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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C., 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
 For Fiscal Year ended December 31, 2008
 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
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting company o o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



SANTANDER BANCORP
  PART I
    
    
    
    
    3Item 1.
    
    Business
    
    
    3Item 1A.
    
    Risk Factors
    
    
    20Item 1B.
    
    Unresolved Staff Comments
    

    
    23Item 2.
    
    Properties
    
    
    23Item 3.
    
    Legal Proceedings
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23PART II
    
    
    
    
    23Item 5.
    
    Market for Registrants Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities
    
    
    23Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    61Item
8.
    
    Financial Statements and Supplementary Data
    
    
    83Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    144Item 9A.
    
    Controls and Procedures
    
    
    144Item 9B.
    
    Other Information
    
    
    144PART III
    
    
    
    
    145Item 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    145Item 11.
    
    Executive Compensation
    
    
    145Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    145Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    145Item 14.
    
    Principal Accountant Fees and Services
    
    
    145PART IV
    
    
    
    
    146Item 15.
    
    Exhibits, Financial Statement Schedules
    
    
    146SIGNATURES
    
    
    147EXHIBIT INDEX
    
    
    148EX-4.11EX-10.18EX-10.19EX-12EX-21EX-31.1EX-31.2EX-32.1
  2




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




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




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




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6




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REGULATION AND SUPERVISION
 Overview
   Holding Company Operations  Federal Regulation
 General
 The BHC Act and the Gramm-Leach-Bliley Act (GLB Act).
    7




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USA Patriot Act
    Privacy Policies
  8




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Dividend Restrictions
       Federal Home Loan Bank System
   9




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Limitations on Transactions with Affiliates
  Loans to Insiders
  Capital Requirements
   10




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Sarbanes-Oxley Act
   11




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Change of Control
   Banking Operations
 General
   FDIC Capital Requirements
  12




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FDIC Deposit Insurance Assessments
     13




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Community Reinvestment Act
  14




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Office of Foreign Assets Control Regulation
  Brokered Deposits
  Federal Limitations on Activities and Investments
  Interstate Branching
  15




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de novo.
 de novo
 Banking Operations-Puerto Rico Regulation
 General
       16




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IBC Act
     Mortgage Banking Operations
  17




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Broker-Dealer Operations
   18




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Insurance Operations
   Recent Puerto Rico Legislation
     Employees
  Availability at our website
 www.santandernet.com
 19




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




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




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




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##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
   
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
  Cash
    
    
    BookDividends
    
    
    ValuePeriod
    
    High
    
    
    Low
    
    
    per Share
    
    
    per Share20081st Quarter
    
    $
    14.56
    
    
    $
    7.06
    
    
    $
    0.10
    
    
    $
    12.152nd Quarter
    
    
    15.00
    
    
    
    9.23
    
    
    
    0.10
    
    
    
    12.033rd Quarter
    
    
    15.50
    
    
    
    9.63
    
    
    
    
    
    
    
    11.914th Quarter
    
    
    14.50
    
    
    
    6.63
    
    
    
    
    
    
    
    11.8320071st Quarter
    
    $
    19.79
    
    
    $
    17.49
    
    
    $
    0.16
    
    
    $
    12.562nd Quarter
    
    
    18.87
    
    
    
    14.45
    
    
    
    0.16
    
    
    
    12.263rd Quarter
    
    
    15.14
    
    
    
    10.30
    
    
    
    0.16
    
    
    
    11.364th Quarter
    
    
    8.76
    
    
    
    7.90
    
    
    
    0.16
    
    
    
    11.50
 23




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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 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands, except per data share)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSInterest income
    
    $
    600,771
    
    
    $
    674,210
    
    
    $
    618,320
    
    
    $
    439,605
    
    
    $
    363,822Interest expense
    
    
    244,449
    
    
    
    362,531
    
    
    
    327,714
    
    
    
    212,583
    
    
    
    140,762Net interest income
    
    
    356,322
    
    
    
    311,679
    
    
    
    290,606
    
    
    
    227,022
    
    
    
    223,060Security gains
    
    
    5,154
    
    
    
    1,265
    
    
    
    
    
    
    
    17,842
    
    
    
    11,475Loss on extinghuishment of debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,959
    )
    
    
    Broker-dealer, asset management and insurance fees
    
    
    74,808
    
    
    
    68,265
    
    
    
    56,973
    
    
    
    53,016
    
    
    
    51,113Other income
    
    
    67,873
    
    
    
    78,590
    
    
    
    61,496
    
    
    
    60,459
    
    
    
    54,651Operating expenses
    
    
    324,627
    
    
    
    344,016
    
    
    
    277,783
    
    
    
    221,386
    
    
    
    217,377Provision for loan losses
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270Income tax (benefit) provision
    
    
    (6,524
    )
    
    
    4,204
    
    
    
    22,540
    
    
    
    30,788
    
    
    
    9,724Net income (loss)
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169
    
    
    $
    79,806
    
    
    $
    86,928PER COMMON SHARE DATANet income (loss)
    
    $
    0.23
    
    
    $
    (0.78
    )
    
    $
    0.93
    
    
    $
    1.71
    
    
    $
    1.86Book value
    
    $
    11.83
    
    
    $
    11.50
    
    
    $
    12.42
    
    
    $
    12.19
    
    
    $
    11.86Outstanding shares:Average
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104End of period
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104
    
    
    
    46,639,104Cash Dividend per Share
    
    $
    0.20
    
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.64
    
    
    $
    0.49AVERAGE BALANCESLoans held
for sale and loans, net of allowance for loan losses
    
    $
    6,584,842
    
    
    $
    6,900,764
    
    
    $
    6,439,205
    
    
    $
    5,871,433
    
    
    $
    4,723,538Allowance for loan losses
    
    
    175,100
    
    
    
    125,897
    
    
    
    87,465
    
    
    
    67,956
    
    
    
    73,518Earning assets
    
    
    8,014,368
    
    
    
    8,530,213
    
    
    
    8,262,748
    
    
    
    7,882,180
    
    
    
    7,300,735Total assets
    
    
    8,740,670
    
    
    
    9,195,712
    
    
    
    8,820,630
    
    
    
    8,285,992
    
    
    
    7,634,471Deposits
    
    
    5,558,667
    
    
    
    5,221,999
    
    
    
    5,054,687
    
    
    
    5,082,520
    
    
    
    4,153,245Borrowings
    
    
    2,314,535
    
    
    
    3,089,947
    
    
    
    2,876,720
    
    
    
    2,415,172
    
    
    
    2,811,152Common equity
    
    
    564,238
    
    
    
    573,536
    
    
    
    563,593
    
    
    
    576,226
    
    
    
    495,963PERIOD END BALANCESLoans held
for sale and loans, net of allowance for loan losses
    
    $
    5,967,958
    
    
    $
    6,911,380
    
    
    $
    6,836,693
    
    
    $
    5,954,890
    
    
    $
    5,490,120Allowance for loan losses
    
    
    191,889
    
    
    
    166,952
    
    
    
    106,863
    
    
    
    66,842
    
    
    
    69,177Earning assets
    
    
    7,186,973
    
    
    
    8,519,773
    
    
    
    8,598,703
    
    
    
    7,933,139
    
    
    
    8,069,346Total assets
    
    
    7,897,576
    
    
    
    9,160,213
    
    
    
    9,188,168
    
    
    
    8,271,948
    
    
    
    8,323,647Deposits
    
    
    5,014,902
    
    
    
    5,160,703
    
    
    
    5,313,974
    
    
    
    5,224,650
    
    
    
    4,748,139Borrowings
    
    
    1,939,384
    
    
    
    3,138,730
    
    
    
    2,954,515
    
    
    
    2,212,245
    
    
    
    2,863,367Common equity
    
    
    551,636
    
    
    
    536,536
    
    
    
    579,220
    
    
    
    568,527
    
    
    
    553,346Continued on the following page
 26




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Continued from the previous page
 Year ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)SELECTED RATIOSPerformance:Net interest margin (1)
    
    
    4.50
    %
    
    
    3.74
    %
    
    
    3.63
    %
    
    
    3.02
    %
    
    
    3.33
    %Efficiency ratio (2)
    
    
    60.39
    %
    
    
    66.32
    %
    
    
    66.82
    %
    
    
    62.97
    %
    
    
    62.78
    %Return on average total assets
    
    
    0.12
    %
    
    
    (0.39
    )%
    
    
    0.49
    %
    
    
    0.96
    %
    
    
    1.14
    %Return on average common equity
    
    
    1.87
    %
    
    
    (6.32
    )%
    
    
    7.66
    %
    
    
    13.85
    %
    
    
    17.53
    %Dividend payout
    
    
    86.96
    %
    
    
    (82.05
    )%
    
    
    68.82
    %
    
    
    37.43
    %
    
    
    26.34
    %Average net loans/average total deposits
    
    
    118.46
    %
    
    
    132.15
    %
    
    
    127.39
    %
    
    
    115.52
    %
    
    
    113.73
    %Average earning assets/average total assets
    
    
    91.69
    %
    
    
    92.76
    %
    
    
    93.68
    %
    
    
    95.13
    %
    
    
    95.63
    %Average stockholders equity/average assets
    
    
    6.46
    %
    
    
    6.24
    %
    
    
    6.39
    %
    
    
    6.95
    %
    
    
    6.50
    %Fee income to average assets
    
    
    1.37
    %
    
    
    1.26
    %
    
    
    1.20
    %
    
    
    1.15
    %
    
    
    1.18
    %Capital:Tier I capital to risk-adjusted assets
    
    
    8.41
    %
    
    
    7.42
    %
    
    
    7.87
    %
    
    
    9.09
    %
    
    
    8.63
    %Total capital to risk-adjusted assets
    
    
    12.83
    %
    
    
    10.55
    %
    
    
    10.93
    %
    
    
    12.30
    %
    
    
    11.05
    %Leverage Ratio
    
    
    6.10
    %
    
    
    5.38
    %
    
    
    5.81
    %
    
    
    6.50
    %
    
    
    6.43
    %Asset quality:Non-performing loans to total loans
    
    
    3.45
    %
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %Annualized net charge-offs to average loans
    
    
    2.23
    %
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %Allowance for loan losses to period-end loans
    
    
    3.12
    %
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %Allowance for loan losses to non-performing
loans
    
    
    90.21
    %
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %Allowance for loan losses to non-performing loans plus
accruing loans past-due 90 days or more
    
    
    84.84
    %
    
    
    55.36
    %
    
    
    83.62
    %
    
    
    87.17
    %
    
    
    76.11
    %Non-performing assets to total assets
    
    
    2.97
    %
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %Recoveries to charge-offs
    
    
    2.52
    %
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %EARNINGS TO FIXED CHARGES:Excluding interest on deposits
    
    
    1.04
    x
    
    
    0.82
    x
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    xIncluding interest on deposits
    
    
    1.02
    x
    
    
    0.91
    x
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    xEARNINGS TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS:Excluding interest on deposits
    
    
    1.04
    x
    
    
    0.82
    x
    
    
    1.42
    x
    
    
    2.19
    x
    
    
    2.17
    xIncluding interest on deposits
    
    
    1.02
    x
    
    
    0.91
    x
    
    
    1.20
    x
    
    
    1.51
    x
    
    
    1.68
    xOTHER DATA AT END OF PERIODCustomer financial assets under management
    
    $
    13,413,000
    
    
    $
    13,263,000
    
    
    $
    14,154,000
    
    
    $
    12,960,000
    
    
    $
    12,827,700Full services branches
    
    
    57
    
    
    
    61
    
    
    
    61
    
    
    
    64
    
    
    
    65Consumer retail branches
    
    
    64
    
    
    
    68
    
    
    
    70
    
    
    
    
    
    
    
    Total branches
    
    
    121
    
    
    
    129
    
    
    
    131
    
    
    
    64
    
    
    
    65ATMs
    
    
    169
    
    
    
    140
    
    
    
    144
    
    
    
    149
    
    
    
    150
 
 (1)
    
    On a tax equivalent basis.(2)
    
    Operating expenses less provision for claim receivable in 2008 and intangibles impairment charges in 2007 divided by net interest income on a tax
equivalent basis, plus other income excluding securities gains and losses, gain on equity securities, gain on sale of POS and Trust division in 2007,
gain on sale of FDIC assessment credits and gain on tax credit purchased in 2006, loss  on extinguisment of debt in 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  Banco Santander Puerto Rico (Santander Mortgage Corporation during 2007
and prior, which was merged into the Bank at January 1, 2008)
 
    
    Securities Brokerage and Investment Banking  Santander Securities Corporation
 
    
    Asset Management  Santander Asset Management Corporation
 
    
    Consumer Finance  Santander Financial Services, Inc.
 
    
    Insurance  Santander Insurance Agency, Inc. and Island Insurance Corporation
 
    
    International Banking  Santander International Bank of Puerto Rico, Inc.
 Basis of Presentation
  Forward-Looking Statements
   28




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




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
    
    The Corporation recognized a provision for claim receivable of $25.1 million which
represents the excess of the value of the securities held by LBI above the amounts owed by
the Corporation under the securities sold under agreements to repurchase. The related tax
benefit of this valuation allowance amounts to $9.8 million.
    
    The Corporation experienced an improvement of 76 basis points in net interest margin, on
a tax equivalent basis, to 4.50% for the year ended December 31, 2008 versus 3.74% for
2007;
    
    The provision for loan losses increased $27.7 million or 18.7% for the year ended
December 31, 2008 compared to 2007. The increase in the provision for loan losses reflects
the current recessionary cycle in Puerto Rico affecting the loan portfolio, including
commercial and construction loans. The provision for loan losses represented 116.56% of the
net charge-offs for the year ended December 31, 2008;
    
    The allowance for loan losses of $191.9 million as of December 31, 2008 represented
3.12% of total loans, 90.21% of non-performing loans and 225.06% of non-performing loans
excluding loans secured by real estate. As of December 31, 2007, the allowance for loan
losses was $167.0 million, represented 2.36% of total loans, 56.70% of non-performing loans
and 82.32% of non-performing loans excluding loans secured by real estate;
    
    Non-interest income remained basically flat when comparing the years ended December 31,
2008 and 2007. Non-interest income was impacted during 2008 principally by: (i) an increase
in broker-dealer, asset management and insurance fees of $6.5 million; (ii) a gain of $8.6
million on the sale of a portion of the Corporations investment in Visa, Inc. in
connection with its initial public offering during the first quarter of 2008; (iii) an
increase in gain on derivatives of $3.0 million; (iv) an increase in gain on sale of
securities of $3.9 million; (v) an unfavorable valuation adjustment of $7.4 million on
loans held for sale; (vi) a decrease in other gain of $12.8
million due mainly due to a $12.3
million in gain of sale of merchant business to an unrelated party during 2007; (vii) a
$3.4 million decrease in gain on sale of loans; (viii) a $1.2 million increase in technical
assistance collected from affiliates;
    
    Operating expenses reflected a decrease of $19.4 million or 5.6% when compared to 2007.
This decrease was affected principally by: (i) $43.3 million
related to goodwill and other intangible assets impairment charges
recognized during 2007; (ii) $16.0 million decrease in stock incentive
compensation expense sponsored by Santander Group; (iii) a provision for claim receivable of $25.1 million recognized during 2008;
(iv) $7.8 million increase in professional fees; (v) $6.9 million increase in salaries and
other personnel expenses; (vi) $3.9 million increase in occupancy cost (vii) $3.8 million
increase in FDIC assessment; (viii) offset by a decrease of $9.0 million
in business promotion and a decrease of $1.8 million in repossessed
asset provision and expenses.
    
    During the year ended December 31, 2008, the Corporation
sold  loans, including some classified as impaired, to
an affiliate for $300.1 million in cash. These loans had a net
book value of $300.1 million
comprised of an outstanding principal balance of $334.6 million and a specific valuation
allowance of $34.5 million. The type of loans by net book value
was $212.3 million in
construction loans and $87.8 million in commercial loans. No gain or loss was recognized on
these transactions.
    
    The common stock dividend for the year ended December 31, 2008 was $0.20 per share
resulting in a current annualized dividend yield of 1.60%. On August 2008, the Board of
Directors of the Corporation determined to discontinue the payment of the quarterly cash
dividend on the Corporations common stock to strengthen the institutions core capital
position. The Corporation may use a portion of the funds previously used to pay as
dividends to reduce its outstanding debt.
 30




---



##### Table of Contents



Critical Accounting Policies
  31




---



##### Table of Contents



Current Accounting Developments
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial Liabilities.
 Fair Value Measurement.
 
    
    Level 1 Unadjusted quoted market prices for identical assets or liabilities in active
markets that the Corporation has the ability to access.
    
    Level 2 Quoted prices for similar assets or liabilities in active markets; quoted
prices for identical or similar assets or liabilities in inactive markets; or valuations
based on models where the significant inputs are observable (e.g., interest rates, yield
curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by
observable market data.
    
    Level 3 Valuations based on models where significant inputs are not observable. The
unobservable inputs reflect the Corporations own assumptions about the assumptions that
market participants would use.
  32




---



##### Table of Contents



Allowance for Loan Losses
    33




---



##### Table of Contents



Transfers of Financial Assets
 Income taxes
  34




---



##### Table of Contents



Goodwill and other intangible assets
       35




---



##### Table of Contents



Market Multiple Approach
 Comparable Transaction Approach
 Discounted Cash Flow Approach
    Pension and Other Postemployment Benefits
 36




---



##### Table of Contents



Results of Operations
   2008
    
    
    2007
    
    
    2006(Dollars in thousands)Components of net income (loss):Net interest income
    
    $
    356,322
    
    
    $
    311,679
    
    
    $
    290,606Provision for loan losses
    
    
    (175,523
    )
    
    
    (147,824
    )
    
    
    (65,583
    )Other income
    
    
    147,835
    
    
    
    148,120
    
    
    
    118,469Other operating expenses
    
    
    (324,627
    )
    
    
    (344,016
    )
    
    
    (277,783
    )(Benefit) provision for income tax
    
    
    (6,524
    )
    
    
    4,204
    
    
    
    22,540Net income (loss)
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169
 2008 compared to 2007.
 37




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##### Table of Contents



2007 compared to 2006.
 Net Interest Income
    2008
    
    
    2007
    
    
    2006(Dollars in thousands)Interest income  tax equivalent basis
    
    $
    605,445
    
    
    $
    681,755
    
    
    $
    627,306Interest expense
    
    
    (244,449
    )
    
    
    (362,531
    )
    
    
    (327,714
    )Net interest income  tax equivalent basis
    
    $
    360,996
    
    
    $
    319,224
    
    
    $
    299,592Net interest margin  tax equivalent basis (1)
    
    
    4.50
    %
    
    
    3.74
    %
    
    
    3.63
    %
 
 (1)
    
    Net interest margin for any period equals tax-equivalent net interest income divided by average interest-earning
assets for such period. 2008 compared to 2007.
   38




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2007 compared to 2006
    39




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##### Table of Contents



40




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##### Table of Contents



Year ended December 31,2008
    
    
    2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    AverageBalance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate(Dollars in thousands)AssetsInterest-earning assets:Interest bearing deposits
    
    $
    81,851
    
    
    $
    1,063
    
    
    
    1.30
    %
    
    $
    85,278
    
    
    $
    3,343
    
    
    
    3.92
    %
    
    $
    94,890
    
    
    $
    4,439
    
    
    
    4.68
    %Federal funds sold and securities
purchased under agreements to resell
    
    
    202,658
    
    
    
    4,333
    
    
    
    2.14
    %
    
    
    68,477
    
    
    
    3,456
    
    
    
    5.05
    %
    
    
    91,049
    
    
    
    4,531
    
    
    
    4.98
    %Total interest-bearing deposits
    
    
    284,509
    
    
    
    5,396
    
    
    
    1.90
    %
    
    
    153,755
    
    
    
    6,799
    
    
    
    4.42
    %
    
    
    185,939
    
    
    
    8,970
    
    
    
    4.82
    %U.S.Treasury securities
    
    
    42,604
    
    
    
    1,028
    
    
    
    2.41
    %
    
    
    91,384
    
    
    
    4,090
    
    
    
    4.48
    %
    
    
    58,137
    
    
    
    2,759
    
    
    
    4.75
    %Obligations of other U.S. government
agencies and corporations
    
    
    417,457
    
    
    
    14,122
    
    
    
    3.38
    %
    
    
    635,219
    
    
    
    29,561
    
    
    
    4.65
    %
    
    
    744,923
    
    
    
    36,417
    
    
    
    4.89
    %Obligations of the government of Puerto Rico
and political subdivisions
    
    
    100,610
    
    
    
    5,633
    
    
    
    5.60
    %
    
    
    95,781
    
    
    
    5,113
    
    
    
    5.34
    %
    
    
    90,478
    
    
    
    4,982
    
    
    
    5.51
    %Collateralized mortgage obligations and
mortgage backed securities
    
    
    519,311
    
    
    
    24,752
    
    
    
    4.77
    %
    
    
    588,719
    
    
    
    28,422
    
    
    
    4.83
    %
    
    
    692,986
    
    
    
    32,965
    
    
    
    4.76
    %Other
    
    
    65,035
    
    
    
    3,820
    
    
    
    5.87
    %
    
    
    64,591
    
    
    
    4,076
    
    
    
    6.31
    %
    
    
    51,080
    
    
    
    2,595
    
    
    
    5.08
    %Total investment securities
    
    
    1,145,017
    
    
    
    49,355
    
    
    
    4.31
    %
    
    
    1,475,694
    
    
    
    71,262
    
    
    
    4.83
    %
    
    
    1,637,604
    
    
    
    79,718
    
    
    
    4.87
    %Loans :Commercial
    
    
    2,431,527
    
    
    
    137,263
    
    
    
    5.65
    %
    
    
    2,505,825
    
    
    
    172,671
    
    
    
    6.89
    %
    
    
    2,587,001
    
    
    
    175,214
    
    
    
    6.77
    %Construction
    
    
    379,857
    
    
    
    16,363
    
    
    
    4.31
    %
    
    
    481,174
    
    
    
    38,479
    
    
    
    8.00
    %
    
    
    302,370
    
    
    
    26,242
    
    
    
    8.68
    %Consumer
    
    
    613,499
    
    
    
    86,960
    
    
    
    14.17
    %
    
    
    626,580
    
    
    
    79,531
    
    
    
    12.69
    %
    
    
    553,472
    
    
    
    63,542
    
    
    
    11.48
    %Consumer Finance
    
    
    596,129
    
    
    
    141,701
    
    
    
    23.77
    %
    
    
    608,366
    
    
    
    139,075
    
    
    
    22.86
    %
    
    
    523,610
    
    
    
    118,077
    
    
    
    22.55
    %Mortgage
    
    
    2,662,726
    
    
    
    163,360
    
    
    
    6.14
    %
    
    
    2,692,448
    
    
    
    166,192
    
    
    
    6.17
    %
    
    
    2,425,611
    
    
    
    146,558
    
    
    
    6.04
    %Lease financing
    
    
    76,204
    
    
    
    5,047
    
    
    
    6.62
    %
    
    
    112,268
    
    
    
    7,746
    
    
    
    6.90
    %
    
    
    134,606
    
    
    
    8,985
    
    
    
    6.68
    %Gross loans
    
    
    6,759,942
    
    
    
    550,694
    
    
    
    8.15
    %
    
    
    7,026,661
    
    
    
    603,694
    
    
    
    8.59
    %
    
    
    6,526,670
    
    
    
    538,618
    
    
    
    8.25
    %Allowance for loan losses
    
    
    (175,100
    )
    
    
    
    
    
    
    
    
    
    
    (125,897
    )
    
    
    
    
    
    
    
    
    
    
    (87,465
    )Loans, net
    
    
    6,584,842
    
    
    
    550,694
    
    
    
    8.36
    %
    
    
    6,900,764
    
    
    
    603,694
    
    
    
    8.75
    %
    
    
    6,439,205
    
    
    
    538,618
    
    
    
    8.36
    %Total interest-earning assets/ interest
income (tax-equivalent basis)
    
    
    8,014,368
    
    
    
    605,445
    
    
    
    7.55
    %
    
    
    8,530,213
    
    
    
    681,755
    
    
    
    7.99
    %
    
    
    8,262,748
    
    
    
    627,306
    
    
    
    7.59
    %Total non-interest-earning assets
    
    
    726,302
    
    
    
    
    
    
    
    
    
    
    
    669,499
    
    
    
    
    
    
    
    
    
    
    
    561,237Total assets
    
    $
    8,740,670
    
    
    
    
    
    
    
    
    
    
    $
    9,199,712
    
    
    
    
    
    
    
    
    
    
    $
    8,823,985Liabilities and stockholders equityInterest-bearing liabilities:Savings and NOW accounts
    
    $
    1,691,094
    
    
    $
    34,944
    
    
    
    2.07
    %
    
    $
    1,715,631
    
    
    $
    51,785
    
    
    
    3.02
    %
    
    $
    1,861,167
    
    
    $
    49,470
    
    
    
    2.66
    %Other time deposits
    
    
    1,749,942
    
    
    
    56,905
    
    
    
    3.25
    %
    
    
    1,419,185
    
    
    
    65,810
    
    
    
    4.64
    %
    
    
    1,362,653
    
    
    
    57,648
    
    
    
    4.23
    %Brokered deposits
    
    
    1,385,318
    
    
    
    60,603
    
    
    
    4.37
    %
    
    
    1,401,310
    
    
    
    73,820
    
    
    
    5.27
    %
    
    
    1,282,704
    
    
    
    66,262
    
    
    
    5.17
    %Total Interest-bearing deposits
    
    
    4,826,354
    
    
    
    152,452
    
    
    
    3.16
    %
    
    
    4,536,126
    
    
    
    191,415
    
    
    
    4.22
    %
    
    
    4,506,524
    
    
    
    173,380
    
    
    
    3.85
    %Borrowings
    
    
    2,047,442
    
    
    
    78,049
    
    
    
    3.81
    %
    
    
    2,805,003
    
    
    
    153,951
    
    
    
    5.49
    %
    
    
    2,611,231
    
    
    
    138,500
    
    
    
    5.30
    %Term Notes
    
    
    19,674
    
    
    
    631
    
    
    
    3.21
    %
    
    
    38,223
    
    
    
    1,278
    
    
    
    3.34
    %
    
    
    40,883
    
    
    
    1,460
    
    
    
    3.57
    %Subordinated Notes
    
    
    247,419
    
    
    
    13,317
    
    
    
    5.38
    %
    
    
    250,721
    
    
    
    15,887
    
    
    
    6.34
    %
    
    
    227,961
    
    
    
    14,374
    
    
    
    6.31
    %Total interest-bearing liabilities
interest expense
    
    
    7,140,889
    
    
    
    244,449
    
    
    
    3.42
    %
    
    
    7,630,073
    
    
    
    362,531
    
    
    
    4.75
    %
    
    
    7,386,599
    
    
    
    327,714
    
    
    
    4.44
    %Total non interest-bearing liabilities
    
    
    1,035,543
    
    
    
    
    
    
    
    
    
    
    
    996,103
    
    
    
    
    
    
    
    
    
    
    
    873,793Total liabilities
    
    
    8,176,432
    
    
    
    
    
    
    
    
    
    
    
    8,626,176
    
    
    
    
    
    
    
    
    
    
    
    8,260,392Stockholders Equity
    
    
    564,238
    
    
    
    
    
    
    
    
    
    
    
    573,536
    
    
    
    
    
    
    
    
    
    
    
    563,593Total liabilities and stockholders equity
    
    $
    8,740,670
    
    
    
    
    
    
    
    
    
    
    $
    9,199,712
    
    
    
    
    
    
    
    
    
    
    $
    8,823,985Net interest income
    
    
    
    
    
    $
    360,996
    
    
    
    
    
    
    
    
    
    
    $
    319,224
    
    
    
    
    
    
    
    
    
    
    $
    299,592Net interest spread
    
    
    
    
    
    
    
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    3.24
    %
    
    
    
    
    
    
    
    
    
    
    3.16
    %Cost of funding earning assets
    
    
    
    
    
    
    
    
    
    
    3.05
    %
    
    
    
    
    
    
    
    
    
    
    4.25
    %
    
    
    
    
    
    
    
    
    
    
    3.97
    %Net interest margin (tax equivalent basis)
    
    
    
    
    
    
    
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.63
    %
 41




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##### Table of Contents



Changes in Interest Income and Interest Expense-Volume and Rate Analysis
  2008 vs. 2007
    
    
    2007 vs. 2006Increase (decrease) due to change in:
    
    
    Increase (decrease) due to change in:Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total(Dollars in thousands)Interest Income  tax equivalent basis:Federal funds sold and securities
purchased under agreements to resell
    
    $
    3,756
    
    
    $
    (2,879
    )
    
    $
    877
    
    
    $
    (1,138
    )
    
    $
    63
    
    
    $
    (1,075
    )Time deposits with other banks
    
    
    (129
    )
    
    
    (2,151
    )
    
    
    (2,280
    )
    
    
    (422
    )
    
    
    (674
    )
    
    
    (1,096
    )Investment securities
    
    
    (14,810
    )
    
    
    (7,097
    )
    
    
    (21,907
    )
    
    
    (7,823
    )
    
    
    (633
    )
    
    
    (8,456
    )Loans, net
    
    
    (27,016
    )
    
    
    (25,984
    )
    
    
    (53,000
    )
    
    
    39,688
    
    
    
    25,388
    
    
    
    65,076Total interest income
    
    
    (38,199
    )
    
    
    (38,111
    )
    
    
    (76,310
    )
    
    
    30,305
    
    
    
    24,144
    
    
    
    54,449Interest Expense:Savings and NOW accounts
    
    
    (730
    )
    
    
    (16,111
    )
    
    
    (16,841
    )
    
    
    (4,060
    )
    
    
    6,375
    
    
    
    2,315Other time deposits
    
    
    14,509
    
    
    
    (37,876
    )
    
    
    (23,367
    )
    
    
    8,455
    
    
    
    7,265
    
    
    
    15,720Borrowings
    
    
    (35,377
    )
    
    
    (39,251
    )
    
    
    (74,628
    )
    
    
    10,521
    
    
    
    4,930
    
    
    
    15,451Long-term borrowings
    
    
    (1,239
    )
    
    
    (2,007
    )
    
    
    (3,246
    )
    
    
    1,171
    
    
    
    160
    
    
    
    1,331Total interest expense
    
    
    (22,837
    )
    
    
    (95,245
    )
    
    
    (118,082
    )
    
    
    16,087
    
    
    
    18,730
    
    
    
    34,817Net interest income (expense)  tax
equivalent basis
    
    $
    (15,362
    )
    
    $
    57,134
    
    
    $
    41,772
    
    
    $
    14,218
    
    
    $
    5,414
    
    
    $
    19,632
   Provision for Loan Losses
 2008 compared to 2007.
 2007 compared to 2006.
 42




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##### Table of Contents



Other Income
   Year ended December 31,2008
    
    
    2007
    
    
    2006(Dollars In thousands)Bank service fees on deposit accounts
    
    $
    12,975
    
    
    $
    13,603
    
    
    $
    13,349Other service fees:Credit card fees
    
    
    8,788
    
    
    
    10,872
    
    
    
    17,870Mortgage-servicing fees
    
    
    3,555
    
    
    
    3,010
    
    
    
    2,554Trust fees
    
    
    1,561
    
    
    
    1,914
    
    
    
    3,004Confirming advances
    
    
    6,200
    
    
    
    4,169
    
    
    
    2,812Other fees
    
    
    11,606
    
    
    
    13,633
    
    
    
    9,489Broker-dealer, asset management and insurance fees
    
    
    74,808
    
    
    
    68,265
    
    
    
    56,973Gain on sale of securities, net
    
    
    5,154
    
    
    
    1,265
    
    
    
    Gain on sale of loans
    
    
    3,253
    
    
    
    6,658
    
    
    
    1,994Trading gains
    
    
    2,608
    
    
    
    2,831
    
    
    
    1,243Gain (loss) on derivatives
    
    
    3,284
    
    
    
    249
    
    
    
    (478
    )Other gains, net
    
    
    5,739
    
    
    
    18,644
    
    
    
    4,428Other
    
    
    8,304
    
    
    
    3,007
    
    
    
    5,231$
    147,835
    
    
    $
    148,120
    
    
    $
    118,469
  Year ended December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Broker-dealer
    
    $
    40,480
    
    
    $
    32,147
    
    
    $
    25,269Asset management
    
    
    26,833
    
    
    
    24,362
    
    
    
    19,969Total Santander Securities and subsidiary
    
    
    67,313
    
    
    
    56,509
    
    
    
    45,238Insurance
    
    
    7,495
    
    
    
    11,756
    
    
    
    11,735Total
    
    $
    74,808
    
    
    $
    68,265
    
    
    $
    56,973
 2008 compared to 2007.
  43




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##### Table of Contents



2007 compared to 2006.
    44




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##### Table of Contents



Operating Expenses
  Year ended December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Salaries
    
    $
    76,012
    
    
    $
    72,927
    
    
    $
    78,945Pension and other benefits
    
    
    57,200
    
    
    
    72,815
    
    
    
    55,428Expenses deferred as loan origination costs
    
    
    (8,076
    )
    
    
    (11,484
    )
    
    
    (12,662
    )Total personnel costs
    
    
    125,136
    
    
    
    134,258
    
    
    
    121,711Occupancy costs
    
    
    27,665
    
    
    
    23,767
    
    
    
    22,476Equipment expenses
    
    
    4,358
    
    
    
    4,427
    
    
    
    4,797EDP servicing expense, amortization and technical services
    
    
    41,860
    
    
    
    39,255
    
    
    
    40,084Communications
    
    
    10,062
    
    
    
    10,923
    
    
    
    11,358Business promotion
    
    
    6,628
    
    
    
    15,621
    
    
    
    11,613Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    43,349
    
    
    
    Other taxes
    
    
    13,101
    
    
    
    12,334
    
    
    
    11,514Other:Professional fees
    
    
    22,094
    
    
    
    14,330
    
    
    
    12,589Amortization of intangibles
    
    
    3,067
    
    
    
    3,828
    
    
    
    4,081Printing and supplies
    
    
    1,926
    
    
    
    2,137
    
    
    
    1,939Credit card expenses
    
    
    5,041
    
    
    
    6,198
    
    
    
    10,741Insurance
    
    
    3,371
    
    
    
    4,029
    
    
    
    2,810Examinations & FDIC assessment
    
    
    5,952
    
    
    
    2,194
    
    
    
    1,914Transportation and travel
    
    
    2,539
    
    
    
    2,981
    
    
    
    2,802Repossessed assets provision and expenses
    
    
    5,717
    
    
    
    7,482
    
    
    
    1,879Collections and related legal costs
    
    
    1,462
    
    
    
    1,239
    
    
    
    1,542Provision for claim receivable
    
    
    25,120
    
    
    
    
    
    
    
    All other
    
    
    19,528
    
    
    
    15,664
    
    
    
    13,933Total other
    
    
    95,817
    
    
    
    60,082
    
    
    
    54,230Non personnel expenses
    
    
    199,491
    
    
    
    209,758
    
    
    
    156,072Total Other Operating Expenses
    
    $
    324,627
    
    
    $
    344,016
    
    
    $
    277,783Efficiency ratio-on a tax equivalent basis
    
    
    60.39
    %
    
    
    66.32
    %
    
    
    66.82
    %Personnel cost to average assets
    
    
    1.43
    %
    
    
    1.46
    %
    
    
    1.38
    %Other operating expenses to average assets
    
    
    2.28
    %
    
    
    2.28
    %
    
    
    1.77
    %Assets per employee
    
    $
    4,467
    
    
    $
    3,494
    
    
    $
    3,929
 2008 compared to 2007.
  45




---



##### Table of Contents



2007 compared to 2006.
  Income Taxes
   Accounting for Uncertainty in
Income Tax  an interpretation of FASB Statement No 109. Accounting for Income Tax.
   46




---



##### Table of Contents



2008 compared to 2007.
 2007 compared to 2006.
  Financial Condition
 Assets
   Short Term Investments and Interest-bearing Deposits in Other Financial Institutions
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Interest-bearing deposits
    
    $
    8,370
    
    
    $
    6,606
    
    
    $
    52,235Federal funds sold
    
    
    64,871
    
    
    
    82,434
    
    
    
    35,412Securities purchased under agreements to resell
    
    
    
    
    
    
    
    
    
    
    37,995$
    73,241
    
    
    $
    89,040
    
    
    $
    125,642
 47




---



##### Table of Contents



Investment Portfolio
       2008
    
    
    2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairAvailable for Sale
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value
    
    
    Value(Dollars in thousands)U.S. Treasury
    
    $
    30,000
    
    
    $
    30,000
    
    
    $
    64,455
    
    
    $
    64,455
    
    
    $
    63,995
    
    
    $
    63,995U.S. Agency Notes
    
    
    141,916
    
    
    
    141,916
    
    
    
    609,223
    
    
    
    609,223
    
    
    
    658,340
    
    
    
    658,340P.R. Government
Obligations
    
    
    148,616
    
    
    
    148,616
    
    
    
    49,288
    
    
    
    49,288
    
    
    
    55,942
    
    
    
    55,942Mortgage-backed
Securities
    
    
    481,530
    
    
    
    481,530
    
    
    
    545,182
    
    
    
    545,182
    
    
    
    631,437
    
    
    
    631,437Foreign Securities
    
    
    50
    
    
    
    50
    
    
    
    50
    
    
    
    50
    
    
    
    75
    
    
    
    75$
    802,112
    
    
    $
    802,112
    
    
    $
    1,268,198
    
    
    $
    1,268,198
    
    
    $
    1,409,789
    
    
    $
    1,409,789
  48




---



##### Table of Contents



December 31, 2008After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    30,000
    
    
    
    0.05
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    30,000
    
    
    $
    30,000
    
    
    
    0.05
    %U.S. Agency Notes
    
    
    136,007
    
    
    
    2.80
    %
    
    
    5,909
    
    
    
    3.99
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141,916
    
    
    
    141,916
    
    
    
    2.85
    %P.R. Government
Obligations
    
    
    1,454
    
    
    
    4.23
    %
    
    
    133,148
    
    
    
    5.23
    %
    
    
    9,479
    
    
    
    5.18
    %
    
    
    4,535
    
    
    
    5.55
    %
    
    
    148,616
    
    
    
    148,616
    
    
    
    5.22
    %Mortgage-backed
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,815
    
    
    
    4.39
    %
    
    
    285,715
    
    
    
    5.41
    %
    
    
    481,530
    
    
    
    481,530
    
    
    
    4.99
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    4.65
    %Other Securities
    
    
    50,382
    
    
    
    3.50
    %
    
    
    11,250
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,632
    
    
    
    61,632
    
    
    
    3.50
    %Total Securities
    
    $
    217,843
    
    
    
    2.59
    %
    
    $
    150,357
    
    
    
    5.05
    %
    
    $
    205,294
    
    
    
    4.43
    %
    
    $
    290,250
    
    
    
    5.41
    %
    
    $
    863,744
    
    
    $
    863,744
    
    
    
    4.40
    %
 December 31, 2007After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    64,455
    
    
    
    3.92
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    64,455
    
    
    $
    64,455
    
    
    
    3.92
    %U.S. Agency Notes
    
    
    253,423
    
    
    
    2.84
    %
    
    
    355,800
    
    
    
    3.91
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    609,223
    
    
    
    609,223
    
    
    
    3.40
    %P.R. Government
Obligations
    
    
    1,367
    
    
    
    3.99
    %
    
    
    19,775
    
    
    
    4.44
    %
    
    
    15,111
    
    
    
    5.21
    %
    
    
    13,035
    
    
    
    5.73
    %
    
    
    49,288
    
    
    
    49,288
    
    
    
    5.00
    %Mortgage-backed
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,124
    
    
    
    4.40
    %
    
    
    320,058
    
    
    
    5.41
    %
    
    
    545,182
    
    
    
    545,182
    
    
    
    4.99
    %Foreign Securities
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    4.65
    %Other Securities
    
    
    64,559
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,559
    
    
    
    64,559
    
    
    
    5.50
    %Total Securities
    
    $
    383,804
    
    
    
    3.47
    %
    
    $
    375,625
    
    
    
    3.94
    %
    
    $
    240,235
    
    
    
    4.45
    %
    
    $
    333,093
    
    
    
    5.42
    %
    
    $
    1,332,757
    
    
    $
    1,332,757
    
    
    
    4.24
    %
 December 31, 2006After One
    
    
    After Five YearsWithin
    
    
    Year to
    
    
    toOne Year
    
    
    Five Years
    
    
    Ten Years
    
    
    Over Ten Years
    
    
    TotalCarrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Avg
    
    
    Carrying
    
    
    Fair
    
    
    AvgValue
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Yield
    
    
    Value
    
    
    Value
    
    
    Yield(Dollars in thousands)U.S. Treasury
    
    $
    63,995
    
    
    
    5.14
    %
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    63,995
    
    
    $
    63,995
    
    
    
    5.14
    %U.S. Agency Notes
    
    
    188,503
    
    
    
    4.82
    %
    
    
    469,837
    
    
    
    3.89
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658,340
    
    
    
    658,340
    
    
    
    4.15
    %P.R. Government
Obligations
    
    
    948
    
    
    
    3.85
    %
    
    
    15,482
    
    
    
    4.26
    %
    
    
    24,565
    
    
    
    5.28
    %
    
    
    14,947
    
    
    
    5.79
    %
    
    
    55,942
    
    
    
    55,942
    
    
    
    5.10
    %Mortgage-backed
Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    631,437
    
    
    
    4.99
    %
    
    
    631,437
    
    
    
    631,437
    
    
    
    4.99
    %Foreign Securities
    
    
    25
    
    
    
    7.50
    %
    
    
    50
    
    
    
    4.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75
    
    
    
    75
    
    
    
    5.60
    %Other Securities
    
    
    50,710
    
    
    
    5.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,710
    
    
    
    50,710
    
    
    
    5.50
    %Total Securities
    
    $
    304,181
    
    
    
    5.00
    %
    
    $
    485,369
    
    
    
    3.90
    %
    
    $
    24,565
    
    
    
    5.28
    %
    
    $
    646,384
    
    
    
    5.01
    %
    
    $
    1,460,499
    
    
    $
    1,460,499
    
    
    
    4.64
    %
 49




---



##### Table of Contents



Loan Portfolio
  Year ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans(Dollars in thousands)Commercial, industrial and agricultural:Retail commercial banking:Middle-market
    
    $
    1,363,742
    
    
    
    22.1
    %
    
    $
    1,646,046
    
    
    
    23.3
    %
    
    $
    1,692,058
    
    
    
    24.4
    %
    
    $
    1,593,359
    
    
    
    26.5
    %
    
    $
    1,445,206
    
    
    
    26.0
    %Agricultural
    
    
    46,032
    
    
    
    0.7
    %
    
    
    63,204
    
    
    
    0.9
    %
    
    
    59,315
    
    
    
    0.9
    %
    
    
    61,531
    
    
    
    1.0
    %
    
    
    62,198
    
    
    
    1.1
    %SBA
    
    
    51,871
    
    
    
    0.8
    %
    
    
    63,825
    
    
    
    0.9
    %
    
    
    66,734
    
    
    
    1.0
    %
    
    
    69,763
    
    
    
    1.2
    %
    
    
    72,963
    
    
    
    1.3
    %Factor liens
    
    
    10,268
    
    
    
    0.2
    %
    
    
    18,252
    
    
    
    0.3
    %
    
    
    20,553
    
    
    
    0.3
    %
    
    
    16,696
    
    
    
    0.3
    %
    
    
    16,818
    
    
    
    0.3
    %Other
    
    
    897
    
    
    
    0.0
    %
    
    
    4,688
    
    
    
    0.1
    %
    
    
    6,965
    
    
    
    0.1
    %
    
    
    40,072
    
    
    
    0.7
    %
    
    
    11,978
    
    
    
    0.2
    %Retail commercial banking
    
    
    1,472,810
    
    
    
    24.0
    %
    
    
    1,796,015
    
    
    
    25.5
    %
    
    
    1,845,625
    
    
    
    26.6
    %
    
    
    1,781,421
    
    
    
    29.6
    %
    
    
    1,609,163
    
    
    
    28.9
    %Corporate banking
    
    
    691,976
    
    
    
    11.2
    %
    
    
    765,310
    
    
    
    10.8
    %
    
    
    673,566
    
    
    
    9.7
    %
    
    
    1,205,664
    
    
    
    20.0
    %
    
    
    1,598,443
    
    
    
    28.8
    %Construction
    
    
    194,026
    
    
    
    3.1
    %
    
    
    484,237
    
    
    
    6.8
    %
    
    
    435,182
    
    
    
    6.3
    %
    
    
    213,705
    
    
    
    3.5
    %
    
    
    199,799
    
    
    
    3.6
    %Lease Financing
    
    
    60,615
    
    
    
    1.0
    %
    
    
    92,641
    
    
    
    1.3
    %
    
    
    132,655
    
    
    
    1.9
    %
    
    
    125,168
    
    
    
    2.1
    %
    
    
    112,152
    
    
    
    2.0
    %Total Commercial
    
    
    2,419,427
    
    
    
    39.3
    %
    
    
    3,138,203
    
    
    
    44.3
    %
    
    
    3,087,028
    
    
    
    44.6
    %
    
    
    3,325,958
    
    
    
    55.2
    %
    
    
    3,519,557
    
    
    
    63.3
    %Consumer:Personal (installment and other
loans)
    
    
    305,058
    
    
    
    5.0
    %
    
    
    402,195
    
    
    
    5.7
    %
    
    
    383,460
    
    
    
    5.5
    %
    
    
    378,269
    
    
    
    6.3
    %
    
    
    313,607
    
    
    
    5.6
    %Automobile
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    2
    
    
    
    0.0
    %
    
    
    610
    
    
    
    0.0
    %
    
    
    6,434
    
    
    
    0.1
    %Credit Cards
    
    
    261,531
    
    
    
    4.2
    %
    
    
    240,858
    
    
    
    3.4
    %
    
    
    193,260
    
    
    
    2.8
    %
    
    
    169,416
    
    
    
    2.8
    %
    
    
    128,622
    
    
    
    2.3
    %Consumer Finance
    
    
    578,243
    
    
    
    9.4
    %
    
    
    611,114
    
    
    
    8.6
    %
    
    
    625,266
    
    
    
    9.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total Consumer
    
    
    1,144,832
    
    
    
    18.5
    %
    
    
    1,254,167
    
    
    
    17.6
    %
    
    
    1,201,988
    
    
    
    17.3
    %
    
    
    548,295
    
    
    
    9.1
    %
    
    
    448,663
    
    
    
    8.1
    %Mortgage:Residential
    
    
    2,591,930
    
    
    
    42.1
    %
    
    
    2,682,362
    
    
    
    37.9
    %
    
    
    2,649,128
    
    
    
    38.1
    %
    
    
    2,141,358
    
    
    
    35.6
    %
    
    
    1,583,418
    
    
    
    28.5
    %Commercial
    
    
    3,658
    
    
    
    0.1
    %
    
    
    3,600
    
    
    
    0.1
    %
    
    
    5,412
    
    
    
    0.1
    %
    
    
    6,121
    
    
    
    0.1
    %
    
    
    7,659
    
    
    
    0.1
    %Total Mortgage
    
    
    2,595,588
    
    
    
    42.2
    %
    
    
    2,685,962
    
    
    
    38.0
    %
    
    
    2,654,540
    
    
    
    38.2
    %
    
    
    2,147,479
    
    
    
    35.7
    %
    
    
    1,591,077
    
    
    
    28.6
    %Total Loans, net of unearned interest
and deferred fees
    
    $
    6,159,847
    
    
    
    100.0
    %
    
    $
    7,078,332
    
    
    
    100.0
    %
    
    $
    6,943,556
    
    
    
    100.0
    %
    
    $
    6,021,732
    
    
    
    100.0
    %
    
    $
    5,559,297
    
    
    
    100.0
    %
   50




---



##### Table of Contents



Allowance for Loan Losses
       51




---



##### Table of Contents



Year ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177
    
    
    $
    69,693Allowance acquired (Island Finance)
    
    
    
    
    
    
    
    
    
    
    35,104
    
    
    
    
    
    
    
    Provision for loan losses
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583
    
    
    
    20,400
    
    
    
    26,270342,475
    
    
    
    254,687
    
    
    
    167,529
    
    
    
    89,577
    
    
    
    95,963Losses charged to the allowance:Commercial and industrial
    
    
    17,782
    
    
    
    10,375
    
    
    
    9,792
    
    
    
    8,044
    
    
    
    19,250Construction
    
    
    32,257
    
    
    
    2,710
    
    
    
    
    
    
    
    1,438
    
    
    
    Mortage
    
    
    1,257
    
    
    
    1,768
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    44,682
    
    
    
    29,281
    
    
    
    16,679
    
    
    
    17,351
    
    
    
    18,969Consumer Finance
    
    
    56,444
    
    
    
    44,484
    
    
    
    38,345
    
    
    
    
    
    
    
    Leasing
    
    
    2,064
    
    
    
    2,742
    
    
    
    2,071
    
    
    
    986
    
    
    
    1,658154,486
    
    
    
    91,360
    
    
    
    66,887
    
    
    
    27,819
    
    
    
    39,877Recoveries:Commercial and industrial
    
    
    626
    
    
    
    1,192
    
    
    
    2,463
    
    
    
    1,686
    
    
    
    5,271Construction
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer
    
    
    1,256
    
    
    
    904
    
    
    
    1,677
    
    
    
    2,646
    
    
    
    7,341Consumer Finance
    
    
    1,517
    
    
    
    1,088
    
    
    
    1,314
    
    
    
    
    
    
    
    Leasing
    
    
    481
    
    
    
    441
    
    
    
    767
    
    
    
    752
    
    
    
    4793,900
    
    
    
    3,625
    
    
    
    6,221
    
    
    
    5,084
    
    
    
    13,091Net loans charged-off
    
    
    150,586
    
    
    
    87,735
    
    
    
    60,666
    
    
    
    22,735
    
    
    
    26,786Balance at end of year
    
    $
    191,889
    
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842
    
    
    $
    69,177Ratios:Allowance for loan losses to year-end loans
    
    
    3.12
    %
    
    
    2.36
    %
    
    
    1.54
    %
    
    
    1.11
    %
    
    
    1.24
    %Recoveries to charge-offs
    
    
    2.52
    %
    
    
    3.97
    %
    
    
    9.30
    %
    
    
    18.28
    %
    
    
    32.83
    %Net charge-offs to average loans
    
    
    2.23
    %
    
    
    1.25
    %
    
    
    0.93
    %
    
    
    0.38
    %
    
    
    0.56
    %Allowance for loan losses to net charge-offs
    
    
    127.43
    %
    
    
    190.29
    %
    
    
    176.15
    %
    
    
    294.00
    %
    
    
    258.26
    %Allowance for loan losses to non-performing
loans
    
    
    90.21
    %
    
    
    56.70
    %
    
    
    100.01
    %
    
    
    90.72
    %
    
    
    79.05
    %Provision for loan losses to:Net charge-offs
    
    
    116.56
    %
    
    
    168.49
    %
    
    
    108.11
    %
    
    
    89.73
    %
    
    
    98.07
    %Average loans
    
    
    2.60
    %
    
    
    2.10
    %
    
    
    1.00
    %
    
    
    0.34
    %
    
    
    0.55
    %
  52




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##### Table of Contents



2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at beginning of year
    
    $
    1,835
    
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269
    
    
    $
    879Provision (credit) for unfunded lending
commitments and stand by letters of
credit
    
    
    (273
    )
    
    
    (29
    )
    
    
    198
    
    
    
    397
    
    
    
    390Balance at end of year
    
    $
    1,562
    
    
    $
    1,835
    
    
    $
    1,864
    
    
    $
    1,666
    
    
    $
    1,269
 2008 compared to 2007
   2007 compared to 2006.
    53




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##### Table of Contents



Year ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004% 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
    
    $
    36,926
    
    
    
    35.2
    %
    
    $
    29,883
    
    
    
    35.8
    %
    
    $
    29,846
    
    
    
    49.3
    %
    
    $
    27,765
    
    
    
    49.3
    %
    
    $
    29,469
    
    
    
    57.6
    %Construction
    
    
    15,496
    
    
    
    3.1
    %
    
    
    23,735
    
    
    
    6.8
    %
    
    
    3,128
    
    
    
    3.5
    %
    
    
    1,456
    
    
    
    3.5
    %
    
    
    1,208
    
    
    
    3.6
    %Consumer
    
    
    46,135
    
    
    
    9.2
    %
    
    
    33,641
    
    
    
    9.5
    %
    
    
    20,099
    
    
    
    9.4
    %
    
    
    30,664
    
    
    
    9.4
    %
    
    
    30,832
    
    
    
    8.2
    %Consumer Finance
    
    
    69,128
    
    
    
    9.4
    %
    
    
    68,359
    
    
    
    8.6
    %
    
    
    41,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage
    
    
    22,876
    
    
    
    42.1
    %
    
    
    7,379
    
    
    
    38.0
    %
    
    
    9,249
    
    
    
    35.7
    %
    
    
    2,415
    
    
    
    35.7
    %
    
    
    4,250
    
    
    
    28.6
    %Lease financing
    
    
    373
    
    
    
    1.0
    %
    
    
    1,292
    
    
    
    1.3
    %
    
    
    555
    
    
    
    2.1
    %
    
    
    2,128
    
    
    
    2.1
    %
    
    
    2,068
    
    
    
    2.0
    %Unallocated
    
    
    955
    
    
    
    
    
    
    
    2,663
    
    
    
    
    
    
    
    2,705
    
    
    
    
    
    
    
    2,414
    
    
    
    
    
    
    
    1,350
    
    
    
    $
    191,889
    
    
    
    100.0
    %
    
    $
    166,952
    
    
    
    100.0
    %
    
    $
    106,863
    
    
    
    100.0
    %
    
    $
    66,842
    
    
    
    100.0
    %
    
    $
    69,177
    
    
    
    100.0
    %
   Liabilities
    th th th
 54




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##### Table of Contents



Year ended December 31,2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    
    
    
    
    % ofAverage
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    Average
    
    
    Average
    
    
    Total
    
    
    AverageBalance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost
    
    
    Balance
    
    
    Liabilities
    
    
    Cost(Dollars in thousands)Savings deposits
    
    $
    1,691,094
    
    
    
    20.7
    %
    
    
    2.07
    %
    
    $
    1,715,631
    
    
    
    19.9
    %
    
    
    3.02
    %
    
    $
    1,861,167
    
    
    
    22.5
    %
    
    
    2.66
    %Time deposits
    
    
    3,135,260
    
    
    
    38.3
    %
    
    
    3.75
    %
    
    
    2,820,495
    
    
    
    32.7
    %
    
    
    4.95
    %
    
    
    2,645,357
    
    
    
    32.0
    %
    
    
    4.68
    %Interest-bearing deposits
    
    
    4,826,354
    
    
    
    59.0
    %
    
    
    3.16
    %
    
    
    4,536,126
    
    
    
    52.6
    %
    
    
    4.22
    %
    
    
    4,506,524
    
    
    
    54.6
    %
    
    
    3.85
    %Federal funds, repos, and
commercial paper and other
borrowings
    
    
    2,047,442
    
    
    
    25.0
    %
    
    
    3.81
    %
    
    
    2,805,003
    
    
    
    32.5
    %
    
    
    5.49
    %
    
    
    2,611,231
    
    
    
    31.6
    %
    
    
    5.30
    %Term and subordinated notes
    
    
    267,093
    
    
    
    3.3
    %
    
    
    5.22
    %
    
    
    284,944
    
    
    
    3.3
    %
    
    
    6.02
    %
    
    
    265,489
    
    
    
    3.2
    %
    
    
    5.96
    %Total borrowings
    
    
    2,314,535
    
    
    
    28.3
    %
    
    
    3.97
    %
    
    
    3,089,947
    
    
    
    35.8
    %
    
    
    5.54
    %
    
    
    2,876,720
    
    
    
    34.8
    %
    
    
    5.36
    %Total interest-bearing liabilities
    
    
    7,140,889
    
    
    
    87.3
    %
    
    
    3.42
    %
    
    
    7,626,073
    
    
    
    88.4
    %
    
    
    4.75
    %
    
    
    7,383,244
    
    
    
    89.4
    %
    
    
    4.44
    %Non-interest-bearing deposits
    
    
    732,314
    
    
    
    9.0
    %
    
    
    0.00
    %
    
    
    685,875
    
    
    
    8.0
    %
    
    
    0.00
    %
    
    
    548,163
    
    
    
    6.6
    %
    
    
    0.00
    %Other liabilities
    
    
    303,229
    
    
    
    3.7
    %
    
    
    0.00
    %
    
    
    310,228
    
    
    
    3.6
    %
    
    
    0.00
    %
    
    
    325,620
    
    
    
    3.9
    %
    
    
    0.00
    %Total non-interest-bearing liabilities
    
    
    1,035,543
    
    
    
    12.7
    %
    
    
    0.00
    %
    
    
    996,103
    
    
    
    11.6
    %
    
    
    0.00
    %
    
    
    873,783
    
    
    
    10.6
    %
    
    
    0.00
    %Total Liabilities
    
    $
    8,176,432
    
    
    
    100.0
    %
    
    
    2.99
    %
    
    $
    8,622,176
    
    
    
    100.0
    %
    
    
    4.20
    %
    
    $
    8,257,027
    
    
    
    100.0
    %
    
    
    3.97
    %
 55




---



##### Table of Contents



Year ended December 31,Average Total Deposits
    
    2008
    
    
    2007
    
    
    2006(Dollars in thousands)Private Demand
    
    $
    731,645
    
    
    $
    684,923
    
    
    $
    547,416Public Demand
    
    
    669
    
    
    
    953
    
    
    
    747Non-interest bearing
    
    
    732,314
    
    
    
    685,876
    
    
    
    548,163Savings Accounts
    
    
    641,970
    
    
    
    657,044
    
    
    
    792,791NOW and Super NOW accounts
    
    
    417,654
    
    
    
    401,104
    
    
    
    412,696Government NOW accounts
    
    
    631,470
    
    
    
    657,483
    
    
    
    655,680Total Savings Accounts
    
    
    1,691,094
    
    
    
    1,715,631
    
    
    
    1,861,167Time deposits:Under $100,000
    
    
    273,409
    
    
    
    262,561
    
    
    
    259,255$100,000 and over
    
    
    2,861,851
    
    
    
    2,557,934
    
    
    
    2,386,102Total Time Deposits
    
    
    3,135,260
    
    
    
    2,820,495
    
    
    
    2,645,357Total Interest Bearing Deposits
    
    
    4,826,354
    
    
    
    4,536,126
    
    
    
    4,506,524Total Deposits
    
    $
    5,558,668
    
    
    $
    5,222,002
    
    
    $
    5,054,687
    2008
    
    
    2007
    
    
    2006(Dollars in thousands)Three months or less
    
    $
    702,292
    
    
    $
    1,105,405
    
    
    $
    896,638Over three months through six months
    
    
    397,697
    
    
    
    365,957
    
    
    
    302,716Over six months through twelve months
    
    
    1,000,911
    
    
    
    79,576
    
    
    
    377,998Over twelve months
    
    
    261,580
    
    
    
    948,841
    
    
    
    963,659Total
    
    $
    2,362,480
    
    
    $
    2,499,779
    
    
    $
    2,541,011
  56




---



##### Table of Contents



Capital and Dividends
          57




---



##### 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, 2008:Total Capital (to Risk Weighted
Assets)Santander BanCorp
    
    $
    726,863
    
    
    
    12.83
    %
    ≥
    $
    453,114
    
    ≥
    
    8.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    662,161
    
    
    
    12.87
    %
    ≥
    
    411,725
    
    ≥
    
    8.00
    %
    ≥
    $
    514,656
    
    ≥
    
    10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    476,268
    
    
    
    8.41
    %
    ≥
    
    226,557
    
    ≥
    
    4.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    537,395
    
    
    
    10.44
    %
    ≥
    
    205,863
    
    ≥
    
    4.00
    %
    ≥
    
    308,795
    
    ≥
    
    6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    476,268
    
    
    
    6.10
    %
    ≥
    
    234,278
    
    ≥
    
    3.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    537,395
    
    
    
    6.88
    %
    ≥
    
    234,488
    
    ≥
    
    3.00
    %
    ≥
    
    390,813
    
    >
    
    5.00
    %December 31, 2007:Total Capital (to Risk Weighted
Assets)Santander BanCorp
    
    $
    697,009
    
    
    
    10.55
    %
    ≥
    $
    528,134
    
    ≥
    
    8.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    647,482
    
    
    
    10.91
    %
    ≥
    
    474,647
    
    ≥
    
    8.00
    %
    ≥
    $
    593,309
    
    ≥
    
    10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    490,259
    
    
    
    7.42
    %
    ≥
    
    264,067
    
    ≥
    
    4.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    573,022
    
    
    
    9.66
    %
    ≥
    
    237,324
    
    ≥
    
    4.00
    %
    ≥
    
    355,986
    
    ≥
    
    6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    490,259
    
    
    
    5.38
    %
    ≥
    
    273,297
    
    ≥
    
    3.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    573,022
    
    
    
    6.84
    %
    ≥
    
    251,493

    
    ≥
    
    3.00
    %
    ≥
    
    419,155
    
    >
    
    5.00
    %December 31, 2006:Total Capital (to Risk Weighted
Assets)Santander BanCorp
    
    $
    723,269
    
    
    
    10.93
    %
    ≥
    $
    529,191
    
    ≥
    
    8.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    651,350
    
    
    
    11.10
    %
    ≥
    
    469,346
    
    ≥
    
    8.00
    %
    ≥
    $
    586,683
    
    ≥
    
    10.00
    %Tier I (to Risk Weighted Assets)Santander BanCorp
    
    
    520,794
    
    
    
    7.87
    %
    ≥
    
    264,596
    
    ≥
    
    4.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    583,941
    
    
    
    9.95
    %
    ≥
    
    234,673
    
    ≥
    
    4.00
    %
    ≥
    
    352,010
    
    ≥
    
    6.00
    %Leverage (to average assets)Santander BanCorp
    
    
    520,794
    
    
    
    5.81
    %
    ≥
    
    269,000
    
    ≥
    
    3.00
    %
    
    
    N/ABanco Santander Puerto Rico
    
    
    583,941
    
    
    
    7.15
    %
    ≥
    
    244,857
    
    ≥
    
    3.00
    %
    ≥
    
    408,095
    
    >
    
    5.00
    %
 58




---



##### Table of Contents



Goodwill and Intangible Assets
  2008
    
    
    2007
    
    
    2006(Dollars in millions)Mortgage Servicing Rights
    
    $
    10.2
    
    
    $
    9.6
    
    
    $
    8.4Advisory Servicing Rights
    
    
    1.3
    
    
    
    1.6
    
    
    
    1.8Trade Name
    
    
    18.3
    
    
    
    18.3
    
    
    
    23.7Customer Relationships
    
    
    
    
    
    
    
    
    
    
    9.7Non-compete Agreement
    
    
    0.1
    
    
    
    0.7
    
    
    
    3.8Goodwill:Retail Banking
    
    
    10.5
    
    
    
    10.5
    
    
    
    10.5Wealth Management
    
    
    24.3
    
    
    
    24.3
    
    
    
    24.3Consumer Finance
    
    
    86.7
    
    
    
    86.7
    
    
    
    113.5$
    151.4
    
    
    $
    151.7
    
    
    $
    195.7
    59




---



##### Table of Contents



Contractual Obligations and Commercial Commitments
  Payments due by Periodas of December 31, 2008MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Contractual Obligations:Federal funds purchased and
other borrowings
    
    $
    2,040
    
    
    $
    2,040
    
    
    $
    
    
    
    $
    
    
    
    $
    Securities sold under
agreements to repurchase
    
    
    375,000
    
    
    
    75,000
    
    
    
    300,000
    
    
    
    
    
    
    
    Commercial paper
    
    
    50,985
    
    
    
    50,985
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank Advances
    
    
    1,185,000
    
    
    
    360,000
    
    
    
    825,000
    
    
    
    
    
    
    
    Subordinated notes
    
    
    306,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306,392Term notes
    
    
    19,967
    
    
    
    
    
    
    
    11,154
    
    
    
    8,813
    
    
    
    Operating lease obligations
    
    
    128,453
    
    
    
    32,077
    
    
    
    21,949
    
    
    
    18,284
    
    
    
    56,143Pension plan contribution
    
    
    1,106
    
    
    
    1,106
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,068,943
    
    
    $
    521,208
    
    
    $
    1,158,103
    
    
    $
    27,097
    
    
    $
    362,535
 Amount of Commitment and expiration periodas of December 31, 2008MoreLess than
    
    
    
    
    
    
    
    
    
    
    thanTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 years(Dollars in thousands)Other Commercial Commitments:Lines of credit and
financial guarantees written
    
    
    95,660
    
    
    
    43,585
    
    
    
    51,001
    
    
    
    1,074
    
    
    
    Commitments to extend credit
    
    
    1,193,875
    
    
    
    1,193,875
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,289,535
    
    
    $
    1,237,460
    
    
    $
    51,001
    
    
    $
    1,074
    
    
    $
    
 60




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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
        61




---



##### Table of Contents



December 31, 2008
    
    
    December 31, 2007($ in thousands)Commercial and industrial
    
    $
    2,165,613
    
    
    $
    2,562,101Consumer  banking operations
    
    
    565,833
    
    
    
    641,593Consumer Finance:Consumer Installment Loans
    
    
    686,277
    
    
    
    667,327Mortgage Loans
    
    
    310,642
    
    
    
    278,882996,919
    
    
    
    946,209Leasing
    
    
    64,065
    
    
    
    98,987Construction
    
    
    194,596
    
    
    
    486,284Mortgage Loans
    
    
    2,553,328
    
    
    
    2,539,811Sub-total
    
    
    6,540,354
    
    
    
    7,274,985Unearned income and deferred fees/cost:Banking operations
    
    
    (290
    )
    
    
    (3,459
    )Consumer finance
    
    
    (418,676
    )
    
    
    (335,096
    )Allowance for loans losses:Banking operations
    
    
    (122,761
    )
    
    
    (98,593
    )Consumer finance
    
    
    (69,128
    )
    
    
    (68,359
    )$
    5,929,499
    
    
    $
    6,769,478
      62




---



##### Table of Contents



December 31, 2008First
    
    
    Second
    
    
    Consumer
    
    
    Other
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2008
    
    $
    106,836
    
    
    $
    2,359
    
    
    $
    
    
    
    $
    
    
    
    $
    108,553
    
    
    
    4
    %
    
    $
    638
    
    
    
    0.59
    %2007*
    
    
    269,220
    
    
    
    2,546
    
    
    
    
    
    
    
    
    
    
    
    272,408
    
    
    
    11
    %
    
    
    5,701
    
    
    
    2.09
    %2006
    
    
    578,086
    
    
    
    4,319
    
    
    
    31
    
    
    
    157
    
    
    
    582,593
    
    
    
    23
    %
    
    
    32,198
    
    
    
    5.53
    %2005
    
    
    604,142
    
    
    
    636
    
    
    
    
    
    
    
    
    
    
    
    604,778
    
    
    
    24
    %
    
    
    24,251
    
    
    
    4.01
    %2004
    
    
    439,674
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    440,161
    
    
    
    17
    %
    
    
    16,256
    
    
    
    3.69
    %2003 and earlier
    
    
    543,044
    
    
    
    1,578
    
    
    
    55
    
    
    
    158
    
    
    
    544,835
    
    
    
    21
    %
    
    
    22,953
    
    
    
    4.21
    %Sub- Total
    
    $
    2,541,002
    
    
    $
    11,925
    
    
    $
    86
    
    
    $
    315
    
    
    
    2,553,328
    
    
    
    100
    %
    
    $
    101,997
    
    
    
    3.99
    %
 
 *
    The increase in this caption, compared with prior year, was
mainly due to the first mortgage loans held for sale reclassification to loans held to maturity
portfolio
at fair value. December 31, 2007First
    
    
    Second
    
    
    Consumer
    
    
    Other
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2007
    
    $
    225,340
    
    
    $
    2,931
    
    
    $
    
    
    
    $
    
    
    
    $
    228,271
    
    
    
    9
    %
    
    $
    
    
    
    
    0.00
    %2006
    
    
    588,575
    
    
    
    5,258
    
    
    
    52
    
    
    
    
    
    
    
    593,885
    
    
    
    23
    %
    
    
    8,696
    
    
    
    1.46
    %2005
    
    
    633,798
    
    
    
    869
    
    
    
    
    
    
    
    
    
    
    
    634,667
    
    
    
    25
    %
    
    
    15,918
    
    
    
    2.51
    %2004
    
    
    473,550
    
    
    
    532
    
    
    
    
    
    
    
    21
    
    
    
    474,103
    
    
    
    19
    %
    
    
    11,751
    
    
    
    2.48
    %2003 and earlier
    
    
    605,350
    
    
    
    1,758
    
    
    
    131
    
    
    
    1,646
    
    
    
    608,885
    
    
    
    24
    %
    
    
    15,644
    
    
    
    2.57
    %Total
    
    $
    2,526,613
    
    
    $
    11,348
    
    
    $
    183
    
    
    $
    1,667
    
    
    
    2,539,811
    
    
    
    100
    %
    
    $
    52,009
    
    
    
    2.05
    %
 63




---



##### Table of Contents



December 31, 2008First
    
    
    Second
    
    
    ARM
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage*
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2008
    
    $
    31,441
    
    
    $
    696
    
    
    $
    
    
    
    $
    32,137
    
    
    
    20
    %
    
    $
    262
    
    
    
    0.82
    %2007
    
    
    28,323
    
    
    
    1,498
    
    
    
    1,246
    
    
    
    31,067
    
    
    
    19
    %
    
    
    572
    
    
    
    1.84
    %2006
    
    
    13,409
    
    
    
    1,281
    
    
    
    22,355
    
    
    
    37,045
    
    
    
    22
    %
    
    
    3,196
    
    
    
    8.63
    %2005
    
    
    12,208
    
    
    
    1,219
    
    
    
    19,953
    
    
    
    33,380
    
    
    
    20
    %
    
    
    3,014
    
    
    
    9.03
    %2004
    
    
    11,524
    
    
    
    3,108
    
    
    
    
    
    
    
    14,632
    
    
    
    9
    %
    
    
    1,776
    
    
    
    12.14
    %2003 and earlier
    
    
    13,129
    
    
    
    6,185
    
    
    
    
    
    
    
    19,314
    
    
    
    12
    %
    
    
    2,160
    
    
    
    11.18
    %Total
    
    $
    110,034
    
    
    $
    13,987
    
    
    $
    43,554
    
    
    $
    167,575
    
    
    
    100
    %
    
    $
    10,980
    
    
    
    6.55
    %
 
 *
    
    Net of unearned finance charges and deferred income/cost December 31, 2008First
    
    
    Second
    
    
    ARM
    
    
    Total
    
    
    Vintage
    
    
    Non-performing
    
    
    % ofmortgage
    
    
    mortgage
    
    
    mortgage
    
    
    Mortgage*
    
    
    % of total
    
    
    loans
    
    
    total loans(Dollars in thousands)Vintage:2007
    
    $
    32,007
    
    
    $
    1,859
    
    
    $
    1,354
    
    
    $
    35,220
    
    
    
    22
    %
    
    $
    24
    
    
    
    0.07
    %2006
    
    
    15,965
    
    
    
    1,424
    
    
    
    25,771
    
    
    
    43,160
    
    
    
    27
    %
    
    
    1,634
    
    
    
    3.79
    %2005
    
    
    14,434
    
    
    
    1,556
    
    
    
    23,445
    
    
    
    39,435
    
    
    
    24
    %
    
    
    3,405
    
    
    
    8.63
    %2004
    
    
    13,898
    
    
    
    3,960
    
    
    
    
    
    
    
    17,858
    
    
    
    11
    %
    
    
    2,319
    
    
    
    12.99
    %2003 and earlier
    
    
    17,530
    
    
    
    7,982
    
    
    
    
    
    
    
    25,512
    
    
    
    16
    %
    
    
    3,449
    
    
    
    13.52
    %Total
    
    $
    93,834
    
    
    $
    16,781
    
    
    $
    50,570
    
    
    $
    161,185
    
    
    
    100
    %
    
    $
    10,831
    
    
    
    6.72
    %
 
 *
    
    Net of unearned finance charges and deferred income/cost  64




---



##### Table of Contents



December 31, 2008BAND A
    
    
    Avg.
    
    
    BAND B
    
    
    Avg.
    
    
    BAND C
    
    
    Avg.
    
    
    Total
    
    
    Avg.FICO>=660
    
    
    LTV
    
    
    FICO>620 and <660
    
    
    LTV
    
    
    FICO<=620
    
    
    LTV
    
    
    Loans
    
    
    LTV(Dollars in thousands)Mortgage Loan Portfolio:Banking Operations
    
    $
    1,984,652
    
    
    
    80
    %
    
    $
    308,690
    
    
    
    81
    %
    
    $
    259,986
    
    
    
    76
    %
    
    $
    2,553,328
    
    
    
    80
    %Consumer Finance
    
    
    65,516
    
    
    
    61
    %
    
    
    41,652
    
    
    
    62
    %
    
    
    60,407
    
    
    
    61
    %
    
    
    167,575
    
    
    
    61
    %$
    2,050,168
    
    
    
    
    
    
    $
    350,342
    
    
    
    
    
    
    $
    320,393
    
    
    
    
    
    
    $
    2,720,903Consumer Installment
Loans*:Banking Operations
    
    $
    427,056
    
    
    
    n/a
    
    
    $
    59,070
    
    
    
    n/a
    
    
    $
    79,707
    
    
    
    n/a
    
    
    $
    565,833
    
    
    
    n/aConsumer Finance
    
    
    176,334
    
    
    
    n/a
    
    
    
    119,492
    
    
    
    n/a
    
    
    
    114,842
    
    
    
    n/a
    
    
    
    410,668
    
    
    
    n/a$
    603,390
    
    
    
    
    
    
    $
    178,562
    
    
    
    
    
    
    $
    194,549
    
    
    
    
    
    
    $
    976,501
 
 *
    
    Net of unearned finance charges and deferred income/cost December 31, 2007BAND A
    
    
    Avg.
    
    
    BAND B
    
    
    Avg.
    
    
    BAND C
    
    
    Avg.
    
    
    Total
    
    
    Avg.FICO>=660
    
    
    LTV
    
    
    FICO>620 and <660
    
    
    LTV
    
    
    FICO<=620
    
    
    LTV
    
    
    Loans
    
    
    LTV(Dollars in thousands)Mortgage Loan portfolio:Banking Operations
    
    $
    1,901,868
    
    
    
    81
    %
    
    $
    309,770
    
    
    
    82
    %
    
    $
    328,173
    
    
    
    80
    %
    
    $
    2,539,811
    
    
    
    81
    %Consumer Finance
    
    
    56,535
    
    
    
    58
    %
    
    
    40,389
    
    
    
    60
    %
    
    
    64,261
    
    
    
    57
    %
    
    
    161,185
    
    
    
    58
    %$
    1,958,403
    
    
    
    
    
    
    $
    350,159
    
    
    
    
    
    
    $
    392,434
    
    
    
    
    
    
    $
    2,700,996Consumer Installment
Loans*:Banking Operations
    
    $
    510,844
    
    
    
    n/a
    
    
    $
    54,943
    
    
    
    n/a
    
    
    $
    75,806
    
    
    
    n/a
    
    
    $
    641,593
    
    
    
    n/aConsumer Finance
    
    
    178,745
    
    
    
    n/a
    
    
    
    130,202
    
    
    
    n/a
    
    
    
    140,981
    
    
    
    n/a
    
    
    
    449,928
    
    
    
    n/a$
    689,589
    
    
    
    
    
    
    $
    185,145
    
    
    
    
    
    
    $
    216,787
    
    
    
    
    
    
    $
    1,091,521
 
 *
    
    Net of unearned finance charges and deferred income/cost  65




---



##### Table of Contents



Industry Risk
    Government Risk
  66




---



##### Table of Contents



67




---



##### Table of Contents



Non-performing Assets and Past Due Loans
  Year ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(Dollars in thousands)Commercial, Industrial and Agricultural
    
    $
    30,564
    
    
    $
    21,236
    
    
    $
    15,549
    
    
    $
    14,326
    
    
    $
    27,975Construction
    
    
    13,856
    
    
    
    141,140
    
    
    
    3,966
    
    
    
    3,414
    
    
    
    11,200Mortgage
    
    
    116,473
    
    
    
    80,805
    
    
    
    51,341
    
    
    
    45,292
    
    
    
    36,252Consumer
    
    
    13,479
    
    
    
    10,818
    
    
    
    7,590
    
    
    
    4,747
    
    
    
    6,808Consumer Finance
    
    
    35,508
    
    
    
    37,412
    
    
    
    24,731
    
    
    
    
    
    
    
    Lease Financing
    
    
    2,493
    
    
    
    2,334
    
    
    
    2,783
    
    
    
    3,340
    
    
    
    2,715Restructured Loans
    
    
    341
    
    
    
    693
    
    
    
    892
    
    
    
    2,560
    
    
    
    2,560Total non-performing loans
    
    
    212,714
    
    
    
    294,438
    
    
    
    106,852
    
    
    
    73,679
    
    
    
    87,510Total repossessed assets
    
    
    21,592
    
    
    
    16,447
    
    
    
    6,173
    
    
    
    2,706
    
    
    
    3,937Non-performing assets
    
    $
    234,306
    
    
    $
    310,885
    
    
    $
    113,025
    
    
    $
    76,385
    
    
    $
    91,447Accruing loans past-due 90 days or more
    
    $
    13,462
    
    
    $
    7,162
    
    
    $
    20,938
    
    
    $
    2,999
    
    
    $
    3,377Non-performing loans to total loans
    
    
    3.45
    %
    
    
    4.16
    %
    
    
    1.54
    %
    
    
    1.22
    %
    
    
    1.57
    %Non-performing loans plus accruing loans
past due 90 days or more to total loans
    
    
    3.67
    %
    
    
    4.26
    %
    
    
    1.84
    %
    
    
    1.27
    %
    
    
    1.63
    %Non-performing assets to total assets
    
    
    2.97
    %
    
    
    3.39
    %
    
    
    1.23
    %
    
    
    0.92
    %
    
    
    1.10
    %Interest lost
    
    $
    9,268
    
    
    $
    7,708
    
    
    $
    3,112
    
    
    $
    2,111
    
    
    $
    2,351
       68




---



##### Table of Contents



Potential Problem Loans
  Asset and Liability Management
  Market Risk and Interest Rate Sensitivity
     69




---



##### Table of Contents



Interest Rate SensitivityAs of December 31, 20080 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
    
    $
    107,130
    
    
    $
    60,513
    
    
    $
    537,477
    
    
    $
    84,919
    
    
    $
    9,918
    
    
    $
    
    
    
    $
    128,506
    
    
    $
    928,463Deposits with Other Banks
    
    
    73,458
    
    
    
    8,260
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208,834
    
    
    
    290,552Loan Portfolio:Commercial
    
    
    1,249,183
    
    
    
    244,060
    
    
    
    290,845
    
    
    
    139,452
    
    
    
    140,916
    
    
    
    82,198
    
    
    
    78,747
    
    
    
    2,225,401Construction
    
    
    139,310
    
    
    
    25,396
    
    
    
    16,597
    
    
    
    3,172
    
    
    
    6,356
    
    
    
    3,195
    
    
    
    
    
    
    
    194,026Consumer
    
    
    357,194
    
    
    
    185,653
    
    
    
    366,028
    
    
    
    195,697
    
    
    
    41,645
    
    
    
    14
    
    
    
    (1,399
    )
    
    
    1,144,832Mortgage
    
    
    100,398
    
    
    
    277,901
    
    
    
    605,902
    
    
    
    508,935
    
    
    
    951,576
    
    
    
    148,836
    
    
    
    2,040
    
    
    
    2,595,588Fixed and Other Assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    518,714
    
    
    
    518,714Total Assets
    
    
    2,026,673
    
    
    
    801,783
    
    
    
    1,816,849
    
    
    
    932,175
    
    
    
    1,150,411
    
    
    
    234,243
    
    
    
    935,442
    
    
    
    7,897,576LIABILITIES AND STOCKHOLDERS EQUITY:External Funds Purchased:Commercial Paper
    
    
    50,985
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,985Repurchase Agreements
    
    
    75,000
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,000Federal Funds and other
borrowings
    
    
    310,000
    
    
    
    52,040
    
    
    
    825,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,187,040Deposits:Certificates of Deposit
    
    
    804,168
    
    
    
    1,521,195
    
    
    
    194,288
    
    
    
    61,859
    
    
    
    19,226
    
    
    
    28,472
    
    
    
    (12,360
    )
    
    
    2,616,848Demand Deposits and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Savings Accounts
    
    
    121,051
    
    
    
    
    
    
    
    149,983
    
    
    
    421,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    692,962Transactional Accounts
    
    
    242,450
    
    
    
    353,154
    
    
    
    
    
    
    
    1,109,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,705,092Senior and Subordinated Debt
    
    
    55,000
    
    
    
    
    
    
    
    11,298
    
    
    
    195,930
    
    
    
    
    
    
    
    60,000
    
    
    
    4,131
    
    
    
    326,359Other Liabilities and Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    943,290
    
    
    
    943,290Total Liabilities and Capital
    
    
    1,658,654
    
    
    
    2,226,389
    
    
    
    1,180,569
    
    
    
    1,789,205
    
    
    
    19,226
    
    
    
    88,472
    
    
    
    935,061
    
    
    
    7,897,576Off-Balance Sheet
Financial InformationInterest Rate Swaps (Assets)
    
    
    1,544,685
    
    
    
    14,159
    
    
    
    1,683
    
    
    
    138,961
    
    
    
    1,466,418
    
    
    
    26,987
    
    
    
    
    
    
    
    3,192,893Interest Rate Swaps (Liabilities)
    
    
    (1,669,685
    )
    
    
    (14,159
    )
    
    
    (1,683
    )
    
    
    (13,961
    )
    
    
    (1,466,418
    )
    
    
    (26,987
    )
    
    
    
    
    
    
    (3,192,893
    )Caps
    
    
    1,166
    
    
    
    
    
    
    
    411
    
    
    
    755
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,332Caps Final Maturity
    
    
    (1,166
    )
    
    
    
    
    
    
    (411
    )
    
    
    (755
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,332
    )GAP
    
    
    243,019
    
    
    
    (1,424,606
    )
    
    
    636,280
    
    
    
    (732,030
    )
    
    
    1,131,185
    
    
    
    145,771
    
    
    
    381
    
    
    
    Cumulative GAP
    
    $
    243,019
    
    
    $
    (1,181,587
    )
    
    $
    (545,307
    )
    
    $
    (1,277,337
    )
    
    $
    (146,152
    )
    
    $
    (381
    )
    
    $
    
    
    
    $
    Cumulative GAP to earning assets
    
    
    3.29
    %
    
    
    -16.01
    %
    
    
    -7.39
    %
    
    
    -17.31
    %
    
    
    -1.98
    %
    
    
    -0.01
    %
    70




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##### Table of Contents



NET INTEREST MARGIN SHOCK REPORTDecember 31, 2008(In millions)
    
    -200 BPs
    
    -100 BPs
    
    -50 BPs
    
    Base Case
    
    +50 BPs
    
    +100 BPs
    
    +200 BPsGross Interest Margin
    
    $
    401.1
    
    
    $
    397.8
    
    
    $
    389.5
    
    
    $
    392.2
    
    
    $
    389.4
    
    
    $
    387.0
    
    
    $
    378.8Sensitivity
    
    $
    8.9
    
    
    $
    5.6
    
    
    $
    (2.7
    )
    
    
    
    
    
    $
    (2.8
    )
    
    $
    (5.2
    )
    
    $
    (13.4
    )
 MARKET VALUE SHOCK REPORTDecember 31, 2008(In millions)
    
    -200 BPs
    
    -100 BPs
    
    -50 BPs
    
    Base Case
    
    +50 BPs
    
    +100 BPs
    
    +200 BPsMarket Value of Equity
    
    $
    697.8
    
    
    $
    711.8
    
    
    $
    645.2
    
    
    $
    684.6
    
    
    $
    652.4
    
    
    $
    621.1
    
    
    $
    556.3Sensitivity
    
    $
    13.2
    
    
    $
    27.2
    
    
    $
    (39.4
    )
    
    
    
    
    
    $
    (32.2
    )
    
    $
    (63.5
    )
    
    $
    (128.3
    )
  71




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##### Table of Contents



Derivatives
   Hedging Activities:
  December 31, 2008OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesInterest Rate Swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,237Economic Undesignated HedgesInterest Rate Swaps
    
    
    125,000
    
    
    
    5,210
    
    
    
    4,311
    
    
    
    Totals
    
    $
    125,000
    
    
    $
    5,210
    
    
    $
    4,311
    
    
    $
    1,237
 December 31, 2007OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesInterest Rate Swaps
    
    
    650,000
    
    
    
    (2,027
    )
    
    
    
    
    
    
    (1,023
    )Fair Value HedgesInterest Rate Swaps
    
    
    937,863
    
    
    
    (4,425
    )
    
    
    (465
    )
    
    
    Totals
    
    $
    1,587,863
    
    
    $
    (6,452
    )
    
    $
    (465
    )
    
    $
    (1,023
    )
 December 31, 2006OtherComprehensiveNotional
    
    
    
    
    
    
    Gain
    
    
    Income(Dollars in thousands)
    
    Amounts *
    
    
    Fair Value
    
    
    (Loss)
    
    
    (Loss)**Cash Flow HedgesForeign Currency
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    36Interest Rate Swaps
    
    
    825,000
    
    
    
    (351
    )
    
    
    
    
    
    
    (214
    )Fair Value HedgesInterest Rate Swaps
    
    
    1,189,740
    
    
    
    (22,065
    )
    
    
    64
    
    
    
    Totals
    
    $
    2,014,740
    
    
    $
    (22,416
    )
    
    $
    64
    
    
    $
    (178
    )
 
 *
    
    The notional amount
represents the gross sum of
long and short**
    
    Net of tax 72




---



##### Table of Contents



Cash Flow Hedges:
   Economic Undesignated Hedges:
    Fair Value Hedges:
    73




---



##### Table of Contents



Derivative instruments not designated as hedging instruments:
   74




---



##### Table of Contents



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




---



##### Table of Contents



th th th
     76




---



##### Table of Contents



Standard
    
    Fitch& Poor's
    
    IBCAShort-term funding
    
    A-1
    
    
    F1+Long-term funding
    
    A
    
    AA-
   Maturity and Interest Rate Sensitivity of Interest-Earning Assets as of December 31, 2008
  As of December 31, 2008Maturities 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
    
    $
    290,552
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    290,552Investment Portfolio
    
    
    167,642
    
    
    
    622,396
    
    
    
    
    
    
    
    138,425
    
    
    
    
    
    
    
    928,463Loans:Commercial
    
    
    1,065,310
    
    
    
    399,279
    
    
    
    192,162
    
    
    
    255,955
    
    
    
    252,080
    
    
    
    2,164,786Construction
    
    
    118,405
    
    
    
    11,806
    
    
    
    37,369
    
    
    
    
    
    
    
    26,446
    
    
    
    194,026Consumer
    
    
    209,473
    
    
    
    203,051
    
    
    
    
    
    
    
    154,065
    
    
    
    
    
    
    
    566,589Consumer Finance
    
    
    171,345
    
    
    
    357,840
    
    
    
    15,972
    
    
    
    20,872
    
    
    
    12,214
    
    
    
    578,243Mortgage
    
    
    378,299
    
    
    
    1,114,836
    
    
    
    
    
    
    
    1,102,453
    
    
    
    
    
    
    
    2,595,588Leasing
    
    
    34,198
    
    
    
    21,944
    
    
    
    1,978
    
    
    
    2,484
    
    
    
    11
    
    
    
    60,615Total
    
    $
    2,435,224
    
    
    $
    2,731,152
    
    
    $
    247,481
    
    
    $
    1,674,254
    
    
    $
    290,751
    
    
    $
    7,378,862
 77




---



##### Table of Contents



Capital Expenditures
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Headquarters/branches
    
    $
    412
    
    
    $
    1,770
    
    
    $
    1,217Data processing equipment
    
    
    1,829
    
    
    
    1,438
    
    
    
    2,907Software
    
    
    4,419
    
    
    
    1,981
    
    
    
    5,818Office furniture and equipment
    
    
    2,766
    
    
    
    1,257
    
    
    
    2,161Total
    
    $
    9,426
    
    
    $
    6,446
    
    
    $
    12,103
  Environmental Matters
   Puerto Rico Income Taxes
    78




---



##### Table of Contents



United States Income Taxes
  79




---



##### Table of Contents



CERTIFICATION PURSUANT TO SECTION 303A.12(a) OF THE
NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL
  By:
    /s/ Juan Moreno BlancoPresident and Chief Executive OfficerBy:
    /s/ Roberto JaraExecutive Vice President andChief Accounting Officer 80




---



##### Table of Contents



INTERNAL CONTROL OPINION
 
 Deloitte & Touche LLP
Torre Chardón
350 Chardón Ave. Suite 700
San Juan, PR 00918-2140
USA
 Tel: +1 787 759 7171
Fax: +1 787 756 6340
www.deloitte.com
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control  Integrated Framework Managements Report on Internal Control over
Financial Reporting.
  Member of
Deloitte & Touche Tohmatsu
 81




---



##### Table of Contents



FINANCIAL STATEMENTS OPINION
  Internal Control  Integrated Framework
 
  
 82




---



##### Table of Contents



Santander BanCorp and Subsidiaries
 
 Consolidated Balance Sheets-December 31, 2008 and 2007
 2008
    
    
    2007ASSETSCash and Cash Equivalents:Cash and due from banks
    
    $
    217,311
    
    
    $
    118,096Interest-bearing deposits
    
    
    976
    
    
    
    1,167Federal funds sold and securities purchased under agreements to resell
    
    
    64,871
    
    
    
    82,434Total cash and cash equivalents
    
    
    283,158
    
    
    
    201,697Interest-Bearing Deposits
    
    
    7,394
    
    
    
    5,439Trading Securities, at fair value:Securities pledged that can be repledged
    
    
    
    
    
    
    15,965Other trading securities
    
    
    64,719
    
    
    
    52,535Total trading securities
    
    
    64,719
    
    
    
    68,500Investment Securities Available for Sale,at fair value:Securities pledged that can be repledged
    
    
    408,650
    
    
    
    667,361Other investment securities available for sale
    
    
    393,462
    
    
    
    600,837Total investment securities available for sale
    
    
    802,112
    
    
    
    1,268,198Other Investment Securities,at amortized cost
    
    
    61,632
    
    
    
    64,559Loans Held for Sale,net
    
    
    38,459
    
    
    
    141,902Loans,net
    
    
    5,929,499
    
    
    
    6,769,478Accrued Interest Receivable
    
    
    45,953
    
    
    
    80,029Premises and Equipment,net
    
    
    19,368
    
    
    
    29,523Real Estate Held for Sale
    
    
    8,075
    
    
    
    Goodwill
    
    
    121,482
    
    
    
    121,482Intangible Assets
    
    
    29,842
    
    
    
    30,203Other Assets
    
    
    485,883
    
    
    
    383,203$
    7,897,576
    
    
    $
    9,164,213LIABILITIES AND STOCKHOLDERS EQUITYDeposits:Non interest-bearing
    
    $
    692,963
    
    
    $
    755,457Interest-bearing, including $101.4 million at fair value in 2008
    
    
    4,321,939
    
    
    
    4,405,246Total deposits
    
    
    5,014,902
    
    
    
    5,160,703Federal Funds Purchased and Other Borrowings
    
    
    2,040
    
    
    
    707,110Securities Sold Under Agreements to Repurchase
    
    
    375,000
    
    
    
    635,597Commercial Paper Issued
    
    
    50,985
    
    
    
    284,482Federal Home Loan Bank Advances
    
    
    1,185,000
    
    
    
    1,245,000Term Notes
    
    
    19,967
    
    
    
    19,371Subordinated Capital Notes,including $118.3 million at fair value in 2008
    
    
    306,392
    
    
    
    251,170Accrued Interest Payable
    
    
    45,419
    
    
    
    77,356Other Liabilities
    
    
    346,235
    
    
    
    246,888Total liabilities
    
    
    7,345,940
    
    
    
    8,627,677Contingencies and Commitments (Notes 13, 14, 18, 19, 22 and 23)STOCKHOLDERS EQUITY:Series A Preferred stock, $25 par value; 10,000,000 shares authorized,
none issued and outstanding
    
    
    
    
    
    
    Common stock, $2.50 par value; 200,000,000 shares authorized, 50,650,364
shares issued;
46,639,104 shares outstanding
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    317,141
    
    
    
    308,373Treasury stock at cost, 4,011,260 shares
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss, net of taxes
    
    
    (22,563
    )
    
    
    (24,478
    )Retained earnings:Reserve fund
    
    
    139,250
    
    
    
    139,250Undivided profits
    
    
    58,734
    
    
    
    54,317Total stockholders equity
    
    
    551,636
    
    
    
    536,536$
    7,897,576
    
    
    $
    9,164,213
  83




---



##### Table of Contents



Santander BanCorp and Subsidiaries
 Consolidated Statements of Operations
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Interest Income:Loans
    
    $
    547,973
    
    
    $
    599,581
    
    
    $
    535,327Investment securities
    
    
    47,402
    
    
    
    67,830
    
    
    
    74,023Interest-bearing deposits
    
    
    1,063
    
    
    
    3,344
    
    
    
    4,439Federal funds sold and securities purchased under
agreements to resell
    
    
    4,333
    
    
    
    3,455
    
    
    
    4,531Total interest income
    
    
    600,771
    
    
    
    674,210
    
    
    
    618,320Interest Expense:Deposits
    
    
    152,452
    
    
    
    192,660
    
    
    
    173,644Securities sold under agreements to repurchase and other
borrowings
    
    
    78,680
    
    
    
    153,955
    
    
    
    138,499Subordinated capital notes
    
    
    13,317
    
    
    
    15,916
    
    
    
    15,571Total interest expense
    
    
    244,449
    
    
    
    362,531
    
    
    
    327,714Net interest income
    
    
    356,322
    
    
    
    311,679
    
    
    
    290,606Provision for Loan Losses
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583Net interest income after provision for loan losses
    
    
    180,799
    
    
    
    163,855
    
    
    
    225,023Other Income:Bank service charges, fees and other
    
    
    44,685
    
    
    
    47,201
    
    
    
    49,078Broker-dealer, asset management and insurance fees
    
    
    74,808
    
    
    
    68,265
    
    
    
    56,973Gain on sale of securities available for sale
    
    
    5,154
    
    
    
    1,265
    
    
    
    Gain on sale of loans
    
    
    3,253
    
    
    
    6,658
    
    
    
    1,994Other income
    
    
    19,935
    
    
    
    24,731
    
    
    
    10,424Total other income
    
    
    147,835
    
    
    
    148,120
    
    
    
    118,469Other Operating Expenses:Salaries and employee benefits
    
    
    125,137
    
    
    
    134,258
    
    
    
    121,711Occupancy costs
    
    
    27,665
    
    
    
    23,767
    
    
    
    22,476Equipment expenses
    
    
    4,358
    
    
    
    4,427
    
    
    
    4,797EDP servicing, amortization and technical assistance
    
    
    41,860
    
    
    
    39,255
    
    
    
    40,084Communication expenses
    
    
    10,062
    
    
    
    10,923
    
    
    
    11,358Business promotion
    
    
    6,628
    
    
    
    15,621
    
    
    
    11,613Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    43,349
    
    
    
    Provision for claim receivable
    
    
    25,120
    
    
    
    
    
    
    
    Other taxes
    
    
    13,101
    
    
    
    12,334
    
    
    
    11,514Other operating expenses
    
    
    70,696
    
    
    
    60,082
    
    
    
    54,230Total other operating expenses
    
    
    324,627
    
    
    
    344,016
    
    
    
    277,783Income (loss) before (benefit) provision for income tax
    
    
    4,007
    
    
    
    (32,041
    )
    
    
    65,709(Benefit) Provision for Income Tax
    
    
    (6,524
    )
    
    
    4,204
    
    
    
    22,540Net Income (Loss) Available to Common Shareholders
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169Basic and Diluted Earnings (Loss) per Common Share
    
    $
    0.23
    
    
    $
    (0.78
    )
    
    $
    0.93
  84




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Santander BanCorp and Subsidiaries
 Consolidated Statements of Changes in Stockholders Equity
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Common Stock:Balance at beginning of year
    
    $
    126,626
    
    
    $
    126,626
    
    
    $
    126,626Balance at end of year
    
    
    126,626
    
    
    
    126,626
    
    
    
    126,626Capital Paid in Excess of Par Value:Balance at beginning of year
    
    
    308,373
    
    
    
    304,171
    
    
    
    304,171Capital contribution
    
    
    9,710
    
    
    
    4,202Payments to ultimate parent for long-term incentive plan
    
    
    (942
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    317,141
    
    
    
    308,373
    
    
    
    304,171Treasury Stock at cost:Balance at beginning of year
    
    
    (67,552
    )
    
    
    (67,552
    )
    
    
    (67,552
    )Balance at end of year
    
    
    (67,552
    )
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated Other Comprehensive Loss, net of tax:Balance at beginning of year
    
    
    (24,478
    )
    
    
    (44,213
    )
    
    
    (41,591
    )Unrealized net gain (loss) on investment securities
available
for sale, net of tax
    
    
    13,449
    
    
    
    18,227
    
    
    
    (587
    )Unrealized net gain (loss) on cash flow hedges, net of tax
    
    
    1,237
    
    
    
    (1,023
    )
    
    
    (178
    )Minimum pension (liability) benefit, net of tax
    
    
    (12,771
    )
    
    
    2,531
    
    
    
    (1,750
    )Adoption of SFAS No. 158, net of tax
    
    
    
    
    
    
    
    
    
    
    (107
    )Balance at end of year
    
    
    (22,563
    )
    
    
    (24,478
    )
    
    
    (44,213
    )Reserve Fund:Balance at beginning of year
    
    
    139,250
    
    
    
    137,511
    
    
    
    133,759Transfer from undivided profits
    
    
    
    
    
    
    1,739
    
    
    
    3,752Balance at end of year
    
    
    139,250
    
    
    
    139,250
    
    
    
    137,511Undivided Profits:Balance at beginning of year
    
    
    54,317
    
    
    
    122,677
    
    
    
    113,114Net income (loss)
    
    
    10,531
    
    
    
    (36,245
    )
    
    
    43,169Transfer to reseve fund
    
    
    
    
    
    
    (1,739
    )
    
    
    (3,752
    )Deferred tax benefit amortization
    
    
    (4
    )
    
    
    (3
    )
    
    
    (5
    )Common stock cash dividends
    
    
    (9,329
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Cummulative effect of adoption of SFAS 159
    
    
    3,219
    
    
    
    
    
    
    
    Cummulative effect of adoption of FIN 48
    
    
    
    
    
    
    (524
    )
    
    
    Balance at end of year
    
    
    58,734
    
    
    
    54,317
    
    
    
    122,677Total stockholders equity
    
    $
    551,636
    
    
    $
    536,536
    
    
    $
    579,220
  85




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Santander BanCorp and Subsidiaries
 Consolidated Statements of Comprehensive Income
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Comprehensive (loss) incomeNet income (loss)
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on investment securities available for sale, net of tax
    
    
    14,142
    
    
    
    18,170
    
    
    
    (926
    )Reclassification adjustment for (losses) gains included in net income (loss), net of tax
    
    
    (693
    )
    
    
    57
    
    
    
    339Unrealized gains (losses) on investment securities available for sale, net of tax
    
    
    13,449
    
    
    
    18,227
    
    
    
    (587
    )Unrealized gain (loss) on cash flow hedges, net of tax
    
    
    1,237
    
    
    
    (1,023
    )
    
    
    (178
    )Minimum pension (liability) benefit, net of tax
    
    
    (12,771
    )
    
    
    2,531
    
    
    
    (1,750
    )Total other comprehensive income (loss), net of tax
    
    
    1,915
    
    
    
    19,735
    
    
    
    (2,515
    )Comprehensive income (loss)
    
    $
    12,446
    
    
    $
    (16,510
    )
    
    $
    40,654
  86




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##### Table of Contents



Santander BanCorp and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    10,531
    
    
    $
    (36,245
    )
    
    $
    43,169Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    15,096
    
    
    
    16,276
    
    
    
    17,595Deferred tax benefit
    
    
    (18,083
    )
    
    
    (23,833
    )
    
    
    (2,123
    )Provision for loan losses
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583Goodwill and other intangibles impairment charges
    
    
    
    
    
    
    43,349
    
    
    
    Gain on sale of securities available for sale
    
    
    (5,154
    )
    
    
    (1,265
    )
    
    
    Gain on sale of loans
    
    
    (3,253
    )
    
    
    (6,658
    )
    
    
    (1,994
    )Gain on sale of mortgage-servicing rights
    
    
    
    
    
    
    (132
    )
    
    
    (170
    )(Gain) loss on derivatives
    
    
    (3,946
    )
    
    
    (249
    )
    
    
    477Gain on trading securities
    
    
    (2,607
    )
    
    
    (2,831
    )
    
    
    (1,243
    )Valuation loss on loans held for sale
    
    
    7,357
    
    
    
    
    
    
    
    Net discount accretion on securities
    
    
    (2,877
    )
    
    
    (6,782
    )
    
    
    (3,421
    )Net (discount accretion) premium amortization on loans
    
    
    433
    
    
    
    (1,793
    )
    
    
    (3,994
    )Accretion of debt discount
    
    
    628
    
    
    
    
    
    
    
    Share based compensation (benefit) sponsored by the ultimate parent
    
    
    (1,210
    )
    
    
    14,656
    
    
    
    810Provision for claim receivable
    
    
    25,120
    
    
    
    
    
    
    
    Purchases and originations of loans held for sale
    
    
    (345,706
    )
    
    
    (556,838
    )
    
    
    (908,272
    )Proceeds from sales of loans
    
    
    437,177
    
    
    
    305,183
    
    
    
    180,463Repayments of loans held for sale
    
    
    17,109
    
    
    
    22,511
    
    
    
    6,579Proceeds from sales of trading securities
    
    
    2,215,946
    
    
    
    2,553,127
    
    
    
    9,750,934Purchases of trading securities
    
    
    (2,101,645
    )
    
    
    (2,576,040
    )
    
    
    (9,755,086
    )Net change in:Decrease (increase) in accrued interest receivable
    
    
    32,382
    
    
    
    22,215
    
    
    
    (24,280
    )Decrease (increase) in other assets
    
    
    20,559
    
    
    
    (116,664
    )
    
    
    (70,230
    )(Decrease) increase in accrued interest payable
    
    
    (31,709
    )
    
    
    (13,889
    )
    
    
    26,085(Decrease) increase in other liabilities
    
    
    (3,469
    )
    
    
    (48,111
    )
    
    
    31,089Total adjustments
    
    
    427,671
    
    
    
    (229,944
    )
    
    
    (691,198
    )Net cash provided by (used in) operating activities
    
    
    438,202
    
    
    
    (266,189
    )
    
    
    (648,029
    )CASH FLOWS FROM INVESTING ACTIVITIES:(Increase) decrease in interest-bearing deposits
    
    
    (1,955
    )
    
    
    46,016
    
    
    
    49,578Proceeds from sales of investment securities available for sale
    
    
    129,451
    
    
    
    149,413
    
    
    
    Proceeds from maturities of investment securities available for sale
    
    
    8,858,239
    
    
    
    36,258,629
    
    
    
    29,621,084Purchases of investment securities available for sale
    
    
    (8,808,967
    )
    
    
    (36,323,477
    )
    
    
    (29,591,661
    )Proceeds from maturities of other investment securities
    
    
    40,727
    
    
    
    16,526
    
    
    
    Purchases of other investments
    
    
    (37,800
    )
    
    
    (30,375
    )
    
    
    (8,848
    )Repayment of securities and securities called
    
    
    89,302
    
    
    
    100,631
    
    
    
    125,448Payments on derivative transactions
    
    
    (1,497
    )
    
    
    (434
    )
    
    
    (392
    )Net decrease in loans
    
    
    547,090
    
    
    
    15,083
    
    
    
    359,889Proceeds from sales of mortgage-servicing rights
    
    
    
    
    
    
    132
    
    
    
    170Proceeds from sale of buildings
    
    
    
    
    
    
    56,750
    
    
    
    Payment for the acquisition of net assets of consumer finance
company, net
of cash and cash equivalents acquired
    
    
    
    
    
    
    
    
    
    
    (740,761
    )Payment for the acquisition of net assets of insurance company, net
of cash
and cash equivalents acquired
    
    
    
    
    
    
    
    
    
    
    (2,074
    )Purchases of premises and equipment
    
    
    (5,137
    )
    
    
    (3,694
    )
    
    
    (5,611
    )Net cash provided by (used in) investing activities
    
    
    809,453
    
    
    
    285,200
    
    
    
    (193,178
    )
 (Continued)
  87




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Santander BanCorp and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
  2008
    
    
    2007
    
    
    2006CASH FLOWS FROM FINANCING ACTIVITIES:Net (decrease) increase in deposits
    
    
    (149,298
    )
    
    
    (168,296
    )
    
    
    89,349Net (decrease) increase in federal funds purchased and other
borrowings
    
    
    (765,070
    )
    
    
    323,710
    
    
    
    859,554Net decrease in securities sold under agreements to repurchase
    
    
    (60,597
    )
    
    
    (194,972
    )
    
    
    (117,198
    )Net (decrease) increase in commercial paper issued
    
    
    (233,497
    )
    
    
    74,933
    
    
    
    (124,770
    )Net decrease in term notes
    
    
    
    
    
    
    (22,158
    )
    
    
    1,314Issuance of subordinated capital notes
    
    
    60,000
    
    
    
    54
    
    
    
    124,078Share based compensation (benefit) sponsored by the ultimate
parent
    
    
    (942
    )
    
    
    
    
    
    
    Dividends paid
    
    
    (16,790
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Net cash (used in) provided by financing activities
    
    
    (1,166,194
    )
    
    
    (16,578
    )
    
    
    802,478NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    81,461
    
    
    
    2,433
    
    
    
    (38,729
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    201,697
    
    
    
    199,264
    
    
    
    237,993CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    283,158
    
    
    $
    201,697
    
    
    $
    199,264
 (Concluded)
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Cash paid during the year for:Interest
    
    $
    274,186
    
    
    $
    375,045
    
    
    $
    301,264Income taxes
    
    $
    10,756
    
    
    $
    23,648
    
    
    $
    34,937Noncash transactions:Exercised options recognized as capital contribution
    
    $
    6,661
    
    
    $
    
    
    
    $
    Minimum pension benefit (liability)
    
    $
    12,771
    
    
    $
    2,531
    
    
    $
    (1,750
    )Initial adoption of SFAS No. 158
    
    $
    
    
    
    $
    
    
    
    $
    (107
    )Loan securitization
    
    $
    107,691
    
    
    $
    47,093
    
    
    $
    11,685Reclassification of premises to real estate held for sale
    
    $
    8,075
    
    
    $
    
    
    
    $
    Settlement by counterparty in bankruptcy of securities
sold under agreement to repurchase
    
    $
    200,228
    
    
    $
    
    
    
    $
    Settlement by counterparty in bankruptcy of investment
securities
available for sale pledged under agreement to repurchase
    
    $
    225,348
    
    
    $
    
    
    
    $
    
  88




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##### Table of Contents



Santander BanCorp and Subsidiaries
 
 Notes to Consolidated Financial Statements
Years Ended December 31, 2008, 2007 and 2006
 1. Summary of Significant Accounting Policies and Other Matters:
   Nature of Operations and Use of Estimates
    Principles of Consolidation
  Cash Equivalents
  Securities Purchased/Sold under Agreements to Resell/Repurchase
   89




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##### Table of Contents



Investment Securitie s
  
    
    Debt securities that the Corporation has the intent and ability to hold to maturity are
classified as securities held to maturity and reported at cost adjusted for premium
amortization and discount accretion. The Corporation may not sell or transfer
held-to-maturity securities without calling into question its intent to hold securities to
maturity, unless a nonrecurring or unusual event that could not have been reasonably
anticipated has occurred.
    
    Debt and equity securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities and reported at fair
value with unrealized gains and losses included in the consolidated statements of
operations as part of other income. Financial instruments including, to a limited extent,
derivatives, such as option contracts, are used by the Corporation in dealing and other
trading activities and are carried at fair value. Interest revenue and expense arising from
trading instruments are included in the consolidated statements of operations as part of
net interest income.
    
    Debt and equity securities not classified as either securities held to maturity or
trading securities, and which have a readily available fair value, are classified as
securities available for sale and reported at fair value, with unrealized gains and losses
reported, net of tax, in accumulated other comprehensive income (loss). The specific
identification method is used to determine realized gains and losses on sales of securities
available for sale, which are included in gain (loss) on sale of investment securities in
the consolidated statements of 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.
  Derivative Financial Instruments
   Fair Value
Option for Financial Assets and Financial Liabilities- including an amendment of FASB Statements
No. 115" Accounting for Derivatives Instruments and Hedging
Activities
 90




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##### Table of Contents



Loans Held for Sale
  Loans
    Accounting for Leases
 91




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##### Table of Contents



Off-Balance Sheet Instruments
    Allowance for Loan Losses
         92




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##### Table of Contents



Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
   Premises and Equipment
  Real Estate Held for Sale
  Other Real Estate
  Goodwill and Intangible Assets
 Goodwill and Other
Intangible Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
 93




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##### Table of Contents



Effective Date of FASB Statement No. 157
  Mortgage-servicing Rights
   Mortgage Banking
    94




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##### Table of Contents



Trust Services
  Broker-dealer and Asset Management Commissions
  Insurance Commissions
  Treasury Stock
  Income Taxes
  Accounting for Uncertainty in Income Taxes
 Earnings Per Common Share
  Reclassifications
  95




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##### Table of Contents



Recent Accounting Pronouncements that Affect the Corporation
  
    
    Staff Accounting Bulletin No. 109 (SAB 109) Written Loan Commitments Recorded at Fair
Value through Earnings.On November 5, 2007, the SEC issued SAB 109, which requires that
the fair value of a written loan commitment that is marked to market through earnings
should include the future cash flows related to the loans servicing rights. However, the
fair value measurement of a written loan commitment still must exclude the expected net
cash flows related to internally developed intangible assets (such as customer relationship
intangible assets). SAB 109 applies to two types of loan commitments: (1) written mortgage
loan commitments for loans that will be held-for-sale when funded that are marked to market
as derivatives under FAS 133 (derivative loan commitments); and (2) other written loan
commitments that are accounted for at fair value through earnings under Statement 159s
fair-value election. SAB 109 supersedes SAB 105, which applied only to derivative loan
commitments and allowed the expected future cash flows related to the associated servicing
of the loan to be recognized only after the servicing asset had been contractually
separated from the underlying loan by sale or securitization of the loan with servicing
retained. SAB 109 will be applied prospectively to derivative loan commitments issued or
modified in fiscal quarters beginning after December 15, 2007. The adoption of this
statement did not have material impact on the Corporations consolidated financial
statements and disclosures.
    
    SFAS No. 157, Fair Value Measurements.In September 2006, the FASB issued SFAS No.
157, Fair Value Measurements, which establishes a framework for measuring fair value
under GAAP and enhances disclosures about fair value measurements. The Corporation adopted
SFAS 157, as of January 1, 2008 for financial assets and liabilities. SFAS 157 defines fair
value, establishes a framework for measuring fair value under GAAP and enhances disclosures
about fair value measurements. Fair value is defined under SFAS 157 as the price that
would be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date. In February 2008, the FASB issued
FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) that
partially delayed the effective date of SFAS 157 for one year for certain nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or disclosed at
fair value in the financial statements on a recurring basis. FSP FAS 157-2 states that a
measurement is recurring if it happens at least annually and defines nonfinancial assets
and nonfinancial liabilities as all assets and liabilities other than those meeting the
definition of a financial asset or financial liability in SFAS 159. As such, the
Corporation did not adopt SFAS 157 for certain nonfinancial assets and liabilities, and is
evaluating the impact, that the adoption may have on its consolidated financial statements
and disclosures. In October 2008 the FASB issued FASB Staff Position (FSP) No. 157-3,
Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active(FSP 157-3). FSP 157-3 clarifies how SFAS 157 should be applied when valuing
securities in markets that are not active. The adoption of FSP 157-3 did not impact the
Corporations financial condition and results of operations. See Note 24 for additional
information.
    
    SFAS No. 159, Fair Value Option for Financial Assets and Financial Liabilities-
including an amendment of FASB Statements No. 115.In February 2007, the FASB issued SFAS
No. 159. In conjunction with the adoption of SFAS 157, the Corporation adopted SFAS 159, as
of January 1, 2008. SFAS 159 provides an option for most financial assets and liabilities
to be reported at fair value on an instrument-by-instrument basis with changes in fair
value reported in earnings. The election is made at the initial adoption, at the
acquisition of a financial asset, financial liability or a firm commitment and it may not
be revoked. Under the SFAS 159 transition provisions, the Corporation has elected to report
certain callable brokered certificates of deposits and subordinated notes at fair value
with future changes in value reported in earnings. SFAS 159 provides an opportunity to
mitigate volatility in reported earnings as well as reducing the burden associated with
complex hedge accounting requirements. As a result of this adoption and election under the
fair value option, the Corporation reported an after-tax increase in opening retained
earnings of $3.2 million. See Note 24 for additional information.
    
    FSP FIN No. 39-1 Amendment of FASB Interpretation No. 39In April 2007, the FASB
issued FASB Staff Position FSP FIN No. 39-1, which defines right of setoff and specifies
what conditions must be met for a derivative contract to qualify for this right of setoff.
It also addresses the applicability of a right of setoff to derivative instruments and
clarifies the circumstances in which it is appropriate to offset amounts recognized for
those instruments in the statement of financial position. In addition, this FSP permits the
offsetting of fair value amounts recognized for multiple derivative instruments executed
with the same counterparty under a master netting arrangement and fair value amounts
recognized for the right to reclaim cash collateral (a receivable) or the obligation to
return cash collateral (a payable) arising from the same master netting arrangement as the
derivative instruments. This interpretation is effective for fiscal years beginning after
November 15, 2007, with early application permitted. The
 96




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adoption of FSP FIN No. 39-1 in 2008 did not have a material impact on the Corporations
consolidated financial statements and disclosures.
    
    FSP No. FAS 133-1 and FIN 45-4 Disclosures about Credit Derivatives and Certain
Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and
Clarification of the Effective Date of FASB Statement No. 161FSP FAS 133-1 and FIN 45-4
requires disclosures by sellers of credit derivatives and additional disclosures about the
current status of the payment/performance risk of financial guarantees. FSP FAS 133-1 and
FIN 45-4 are effective for financial reporting periods (annual or interim) ending after
November 15, 2008. Accordingly, the Corporation adopted the provisions of FSP FAS 133-1 and
FIN 45-4 as of December 31, 2008. The adoption of FAS 133-1 and FIN45-4 did not impact the
Corporations financial condition and results of operations.
    
    FSP 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers
of Financial Assets and Interests in Variable Interest Entities.In December 2008, the
FASB issued FSP 140-4 and FIN 46(R)-8, which intended to improve disclosures about a
companys involvement with variable interest entities by requiring more information about
the assumptions made in determining whether or not to consolidate a variable interest
entity, the nature of restrictions on a variable interest entitys assets, as well as the
risks associated with an enterprises involvement with the variable interest entity. FSP
140-4 and FIN46(R)-8 are effective December 15, 2008. This statement did not have an impact
on the Corporations financial statement.
  
    
    SFAS No. 141-R Statement of Financial Accounting Standards No. 141(R), Business
Combinations (a revision of SFAS No. 141.)In December 2007, the FASB issued SFAS No.
141(R). SFAS No. 141(R) will significantly change how entities apply the acquisition method
to business combinations. The most significant changes affecting how the Corporation will
account for business combinations under this statement include the following: the
acquisition date will be the date the acquirer obtains control; all (and only) identifiable
assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be
stated at fair value on the acquisition date; assets or liabilities arising from
noncontractual contingencies will be measured at their acquisition date at fair value only
if it is more likely than not that they meet the definition of an asset or liability on the
acquisition date; adjustments subsequently made to the provisional amounts recorded on the
acquisition date will be made retroactively during a measurement period not to exceed one
year; acquisition-related restructuring costs that do not meet the criteria in SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities will be expensed as
incurred; transaction costs will be expensed as incurred; reversals of deferred income tax
valuation allowances and income tax contingencies will be recognized in earnings subsequent
to the measurement period; and the allowance for loan losses of an acquiree will not be
permitted to be recognized by the acquirer. Additionally, SFAS 141(R) will require new and
modified disclosures surrounding subsequent changes to acquisition-related contingencies,
contingent consideration, noncontrolling interests, acquisition-related transaction costs,
fair values and cash flows not expected to be collected for acquired loans, and an enhanced
goodwill rollforward. The Corporation will be required to prospectively apply SFAS 141(R)
to all business combinations completed on or after January 1, 2009. Early adoption is not
permitted. For business combinations in which the acquisition date was before the effective
date, the provisions of SFAS 141(R) will apply to the subsequent accounting for deferred
income tax valuation allowances and income tax contingencies and will require any changes
in those amounts to be recorded in earnings.
    
    SFAS No. 160,Noncontrolling Interest in Consolidated Financial Statements, an amendment
of ARB No. 51.In December 2007, the FASB issued SFAS No. 160, which amends ARB No. 51, to
establish accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 will require entities
to classify noncontrolling interests as a component of stockholders equity on the
consolidated financial statements and will require subsequent changes in ownership
interests in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS
No. 160 will require entities to recognize a gain or loss upon the loss of control of a
subsidiary and to remeasure any ownership interest retained at fair value on that date.
This statement also requires expanded disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling owners. This
Statement is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008 (that is, January 1, 2009, for entities with
calendar year-ends). Earlier adoption is prohibited. The effective date of this Statement
is the same as that of the related Statement 141(R). Management is evaluating the effects,
if any, that the adoption of this statement will have on its consolidated financial
statements.
    
    SFAS No. 161 Disclosure about Derivative Instruments and Hedging Activities, an
amendment of FASB Statements No. 133.In March 2008, the FASB issued SFAS No. 161, which
requires the enhancement of the current disclosure
 97




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framework in Statement 133. The Statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting designation. This
disclosure better conveys the purpose of derivative use in terms of the risks that the
entity is intending to manage. Disclosing the fair values of derivative instruments and
their gains and losses in a tabular format should provide a more complete picture of the
location in an entitys financial statements of both the derivative positions existing at
period end and the effect of using derivatives during the reporting period. Disclosing
information about credit-risk-related contingent features should provide information on the
potential effect on an entitys liquidity from using derivatives. Finally, this Statement
requires cross-referencing within the footnotes, which should help users of financial
statements locate important information about derivative instruments. This Statement is
effective for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. This Statement encourages, but
does not require, comparative disclosures for earlier periods at initial adoption. The
Corporation is evaluating the effects, if any, that the adoption of this statement will have
on its consolidated financial statements.
    
    Staff Position (FSP) FAS 142-3, Determination of Useful Life of Intangible Assets"(FSP
FAS 142-3).In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3. This FASB
Staff Position amends the factors that should be considered in developing renewal or
extension assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of this FSP
is to improve the consistency between the useful life of a recognized intangible asset
under Statement 142 and the period of expected cash flows used to measure the fair value of
the asset under FASB Statement No. 141(R) (revised 2007), Business Combinations,and other
U.S. generally accepted accounting principles. An intangible asset may be acquired
individually or with a group of other assets. This FSP applies regardless of the nature of
the transaction that resulted in the recognition of the intangible asset, that is, whether
acquired in a business combination or otherwise. In developing assumptions about renewal or
extension used to determine the useful life of a recognized intangible asset, an entity
shall consider its own historical experience in renewing or extending similar arrangements;
however, these assumptions should be adjusted for the entity-specific factors in paragraph
11 of Statement 142. In the absence of that experience, an entity shall consider the
assumptions that market participants would use about renewal or extension (consistent with
the highest and best use of the asset by market participants), adjusted for the
entity-specific factors in paragraph 11 of Statement 142. The Corporation is evaluating the
potential impact of adopting this FSP.
    
    SFAS No. 162 The Hierarchy of Generally Accepted Accounting Principles.In May 2008,
the FASB issued SFAS No. 162, which identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States (the GAAP hierarchy). The current GAAP
hierarchy, as set forth in the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles, has been criticized because (1) it is directed to
the auditor rather than the entity, (2) it is complex, and (3) it ranks FASB Statements of
Financial Accounting Concepts, which are subject to the same level of due process as FASB
Statements of Financial Accounting Standards, below industry practices that are widely
recognized as generally accepted but that are not subject to due process. The Board
believes that the GAAP hierarchy should be directed to entities because it is the entity
(not its auditor) that is responsible for selecting accounting principles for financial
statements that are presented in conformity with GAAP. Accordingly, the Board concluded
that the GAAP hierarchy should reside in the accounting literature established by the FASB
and is issuing this Statement to achieve that result. This Statement is effective 60 days
following the SECs approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted
Accounting Principles. The Corporation is evaluating the effects, if any, that the adoption
of this statement may have on its consolidated financial statements.
    
    FSP 132(R)-1,Employers Disclosures about Postretirement Benefit Plan Assets.In
December of 2008, the FASB issued FSP 132(R)-1 which intend to improve disclosures about a
companys postretirement benefit plan assets by requiring more information about how
investment allocation decisions are made, major categories of plan assets, fair value
assumptions and concentrations of risk. FSP 132(R)-1 will be applicable to the Corporation
on January 1, 2009. The Corporation is currently evaluating the requirements of FSP
132(R)-1 will have on its financial statements.
 98




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2. Trading Securities:
  99




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3. Investment Securities Available for Sale:
  December 31, 2008Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States
Government:Within one year
    
    $
    164,844
    
    
    $
    1,164
    
    
    $
    1
    
    
    $
    166,007
    
    
    
    2.30
    %After one year to five years
    
    
    5,658
    
    
    
    251
    
    
    
    
    
    
    
    5,909
    
    
    
    3.99
    %170,502
    
    
    
    1,415
    
    
    
    1
    
    
    
    171,916
    
    
    
    2.36
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    1,460
    
    
    
    
    
    
    
    6
    
    
    
    1,454
    
    
    
    4.23
    %After one year to five years
    
    
    133,185
    
    
    
    347
    
    
    
    384
    
    
    
    133,148
    
    
    
    5.23
    %After five years to ten years
    
    
    9,545
    
    
    
    29
    
    
    
    95
    
    
    
    9,479
    
    
    
    5.18
    %Over ten years
    
    
    4,505
    
    
    
    33
    
    
    
    3
    
    
    
    4,535
    
    
    
    5.55
    %148,695
    
    
    
    409
    
    
    
    488
    
    
    
    148,616
    
    
    
    5.22
    %Mortgage-backed securities:After five years to ten years
    
    
    193,630
    
    
    
    2,258
    
    
    
    73
    
    
    
    195,815
    
    
    
    4.39
    %Over ten years
    
    
    282,235
    
    
    
    3,525
    
    
    
    45
    
    
    
    285,715
    
    
    
    5.41
    %475,865
    
    
    
    5,783
    
    
    
    118
    
    
    
    481,530
    
    
    
    4.99
    %Foreign securities:Within one year
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %$
    795,112
    
    
    $
    7,607
    
    
    $
    607
    
    
    $
    802,112
    
    
    
    4.47
    %
 December 31, 2007Gross
    
    
    Gross
    
    
    
    
    
    
    WeightedAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    AverageCost
    
    

    Gains
    
    
    Losses
    
    
    Value
    
    
    Yield(Dollars in thousands)Treasury and agencies of the United States
Government:Within one year
    
    $
    317,974
    
    
    $
    137
    
    
    $
    233
    
    
    $
    317,878
    
    
    
    3.63
    %After one year to five years
    
    
    354,281
    
    
    
    1,703
    
    
    
    184
    
    
    
    355,800
    
    
    
    3.91
    %672,255
    
    
    
    1,840
    
    
    
    417
    
    
    
    673,678
    
    
    
    3.78
    %Commonwealth of Puerto Rico and its subdivisions:Within one year
    
    
    1,370
    
    
    
    
    
    
    
    3
    
    
    
    1,367
    
    
    
    3.99
    %After one year to five years
    
    
    20,245
    
    
    
    
    
    
    
    470
    
    
    
    19,775
    
    
    
    4.44
    %After five years to ten years
    
    
    15,186
    
    
    
    84
    
    
    
    159
    
    
    
    15,111
    
    
    
    5.21
    %Over ten years
    
    
    13,091
    
    
    
    62
    
    
    
    118
    
    
    
    13,035
    
    
    
    5.73
    %49,892
    
    
    
    146
    
    
    
    750
    
    
    
    49,288
    
    
    
    5.00
    %Mortgage-backed securities:After five years to ten years
    
    
    232,420
    
    
    
    
    
    
    
    7,296
    
    
    
    225,124
    
    
    
    4.40
    %Over ten years
    
    
    324,112
    
    
    
    
    
    
    
    4,054
    
    
    
    320,058
    
    
    
    5.41
    %556,532
    
    
    
    
    
    
    
    11,350
    
    
    
    545,182
    
    
    
    4.99
    %Foreign securities:After one year to five years
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    4.65
    %$
    1,278,729
    
    
    $
    1,986
    
    
    $
    12,517
    
    
    $
    1,268,198
    
    
    
    4.35
    %
 100




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December 31, 2008Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    UnrealizedPositions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses(Dollars in thousands)Treasury and agencies
of the United States
Government
    
    
    1
    
    
    $
    30,000
    
    
    $
    1
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    1
    
    
    $
    30,000
    
    
    $
    1Commonwealth of Puerto
Rico and its
subdivisions
    
    
    1
    
    
    
    705
    
    
    
    72
    
    
    
    14
    
    
    
    19,338
    
    
    
    416
    
    
    
    15
    
    
    
    20,043
    
    
    
    488Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    33,091
    
    
    
    118
    
    
    
    4
    
    
    
    33,091
    
    
    
    1182
    
    
    $
    30,705
    
    
    $
    73
    
    
    
    18
    
    
    $
    52,429
    
    
    $
    534
    
    
    
    20
    
    
    $
    83,134
    
    
    $
    607
 December 31, 2007Less than 12 months
    
    
    12 months or more
    
    
    TotalNumber
    
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    
    
    Numberof
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    Unrealized
    
    
    of
    
    
    Fair
    
    
    UnrealizedPositions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses
    
    
    Positions
    
    
    Value
    
    
    Losses(Dollars in thousands)Treasury and agencies
of the United States
Government
    
    
    5
    
    
    $
    228,590
    
    
    $
    57
    
    
    
    4
    
    
    $
    152,132
    
    
    $
    360
    
    
    
    9
    
    
    $
    380,722
    
    
    $
    417Commonwealth of Puerto
Rico and its
subdivisions
    
    
    1
    
    
    
    9,162
    
    
    
    118
    
    
    
    18
    
    
    
    30,420
    
    
    
    632
    
    
    
    19
    
    
    
    39,582
    
    
    
    750Mortgage-backed
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    545,182
    
    
    
    11,350
    
    
    
    31
    
    
    
    545,182
    
    
    
    11,3506
    
    
    $
    237,752
    
    
    $
    175
    
    
    
    53
    
    
    $
    727,734
    
    
    $
    12,342
    
    
    
    59
    
    
    $
    965,486
    
    
    $
    12,517
   101




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4. Assets Pledged:
  2008
    
    
    2007(Dollars in thousands)Investment securities available for sale
    
    $
    227,658
    
    
    $
    425,754Other investment securities
    
    
    53,325
    
    
    
    56,025Loans
    
    
    2,511,098
    
    
    
    2,314,359$
    2,792,081
    
    
    $
    2,796,138
  5. Loans:
  2008
    
    
    2007(Dollars in thousands)Commercial and industrial
    
    $
    2,165,613
    
    
    $
    2,562,101Consumer
    
    
    565,833
    
    
    
    641,593Consumer finance
    
    
    996,919
    
    
    
    946,209Leasing
    
    
    64,065
    
    
    
    98,987Construction
    
    
    194,596
    
    
    
    486,284Mortgage
    
    
    2,553,328
    
    
    
    2,539,8116,540,354
    
    
    
    7,274,985Unearned income and deferred fees/costs:Commercial and industrial
    
    
    (290
    )
    
    
    (3,459
    )Consumer finance
    
    
    (418,676
    )
    
    
    (335,096
    )Allowance for loan losses
    
    
    (191,889
    )
    
    
    (166,952
    )Loans, net
    
    $
    5,929,499
    
    
    $
    6,769,478
 102




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Impaired loans which require allowance
    
    $
    77,562
    
    
    $
    152,907Impaired loans that did not require allowance
    
    
    23,317
    
    
    
    52,681Total impaired loans
    
    $
    100,879
    
    
    $
    205,588Allowance for impaired loans
    
    $
    18,410
    
    
    $
    25,594Impaired loans measured based on fair value of collateral
    
    $
    87,637
    
    
    $
    81,260Impaired loans measured based on discounted cash flows
    
    $
    13,242
    
    
    $
    124,328Interest income recognized on impaired loans
    
    $
    554
    
    
    $
    705
   2008
    
    
    2007
    
    
    2006(Dollars in thousands)Principal balance as of December 31
    
    $
    212,714
    
    
    $
    294,438
    
    
    $
    106,852Interest income which would have been recorded had the
loans not been classified as non-accruing
    
    $
    9,268
    
    
    $
    7,708
    
    
    $
    3,112Loans past due ninety days or more and still accruing
interest
    
    $
    13,462
    
    
    $
    7,162
    
    
    $
    20,938
 103




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##### Table of Contents



6. Allowance for Loan Losses:
  Year ended December 31,2008
    
    
    2007
    
    
    2006(Dollars in thousands)Balance at beginning of year
    
    $
    166,952
    
    
    $
    106,863
    
    
    $
    66,842Allowance acquired (Island Finance)
    
    
    
    
    
    
    
    
    
    
    35,104Provision for loan losses
    
    
    175,523
    
    
    
    147,824
    
    
    
    65,583342,475
    
    
    
    254,687
    
    
    
    167,529Losses charged to the allowance:Commercial and industrial
    
    
    17,782
    
    
    
    10,375
    
    
    
    9,792Construction
    
    
    32,257
    
    
    
    2,710
    
    
    
    Mortgage
    
    
    1,257
    
    
    
    1,768
    
    
    
    Consumer
    
    
    44,682
    
    
    
    29,281
    
    
    
    16,679Consumer Finance
    
    
    56,444
    
    
    
    44,484
    
    
    
    38,345Leasing
    
    
    2,064
    
    
    
    2,742
    
    
    
    2,071154,486
    
    
    
    91,360
    
    
    
    66,887Recoveries:Commercial and industrial
    
    
    626
    
    
    
    1,192
    
    
    
    2,463Construction
    
    
    20
    
    
    
    
    
    
    
    Consumer
    
    
    1,256
    
    
    
    904
    
    
    
    1,677Consumer Finance
    
    
    1,517
    
    
    
    1,088
    
    
    
    1,314Leasing
    
    
    481
    
    
    
    441
    
    
    
    7673,900
    
    
    
    3,625
    
    
    
    6,221Net loans charged-off
    
    
    150,586
    
    
    
    87,735
    
    
    
    60,666Balance at end of year
    
    $
    191,889
    
    
    $
    166,952
    
    
    $
    106,863
 7. Premises and Equipment:
  Useful lifein years
    
    
    2008
    
    
    2007(Dollars in thousands)Land
    
    
    
    
    
    $
    1,037
    
    
    $
    5,273Buildings
    
    
    50
    
    
    
    1,110
    
    
    
    9,940Equipment
    
    
    3-10
    
    
    
    43,649
    
    
    
    43,498Leasehold improvements
    
    Various
    
    
    30,230
    
    
    
    27,03076,026
    
    
    
    85,741Accumulated depreciation and amortization
    
    
    
    
    
    
    (56,658
    )
    
    
    (56,218
    )Premises and Equipment, net
    
    
    
    
    
    $
    19,368
    
    
    $
    29,523
  104




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8. Real Estate Held for Sale:
  9. Goodwill and Other Intangible Assets:
 Goodwill
  2008
    
    
    2007(Dollars in thousands)Commercial Banking
    
    $
    10,537
    
    
    $
    10,537Wealth Management
    
    
    24,254
    
    
    
    24,254Consumer Finance
    
    
    86,691
    
    
    
    86,691$
    121,482
    
    
    $
    121,482
  105




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Other
Intangible Assets
  2008
    
    
    2007(Dollars in thousands)Commercial Banking  Mortgage-servicing rights
    
    $
    10,175
    
    
    $
    9,631Wealth Management  Advisory-servicing rights
    
    
    1,267
    
    
    
    1,572Consumer Finance:Trade name
    
    
    18,300
    
    
    
    18,300Non-compete agreements
    
    
    100
    
    
    
    700$
    29,842
    
    
    $
    30,203
   106




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December 31, 2008Gross
    
    
    Accumulated
    
    
    
    
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Impairment
    
    
    Amount(Dollars in thousands)Commercial
Banking 
Mortgage-servicing
rights
    
    $
    18,382
    
    
    $
    8,207
    
    
    $
    
    
    
    $
    10,175Wealth
Management 
Advisory-servicing
rights
    
    
    3,050
    
    
    
    1,783
    
    
    
    
    
    
    
    1,267Consumer Finance:Trade name
    
    
    18,300
    
    
    
    
    
    
    
    
    
    
    
    18,300Non-compete agreements
    
    
    3,356
    
    
    
    3,256
    
    
    
    
    
    
    
    100$
    43,088
    
    
    $
    13,246
    
    
    $
    
    
    
    $
    29,842December 31, 2007Gross
    
    
    Accumulated
    
    
    
    
    
    
    CarryingAmount
    
    
    Amortization
    
    
    Impairment
    
    
    Amount(Dollars in thousands)Commercial Banking -
Mortgage-servicing
rights
    
    $
    15,670
    
    
    $
    6,039
    
    
    $
    
    
    
    $
    9,631Wealth Management -
Advisory-servicing
rights
    
    
    3,050
    
    
    
    1,478
    
    
    
    
    
    
    
    1,572Consumer Finance:Trade name
    
    
    23,700
    
    
    
    
    
    
    
    5,400
    
    
    
    18,300Customer relationships
    
    
    10,600
    
    
    
    1,413
    
    
    
    9,187
    
    
    
    Non-compete agreements
    
    
    5,300
    
    
    
    2,656
    
    
    
    1,944
    
    
    
    700$
    58,320
    
    
    $
    11,586
    
    
    $
    16,531
    
    
    $
    30,203
   Year
    
    Amortization( in thousands)2009
    
    $
    2,5602010
    
    
    2,1462011
    
    
    1,9992012
    
    
    1,6462013
    
    
    999Thereafter
    
    
    2,192$
    11,542
 107




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##### Table of Contents



10. Other Assets:
  December 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Deferred tax assets, net (See note 17)
    
    $
    56,542
    
    
    $
    37,199Accounts receivable, net of allowance for claim receivable
of $25.1 million in 2008
    
    
    40,581
    
    
    
    38,617Repossesed assets, net
    
    
    22,306
    
    
    
    16,448Software, net
    
    
    7,295
    
    
    
    8,069Prepaid expenses
    
    
    13,835
    
    
    
    13,987Income tax credit
    
    
    19,645
    
    
    
    237Customers liabilities on acceptances
    
    
    610
    
    
    
    783Derivative assets
    
    
    197,192
    
    
    
    79,969Confirming advances
    
    
    122,540
    
    
    
    179,376Other
    
    
    5,337
    
    
    
    8,518$
    485,883
    
    
    $
    383,203
    11. Deposits:
   108




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##### Table of Contents



Year
    
    Amount(In thousands)2009
    
    $
    2,318,2342010
    
    
    146,8742011
    
    
    43,1112012
    
    
    32,2392013
    
    
    28,498Thereafter
    
    
    47,892$
    2,616,848
  2008
    
    
    2007
    
    
    2006Carrying
    
    
    Interest
    
    
    Carrying
    
    
    Interest
    
    
    Carrying
    
    
    InterestAmount
    
    
    Expense
    
    
    Amount
    
    
    Expense
    
    
    Amount
    
    
    Expense(Dollars in thousands)Non interest bearingPrivate demand
    
    $
    692,681
    
    
    $
    
    
    
    $
    755,077
    
    
    $
    
    
    
    $
    745,685
    
    
    $
    Public demand
    
    
    282
    
    
    
    
    
    
    
    380
    
    
    
    
    
    
    
    404
    
    
    
    692,963
    
    
    
    
    
    
    
    755,457
    
    
    
    
    
    
    
    746,089
    
    
    
    Savings depositsSavings
    
    
    675,885
    
    
    
    16,923
    
    
    
    608,195
    
    
    
    20,673
    
    
    
    707,695
    
    
    
    21,668NOW and other
transactions
    
    
    1,029,206
    
    
    
    18,021
    
    
    
    1,025,490
    
    
    
    31,112
    
    
    
    1,053,612
    
    
    
    27,8021,705,091
    
    
    
    34,944
    
    
    
    1,633,685
    
    
    
    51,785
    
    
    
    1,761,307
    
    
    
    49,470Certificates of depositsUnder $100,000
    
    
    254,368
    
    
    
    8,886
    
    
    
    271,782
    
    
    
    13,715
    
    
    
    265,567
    
    
    
    12,833$100,000 and over
    
    
    2,362,480
    
    
    
    108,622
    
    
    
    2,499,779
    
    
    
    127,160
    
    
    
    2,541,011
    
    
    
    111,3412,616,848
    
    
    
    117,508
    
    
    
    2,771,561
    
    
    
    140,875
    
    
    
    2,806,578
    
    
    
    124,174$
    5,014,902
    
    
    $
    152,452
    
    
    $
    5,160,703
    
    
    $
    192,660
    
    
    $
    5,313,974
    
    
    $
    173,644
 109




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##### Table of Contents



12. Other Borrowings:
  December 31, 2008Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    2,040
    
    
    $
    375,000
    
    
    $
    50,985Average indebtedness outstanding during the year
    
    $
    190,097
    
    
    $
    523,873
    
    
    $
    209,480Maximum amount outstanding during the year
    
    $
    751,000
    
    
    $
    625,006
    
    
    $
    625,000Average interest rate for the year
    
    
    4.21
    %
    
    
    4.87
    %
    
    
    3.60
    %Average interest rate at year-end
    
    
    0.09
    %
    
    
    4.35
    %
    
    
    0.75
    %
 December 31, 2007Federal Funds
    
    
    Securities Sold
    
    
    CommercialPurchased and
    
    
    Under Agreements
    
    
    PaperOther Borrowings
    
    
    to Repurchase
    
    
    Issued(Dollars in thousands)Amount outstanding at year-end
    
    $
    707,110
    
    
    $
    635,597
    
    
    $
    284,482Average indebtedness outstanding during the year
    
    $
    723,364
    
    
    $
    756,117
    
    
    $
    379,351Maximum amount outstanding during the year
    
    $
    800,000
    
    
    $
    851,578
    
    
    $
    676,957Average interest rate for the year
    
    
    5.77
    %
    
    
    5.48
    %
    
    
    5.48
    %Average interest rate at year-end
    
    
    5.14
    %
    
    
    5.43
    %
    
    
    5.31
    %
  December 31, 2008
    
    
    December 31, 2007(In thousands)Federal funds purchased and other borrowings:Within thirty days
    
    $
    
    
    
    $
    7,110Thirty to ninety days
    
    
    
    
    
    
    700,000Over ninety days
    
    
    2,040
    
    
    
    Total
    
    $
    2,040
    
    
    $
    707,110Securities sold under agreements to repurchase:Within thirty days
    
    $
    
    
    
    $
    10,591Thirty to ninety days
    
    
    75,000
    
    
    
    Over ninety days
    
    
    300,000
    
    
    
    625,006Total
    
    $
    375,000
    
    
    $
    635,597Commercial paper issued:Within thirty days
    
    $
    50,985
    
    
    $
    284,482
  110




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##### Table of Contents



December 31, 2008Weighted-Fair Value of
    
    
    AverageBalance of
    
    
    Underlying
    
    
    MaturityBorrowings
    
    
    Securities
    
    
    in Months(Dollars in thousands)JP Morgan Chase Bank, N.A.
    
    $
    375,000
    
    
    $
    408,650
    
    
    
    10.98
 December 31, 2007Weighted-Fair Value of
    
    
    AverageBalance of
    
    
    Underlying
    
    
    MaturityBorrowings
    
    
    Securities
    
    
    in Months(Dollars in thousands)JP Morgan Chase Bank, N.A.
    
    $
    375,000
    
    
    $
    396,540
    
    
    
    23.05Lehman Brothers, Inc.
    
    
    255,590
    
    
    
    279,786
    
    
    
    49.09First Puerto Rico Daily Liquidity Fund
    
    
    5,007
    
    
    
    7,000
    
    
    
    0.07$
    635,597
    
    
    $
    683,326
    
    
    
    33.34
  December 31, 2008Carrying
    
    
    
    
    
    
    Fair
    
    
    Weighted-
    
    
    Weighted-Value of
    
    
    
    
    
    
    Value of
    
    
    Average
    
    
    AverageUnderlying
    
    
    Balance of
    
    
    Underlying
    
    
    Interest Rate
    
    
    Interest RateUnderlying Securities
    
    Securities
    
    
    Borrowings
    
    
    Securities
    
    
    Securities
    
    
    Borrowings(Dollars in thousands)Mortgage-backed securities
    
    $
    408,650
    
    
    $
    375,000
    
    
    $
    408,650
    
    
    
    5.12
    %
    
    
    4.35
    %
 December 31, 2007Carrying
    
    
    
    
    
    
    Fair
    
    
    Weighted-
    
    
    Weighted-Value of
    
    
    
    
    
    
    Value of
    
    
    Average
    
    
    AverageUnderlying
    
    
    Balance of
    
    
    Underlying
    
    
    Interest Rate
    
    
    Interest RateUnderlying Securities
    
    Securities
    
    
    Borrowings
    
    
    Securities
    
    
    Securities
    
    
    Borrowings(Dollars in thousands)Obligations of U.S. Government and agencies
    
    $
    270,821
    
    
    $
    250,006
    
    
    $
    270,821
    
    
    
    4.79
    %
    
    
    5.76
    %Mortgage-backed securities
    
    
    412,505
    
    
    
    385,591
    
    
    
    412,505
    
    
    
    5.22
    %
    
    
    5.22
    %Total
    
    $
    683,326
    
    
    $
    635,597
    
    
    $
    683,326
    
    
    
    5.05
    %
    
    
    5.43
    %
 111




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##### Table of Contents



13. Advances from Federal Home Loan Bank:
  December 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Non-callable advances at 4.74% average fixed rate with maturities during 2008
    
    $
    
    
    
    $
    420,000Non-callable advances at 2.63% average fixed rate with maturities during 2009
    
    
    310,000
    
    
    
    Non-callable advances at 2.98% average fixed rate with maturities during 2010
    
    
    500,000
    
    
    
    Non-callable advances at 3.85% average fixed rate with maturities during 2011
    
    
    325,000
    
    
    
    Non-callable advances at 5.07% averages floating rates tied to 3-month LIBOR
with maturities during 2008
    
    
    
    
    
    
    825,000Non-callable advances at 4.28% average floating rate tied to 3-month LIBOR
with maturities during 2009
    
    
    50,000
    
    
    
    $
    1,185,000
    
    
    $
    1,245,000
  14. Term Notes, Subordinated Capital Notes and Trust Preferred Securities:
  December 31, 2008
    
    
    December 31, 2007(Dollars in thousands)Term notes maturing January 29, 2010 linked to the S&P500 index
    
    $
    4,815
    
    
    $
    4,815Term notes maturing May 31, 2011 with a spread of 0.25%:Linked to
the S&P 500
    
    
    4,000
    
    
    
    4,000Linked to the Dow Jones Euro STOXX 50
    
    
    3,000
    
    
    
    3,000Term notes maturing May 25, 2012 linked to the Euro STOXX 50
    
    
    5,000
    
    
    
    5,000Term notes maturing May 25, 2012 linked to the NIKKEI
    
    
    5,000
    
    
    
    5,00021,815
    
    
    
    21,815Unamortized discount
    
    
    (1,848
    )
    
    
    (2,444
    )$
    19,967
    
    
    $
    19,371
 112




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##### Table of Contents



Subordinated Capital Notes
  2008
    
    
    2007(Dollars in thousands)Subordinated notes with fixed interest of 7.50% maturing December 10, 2028
    
    $
    60,000
    
    
    $
    Subordinated notes with fixed interest of 6.30% maturing June 1, 2032, at
fair value
    
    
    72,076
    
    
    
    73,260Subordinated notes with fixed interest of 6.10% maturing June 1, 2032, at
fair value
    
    
    46,206
    
    
    
    50,236Subordinated notes with fixed interest of 6.75% maturing July 1, 2036
    
    
    129,000
    
    
    
    129,000307,282
    
    
    
    252,496Unamortized discount
    
    
    (890
    )
    
    
    (1,326
    )$
    306,392
    
    
    $
    251,170
 Trust Preferred Securities
  15. Reserve Fund:
  16. Common Stock Transactions:
   113




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##### Table of Contents



17. Income Tax:
     2008
    
    
    2007
    
    
    2006(Dollars in thousands)Current tax provision
    
    $
    11,559
    
    
    $
    28,037
    
    
    $
    24,663Deferred tax benefit
    
    
    (18,083
    )
    
    
    (23,833
    )
    
    
    (2,123
    )(Benefit) provision for income tax
    
    $
    (6,524
    )
    
    $
    4,204
    
    
    $
    22,540
  2008
    
    
    2007
    
    
    2006Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate
    
    
    Amount
    
    
    Rate(Dollars in thousands)Income tax at statutory rate
    
    $
    1,563
    
    
    
    39
    %
    
    $
    (12,496
    )
    
    
    39
    %
    
    $
    25,626
    
    
    
    39
    %Benefits of net tax-exempt income
    
    
    (5,917
    )
    
    
    (148
    %)
    
    
    (6,247
    )
    
    
    19
    %
    
    
    (5,684
    )
    
    
    (9
    %)Effect of surtaxes
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    2,269
    
    
    
    3
    %Deferred tax valuation allowance
change
    
    
    (2,458
    )
    
    
    (61
    %)
    
    
    23,103
    
    
    
    (72
    %)
    
    
    
    
    
    
    0
    %Other
    
    
    288
    
    
    
    7
    %
    
    
    (156
    )
    
    
    0
    %
    
    
    329
    
    
    
    1
    %(Benefit ) provision for income tax
    
    $
    (6,524
    )
    
    
    (163
    %)
    
    $
    4,204
    
    
    
    (14
    %)
    
    $
    22,540
    
    
    
    34
    %
  114




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Deferred Tax Assets:Unrealized loss on investment securities available for sale
    
    $
    
    
    
    $
    2,902Valuation of mortgage loans
    
    
    2,869
    
    
    
    Allowance for loan losses
    
    
    39,613
    
    
    
    28,680Long term incentive plans
    
    
    3,939
    
    
    
    6,788Deferred gain on sale of properties
    
    
    4,560
    
    
    
    4,966Postretirement and pension benefits
    
    
    18,126
    
    
    
    9,961Amortization of intangibles and impairment charges
    
    
    
    
    
    
    3,047Insurance cancellations
    
    
    1,499
    
    
    
    2,255Valuation on claim receivable
    
    
    9,797
    
    
    
    Other
    
    
    9,950
    
    
    
    5,78590,352
    
    
    
    64,384Deferred Tax Liabilities:Net deferred loan origination costs
    
    
    (971
    )
    
    
    (1,160
    )Unrealized gain on investment securities available for sale
    
    
    (1,777
    )
    
    
    Unrealized gain on derivatives
    
    
    (1,972
    )
    
    
    Valuation subordinated note
    
    
    (2,620
    )
    
    
    Mortgage-servicing rights and other
    
    
    5,735
    
    
    
    (2,922
    )13,075
    
    
    
    (4,082
    )Valuation allowance
    
    
    (20,735
    )
    
    
    (23,103
    )Deferred tax asset, net
    
    $
    56,542
    
    
    $
    37,199
    For the year endedDecember 31, 2008
    
    
    December 31, 2007(in thousands)Balance at begining of the year
    
    $
    16,507
    
    
    $
    12,676Gross increases for tax positions of
prior years
    
    
    15,429
    
    
    
    2,980Gross decreases for tax positions of
prior year
    
    
    (1,931
    )
    
    
    Gross increases for tax positions of
current year
    
    
    2,523
    
    
    
    2,424Release of contingencies
    
    
    (958
    )
    
    
    (1,573
    )Balance at end of the year
    
    $
    31,570
    
    
    $
    16,507
  115




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##### Table of Contents



18. Contingencies and Commitments:
   Year
    
    Leases
    
    
    Other commitments
    
    
    Total(In thousands)2009
    
    $
    12,872
    
    
    $
    19,206
    
    
    $
    32,0782010
    
    
    11,627
    
    
    
    
    
    
    
    11,6272011
    
    
    10,323
    
    
    
    
    
    
    
    10,3232012
    
    
    9,502
    
    
    
    
    
    
    
    9,5022013
    
    
    8,782
    
    
    
    
    
    
    
    8,782Thereafter
    
    
    56,142
    
    
    
    
    
    
    
    56,142$
    109,248
    
    
    $
    19,206
    
    
    $
    128,454
 19. Employee Benefits Plan:
 Pension Plan
    116




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##### Table of Contents



Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (15
    )
    
    $
    
    
    
    $
    (15
    )Net actuarial loss
    
    
    46,384
    
    
    
    108
    
    
    
    46,492$
    46,369
    
    
    $
    108
    
    
    $
    46,477
  Pension
    
    
    Post retirementPlans
    
    
    Benefit Plans
    
    
    Total(Dollars in thousands)Net transition asset
    
    $
    (2
    )
    
    $
    
    
    
    $
    (2
    )Net actuarial loss
    
    
    1,936
    
    
    
    10
    
    
    
    1,946$
    1,934
    
    
    $
    10
    
    
    $
    1,944
 117




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Change in projected benefit obligation:Projected benefit obligation at beginning of year
    
    $
    36,923
    
    
    $
    39,444Interest cost on projected benefit obligation
    
    
    2,355
    
    
    
    2,279Actuarial (gain) loss
    
    
    2,820
    
    
    
    (3,243
    )Benefit distributions
    
    
    (1,683
    )
    
    
    (1,557
    )Projected benefit obligation at end of year
    
    
    40,415
    
    
    
    36,923Change in plan assets:Fair value of plan assets at beginning of year
    
    
    35,740
    
    
    
    30,266Actual return on plan assets
    
    
    (8,028
    )
    
    
    1,288Employer contributions
    
    
    1,990
    
    
    
    5,743Benefit distributions
    
    
    (1,683
    )
    
    
    (1,557
    )Fair value of plan assets at end of year
    
    
    28,019
    
    
    
    35,740Funded status
    
    
    (12,396
    )
    
    
    (1,183
    )Unrecognized net actuarial gain
    
    
    20,103
    
    
    
    6,756Unrecognized transition amount
    
    
    (15
    )
    
    
    (16
    )Prepaid (accrued) pension benefit
    
    $
    7,692
    
    
    $
    5,557Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (12,396
    )
    
    $
    (1,183
    )Accumulated other comprehensive income
    
    
    20,088
    
    
    
    6,740Net amount recognized
    
    $
    7,692
    
    
    $
    5,557(Decrease) increase in minimum liability included in
other comprehensive income
    
    $
    13,348
    
    
    $
    (2,225
    )Projected benefit obligation
    
    $
    40,415
    
    
    $
    36,923Accumulated benefit obligation
    
    $
    40,415
    
    
    $
    36,923Fair value of plan assets
    
    $
    28,019
    
    
    $
    35,740
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Service cost during the year
    
    $
    
    
    
    $
    
    
    
    $
    1,762Interest cost on projected benefit obligation
    
    
    2,355
    
    
    
    2,279
    
    
    
    2,369Expected return on assets
    
    
    (2,729
    )
    
    
    (2,718
    )
    
    
    (2,228
    )Net amortization
    
    
    229
    
    
    
    411
    
    
    
    773Curtailment loss
    
    
    
    
    
    
    
    
    
    
    754Net periodic pension (benefit) cost
    
    $
    (145
    )
    
    $
    (28
    )
    
    $
    3,430
  118




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Discount rate
    
    
    6.00
    %
    
    
    6.50
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.00
    %
  2008
    
    
    2007
    
    
    2006Discount rate
    
    
    6.50
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    3.00
    %Expected return on plan assets
    
    
    7.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2008
    
    
    2007Asset Category:Equity securities
    
    
    50
    %
    
    
    56
    %Debt securities
    
    
    48
    %
    
    
    38
    %Other
    
    
    2
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    100
    %
  119




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##### Table of Contents



2008
    
    
    2007(Dollars in thousands)Change in projected benefit obligationProjected benefit obligation at beginning of year
    
    $
    32,931
    
    
    $
    32,889Interest cost on projected benefit obligation
    
    
    2,008
    
    
    
    1,838Actuarial (gain) loss
    
    
    (470
    )
    
    
    195Benefit distributions
    
    
    (1,723
    )
    
    
    (1,991
    )Projected benefit obligation at end of year
    
    
    32,746
    
    
    
    32,931Change in plan assets:Fair value of plan assets at beginning of year
    
    
    27,625
    
    
    
    25,385Actual return on plan assets
    
    
    (6,298
    )
    
    
    1,991Employer contributions
    
    
    1,956
    
    
    
    2,240Benefit distributions
    
    
    (1,723
    )
    
    
    (1,991
    )Fair value of plan assets at end of year
    
    
    21,560
    
    
    
    27,625Funded status
    
    
    (11,186
    )
    
    
    (5,306
    )Contributions after measurement date and/or
before end of year
    
    
    
    
    
    
    610Unrecognized actuarial gain
    
    
    26,281
    
    
    
    18,749Prepaid pension benefit
    
    $
    15,095
    
    
    $
    14,053Amounts recognized on the consolidated balance sheets consist of:Accrued benefit liability, net of prepaid benefit cost
    
    $
    (11,186
    )
    
    $
    (4,696
    )Accumulated other comprehensive income
    
    
    26,281
    
    
    
    18,749Net amount recognized
    
    $
    15,095
    
    
    $
    14,053(Decrease) increase in minimum liability included
in other comprehensive income
    
    $
    7,532
    
    
    $
    (1,801
    )Projected benefit obligation
    
    $
    32,746
    
    
    $
    32,931Accumulated benefit obligation
    
    $
    32,746
    
    
    $
    32,931Fair value of plan assets
    
    $
    21,560
    
    
    $
    27,625
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Interest cost on projected benefit obligation
    
    $
    1,853
    
    
    $
    1,838
    
    
    $
    1,998Expected return on assets
    
    
    (2,092
    )
    
    
    (2,170
    )
    
    
    (2,199
    )Net amortization
    
    
    520
    
    
    
    513
    
    
    
    513Net periodic pension cost
    
    $
    281
    
    
    $
    181
    
    
    $
    312
 120




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##### Table of Contents



2008
    
    2007
    
    2006Discount rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.75
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.00
    %
  2008
    
    2007
    
    2006Discount rate
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    n/a
    
    
    
    n/a
    
    
    
    0.00
    %Expected return on plan assets
    
    
    7.50
    %
    
    
    8.50
    %
    
    
    8.50
    %
   2008
    
    2007Asset Category:Equity securities
    
    
    49
    %
    
    
    57
    %Debt securities
    
    
    49
    %
    
    
    36
    %Other
    
    
    2
    %
    
    
    7
    %Total
    
    
    100
    %
    
    
    100
    %
   121




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Corporations
    
    BCHPlan
    
    Plan(Dollars in thousands)2009
    
    $
    1,668
    
    
    $
    2,0262010
    
    
    1,742
    
    
    
    2,0772011
    
    
    1,806
    
    
    
    2,5092012
    
    
    1,891
    
    
    
    2,1632013
    
    
    2,007
    
    
    
    3,8682014 through 2018
    
    
    11,375
    
    
    
    16,265
 Savings Plan
  20. Long Term Incentive Plans:
  
    
    A long term incentive plan for certain eligible officers and key employees which
contains service, performance and market conditions. This plan provides for settlement in
cash or stock of Santander Group to the participants and is classified as a liability
plan. Accordingly, the Corporation accrued a liability and recognized monthly
compensation expense over the fourteen month vesting period through January 2008. The
Corporation recognized a reversal of compensation expense under this plan amounting to
$4.1 million due to a favorable change in plan valuation during the year ended December
31, 2008 and $10.3 million of compensation expense for the same period in 2007. As options
were exercised during 2008, $6.7 million was reclassified to additional paid in capital.
    
    The grant of 100 shares of Santander Spain stock to all employees of Santander Groups
operating entities as part of the celebration of Santander Group 150th Anniversary during
2007. The Corporation recognized compensation expense under this plan amounting to $4.3
million in 2007. The shares granted were purchased by an affiliate and recorded as a
capital contribution in the Corporations 2007 consolidated statement of changes in
stockholders equity.
    
    A long term incentive plan for certain eligible officers and key employees which
contains service, performance and market conditions. This plan comprehends two cycles,
one expiring in 2009 and another expiring in 2010. This plan provides for settlement in
stock of Santander Spain to the participants and is classified as an equity plan.
Accordingly, the Corporation recognizes monthly compensation expense over the two and
three year cycles and credits additional paid in capital. The Corporation recognized
compensation expense under this plan amounting to $2.9 million for the year ended December
31, 2008 and $0.2 million for the year ended December 31, 2007.
 122




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21. Related Party Transactions:
  2008
    
    2007
    
    2006(Dollars in thousands)Deposits from related parties
    
    $
    695,948
    
    
    $
    17,344
    
    
    $
    60,062Interest-bearing deposits with affiliates
    
    
    3,757
    
    
    
    1,106
    
    
    
    555Other borrowings from an affiliate
    
    
    60,000
    
    
    
    
    
    
    
    Loans to directors, officers, and related parties
(on substantially the same terms and credit risks
as loans to third parties)
    
    
    2,604
    
    
    
    3,288
    
    
    
    4,388Technical assistance income for services rendered
    
    
    3,651
    
    
    
    2,769
    
    
    
    2,893Operating expenses for EDP services received
    
    
    17,288
    
    
    
    13,461
    
    
    
    14,527Technical assistance expense for software development
    
    
    753
    
    
    
    199
    
    
    
    595Rental income
    
    
    439
    
    
    
    441
    
    
    
    319Fair value of derivative financial instruments
purchased from affiliates
    
    
    (158,552
    )
    
    
    (26,917
    )
    
    
    21,780Fair value of derivative financial instruments
sold to affiliates
    
    
    (1,417
    )
    
    
    354
    
    
    
    1,000Loans sold to an affiliate
    
    
    300,097
    
    
    
    10,465
    
    
    
    
 123




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##### Table of Contents



22. Derivative Financial Instruments:
  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Gain* for theNotional
    
    
    
    
    
    
    ended
    
    
    year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2008
    
    
    Dec. 31, 2008(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,237ECONOMIC UNDESIGNATED HEDGESInterest rate swaps
    
    
    125,000
    
    
    
    5,210
    
    
    
    4,311
    
    
    
    OTHER DERIVATIVESOptions
    
    
    118,214
    
    
    
    3,774
    
    
    
    (18,995
    )
    
    
    Embedded options on stock-indexed deposits
    
    
    118,214
    
    
    
    (3,774
    )
    
    
    18,974
    
    
    
    Interest rate caps
    
    
    583
    
    
    
    (13
    )
    
    
    (20
    )
    
    
    Customer interest rate caps
    
    
    583
    
    
    
    13
    
    
    
    20
    
    
    
    Customer interest rate swaps
    
    
    1,729,209
    
    
    
    176,447
    
    
    
    130,778
    
    
    
    Interest rate swaps-offsetting position of customer swaps
    
    
    1,729,209
    
    
    
    (176,787
    )
    
    
    (131,991
    )
    
    
    Interest rate swaps
    
    
    90,000
    
    
    
    287
    
    
    
    821
    
    
    
    Loan commitments
    
    
    3,862
    
    
    
    93
    
    
    
    48
    
    
    
    $
    3,946
    
    
    $
    1,237
 
 *
    
    Net of tax  OtherGain (Loss) for
    
    
    Comprehensivethe year
    
    
    Loss* for theNotional
    
    
    
    
    
    
    ended
    
    
    year endedValue
    
    
    Fair Value
    
    
    Dec. 31, 2007
    
    
    Dec. 31, 2007(Dollars in thousands)CASH FLOW HEDGESInterest rate swaps
    
    $
    650,000
    
    
    $
    (2,027
    )
    
    $
    
    
    
    $
    (1,023
    )FAIR VALUE HEDGESInterest rate swaps
    
    
    937,863
    
    
    
    (4,425
    )
    
    
    (465
    )
    
    
    OTHER DERIVATIVESOptions
    
    
    133,562
    
    
    
    22,590
    
    
    
    134
    
    
    
    Embedded options on stock-indexed deposits
    
    
    133,562
    
    
    
    (22,590
    )
    
    
    (134
    )
    
    
    Interest rate caps
    
    
    7,381
    
    
    
    7
    
    
    
    (58
    )
    
    
    Customer interest rate caps
    
    
    7,381
    
    
    
    (7
    )
    
    
    58
    
    
    
    Customer interest rate swaps
    
    
    1,496,798
    
    
    
    44,380
    
    
    
    44,432
    
    
    
    Interest rate swaps-offsetting position
of customer swaps
    
    
    1,498,381
    
    
    
    (43,589
    )
    
    
    (44,068
    )
    
    
    Interest rate swaps
    
    
    242,000
    
    
    
    (534
    )
    
    
    315
    
    
    
    Loan commitments
    
    
    1,451
    
    
    
    45
    
    
    
    35
    
    
    
    $
    249
    
    
    $
    (1,023
    )
 
 *
    
    Net of tax  124




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125




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23. Financial Instruments with Off-Balance Sheet Risk:
      2008
    
    
    2007(Dollars in thousands)Standby letters of credit and financial guarantees written
    
    $
    95,660
    
    
    $
    134,470Commitments to extend credit, approved loans not yet
disbursed and unused lines of credit
    
    $
    1,193,875
    
    
    $
    1,530,017
  126




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127




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24. Fair Value of Financial Instruments:
   Disclosures about Fair Value of Financial Instruments
  (Dollars in thousands)
 Ending Balance as of
    
    
    
    
    
    
    Opening Balance as ofDecember 31, 2007
    
    
    Adoption Net
    
    
    January 01, 2008(Prior to Adoption)*
    
    
    Gain (Loss)
    
    
    (After Adoption)Impact of Electing the Fair Value Option under SFAS 159:Callable Brokered Certificates of Deposits
    
    $
    (763,476
    )
    
    $
    64
    
    
    $
    (763,412
    )Subordinated Capital Notes
    
    
    (123,686
    )
    
    
    5,134
    
    
    
    (118,552
    )Cumulative-effect Adjustments (pre-tax)
    
    $
    (887,162
    )
    
    
    5,198
    
    
    $
    (881,964
    )Tax Impact
    
    
    
    
    
    
    (1,979
    )Cumulative-effect Adjustment Increase to Retained
Earmings, net of tax
    
    
    
    
    
    $
    3,219
 
 *
    
    Net of debt issue cost, placement fees and basis adjustments as of December 31, 2007 Fair Value Hierarchy
  Level 1
    
    Quoted prices in active markets for identical assets or
liabilities. Level 1 assets and liabilities include debt and
equity securities and derivative contracts that are traded in an
active exchange market, as well as certain U.S. treasury, other
U.S. government and agency mortgage-backed debt securities that
are highly liquid and are actively traded in over-the-counter
markets.Level 2
    
    Observable inputs other than Level 1 prices, such as quoted prices
for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full
term of the assets or liabilities. Level 2 assets and liabilities
include securities with quoted prices that are traded less
frequently than exchange-traded instruments, securities and
derivative contracts and financial liabilities whose value is
determined using a pricing model with inputs that are observable
in the market or can be derived principally from or corroborated
by observable market data. This category generally includes
certain mortgage-backed debt securities, corporate debt
securities, derivative contracts, callable brokered certificates
of deposits and subordinated notes.
 128




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Level 3
    
    Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. Level 3 assets and liabilities include financial
instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires
significant management judgment or estimation. This category
generally includes certain Puerto Rico corporate debt securities,
closed end funds, and certain derivative contracts.
 Recurring Measurements
  (Dollars in thousands)
 Level 1
    
    Level 2
    
    Level 3
    
    TotalAssets:Trading Securities
    
    $
    117
    
    
    $
    35,083
    
    
    $
    29,519
    
    
    $
    64,719Investment Securities Available for Sale
    
    
    171,916
    
    
    
    630,196
    
    
    
    
    
    
    
    802,112Derivative Assets
    
    
    463
    
    
    
    195,993
    
    
    
    736
    
    
    
    197,192Total Assets, at Fair Value
    
    $
    172,496
    
    
    $
    861,272
    
    
    $
    30,255
    
    
    $
    1,064,023Liabilities:Deposits (1)
    
    $
    
    
    
    $
    101,401
    
    
    $
    
    
    
    $
    101,401Subordinated Capital Notes (2)
    
    
    
    
    
    
    118,282
    
    
    
    
    
    
    
    118,282Derivative Liabilities
    
    
    
    
    
    
    190,669
    
    
    
    643
    
    
    
    191,312Total Liabilities, at Fair Value
    
    $
    
    
    
    $
    410,352
    
    
    $
    643
    
    
    $
    410,995
 
 (1)
    
    Amounts represent certain callable brokered certificates of deposits for which the Corporation has elected the fair value option
under SFAS 159.(2)
    
    Amounts represent certain subordinated capital notes for which the Corporation has elected the fair value option under SFAS 159.   (Dollars in thousands)
 Net realized/unrealizedgains included in
    
    
    Transfers
    
    
    Purchases,
    
    
    
    
    
    
    UnrealizedBalance
    
    
    
    
    
    
    Other
    
    
    in and/or
    
    
    issuances
    
    
    Balance
    
    
    gainsJanuary 1,
    
    
    
    
    
    
    Comprehensive
    
    
    out of
    
    
    and
    
    
    Dec. 31,
    
    
    still2008
    
    
    Earnings
    
    
    Income
    
    
    Level 3
    
    
    settlements
    
    
    2008
    
    
    held (2)Trading Securities (1)
    
    $
    20,150
    
    
    $
    1,888
    
    
    $
    
    
    
    $
    
    
    
    $
    7,481
    
    
    $
    29,519
    
    
    $
    45Derivatives, net
    
    
    45
    
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93
    
    
    
    93$
    20,195
    
    
    $
    1,936
    
    
    $
    
    
    
    $
    
    
    
    $
    7,481
    
    
    $
    29,612
    
    
    $
    138
 
 (1)
    
    Changes in fair value and gains and losses from sales for these instruments are recorded in other income while interest revenue and expense are included
in the net interest income based on the contractual coupons on the consolidated statements of income. The amounts above do not include interest.(2)
    
    Represents the amount of total gains or losses for the period, included in earmings, attributable to the change in unrealized gains (losses)
relating to assets and liabilities classified as Level 3 that are still held at December 31, 2008. 129




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Total Gains (Losses)Trading
    
    
    Net(Dollars in thousands)
    
    Securities
    
    
    DerivativesClassification of gains and losses (realized/unrealized)
included in earnings for the period :Other income
    
    $
    1,888
    
    
    $
    48
  Changes in Unrealized Gains (Loss)Trading
    
    
    Net(Dollars in thousands)
    
    Securities
    
    
    DerivativesClassification of unrealized gains (losses)
included in earnings for the period :Other income
    
    $
    45
    
    
    $
    93
 Determination of Fair Value
  Short-Term Financial Instruments
  Trading Securities
   130




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Investment Securities Available for Sale
  Other Investment Securities
  Loans Held for Sale
  Loans
   Derivatives
     Deposits and Subordinated Capital Notes
  131




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Securities
Sold under Agreements to Repurchase and Federal Home Loan Bank Advances
  Term Notes
  Standby Letters Of Credit and Commitments to Extend Credit
  Non-Recurring Measurements
  Carrying Value as of December 31, 2008UsingCarrying
    
    
    Quoted Prices in
    
    
    Significant
    
    
    Significant
    
    
    ValuationValue
    
    
    Active Markets for
    
    
    Other
    
    
    Unobservable
    
    
    Allowanceas of
    
    
    Identical Assets
    
    
    Observable Inputs
    
    
    Inputs
    
    
    as of(Dollars in thousands)
    
    Dec. 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Dec. 31, 2008Loans, net(1)
    
    
    59,152
    
    
    
    
    
    
    
    
    
    
    
    59,152
    
    
    
    18,410$
    59,152
    
    
    $
    
    
    
    $
    
    
    
    $
    59,152
    
    
    $
    18,410
 
 (1)
    
    Amount represented loans measured for impairment based on the fair value of the collateral using the practical expedient in SFAS 114,
Accounting by Creditors for Impairment of a Loan. Fair Value Option
 Callable Brokered Certificates of Deposits and Subordinated Capital Notes
  132




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Changes in
    
    
    Changes in
    
    
    Total Changes inFair Value
    
    
    Fair Value
    
    
    Fair Valueincluded in
    
    
    included in
    
    
    included in(Dollars in thousands)
    
    Interest Expense
    
    
    Other Income
    
    
    Current Period EarningsCallable Brokered Certificates of Deposits
    
    $
    (18,245
    )
    
    $
    (4,159
    )
    
    $
    (22,404
    )Subordinated Capital Notes
    
    
    (7,775
    )
    
    
    270
    
    
    
    (7,505
    )Total
    
    $
    (26,020
    )
    
    $
    (3,889
    )
    
    $
    (29,909
    )
  Gain (Loss)
    
    
    Gain (Loss)
    
    
    Totalrelated
    
    
    not related
    
    
    Gains(Dollars in thousands)
    
    Credit Risk
    
    
    Credit Risk
    
    
    (Losses)Subordinated Capital Notes
    
    $
    6,667
    
    
    $
    (14,172
    )
    
    $
    (7,505
    )
 SFAS 107 Disclosures about Fair Value of Financial Instruments
  133




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December 31, 2008
    
    
    December 31, 2007Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(Dollars in thousands)Consolidated balance sheets financial instruments:ASSETS:Other investment securities
    
    $
    61,632
    
    
    $
    61,632
    
    
    $
    64,559
    
    
    $
    64,559Loans held for sale
    
    $
    38,459
    
    
    $
    38,740
    
    
    $
    141,902
    
    
    $
    141,902Loans
    
    $
    5,929,499
    
    
    $
    5,862,539
    
    
    $
    6,769,478
    
    
    $
    7,137,915LIABILITIES:Deposits  interest-bearing
    
    
    4,321,939
    
    
    
    4,311,104
    
    
    
    4,405,246
    
    
    
    4,404,647Securities sold under agreements to repurchase
    
    $
    375,000
    
    
    $
    365,314
    
    
    $
    635,597
    
    
    $
    635,597Federal Home Loan Advances
    
    $
    1,185,000
    
    
    $
    1,159,619
    
    
    $
    1,245,000
    
    
    $
    1,245,000Subordinated capital note
    
    $
    189,000
    
    
    $
    203,516
    
    
    $
    247,170
    
    
    $
    264,162Term notes
    
    $
    19,967
    
    
    $
    22,977
    
    
    $
    19,371
    
    
    $
    21,820
 December 31, 2008
    
    
    December 31, 2007Contract 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
    
    $
    95,660
    
    
    $
    (1,102
    )
    
    $
    134,470
    
    
    $
    (1,479
    )Commitments to extend credit, approved loans
not yet disbursed and unused lines of credit
    
    $
    1,193,875
    
    
    $
    (1,194
    )
    
    $
    1,530,017
    
    
    $
    (1,530
    )
 25. Significant Group Concentrations of Credit Risk:
  134




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26. Regulatory Matters:
    December 31, 2008Required
    
    ActualAmount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    453,114
    
    
    
    8
    %
    
    $
    726,863
    
    
    
    12.83
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    226,557
    
    
    
    4
    %
    
    $
    476,268
    
    
    
    8.41
    %Leverage Ratio
    
    $
    234,278
    
    
    
    3
    %
    
    $
    476,268
    
    
    
    6.10
    %
 December 31, 2007Required
    
    ActualAmount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in thousands)Total Capital (to Risk Weighted Assets)
    
    $
    528,134
    
    
    
    8
    %
    
    $
    697,009
    
    
    
    10.55
    %Tier I Capital (to Risk Weighted Assets)
    
    $
    264,067
    
    
    
    4
    %
    
    $
    490,259
    
    
    
    7.42
    %Leverage Ratio
    
    $
    273,298
    
    
    
    3
    %
    
    $
    490,259
    
    
    
    5.38
    %
 135




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##### Table of Contents



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

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


    5
    %
 December 31, 2007Required
    
    Actual
    
    Well-CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Ratio(Dollars in thousands)Total Capital (to
Risk Weighted
Assets)
    
    $
    474,647
    
    
    
    8
    %
    
    $
    647,481
    
    
    
    10.91
    %
    
    ≥


    10
    %Tier I Capital (to
Risk Weighted
Assets)
    
    $
    237,324
    
    
    
    4
    %
    
    $
    573,022
    
    
    
    9.66
    %
    
    ≥


    6
    %Leverage Ratio
    
    $
    251,493
    
    
    
    3
    %
    
    $
    573,022
    
    
    
    6.84
    %
    
    ≥


    5
    %
 136




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##### Table of Contents



27. Segment Information:
 Types of Products and Services
  Measurement of Segment Profit or Loss and Segment Assets
   December 31, 2008Commercial
    
    Mortgage
    
    Consumer
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    Banking
    
    Finance
    
    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external
revenue
    
    $
    308,646
    
    
    $
    166,480
    
    
    $
    142,986
    
    
    $
    53,627
    
    
    $
    73,145
    
    
    $
    49,416
    
    
    $
    (45,694
    )
    
    $
    748,606Intersegment revenue
    
    
    17,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    557
    
    
    
    27,817
    
    
    
    (45,694
    )
    
    
    Interest income
    
    
    257,835
    
    
    
    165,729
    
    
    
    142,428
    
    
    
    50,930
    
    
    
    2,941
    
    
    
    22,002
    
    
    
    (41,094
    )
    
    
    600,771Interest expense
    
    
    64,700
    
    
    
    73,179
    
    
    
    27,160
    
    
    
    89,669
    
    
    
    2,249
    
    
    
    20,875
    
    
    
    (33,383
    )
    
    
    244,449Depreciation and
amortization
    
    
    4,367
    
    
    
    2,538
    
    
    
    2,988
    
    
    
    945
    
    
    
    1,307
    
    
    
    2,951
    
    
    
    
    
    
    
    15,096Segment income (loss)
before income tax
    
    
    29,911
    
    
    
    79,906
    
    
    
    6,262
    
    
    
    (69,225
    )
    
    
    22,027
    
    
    
    (57,163
    )
    
    
    (7,711
    )
    
    
    4,007Segment assets
    
    
    3,641,521
    
    
    
    2,679,466
    
    
    
    659,054
    
    
    
    1,210,654
    
    
    
    149,149
    
    
    
    631,091
    
    
    
    (1,073,359
    )
    
    
    7,897,576
 December 31, 2007Commercial
    
    Mortgage
    
    Consumer
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    
    Banking
    

    Finance
    

    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external
revenue
    
    $
    351,120
    
    
    $
    190,889
    
    
    $
    144,027
    
    
    $
    75,821
    
    
    $
    64,378
    
    
    $
    46,671
    
    
    $
    (50,576
    )
    
    $
    822,330Intersegment revenue
    
    
    9,458
    
    
    
    13,571
    
    
    
    
    
    
    
    
    
    
    
    2,074
    
    
    
    25,473
    
    
    
    (50,576
    )
    
    
    Interest income
    
    
    299,105
    
    
    
    168,238
    
    
    
    140,881
    
    
    
    71,418
    
    
    
    2,667
    
    
    
    24,607
    
    
    
    (32,706
    )
    
    
    674,210Interest expense
    
    
    99,409
    
    
    
    102,038
    
    
    
    36,898
    
    
    
    116,669
    
    
    
    3,613
    
    
    
    30,081
    
    
    
    (26,177
    )
    
    
    362,531Depreciation and
amortization
    
    
    4,092
    
    
    
    2,066
    
    
    
    3,645
    
    
    
    816
    
    
    
    1,220
    
    
    
    4,437
    
    
    
    
    
    
    
    16,276Segment income (loss)
before income tax
    
    
    79,406
    
    
    
    51,596
    
    
    
    (57,991
    )
    
    
    (47,203
    )
    
    
    16,359
    
    
    
    (66,544
    )
    
    
    (7,664
    )
    
    
    (32,041
    )Segment assets
    
    
    4,014,385
    
    
    
    2,752,186
    
    
    
    684,115
    
    
    
    1,533,832
    
    
    
    130,229
    
    
    
    541,792
    
    
    
    (492,326
    )
    
    
    9,164,213
 137




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##### Table of Contents



December 31, 2006Commercial
    
    Mortgage
    
    Consumer
    
    Treasury and
    
    Wealth
    
    
    
    
    
    
    
    
    
    ConsolidatedBanking
    

    Banking
    

    Finance
    
    Investments
    
    Management
    
    Other
    
    Eliminations
    
    Total(Dollars in thousands)Total external
revenue
    
    $
    311,451
    
    
    $
    175,877
    
    
    $
    121,159
    
    
    $
    80,630
    
    
    $
    49,865
    
    
    $
    64,956
    
    
    $
    (67,149
    )
    
    $
    736,789Intersegment revenue
    
    
    11,472
    
    
    
    8,698
    
    
    
    
    
    
    
    
    
    
    
    1,400
    
    
    
    45,579
    
    
    
    (67,149
    )
    
    
    Interest income
    
    
    268,806
    
    
    
    162,572
    
    
    
    118,154
    
    
    
    80,275
    
    
    
    2,283
    
    
    
    41,359
    
    
    
    (55,129
    )
    
    
    618,320Interest expense
    
    
    87,654
    
    
    
    90,423
    
    
    
    34,738
    
    
    
    113,878
    
    
    
    3,183
    
    
    
    46,096
    
    
    
    (48,258
    )
    
    
    327,714Depreciation and
amortization
    
    
    5,567
    
    
    
    1,852
    
    
    
    3,633
    
    
    
    776
    
    
    
    1,030
    
    
    
    4,737
    
    
    
    
    
    
    
    17,595Segment income (loss)
before income tax
    
    
    95,180
    
    
    
    60,595
    
    
    
    (1,287
    )
    
    
    (38,101
    )
    
    
    13,185
    
    
    
    (56,442
    )
    
    
    (7,421
    )
    
    
    65,709Segment assets
    
    
    3,929,196
    
    
    
    2,715,577
    
    
    
    805,173
    
    
    
    1,684,649
    
    
    
    100,585
    
    
    
    510,587
    
    
    
    (553,599
    )
    
    
    9,192,168
 Reconciliation of Segment Information to Consolidated Amounts
  2008
    
    
    2007
    
    
    2006(Dollars in thousands)Revenues:Total revenues for reportable segments
    
    $
    744,884
    
    
    $
    826,235
    
    
    $
    733,421Other revenues
    
    
    49,416
    
    
    
    46,671
    
    
    
    70,517Elimination of intersegment revenues
    
    
    (45,694
    )
    
    
    (50,576
    )
    
    
    (67,149
    )Total consolidated revenues
    
    $
    748,606
    
    
    $
    822,330
    
    
    $
    736,789Total income before tax of reportable segments
    
    $
    68,881
    
    
    $
    42,167
    
    
    $
    127,299Loss before tax of other segments
    
    
    (57,163
    )
    
    
    (66,544
    )
    
    
    (54,169
    )Elimination of intersegment profits
    
    
    (7,711
    )
    
    
    (7,664
    )
    
    
    (7,421
    )Consolidated income (loss) before tax
    
    $
    4,007
    
    
    $
    (32,041
    )
    
    $
    65,709Assets:Total assets for reportable segments
    
    $
    8,339,844
    
    
    $
    9,114,747
    
    
    $
    9,146,499Assets not attributed to segments
    
    
    631,091
    
    
    
    541,792
    
    
    
    599,268Elimination of intersegment assets
    
    
    (1,073,359
    )
    
    
    (492,326
    )
    
    
    (553,599
    )Total consolidated assets
    
    $
    7,897,576
    
    
    $
    9,164,213
    
    
    $
    9,192,168
 138




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28. Quarterly Results (Unaudited):
  Quarters Ended 2008March 31
    
    
    
    
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    159,029
    
    
    
    
    
    
    $
    153,436
    
    
    $
    148,011
    
    
    $
    140,295Net Interest Income
    
    
    84,599
    
    
    
    
    
    
    
    91,045
    
    
    
    92,406
    
    
    
    88,272Net Interest Income after Provision
for Loan Losses
    
    
    45,024
    
    
    
    
    
    
    
    52,530
    
    
    
    46,846
    
    
    
    36,399Income (Loss) before Provision for Income Tax
    
    
    25,939
    
    
    
    
    
    
    
    7,281
    
    
    
    (18,493
    )
    
    
    (10,720
    )Net Income (Loss)
    
    
    17,722
    
    
    
    
    
    
    
    6,516
    
    
    
    (8,162
    )
    
    
    (5,545
    )Earnings (Loss) per Common Share
    
    
    0.38
    
    
    
    
    
    
    
    0.14
    
    
    
    (0.18
    )
    
    
    (0.11
    )
 Quarters Ended 2007March 31
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    167,077
    
    
    $
    168,242
    
    
    $
    170,149
    
    
    $
    168,742Net Interest Income
    
    
    79,402
    
    
    
    78,197
    
    
    
    76,039
    
    
    
    78,041Net Interest Income after Provision
for Loan Losses
    
    
    57,378
    
    
    
    47,347
    
    
    
    28,689
    
    
    
    30,441Income before Provision for Income Tax
    
    
    19,383
    
    
    
    5,505
    
    
    
    (55,011
    )
    
    
    (1,918
    )Net Income (Loss)
    
    
    11,729
    
    
    
    4,096
    
    
    
    (50,099
    )
    
    
    (1,971
    )Earnings (Loss) per Common Share
    
    
    0.25
    
    
    
    0.09
    
    
    
    (1.07
    )
    
    
    (0.05
    )
 Quarters Ended 2006March 31
    
    June 30
    
    September 30
    
    December 31(Dollars in thousands, except per share data)Interest Income
    
    $
    132,084
    
    
    $
    158,534
    
    
    $
    162,086
    
    
    $
    165,616Net Interest Income
    
    
    62,786
    
    
    
    77,856
    
    
    
    74,708
    
    
    
    75,256Net Interest Income after Provision
for Loan Losses
    
    
    55,248
    
    
    
    61,881
    
    
    
    54,308
    
    
    
    53,586Income before Provision for Income Tax
    
    
    21,951
    
    
    
    18,383
    
    
    
    9,692
    
    
    
    15,683Net Income
    
    
    13,356
    
    
    
    11,028
    
    
    
    8,726
    
    
    
    10,059Earnings per Common Share
    
    
    0.29
    
    
    
    0.23
    
    
    
    0.19
    
    
    
    0.22
 139




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29. Credit Losses Arising from the Bankruptcy of Lehman Brothers, Inc.:
   30. Santander BanCorp (Parent Company Only) Financial Information :
   140




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##### Table of Contents



Santander Bancorp
 Balance Sheet Information
December 31, 2008 and 2007
 2008
    
    
    2007ASSETSCash and due from banks
    
    $
    3,430
    
    
    $
    11,875Interest-bearing deposits
    
    
    
    
    
    
    30,079Total cash and cash equivalents
    
    
    3,430
    
    
    
    41,954Loans
    
    
    221,256
    
    
    
    235,469Investment in Subsidiaries
    
    
    772,249
    
    
    
    755,670Accrued Interest Receivable
    
    
    5,928
    
    
    
    6,534Other Assets
    
    
    9,297
    
    
    
    921$
    1,012,160
    
    
    $
    1,040,548LIABILITIES AND STOCKHOLDERS EQUITYBorrowings
    
    $
    200,000
    
    
    $
    235,000Subordinated Capital Notes,including $118.3 million at fair value in 2008
    
    
    246,392
    
    
    
    251,045Accrued Interest Payable
    
    
    7,724
    
    
    
    5,830Other Liabilities
    
    
    5,195
    
    
    
    10,073Total liabilities
    
    
    459,311
    
    
    
    501,948STOCKHOLDERS 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, 2008 and 2007
    
    
    126,626
    
    
    
    126,626Capital paid in excess of par value
    
    
    565,165
    
    
    
    556,192Treasury stock at cost, 4,011,260 shares at December 31, 2008 and 2007
    
    
    (67,552
    )
    
    
    (67,552
    )Accumulated other comprehensive loss from unconsolidated subsidiaries, net of tax
    
    
    (22,563
    )
    
    
    (24,478
    )Deficit
    
    
    (48,827
    )
    
    
    (52,188
    )Total stockholders equity
    
    
    552,849
    
    
    
    538,600$
    1,012,160
    
    
    $
    1,040,548
 141




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##### Table of Contents



Santander BanCorp
 Statements of Operations Information
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Interest Income:Loans
    
    $
    13,914
    
    
    $
    17,883
    
    
    $
    42,472Interest-bearing deposits
    
    
    818
    
    
    
    1,867
    
    
    
    1,952Total interest income
    
    
    14,732
    
    
    
    19,750
    
    
    
    44,424Interest Expense:Borrowings
    
    
    7,549
    
    
    
    13,931
    
    
    
    34,661Term and subordinated capital notes
    
    
    13,325
    
    
    
    16,157
    
    
    
    14,619Total interest expense
    
    
    20,874
    
    
    
    30,088
    
    
    
    49,280Net interest loss
    
    
    (6,142
    )
    
    
    (10,338
    )
    
    
    (4,856
    )Provision for loan losses
    
    
    740
    
    
    
    
    
    
    
    Net interest loss after provision for loan losses
    
    
    (6,882
    )
    
    
    (10,338
    )
    
    
    (4,856
    )Other Income (Loss) :Derivative gains (losses)
    
    
    6,770
    
    
    
    (10
    )
    
    
    40Equity in earnings (losses) of subsidiaries
    
    
    15,017
    
    
    
    (24,524
    )
    
    
    50,327Total other income (loss)
    
    
    21,787
    
    
    
    (24,534
    )
    
    
    50,367Other Operating Expenses:Professional fees
    
    
    881
    
    
    
    844
    
    
    
    1,419Other taxes
    
    
    586
    
    
    
    (615
    )
    
    
    475Other operating expenses
    
    
    911
    
    
    
    774
    
    
    
    376Total other operating expenses
    
    
    2,378
    
    
    
    1,003
    
    
    
    2,270Income (loss) before provision (benefit) for income tax
    
    
    12,527
    
    
    
    (35,875
    )
    
    
    43,241Provision (benefit) for Income Tax
    
    
    2,723
    
    
    
    (88
    )
    
    
    16Net Income (Loss)
    
    $
    9,804
    
    
    $
    (35,787
    )
    
    $
    43,225
 142




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##### Table of Contents



Santander BanCorp
 Statements of Cash Flows Information
Years Ended December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    9,804
    
    
    $
    (35,787
    )
    
    $
    43,225Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Equity in losses (earnings) of subsidiaries, net of dividends received
    
    
    48,868
    
    
    
    54,487
    
    
    
    (15,684
    )Deferred tax provision (benefit)
    
    
    2,723
    
    
    
    (88
    )
    
    
    16Provision for loan losses
    
    
    740
    
    
    
    
    
    
    
    Gain (loss) on derivatives
    
    
    (6,770
    )
    
    
    10
    
    
    
    (40
    )Net discount accretion on debt
    
    
    32
    
    
    
    55
    
    
    
    28Net premiun amortization on loans
    
    
    109
    
    
    
    177
    
    
    
    298(Increase) decrease in other assets and accrued interest receivable
    
    
    (5,083
    )
    
    
    3,968
    
    
    
    (6,564
    )Increase (decrease) in other liabilities and accrued interest payable
    
    
    4,479
    
    
    
    (5,087
    )
    
    
    7,646Total adjustments
    
    
    45,098
    
    
    
    53,522
    
    
    
    (14,300
    )Net cash provided by operating activities
    
    
    54,902
    
    
    
    17,735
    
    
    
    28,925CASH FLOWS FROM INVESTING ACTIVITIES:Net decrease (increase) in loans
    
    
    13,364
    
    
    
    27,178
    
    
    
    (123,687
    )Investment in subsidiary
    
    
    (55,000
    )
    
    
    
    
    
    
    (147,029
    )Net cash (used in) provided by investing activities
    
    
    (41,636
    )
    
    
    27,178
    
    
    
    (270,716
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of borrowings
    
    
    200,000
    
    
    
    235,000
    
    
    
    1,000,000Repayment of borrowings
    
    
    (235,000
    )
    
    
    (275,000
    )
    
    
    (843,846
    )Issuance of subordinated capital notes
    
    
    
    
    
    
    
    
    
    
    128,050Dividends paid
    
    
    (16,790
    )
    
    
    (29,849
    )
    
    
    (29,849
    )Net cash (used in) provided by financing activities
    
    
    (51,790
    )
    
    
    (69,849
    )
    
    
    254,355NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (38,524
    )
    
    
    (24,936
    )
    
    
    12,564CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    41,954
    
    
    
    66,890
    
    
    
    54,326CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    3,430
    
    
    $
    41,954
    
    
    $
    66,890
 31. Subsequent Events:
  Recent Puerto Rico Legislation
   143




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
     Change in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  144




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  www.santandernet.com www.santandernet.com
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  145




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 A. The following documents are incorporated by reference from Item 8 hereof:(1) Consolidated Financial Statements:Reports of Independent Registered Public Accounting FirmConsolidated Balance Sheets at December 31, 2008 and 2007
    
    
    83Consolidated Statements of Operations for the Years Ended
December 31, 2008, 2007, and 2006
    
    
    84Consolidated Statements of Changes in Stockholders Equity
for the Years Ended December 31, 2008, 2007 and 2006
    
    
    85Consolidated Statements of Comprehensive (Loss) Income
for the Years Ended December 31, 2008, 2007 and 2006
    
    
    86Consolidated Statements of Cash Flows for the Years
Ended December 31 2008, 2007 and 2006
    
    
    87Notes to Consolidated Financial Statements
December 31, 2008, 2007 and 2006
    
    
    89(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 146 of this report are
filed herewith or are incorporated herein by reference.
 146




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##### Table of Contents



SIGNATURES
  SANTANDER BANCORP
(REGISTRANT)Dated:      03/13/2009
    By:

S/ JUAN MORENO BLANCOPresident and Chief Executive OfficerDated:      03/13/2009
    By:
    S/ ROBERTO JARAExecutive Vice President andChief Accounting Officer  S:\ GONZALO DE LAS HERAS
    
    Chairman
    
    03/13/2009S:\ JESUS M. ZABALZA
    
    Director
    
    03/13/2009S:\ VICTOR ARBULU
    
    Director
    
    03/13/2009S:\ ROBERTO VALENTIN
    
    Director
    
    03/13/2009S:\ STEPHEN FERRISS
    
    Director
    
    03/13/2009S:\ MARIA CALERO
    
    Director
    
    03/13/2009S:\
JOSE R. GONZALEZ
    
    Director
    
    03/13/2009
 147




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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(4.11)
    
    Private Placement Memorandum Santander BanCorp $60,000,000 7.50%
Subordinated Notes
    
    Exhibit 4.11(10)
    
    Code of Ethics
    
    Exhibit 14 10-KA-12/31/04(10.1)
    
    Contract for Systems Maintenance between ALTEC & Banco
Santander Puerto Rico
    
    Exhibit 10A 10K-12/31/02(10.2)
    
    Deferred Compensation Contract-María Calero
    
    Exhibit 10C 10K-12/31/02(10.3)
    
    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(10.4)
    
    Employment Contract-Lillian Díaz
    
    Exhibit 10.5 10Q-03/31/05(10.5)
    
    Technology Assignment Agreement between CREFISA, Inc. and Banco
Santander Puerto Rico
    
    Exhibit 10.12 10KA-12/31/04(10.6)
    
    Altair System License Agreement between CREFISA, Inc. and Banco
Santander Puerto Rico
    
    Exhibit 10.13 10KA-12/31/04(10.7)
    
    2005 Employee Stock Option Plan
    
    Exhibit B Def14-03/26/05(10.8)
    
    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
 148




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##### Table of Contents



EXHIBIT INDEX  Cont
 Exhibit No.
    
    Exhibit Description
    
    Reference(10.9)
    
    Employment Contract-Tomás Torres
    
    Exhibit 10.16 10Q-09/30/06(10.10)
    
    Employment Contract-Eric Delgado
    
    Exhibit 10.17 10Q-09/30/06(10.11)
    
    Agreement of Benefits Coverage Agreed with Officers of Grupo Santander
    
    Exhibit 10.18 10K-12/31/06(10.12)
    
    Employment Contract-Justo Muñoz
    
    Exhibit 10.18 10Q-06/30/07(10.13)
    
    Sales and Leaseback Agreement with Corporación Hato Rey Uno
and Corporación Hato Rey Dos for the Banks two principal properties and
certain parking spaces
    
    Exhibit 10.18 10K-12/31/07(10.14)
    
    Option Agreement among Crefisa, Inc., D&D Investment Group, S.E.,
and Quisqueya 12, Inc.
    
    Exhibit 10.19 10K-12/31/07(10.15)
    
    Merge Agreement among Banco Santander Puerto Rico and Santander
Mortgage Corporation
    
    Exhibit 10.20 10K-12/31/07(10.16)
    
    Regulations for the first and second cycle of The Share Plan (Long Term
Incentive Plan) among Santander BanCorp and Santander Spain
    
    Exhibit 10.21 10K-12/31/07(10.17)
    
    Loan Agreement between Santander BanCorp, Santander Financial
Services, Inc. and Banco Santander Puerto Rico
    
    Exhibit 10.1 8K-09/24/08(10.18)
    
    Employment Contract-Juan Moreno Blanco
    
    Exhibit 10.18(10.19)
    
    Agreement and General Release (the Agreement) entered into between
Carlos M. García, Santander BanCorp (the Company), Banco Santander
Puerto Rico and Santander Overseas Bank, Inc.
    
    Exhibit 10.19(12)
    
    Computation of Ratio of Earnings to Fixed Charges
    
    Exihbit 12(21)
    
    Subsidiaries of Registrant
    
    Exhibit 21(31.1)
    
    Certification from the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.1(31.2)
    
    Certification from the Chief Accounting Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Exhibit 31.2(32.1)
    
    Certification from the Chief Executive Officer and Chief Accounting
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    Exhibit 32.1
 149