest expense
    
    
    34,499
    
    
    
    23,141
    
    
    
    85,802
    
    
    
    1,107
    
    
    
    1,884
    
    
    
    (5,671
    )
    
    
    140,762Depreciation and
amortization
    
    
    6,139
    
    
    
    1,211
    
    
    
    237
    
    
    
    511
    
    
    
    5,140
    
    
    
    
    
    
    
    13,238Segment income (loss)
before income tax
    
    
    32,324
    
    
    
    80,311
    
    
    
    22,351
    
    
    
    15,041
    
    
    
    (52,755
    )
    
    
    (620
    )
    
    
    96,652Segment assets
    
    
    3,320,311
    
    
    
    2,585,765
    
    
    
    2,417,746
    
    
    
    89,233
    
    
    
    218,247
    
    
    
    (307,655
    )
    
    
    8,323,647
 Reconciliation of Segment Information to Consolidated Amounts
  2006
    
    
    2005
    
    
    2004(Dollars in thousands)Revenues:Total revenues for reportable segments
    
    $
    733,421
    
    
    $
    557,040
    
    
    $
    471,622Other revenues
    
    
    70,517
    
    
    
    24,963
    
    
    
    19,238Elimination of intersegment revenues
    
    
    (67,149
    )
    
    
    (17,040
    )
    
    
    (9,799
    )Total consolidated revenues
    
    $
    736,789
    
    
    $
    564,963
    
    
    $
    481,061Total income before tax of reportable segments
    
    $
    127,299
    
    
    $
    167,609
    
    
    $
    150,027Income (loss) before tax of other segments
    
    
    (54,169
    )
    
    
    (56,085
    )
    
    
    (52,755
    )Elimination of intersegment profits
    
    
    (7,421
    )
    
    
    (930
    )
    
    
    (620
    )Consolidated income before tax
    
    $
    65,709
    
    
    $
    110,594
    
    
    $
    96,652Assets:Total assets for reportable segments
    
    $
    9,146,499
    
    
    $
    8,257,552
    
    
    $
    8,413,055Assets not attributed to segments
    
    
    595,268
    
    
    
    305,247
    
    
    
    218,247Elimination of intersegment assets
    
    
    (553,599
    )
    
    
    (290,851
    )
    
    
    (307,655
    )Total consolidated assets
    
    $
    9,188,168
    
    
    $
    8,271,948
    
    
    $
    8,323,647
 120




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##### Table of Contents



26. Quarterly Results (Unaudited):
  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
 Quarters Ended 2004March 31
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    87,033
    
    
    $
    87,249
    
    
    $
    93,319
    
    
    $
    96,221Net Interest Income
    
    
    55,182
    
    
    
    54,753
    
    
    
    56,809
    
    
    
    56,316Net Interest Income after
Provision
for Loan Losses
    
    
    46,432
    
    
    
    48,753
    
    
    
    49,789
    
    
    
    51,816Income before Provision for
Income Tax
    
    
    28,937
    
    
    
    17,217
    
    
    
    24,372
    
    
    
    26,126Net income
    
    
    25,978
    
    
    
    16,755
    
    
    
    22,422
    
    
    
    21,773Earnings per Common Share
    
    
    0.55
    
    
    
    0.36
    
    
    
    0.48
    
    
    
    0.47
 121




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##### Table of Contents



27. Santander BanCorp (Parent Company Only) Financial Information :
   SANTANDER BANCORP
 Balance Sheet Information- December 31, 2006 and 2005
 2006
    
    
    2005ASSETSCash and due from banks
    
    $
    15,890
    
    
    $
    9,326Interest-bearing deposits
    
    
    51,000
    
    
    
    45,000Total cash and cash equivalents
    
    
    66,890
    
    
    
    54,326Loans,net
    
    
    262,824
    
    
    
    139,435Investment in Subsidiaries
    
    
    786,731
    
    
    
    627,005Accrued Interest Receivable
    
    
    10,414
    
    
    
    1,705Other Assets
    
    
    787
    
    
    
    2,585$
    1,127,646
    
    
    $
    825,056LIABILITIES AND STOCKHOLDERS EQUITYBorrowings
    
    $
    275,000
    
    
    $
    118,846Subordinated Capital Notes
    
    
    248,343
    
    
    
    120,973Accrued Interest Payable
    
    
    9,290
    
    
    
    1,178Other Liabilities
    
    
    14,202
    
    
    
    13,984Total liabilities
    
    
    546,835
    
    
    
    254,981STOCKHOLDERS 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, 2006 and 2005
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    552,195
    
    
    
    552,195Treasury stock at cost, 4,011,260 shares at December 31, 2006 and 2005
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss, net of tax
    
    
    
    
    
    
    (36
    )Retained earnings-Undivided loss
    
    
    (30,458
    )
    
    
    (41,158
    )Total stockholders equity
    
    
    580,811
    
    
    
    570,075$
    1,127,646
    
    
    $
    825,056
 122




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##### Table of Contents



Santander BanCorp
 Statements of Income Information
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004Interest Income:Loans
    
    $
    42,472
    
    
    $
    5,629
    
    
    $
    1,000Interest-bearing deposits
    
    
    1,952
    
    
    
    848
    
    
    
    59Total interest income
    
    
    44,424
    
    
    
    6,477
    
    
    
    1,059Interest Expense:Borrowings
    
    
    34,661
    
    
    
    4,253
    
    
    
    1,378Term and subordinated capital notes
    
    
    14,619
    
    
    
    3,402
    
    
    
    502Total interest expense
    
    
    49,280
    
    
    
    7,655
    
    
    
    1,880Net interest loss
    
    
    (4,856
    )
    
    
    (1,178
    )
    
    
    (821
    )Other Income:Derivative gains (losses)
    
    
    40
    
    
    
    (122
    )
    
    
    325Equity in earnings of subsidiaries
    
    
    50,327
    
    
    
    83,617
    
    
    
    90,021Total other income
    
    
    50,367
    
    
    
    83,495
    
    
    
    90,346Other Operating Expenses:Professional fees
    
    
    1,419
    
    
    
    1,149
    
    
    
    1,394Other taxes
    
    
    475
    
    
    
    285
    
    
    
    180Other operating expenses
    
    
    376
    
    
    
    202
    
    
    
    275Total other operating expenses
    
    
    2,270
    
    
    
    1,636
    
    
    
    1,849Income before provision (benefit) for income tax
    
    
    43,241
    
    
    
    80,681
    
    
    
    87,676Provision (benefit) for Income Tax
    
    
    16
    
    
    
    (55
    )
    
    
    127Net Income
    
    $
    43,225
    
    
    $
    80,736
    
    
    $
    87,549
 123




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##### Table of Contents



Santander BanCorp
 Statements of Cash Flows Information
Years Ended December 31, 2006, 2005 and 2004
 2006
    
    
    2005
    
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    43,225
    
    
    $
    80,736
    
    
    $
    87,549Adjustments to reconcile net income to net cash provided by (used
in) operating activities:Equity in earnings of subsidiaries, net of dividends received
    
    
    (15,684
    )
    
    
    (51,225
    )
    
    
    (67,076
    )Deferred tax provision (benefit)
    
    
    16
    
    
    
    (55
    )
    
    
    127Increase in other assets and accrued interest receivable
    
    
    (6,564
    )
    
    
    (3,759
    )
    
    
    (522
    )Decrease (increase) other liabilities and accrued interest payable
    
    
    851
    
    
    
    2,097
    
    
    
    (166
    )Total adjustments
    
    
    (21,381
    )
    
    
    (52,942
    )
    
    
    (67,637
    )Net cash provided by (used in) operating activities
    
    
    21,844
    
    
    
    27,794
    
    
    
    19,912CASH FLOWS FROM INVESTING ACTIVITIES:Net increase in loans
    
    
    (123,389
    )
    
    
    (96,435
    )
    
    
    (6,000
    )Investment in subsidiary
    
    
    (147,029
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (270,418
    )
    
    
    (96,435
    )
    
    
    (6,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of borrowings
    
    
    1,000,000
    
    
    
    118,846
    
    
    
    5,000Repayment of borrowings
    
    
    (843,846
    )
    
    
    (30,000
    )
    
    
    Issuance of term and subordinated capital notes
    
    
    127,370
    
    
    
    48,385
    
    
    
    72,588Repayment of subordinated notes
    
    
    
    
    
    
    
    
    
    
    (74,000
    )Dividends paid
    
    
    (22,386
    )
    
    
    (22,386
    )
    
    
    (21,922
    )Net cash provided by (used in) financing activities
    
    
    261,138
    
    
    
    114,845
    
    
    
    (18,334
    )NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    12,564
    
    
    
    46,204
    
    
    
    (4,422
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    54,326
    
    
    
    8,122
    
    
    
    12,544CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    66,890
    
    
    $
    54,326
    
    
    $
    8,122
 124




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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
      125




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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
  126




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
  (1)
    
    Consolidated Financial Statements:
 
 (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 129 of this report are
filed herewith or are incorporated herein by reference.
 127




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##### Table of Contents



SIGNATURES
  SANTANDER BANCORP
          (REGISTRANT)Dated:
03/28/2007
    
    By:
    
    S/JOSE RAMON GONZALEZDirector and Vice ChairmanPresident and Chief Executive OfficerDated:
03/28/2007
    
    By:
    
    S/CARLOS M. GARCIADirectorSenior Executive Vice President and
Chief Operating OfficerDated:
03/28/2007
    
    By:
    
    S/ MARIA CALERODirectorExecutive Vice President and
Chief Accounting Officer
  S:\GONZALO DE LAS HERAS
    
    Chairman
    
    03/28/2007S:\ JESUS M. ZABALZA
    
    Director
    
    03/28/2007S:\ VICTOR ARBULU
    
    Director
    
    03/28/2007S:\ ROBERTO VALENTIN
    
    Director
    
    03/28/2007S:\ STEPHEN FERRISS
    
    Director
    
    03/28/2007
 128




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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(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(10.13)
    
    Novation Agreement among Santander BancCorp, Santusa Holdings S.L.
And Lloyds TBS Bank PLC
    
    Exhibit 10.1 8K-06/19/06
 129




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##### Table of Contents



EXHIBIT INDEX  Cont
 Exhibit No.
    
    Description
    
    Reference(10.14)
    
    Amended and Restated USD 725,000,000 Loan Facility between Santander
BanCorp and Lloyds TBS Bank PLC
    
    Exhibit 10.1 8K-06/19/06(10.15)
    
    Employment Contract-Tomás Torres
    
    Exhibit 10.16 10Q-09/30/06(10.16)
    
    Employment Contract-Eric Delgado
    
    Exhibit 10.17 10Q-09/30/06(10.17)
    
    $800 million Bridge Facility Agreement Santander BanCorp,
Santander Financial Services and National Australia Bank Limited
    
    Exhibit 10.1 8K-12/27/06(10.18)
    

Agreement
of Benefits Coverage Agreed with Officers of Grupo Santander
    
    Exhibit 10.18(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 Registrant
    
    Exhibit 21(22)
    
    Registrants Proxy Statement for the April 30, 2007 Annual
Meeting of Stockholders
    
    Def14A-04/20/07(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
 130