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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,
 for the fiscal year ended December 31, 2010,
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934,
 for the transition period from N/A to .
 Commission File Number 001-16581
 SANTANDER HOLDINGS USA, INC.
  Virginia
    
    23-2453088(State or other Jurisdiction
    
    (I.R.S. Employer Identification No.)of Incorporation or Organization)75 State Street, Boston, Massachusetts
    
    02109(Address of Principal Executive Offices)
    
    (Zip Code)
  Registrants Telephone Number
 Securities registered pursuant to Section 12(b) of the Act:
 Title
    
    Name of Exchange on Which RegisteredDepository Shares for Series C non-cumulative preferred stock
    
    NYSE7.75% Capital Securities (Sovereign Capital Trust V)
    
    NYSE
 Securities registered pursuant to Section 12(g) of the Act:
  Yes o No þ
 Yes o No þ
 Yes þ No o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o
 Yes o No þ




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##### 



Form 10-K Cross Reference Index
 PageForward-Looking Statements
    
    
    3PART IItem 1   Business
    
    
    4-8Item 1A   Risk Factors
    
    
    8-10Item 1B   Unresolved Staff Comments
    
    
    11Item 2   Properties
    
    
    11Item 3   Legal Proceedings
    
    
    11Item 4   Submission of Matters to a Vote of Security Holders
    
    
    11Item 4A   Executive Officers of the Registrant
    
    
    12PART IIItem 5   Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
    
    
    13Item 6   Selected Financial Data
    
    
    13Item 7   Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-43Item 7A   Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 8   Financial Statements and Supplementary Data
    
    
    43-96Item 9   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    97Item 9A   Controls and Procedures
    
    
    97Item 9B   Other Information
    
    
    97PART IIIItem 10   Directors, Executive Officers and Corporate Governance
    
    
    97-99Item 11   Executive Compensation
    
    
    99-124Item 12   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    124Item 13   Certain Relationships and Related Transactions, and Director Independence
    
    
    125Item 14   Principal Accounting Fees and Services
    
    
    128PART IVItem 15   Exhibits and Financial Statement Schedules
    
    
    129Signatures
    
    
    130Exhibit 21Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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Forward-Looking Statements
   
    
    the strength of the United States economy in general and the strength of the regional
and local economies in which SHUSA conducts operations, which may affect, among other
things, the level of non-performing assets, charge-offs, and provision for credit losses;
    
    the effects of, or policies determined by the Federal Deposit Insurance Corporation and
changes in trade, monetary and fiscal policies and laws, including interest rate policies
of the Board of Governors of the Federal Reserve System;
    
    inflation, interest rate, market and monetary fluctuations, which may, among other
things reduce interest margins, impact funding sources and affect the ability to originate
and distribute financial products in the primary and secondary markets;
    
    adverse movements and volatility in debt and equity capital markets;
    
    adverse changes in the securities markets, including those related to the financial
condition of significant issuers in our investment portfolio;
    
    revenue enhancement initiatives may not be successful in the marketplace or may result
in unintended costs;
    
    changing market conditions may force us to alter the implementation or continuation of
cost savings or revenue enhancement strategies;
    
    SHUSAs timely development of competitive new products and services in a changing
environment and the acceptance of such products and services by customers;
    
    the willingness of customers to substitute competitors products and services and vice
versa;
    
    the ability of SHUSA and its third party vendors to convert and maintain SHUSAs data
processing and related systems on a timely and acceptable basis and within projected cost
estimates;
    
    the impact of changes in financial services policies, laws and regulations, including
laws, regulations and policies concerning taxes, banking, capital, liquidity, proper
accounting treatment, securities and insurance, and the application thereof by regulatory
bodies and the impact of changes in and interpretation of generally accepted accounting
principles in the United States;
    
    the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010 is
a significant development for the industry. The full impact of this legislation to SHUSA
and the industry will be unknown until the rulemaking processes mandated by the legislation
are complete, although the impact will involve higher compliance costs and certain
elements, such as the debit interchange legislation, will negatively affect our revenue and
earnings;
    
    additional legislation and regulations or taxes, levies or other charges may be enacted
or promulgated in the future, and we are unable to predict the form such legislation or
regulation may take or to the degree which we need to modify our businesses or operations
to comply with such legislation or regulation (for example, proposed legislation has been
introduced in Congress that would amend the Bankruptcy Code to permit modifications of
certain mortgages that are secured by a Chapter 13 debtors principal residence);
    
    technological changes;
    
    competitors of SHUSA may have greater financial resources and develop products and
technology that enable those competitors to compete more successfully than SHUSA;
    
    changes in consumer spending and savings habits;
    
    acts of terrorism or domestic or foreign military conflicts; and acts of God, including
natural disasters;
    
    regulatory or judicial proceedings;
    
    changes in asset quality;
    
    the outcome of ongoing tax audits by federal, state and local income tax authorities may
require additional taxes be paid by SHUSA as compared to what has been accrued or paid as
of period end;
    
    the integration of SHUSA into the existing businesses of Banco Santander S.A.
(Santander) or the integration may be more difficult, time consuming or costly than
expected;
    
    the combined company may not realize, to the extent or at the time we expect, revenue
synergies and cost savings from the transaction;
    
    operating costs and business disruptions following the acquisition of SHUSA by
Santander, could be greater than expected; and
    
    SHUSAs success in managing the risks involved in the foregoing.
   3




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PART I
 
 Item 1
    
     Business
 General
      Subsidiaries
  Employees
  Competition
  Supervision and Regulation
 General.
    4




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Legislative and Regulatory Developments.
 Holding Company Regulation.
 Control of Sovereign.
    Regulatory Capital Requirements.
   Standards for Safety and Soundness.
 Foreclosures.
  5




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Insurance of Accounts and Regulation by the FDIC.
      Federal Restrictions on Transactions with Affiliates and Insiders.
 Restrictions on Subsidiary Savings Institution Capital Distributions.
 Qualified Thrift Lender.
  6




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Other Loan Limitations.
 Federal Reserve Regulation.
  Federal Home Loan Bank System.
  Community Reinvestment Act.
 Anti-Money Laundering and the Patriot Act.
 Financial Privacy.
 Other Legislation.
    7




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Environmental Laws.
 Corporate Information. www.sec.gov
 
 Item 1A
    
     Risk Factors
  
    
    The Current Economic Environment May Deteriorate Adversely Affecting Our Asset Quality, Earnings and Cash Flow.Our business faces various material risks, including credit risk and the risk that the demand
for our products will decrease. In a recession or other economic downturn, these risks would
probably become more acute. In an economic downturn, our credit risk and associated provision
for credit losses and legal expense will increase. Also, decreases in consumer confidence,
real estate values, and interest rates, usually associated with a downturn, could combine to
make the types of loans we originate less profitable and could cause elevated levels of
losses on our commercial and consumer loans. While economic conditions in the United States
and worldwide have begun to improve, there can be no assurance that this improvement will
continue. Such conditions could adversely affect the credit quality of the Companys loans,
results of operations and financial condition.
    
    Disruptions in the Global Financial Markets have Affected, and May
Continue to Adversely Affect, SHUSAs Business and Results of
Operations.Although market conditions have improved since the second half of 2009, unemployment in the
United States continues to remain near historically high levels, and conditions are expected
to remain challenging for financial institutions in 2011. Dramatic declines in the housing
market during the most recent recession, with falling home prices and increasing foreclosures
and unemployment, resulted in significant write-downs of asset values by financial
institutions, including government-sponsored entities and major commercial and investment
banks. These write-downs, initially of mortgage-backed securities but spreading to credit
default swaps and other derivatives, have caused many financial institutions to seek
additional capital and to merge with other financial institutions. Disruptions in the global
financial markets also adversely affected the corporate bond markets, debt and equity
underwriting and other elements of the financial markets. Reflecting concern about the
stability of the financial markets generally and the strength of counterparties, some lenders
and institutional investors reduced and, in some cases, ceased to provide funding to certain
borrowers, including other financial institutions. The impact on available credit, increased
volatility in the financial markets and reduced business activity has adversely affected, and
may continue to adversely affect, SHUSAs businesses, capital, liquidity or other financial
condition and results of operations, access to credit and the trading price of SHUSAs
preferred stock or debt securities.
    
    SHUSA May Experience Further Write-Downs of its Financial Instruments
and Other Losses Related to Volatile and Illiquid Market Conditions.Market volatility, illiquid market conditions and disruptions in the credit markets continue
to present difficulties in valuing certain of SHUSAs assets. Subsequent valuations, in light
of factors then prevailing, may result in significant changes in the values of these assets
in future periods. In addition, at the time of any sales of these assets, the price SHUSA
ultimately realizes will depend on the demand and liquidity in the market at that time and
may be materially lower than their current fair value. Any of these factors could require the
Company to take further write-downs in respect of these assets, which may have an adverse
effect on the Companys results of operations and financial condition in future periods.
    
    Liquidity is Essential to SHUSAs Businesses, and the Company Relies
on External Sources, Including Government Agencies to Finance a
Significant Portion of its Operations.Adequate liquidity is essential to SHUSAs businesses. Sovereign Bank primarily relies on the
Federal Home Loan Bank, deposits and other third party sources of funding for its liquidity
needs. However, SCUSA obtains a significant portion of its liquidity through Santander.
SCUSAs liquidity could be materially adversely affected by factors SHUSA cannot control,
such as negative events impacting Santander, as well as the continued general disruption of
the financial markets or negative views about the financial services industry in general. In
addition, SCUSAs ability to raise funding could be impaired if lenders develop a negative
perception of Santander or SCUSAs short-term or long-term financial prospects, or a
perception that Santander or the Company is experiencing greater liquidity risk. SHUSAs
credit ratings are also important to its liquidity. A reduction in SHUSAs credit ratings
could adversely affect its liquidity, widen its credit spreads or otherwise increase its
borrowing costs.
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
    
    Impact of Future Regulation Changes May Have an Adverse Impact on Our Profitability.Congress often considers new financial industry legislation, and the federal banking agencies
routinely propose new regulations. New legislation and regulation may include dramatic
changes with respect to the federal deposit insurance system, consumer financial protection
measures, compensation and systematic risk oversight authority. There can be no assurances
that new legislation and regulations will not adversely affect us.On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and
Consumer Protection Act, which instituted major changes to the banking and financial
institutions regulatory regimes in light of the recent performance of and government
intervention in the financial services sector. The act includes a number of specific
provisions designated to promote enhanced supervision and regulation of financials firms and
financial markets, protect consumers and investors from financial abuse and provide the
government with tools to manage a financial crisis and raise international regulatory
standards. The act also introduces a substantial number of reforms that reshape the structure
of the regulation of the financial services industry, requiring more than 60 studies to be
conducted and more than 200 regulations to be written over the next two years. Although the
true impact of this legislation to SHUSA and the industry will be unknown until these are
complete, they will involve higher compliance costs and certain elements, such as the debit
interchange legislation, will negatively affect our revenue and earnings.These and other changes to statutes, regulations or regulatory policies, including changes in
interpretation or implementation of statutes, regulations or policies, could affect SHUSA in
substantial and unpredictable ways. Such changes present the risk of financial loss due to
regulatory fines or penalties, restriction or suspension of business, or cost of mandatory
corrective action as a result of failing to adhere to applicable laws, regulations, and
supervisory guidance.
    
    The Preparation of SHUSAs Financial Statements Requires the Use of Estimates That May Vary From Actual Results.The preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make significant
estimates that affect the financial statements. One example of a significant critical
estimate is the level of the allowance for credit losses. Due to the inherent nature of this
estimate, SHUSA cannot provide absolute assurance that it will not significantly increase the
allowance for credit losses and/or sustain credit losses that are significantly higher than
the provided allowance.
    
    The Preparation of SHUSAs Tax Returns Requires the Use of Estimates &
Interpretations of Complex Tax Laws and Regulations and Are Subject to
Review By Taxing Authorities.SHUSA is subject to the income tax laws of the U.S., its states and municipalities and
certain foreign countries. These tax laws are complex and subject to different
interpretations by the taxpayer and relevant Governmental taxing authorities which is
sometimes subject to prolonged evaluation periods until a final resolution is reached. In
establishing a provision for income tax expense and filing returns, the Company must make
judgments and interpretations about the application of these inherently complex tax laws.
    
    Changing Interest Rates May Adversely Affect Our Profits.To be profitable, we must earn more money from interest on loans and investments and
fee-based revenues than the interest we pay to our depositors and creditors and the amount
necessary to cover the cost of our operations. Rising interest rates may hurt our income
because they may reduce the demand for loans and the value of our investment securities and
our loans, and increase the amount that we must pay to attract deposits and borrow funds. If
interest rates decrease, our net interest income could be negatively affected if interest
earned on interest-earning assets, such as loans, mortgage-related securities, and other
investment securities, decreases more quickly than interest paid on interest-bearing
liabilities, such as deposits and borrowings. This would cause our net interest income to go
down. In addition, if interest rates decline, our loans and investments may prepay earlier
than expected, which may also lower our income. Interest rates do and will continue to
fluctuate, and we cannot predict future Federal Reserve Board actions or other factors that
will cause rates to change. If the yield curve steepens or flattens, it could impact our net
interest income in ways management may not accurately predict.
    
    We Experience Intense Competition for Loans and Deposits.Competition among financial institutions in attracting and retaining deposits and making
loans is intense. Our most direct competition for deposits has come from commercial banks,
savings and loan associations and credit unions doing business in our areas of operation, as
well as from nonbanking sources, such as money market mutual funds and corporate and
government debt securities. Competition for loans comes primarily from commercial banks,
savings and loan associations, consumer finance companies, insurance companies and other
institutional lenders. We compete primarily on the basis of products offered, customer
service and price. A number of institutions with which we compete have greater assets and
capital than we do and, thus, may have a competitive advantage.
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
    
    We Are Subject to Substantial Regulation Which Could Adversely Affect Our Business and Operations.As a financial institution, we are subject to extensive regulation, which materially affects
our business. Statutes, regulations and policies to which we and Sovereign Bank are subject
may be changed at any time, and the interpretation and the application of those laws and
regulations by our regulators is also subject to change. There can be no assurance that
future changes in regulations or in their interpretation or application will not adversely
affect us.The regulatory agencies having jurisdiction over banks and thrifts have under
consideration a number of possible rulemaking initiatives which impact bank and thrift and
bank and thrift holding company capital requirements. Adoption of one or more of these
proposed rules could have an adverse effect on us and Sovereign Bank.Existing federal regulations limit our ability to increase our commercial loans. We are
required to maintain 65% of our assets in residential mortgage loans and certain other loans,
including small business loans. We also cannot have more than 20% of our total assets in
commercial loans that are not secured by real estate, however, only 10% can be large
commercial loans not secured by real estate, more than 10% in small business loans, or more
than four times our risk based capital in commercial real estate loans. Small business loans
are ones with an original amount of $2 million or less to one obligor, and large commercial
loans are ones with an original loan amount of more than $2 million to one obligor. Our
existing strategy is to focus loan growth on commercial loans which generally have higher
yields and profitability. We may be limited in the amount of commercial loan growth that we
can achieve based on the above regulations.
    
    Changes in Accounting Standards Could Impact Reported Earnings.The accounting standard setters, including the FASB, SEC and other regulatory bodies,
periodically change the financial accounting and reporting standards that govern the
preparation of SHUSAs consolidated financial statements. These changes can be hard to
predict and can materially impact how it records and reports its financial condition and
results of operations. In some cases, SHUSA could be required to apply a new or revised
standard retroactively, resulting in the restatement of prior period financial statements.
    
    We Rely on Third Parties for Important Products and Services.Third party vendors provide key components of our business infrastructure such as loan and
deposit servicing systems, internet connections and network access. Any problems caused by
these third parties, including as a result of their not providing us their services for any
reason or their performing their services poorly, could adversely affect our ability to
deliver products and services to our customers and otherwise to conduct our business.
Replacing these third party vendors could also entail significant delays and expense.
    
    Our Framework for Managing Risks May Not be Effective in Mitigating Risk and Loss to Our Company.Our risk management framework is made up of various processes and strategies to manage our
risk exposure. Types of risks to which we are subject include liquidity risk, credit risk,
market risk, interest rate risk, operational risk, legal risk, compliance risk and reputation
risk, among others. Our framework to manage risk, including the frameworks underlying
assumptions, may not be effective under all conditions and circumstances. If our risk
management framework proves ineffective, we could suffer unexpected losses and could be
materially adversely affected.
    
    Our Disclosure Controls and Procedures Over Financial Reporting May Not Prevent or Detect All Errors or Acts of Fraud.Our disclosure controls and procedures over financial reporting are designed to reasonably
assure that information required to be disclosed by us in reports we file or submit under the
Exchange Act is accumulated and communicated to management, and recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. Any
disclosure controls and procedures over financial reporting or internal controls and
procedures, no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or
more people or by any unauthorized override of the controls. Accordingly, because of the
inherent limitations in our control system, misstatements due to error or fraud may occur and
not be detected.
    
    System Integration Risks Exist Related to the Acquisition of the Company by Santander.On January 30, 2009, the Company was acquired by Santander. Successful integration into
existing businesses of Santander depends upon the integration of key systems to fully realize
revenue synergies and cost savings from the transaction. By its nature, SHUSAs businesses
depend upon automated systems to record and process high volumes of transactions.
Accordingly, performing system conversions may lead to business disruptions or certain errors
being repeated or compounded before they are discovered and successfully rectified.
    
    Reputational and Compliance Risk Exist Related to the Companys Foreclosure ActivitiesPlease refer to Foreclosures section within Item 1  Business for further discussion.
    
    Adverse Economic Conditions in Europe and Latin America May Negatively Impact the CompanyAs a wholly-owned subsidiary of Santander, significant aspects of the Companys strategy,
infrastructure and capital funding are dependent on its parent, Santander. Although Santander
has a significant presence in various markets around the world, Santanders results of
operations are materially affected by conditions in the capital markets and the economy
generally in Europe and Latin America. Accordingly, a significant decline in general economic
conditions in Europe or Latin America, whether caused by recession, inflation, unemployment,
changes in securities markets, acts of terrorism, or other occurrences could impact
Santander, and, in turn, have a material adverse effect on the Companys financial condition
and results of operations.
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Item 1B
    
     Unresolved Staff Comments
  
 Item 2
    
     Properties
            
 Item 3
    
     Legal Proceedings
  
 Item 4
    
     Submission of Matters to a Vote of Security Holders
   11




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Item 4A
    
     Executive Officers of the Registrant
            12




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PART II
 
 Item 5
    
     Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
  
 Item 6
    
     Selected Financial Data
 SELECTED FINANCIAL DATAFOR THE YEAR ENDED DECEMBER 31,(Dollars in thousands)
    
    2010(1)
    
    
    2009(1)
    
    
    2008
    
    
    2007
    
    
    2006Balance Sheet DataTotal assets
    
    $
    89,651,815
    
    
    $
    82,953,215
    
    
    $
    77,093,668
    
    
    $
    84,746,396
    
    
    $
    89,641,849Loans held for investment, net of allowance
    
    
    62,820,434
    
    
    
    55,733,953
    
    
    
    54,439,146
    
    
    
    56,729,982
    
    
    
    54,648,310Loans held for sale
    
    
    150,063
    
    
    
    118,994
    
    
    
    327,332
    
    
    
    547,760
    
    
    
    7,611,921Investment securities
    
    
    15,691,984
    
    
    
    14,301,638
    
    
    
    10,020,110
    
    
    
    15,142,392
    
    
    
    14,877,640Deposits and other customer accounts
    
    
    42,673,293
    
    
    
    44,428,065
    
    
    
    48,438,573
    
    
    
    49,915,905
    
    
    
    52,384,554Borrowings and other debt obligations
    
    
    33,630,117
    
    
    
    27,235,151
    
    
    
    20,964,185
    
    
    
    26,272,512
    
    
    
    27,006,102Stockholders equity
    
    
    11,260,670
    
    
    
    9,387,535
    
    
    
    5,596,714
    
    
    
    6,992,325
    
    
    
    8,644,399Summary Statement of OperationsTotal interest income
    
    $
    4,784,489
    
    
    $
    4,423,586
    
    
    $
    3,923,164
    
    
    $
    4,656,256
    
    
    $
    4,326,404Total interest expense
    
    
    1,385,850
    
    
    
    1,780,082
    
    
    
    2,040,722
    
    
    
    2,813,013
    
    
    
    2,528,814Net interest income
    
    
    3,398,639
    
    
    
    2,643,504
    
    
    
    1,882,442
    
    
    
    1,843,243
    
    
    
    1,797,590Provision for credit losses(2)
    
    
    1,627,026
    
    
    
    1,984,537
    
    
    
    911,000
    
    
    
    407,692
    
    
    
    484,461Net interest income after provision for credit
losses
    
    
    1,771,613
    
    
    
    658,967
    
    
    
    971,442
    
    
    
    1,435,551
    
    
    
    1,313,129Total non-interest income(2)
    
    
    1,029,469
    
    
    
    342,297
    
    
    
    (818,743
    )
    
    
    354,396
    
    
    
    285,574General and administrative expenses
    
    
    1,573,100
    
    
    
    1,520,460
    
    
    
    1,484,306
    
    
    
    1,336,865
    
    
    
    1,284,329Other expenses(3)
    
    
    208,997
    
    
    
    603,703
    
    
    
    302,027
    
    
    
    1,862,794
    
    
    
    295,243Income/(loss) before income taxes
    
    
    1,018,985
    
    
    
    (1,122,899
    )
    
    
    (1,633,634
    )
    
    
    (1,409,712
    )
    
    
    19,131Income tax (benefit)/provision(4)
    
    
    (40,390
    )
    
    
    (1,284,464
    )
    
    
    723,576
    
    
    
    (60,450
    )
    
    
    (117,780
    )Net income/(loss)
    
    $
    1,059,375
    
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )
    
    $
    136,911Selected Financial RatiosReturn on average assets(5)
    
    
    1.25
    %
    
    
    0.20
    %
    
    
    (2.99
    )%
    
    
    (1.62
    )%
    
    
    0.17
    %Return on average equity(6)
    
    
    10.12
    %
    
    
    1.98
    %
    
    
    (31.27
    )%
    
    
    (15.40
    )%
    
    
    1.82
    %Average equity to average assets(7)
    
    
    12.34
    %
    
    
    9.89
    %
    
    
    9.55
    %
    
    
    10.52
    %
    
    
    9.46
    %
 (1)
    
    2010 and 2009 results include SCUSA which was contributed to SHUSA by Santander during
2009. This resulted in increases to total assets, borrowings and debt obligations and
stockholders equity at December 31, 2009 of $9.1 billion, $7.5 billion and $1.3 billion,
respectively. The 2009 statement of operations was also impacted with net interest income,
provision for credit losses and general and administrative expense of $1.3 billion, $720.9
million and $253.0 million, respectively.(2)
    
    Our provisions for credit losses in 2010, 2009 and 2008 were negatively impacted by the
credit quality of our loan portfolios which was impacted by the challenging United States
economy as well as general declines in residential and commercial real estate prices. See
additional discussion in Managements Discussion and Analysis. Non-interest income in 2010
includes $205.3 million of gains on the sale of investment securities as well as higher
servicing fees due to acquisition volume at SCUSA. Non-interest income in 2009 includes
other-than-temporary impairment (OTTI) charges of $180.2 million and increases to
multi-family recourse reserves of $188.9 million. Non-interest income for 2008 includes a
$602.3 million loss on the sale of our CDO portfolio and a $575.3 million OTTI charge on FNMA
and FHLMC preferred stock and an OTTI charge of $307.9 million on certain non-agency mortgage
backed securities. Non-interest income for 2007 includes a pretax OTTI charge of $180.5
million on FNMA and FHLMC preferred stock.(3)
    
    2010 results include a debt extinguishment charge of $25.8 million. 2009 results include
$299.1 million of merger-related and restructuring charges and costs primarily associated with
the Santander acquisition. The majority of these costs related to change in control payments
to certain executives, severance charges, write-offs of certain fixed assets and branch
consolidation charges. Additionally, during the first quarter of 2009, Sovereign Bank redeemed
$1.4 billion of high cost FHLB advances incurring a debt extinguishment charge of $68.7
million. 2008 results include an impairment charge of $95.0 million on an equity method
investment. The impairment was caused by a decline in 2008 earnings compared to prior years
from this investment as well as the expectation that future results would be significantly
impacted by the recessionary environment. 2007 results include a $1.6 billion goodwill
impairment charge.(4)
    
    SHUSA recorded a $1.4 billion valuation allowance against its deferred tax assets for the
year-ended December 31, 2008. During 2009, Santander contributed SCUSA into SHUSA. As a result
of incorporating the future taxable income projections of SCUSA, the Company was able to
reduce its deferred tax valuation allowance by $1.3 billion for the year ended December 31,
2009. Due to the profitability of SHUSA in 2010 and expected future growth in profits of SHUSA
by the end of 2010, SHUSA began to consider the projected taxable income of the total company,
and not just that of SCUSA, in its realizability analysis. As a result, the Company was able
to reduce its deferred tax valuation allowance by $309.0 million for the year ended December
31, 2010.(5)
    
    Return on average assets is calculated by dividing net income by the average balance of total
assets for the year.(6)
    
    Return on average equity is calculated by dividing net income by the average balance of
stockholders equity for the year.(7)
    
    Average equity to average assets is calculated by dividing the average balance of
stockholders equity for the year by the average balance of total assets for the year.  13




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##### Table of Contents



Managements Discussion and Analysis
 
 Item 7
    
     Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A)
 EXECUTIVE SUMMARY
     
    
    Strengthening the core retail business by building up a multi-product and multi-segment
banking proposition for retail consumer and small and medium sized business enterprises;
    
    Revitalizing the corporate banking business, through an enlarged product penetration of
the existing client base and through the Global Banking segment, by combining Sovereigns
local market knowledge and Santanders product capabilities, talent and financial strength,
to deliver an efficient and scalable model for corporate business. The Global Banking
segment includes business with large corporate clients which have larger loan sizes than
commercial clients of Sovereign prior to 2009;
    
    Refocusing specialized business priorities by focusing only on selected specialized
business lines that add long term value to the franchise, particularly the multi-family
lending operation based in Brooklyn, NY; and
    
    Integrating information technology and operations systems by building a reliable and
sales-oriented technology infrastructure to drive efficiency across all areas of the bank.
This allows leverage of Santanders factories, technology expertise and cost management
approach as appropriate to minimize costs while maintaining quality of service.
      14




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##### Table of Contents



RECENT INDUSTRY CONSOLIDATION IN OUR GEOGRAPHIC FOOTPRINT
  CURRENT REGULATORY ENVIRONMENT
    CURRENT INTEREST RATE ENVIRONMENT
  CREDIT RISK ENVIRONMENT
    15




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##### Table of Contents



FICO Band
    
    % of Portfolio> 650
    
    
    21
    %650-601
    
    
    28
    %600-551
    
    
    27
    %550-501
    
    
    16
    %<=500
    
    
    8
    %
    16




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##### Table of Contents



RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 YEAR ENDED DECEMBER 31,(Dollars in thousands)
    
    2010
    
    
    2009Net interest income
    
    $
    3,398,639
    
    
    $
    2,643,504Provision for credit losses
    
    
    1,627,026
    
    
    
    1,984,537Total non-interest income/(losses)
    
    
    1,029,469
    
    
    
    342,297General and administrative expenses
    
    
    1,573,100
    
    
    
    1,520,460Other expenses
    
    
    208,997
    
    
    
    603,703Net income/(loss)
    
    $
    1,059,375
    
    
    $
    161,565
  
    
    Net interest income increased $755.1 million
or 28.6% during 2010. Net interest income
increased $277.1 million excluding the
impact of SCUSA as net interest margin
increased from 2.18% in 2009 to 2.71% in
2010.
    
    The decrease in provision for credit losses
in 2010 is related to the improvement in
credit metrics as compared to 2009 when we
saw deterioration across our loan portfolio
which led to elevated provisioning levels.
    
    An increase in fees and other income of $687.2 million. Included in fees and other income:
 (1)
    
    Net gains/(losses) on investment securities of $200.6 million and $(157.8) million in 2010
and 2009, respectively. Our 2010 and 2009 results included OTTI charges of $4.8 million and
$143.3 million, respectively, on non-agency mortgage backed securities. Our 2009 results also
included OTTI charges of $36.9 million on Fannie Mae (FNMA) and Freddie Mac (FHLMC)
preferred stock. and a gain of $20.3 million from the subsequent sale of those securities. See
Note 6 for additional details.(2)
    
    An increase in capital markets revenues of $9.7 million, due to higher charges in 2009 to
increase reserves for uncollectible swap receivables from customers due to deterioration in the
credit worthiness of these companies.(3)
    
    An increase in mortgage banking revenues in 2010 of $177.5 million. Current year results
include a $24.6 million mortgage servicing recovery, as compared to a $3.3 million mortgage
servicing impairment in the prior year. Prior year results included charges of $188.9 million
to increase our recourse reserves associated with the sales of multi-family loans to Fannie Mae
due to worsening credit conditions for these loans.
 
    
    Increases in general and administrative
expenses in 2010 were due primarily to an
increase in loan expenses which was related
to additional servicing fees from SCUSA
acquisition activity. Excluding SCUSA, the
Companys general and administrative
expenses declined $78.2 million. This
reduction has been primarily due to cost
management initiatives put in place by
Santander since the acquisition.
Additionally, Sovereign Bank has reduced its
employee base 29% from December 2008 to
December 2010.
    
    Other expenses were $209.0 million in 2010, as compared to $603.7 million in 2009. Prior year
results included $299.1 million of transaction related and other restructuring charges and a
$35.3 million FDIC one-time special assessment charge recorded in deposit insurance premiums.
    
    SHUSA recorded an income tax benefit of $40.4 million in 2010 compared to an income tax benefit
of $1.3 billion in 2009. As previously discussed, SHUSA reversed $309.0 million in 2010 and
$1.3 billion in 2009 of deferred tax valuation allowances. See income tax expense/(benefit)
below and Note 17 for further discussion.
 Net Interest Income.
      17




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##### Table of Contents



Table 1: Net Interest Margin
 YEAR ENDED DECEMBER 312010
    
    
    2009
    
    
    2008Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Interest-earning deposits
    
    $
    1,250,666
    
    
    $
    3,320
    
    
    
    0.27
    %
    
    $
    2,772,893
    
    
    $
    7,771
    
    
    
    0.28
    %
    
    $
    256,268
    
    
    $
    4,285
    
    
    
    1.67
    %Investment securities(1)Available for sale
    
    
    13,337,912
    
    
    
    508,408
    
    
    
    3.81
    
    
    
    10,855,257
    
    
    
    428,161
    
    
    
    3.94
    
    
    
    10,498,218
    
    
    
    621,906
    
    
    
    5.92Other
    
    
    659,845
    
    
    
    1,235
    
    
    
    0.19
    
    
    
    700,414
    
    
    
    1,761
    
    
    
    0.25
    
    
    
    930,926
    
    
    
    23,786
    
    
    
    2.56Total investments
    
    
    15,248,423
    
    
    
    512,963
    
    
    
    3.36
    
    
    
    14,328,564
    
    
    
    437,693
    
    
    
    3.05
    
    
    
    11,685,412
    
    
    
    649,977
    
    
    
    5.56Loans:Commercial loan
    
    
    23,255,452
    
    
    
    1,024,413
    
    
    
    4.41
    
    
    
    26,192,894
    
    
    
    1,153,341
    
    
    
    4.40
    
    
    
    27,501,518
    
    
    
    1,560,936
    
    
    
    5.68Multi-family
    
    
    5,502,976
    
    
    
    292,098
    
    
    
    5.31
    
    
    
    4,530,207
    
    
    
    253,687
    
    
    
    5.60
    
    
    
    4,628,080
    
    
    
    275,500
    
    
    
    5.95Consumer:Residential mortgage
    
    
    10,993,027
    
    
    
    535,783
    
    
    
    4.87
    
    
    
    11,001,667
    
    
    
    574,454
    
    
    
    5.22
    
    
    
    12,234,402
    
    
    
    687,691
    
    
    
    5.62Home equity loans and lines of
credit
    
    
    7,031,078
    
    
    
    282,760
    
    
    
    4.02
    
    
    
    6,912,879
    
    
    
    302,619
    
    
    
    4.38
    
    
    
    6,509,952
    
    
    
    367,645
    
    
    
    5.65Total consumer loans secured by
real estate
    
    
    18,024,105
    
    
    
    818,543
    
    
    
    4.54
    
    
    
    17,914,546
    
    
    
    877,073
    
    
    
    4.90
    
    
    
    18,744,354
    
    
    
    1,055,336
    
    
    
    5.63Auto loans
    
    
    13,325,555
    
    
    
    2,173,337
    
    
    
    16.31
    
    
    
    10,366,356
    
    
    
    1,740,423
    
    
    
    16.79
    
    
    
    6,485,098
    
    
    
    440,309
    
    
    
    6.79Other
    
    
    257,055
    
    
    
    17,891
    
    
    
    6.96
    
    
    
    275,388
    
    
    
    19,105
    
    
    
    6.94
    
    
    
    303,131
    
    
    
    23,136
    
    
    
    7.63Total Consumer
    
    
    31,606,715
    
    
    
    3,009,771
    
    
    
    9.52
    
    
    
    28,556,290
    
    
    
    2,636,601
    
    
    
    9.23
    
    
    
    25,532,583
    
    
    
    1,518,781
    
    
    
    5.95Total loans
    
    
    60,365,143
    
    
    
    4,326,282
    
    
    
    7.17
    
    
    
    59,279,391
    
    
    
    4,043,629
    
    
    
    6.82
    
    
    
    57,662,181
    
    
    
    3,355,217
    
    
    
    5.82Allowance for loan losses
    
    
    (2,035,040
    )
    
    
    
    
    
    
    
    
    
    
    (1,745,257
    )
    
    
    
    
    
    
    
    
    
    
    (836,217
    )
    
    
    
    
    
    
    Net loans(1)(2)
    
    
    58,330,103
    
    
    
    4,326,282
    
    
    
    7.42
    
    
    
    57,534,134
    
    
    
    4,043,629
    
    
    
    7.03
    
    
    
    56,825,964
    
    
    
    3,355,217
    
    
    
    5.90Total interest-earning assets
    
    
    73,578,526
    
    
    
    4,839,245
    
    
    
    6.58
    
    
    
    71,862,698
    
    
    
    4,481,322
    
    
    
    6.24
    
    
    
    68,511,376
    
    
    
    4,005,194
    
    
    
    5.85Non-interest-earning assets
    
    
    11,264,845
    
    
    
    
    
    
    
    
    
    
    
    10,486,084
    
    
    
    
    
    
    
    
    
    
    
    10,170,523
    
    
    
    
    
    
    
    Total assets
    
    $
    84,843,371
    
    
    $
    4,839,245
    
    
    
    5.70
    %
    
    $
    82,348,782
    
    
    $
    4,481,322
    
    
    
    5.44
    %
    
    $
    78,681,899
    
    
    $
    4,005,194
    
    
    
    5.09
    %Interest-bearing liabilities:Deposits:Retail and commercial deposits
    
    $
    30,070,825
    
    
    $
    201,094
    
    
    
    0.67
    %
    
    $
    33,161,719
    
    
    $
    545,766
    
    
    
    1.65
    %
    
    $
    31,253,414
    
    
    $
    744,856
    
    
    
    2.38
    %Wholesale deposits
    
    
    1,066,009
    
    
    
    16,327
    
    
    
    1.53
    
    
    
    4,108,495
    
    
    
    76,992
    
    
    
    1.87
    
    
    
    3,529,553
    
    
    
    89,404
    
    
    
    2.53Government deposits
    
    
    2,195,651
    
    
    
    7,355
    
    
    
    0.33
    
    
    
    2,080,676
    
    
    
    12,244
    
    
    
    0.59
    
    
    
    3,181,711
    
    
    
    81,288
    
    
    
    2.55Customer repurchase agreements
    
    
    1,659,640
    
    
    
    3,857
    
    
    
    0.23
    
    
    
    1,675,575
    
    
    
    5,547
    
    
    
    0.33
    
    
    
    2,346,152
    
    
    
    36,040
    
    
    
    1.54Total deposits
    
    
    34,992,125
    
    
    
    228,633
    
    
    
    0.65
    
    
    
    41,026,465
    
    
    
    640,549
    
    
    
    1.56
    
    
    
    40,310,830
    
    
    
    951,588
    
    
    
    2.36Total borrowings and other debt obligations
    
    
    30,164,757
    
    
    
    1,157,217
    
    
    
    3.84
    
    
    
    24,193,790
    
    
    
    1,139,533
    
    
    
    4.71
    
    
    
    22,887,793
    
    
    
    1,089,134
    
    
    
    4.76Total interest bearing liabilities
    
    
    65,156,882
    
    
    
    1,385,850
    
    
    
    2.13
    
    
    
    65,220,255
    
    
    
    1,780,082
    
    
    
    2.73
    
    
    
    63,198,623
    
    
    
    2,040,722
    
    
    
    3.23Non-interest-bearing DDA
    
    
    7,097,506
    
    
    
    
    
    
    
    
    
    
    
    6,809,303
    
    
    
    
    
    
    
    
    
    
    
    6,548,894
    
    
    
    
    
    
    
    Non-interest-bearing liabilities
    
    
    2,119,883
    
    
    
    
    
    
    
    
    
    
    
    2,170,858
    
    
    
    
    
    
    
    
    
    
    
    1,416,627
    
    
    
    
    
    
    
    Total liabilities
    
    
    74,374,271
    
    
    
    1,385,850
    
    
    
    1.86
    
    
    
    74,200,416
    
    
    
    1,780,082
    
    
    
    2.40
    
    
    
    71,164,144
    
    
    
    2,040,722
    
    
    
    2.87Stockholders equity
    
    
    10,469,100
    
    
    
    
    
    
    
    
    
    
    
    8,148,366
    
    
    
    
    
    
    
    
    
    
    
    7,517,755
    
    
    
    
    
    
    
    Total liabilities and stockholders equity
    
    $
    84,843,371
    
    
    $
    1,385,850
    
    
    
    1.63
    %
    
    $
    82,348,782
    
    
    $
    1,780,082
    
    
    
    2.16
    %
    
    $
    78,681,899
    
    
    $
    2,040,722
    
    
    
    2.59
    %Net interest spread(3)
    
    
    
    
    
    
    
    
    
    
    4.45
    %
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    2.62
    %Taxable equivalent interest income/net
interest margin
    
    
    
    
    
    
    3,453,395
    
    
    
    4.69
    %
    
    
    
    
    
    
    2,701,240
    
    
    
    3.76
    %
    
    
    
    
    
    
    1,964,472
    
    
    
    2.87
    %Tax equivalent basis adjustment
    
    
    
    
    
    
    (54,756
    )
    
    
    
    
    
    
    
    
    
    
    (57,736
    )
    
    
    
    
    
    
    
    
    
    
    (82,030
    )Net interest income
    
    
    
    
    
    $
    3,398,639
    
    
    
    
    
    
    
    
    
    
    $
    2,643,504
    
    
    
    
    
    
    
    
    
    
    $
    1,882,442Ratio of interest-earning assets to
interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.13
    x
    
    
    
    
    
    
    
    
    
    
    1.10
    x
    
    
    
    
    
    
    
    
    
    
    1.08
    x
 (1)
    
    The average balance of our non-taxable investment securities for the year-ended December 31, 2010, 2009 and
2008 were $1.8 billion, $1.7 billion and $2.5 billion, respectively. Tax equivalent adjustments to interest
on investment securities available for sale for the years ended December 31, 2010, 2009 and 2008 were $42.3
million, $43.9 million and $66.0 million, respectively. Tax equivalent adjustments to loans for the years
ended December 31, 2010, 2009 and 2008, were $12.5 million, $13.8 million and $16.0 million, respectively.
Tax equivalent interest income is based upon an effective tax rate of 35%.(2)
    
    Amortization of premiums and discounts on purchased loans and amortization of deferred loan fees, net of
origination costs, of $(1.2) million, $1.6 million and $2.8 million for the years ended December 31, 2010,
2009 and 2008, respectively, are included in interest income. Average loan balances include non-accrual loans
and loans held for sale.(3)
    
    Represents the difference between the yield on total earning assets and the cost of total funding liabilities.  18




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##### Table of Contents



Table 2: Volume/Rate Analysis
 YEAR ENDED DECEMBER 31,2010 VS. 2009
    
    
    2009 VS. 2008INCREASE/(DECREASE)
    
    
    INCREASE/(DECREASE)Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest-earning assets:Interest-earning deposits
    
    $
    (4,061
    )
    
    $
    (390
    )
    
    $
    (4,451
    )
    
    $
    9,790
    
    
    $
    (6,304
    )
    
    $
    3,486Investment securities available for sale
    
    
    95,054
    
    
    
    (14,807
    )
    
    
    80,247
    
    
    
    20,498
    
    
    
    (214,243
    )
    
    
    (193,745
    )Investment securities other
    
    
    (97
    )
    
    
    (429
    )
    
    
    (526
    )
    
    
    (4,746
    )
    
    
    (17,279
    )
    
    
    (22,025
    )Net loans(1)
    
    
    56,561
    
    
    
    226,092
    
    
    
    282,653
    
    
    
    42,302
    
    
    
    646,110
    
    
    
    688,412Total interest-earning assets
    
    
    
    
    
    
    
    
    
    
    357,923
    
    
    
    
    
    
    
    
    
    
    
    476,128Interest-bearing liabilities:Deposits
    
    
    (83,154
    )
    
    
    (328,762
    )
    
    
    (411,916
    )
    
    
    16,608
    
    
    
    (327,647
    )
    
    
    (311,039
    )Borrowings
    
    
    251,450
    
    
    
    (233,766
    )
    
    
    17,684
    
    
    
    61,609
    
    
    
    (11,210
    )
    
    
    50,399Total interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    (394,232
    )
    
    
    
    
    
    
    
    
    
    
    (260,640
    )Net change in net interest income
    
    $
    (20,839
    )
    
    $
    772,994
    
    
    $
    752,155
    
    
    $
    (10,373
    )
    
    $
    747,141
    
    
    $
    736,768
 (1)
    
    Includes non-accrual loans and loans held for sale. Provision for Credit Losses.
      19




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##### Table of Contents



Table 3: Reconciliation of the Allowance for Credit Losses
 2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Allowance for loan losses, beginning of period
    
    $
    1,818,224
    
    
    $
    1,102,753
    
    
    $
    709,444
    
    
    $
    471,030
    
    
    $
    419,599Allowance acquired in acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,824Allowance established in connection with
reconsolidation of previously unconsolidated
securitized assets
    
    
    5,991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquired allowance for loan losses due to
SCUSA contribution from Santander
    
    
    
    
    
    
    347,302
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses (2)
    
    
    1,585,545
    
    
    
    1,790,559
    
    
    
    874,140
    
    
    
    394,646
    
    
    
    487,418Allowance released in connection with loan
sales or securitizations
    
    
    
    
    
    
    
    
    
    
    (3,745
    )
    
    
    (12,409
    )
    
    
    (4,728
    )Charge-offs:Commercial
    
    
    650,888
    
    
    
    518,468
    
    
    
    238,470
    
    
    
    65,670
    
    
    
    56,916Consumer
    
    
    861,269
    
    
    
    1,232,070
    
    
    
    353,244
    
    
    
    153,194
    
    
    
    537,860Total charge-offs (1)
    
    
    1,512,157
    
    
    
    1,750,538
    
    
    
    591,714
    
    
    
    218,864
    
    
    
    594,776Recoveries:Commercial
    
    
    54,768
    
    
    
    11,288
    
    
    
    13,378
    
    
    
    15,187
    
    
    
    14,097Consumer
    
    
    245,079
    
    
    
    316,860
    
    
    
    101,250
    
    
    
    59,854
    
    
    
    51,596Total recoveries
    
    
    299,847
    
    
    
    328,148
    
    
    
    114,628
    
    
    
    75,041
    
    
    
    65,693Charge-offs, net of recoveries
    
    
    1,212,310
    
    
    
    1,422,390
    
    
    
    477,086
    
    
    
    143,823
    
    
    
    529,083Allowance for loan losses, end of period
    
    $
    2,197,450
    
    
    $
    1,818,224
    
    
    $
    1,102,753
    
    
    $
    709,444
    
    
    $
    471,030Reserve for unfunded lending commitments,
beginning of period
    
    
    259,140
    
    
    
    65,162
    
    
    
    28,302
    
    
    
    15,256
    
    
    
    18,212Provision for unfunded lending commitments
(2)
    
    
    41,481
    
    
    
    193,978
    
    
    
    36,860
    
    
    
    13,046
    
    
    
    (2,957
    )Reserve for unfunded lending commitments, end
of period (3)
    
    
    300,621
    
    
    
    259,140
    
    
    
    65,162
    
    
    
    28,302
    
    
    
    15,255Total allowance for credit losses
    
    $
    2,498,071
    
    
    $
    2,077,364
    
    
    $
    1,167,915
    
    
    $
    737,746
    
    
    $
    486,285Net charge-offs to average loans (1)
    
    
    2.01
    %
    
    
    2.40
    %
    
    
    0.83
    %
    
    
    0.25
    %
    
    
    0.96
    %
 (1)
    
    The 2006 consumer charge-offs included $389.6 million of charge-offs or 71 basis
points related to the lower of cost or market valuation adjustment recorded for the
correspondent home equity loans ($382.5 million) and purchased residential mortgage loans
($7.1 million) that were classified as held for sale at December 31, 2006.(2)
    
    The provision for credit losses on the consolidated statement of operations consists of
the sum of the provision for loan losses and the provision for unfunded lending
commitments.(3)
    
    The reserve for unfunded commitments is classified in other liabilities on the
consolidated balance sheet.  Non-interest Income/(Loss).
    20




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Twelve-months ended December 31,2010
    
    
    2009Recoveries of/(Impairments to) mortgage servicing rights
    
    $
    24,564
    
    
    $
    (3,274
    )Recoveries/(impairments) to multi-family servicing rights
    
    
    100
    
    
    
    596Residential mortgage and multi-family servicing fees
    
    
    54,355
    
    
    
    53,943Amortization of residential mortgage and multi-family servicing rights
    
    
    (57,350
    )
    
    
    (64,897
    )Net gains/losses on hedging activities
    
    
    619
    
    
    
    (3,863
    )Gain on sales of mortgages
    
    
    35,909
    
    
    
    71,120Gain/loss on sales of multi-family loans
    
    
    (10,242
    )
    
    
    (183,129
    )Total
    
    $
    47,955
    
    
    $
    (129,504
    )
         December 31, 2010
    
    
    December 31, 2009
    
    
    December 31, 2008CPR speed
    
    
    16.82
    %
    
    
    24.44
    %
    
    
    29.65
    %Escrow credit spread
    
    
    2.41
    %
    
    
    3.17
    %
    
    
    4.35
    %
   21




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General and Administrative Expenses.
 Other Expenses.
  Income Tax Expense/(Benefit).
  Line of Business Results.
  22




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23




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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 YEAR ENDED DECEMBER 31,(Dollars in thousands, except per share data)
    
    2009
    
    
    2008Net interest income
    
    $
    2,643,504
    
    
    $
    1,882,442Provision for credit losses
    
    
    1,984,537
    
    
    
    911,000Total non-interest income
    
    
    342,297
    
    
    
    (818,743
    )General and administrative expenses
    
    
    1,520,460
    
    
    
    1,484,306Other expenses
    
    
    603,703
    
    
    
    302,027Net (loss)/income
    
    $
    161,565
    
    
    $
    (2,357,210
    )
  
    
    Net interest income increased 40.4% during
2009. Net interest income decreased $516.3
million excluding the impact of SCUSA as
net interest margin decreased from 2.87% in
2008 to 2.18% in 2009 and due to the impact
of the interest rate environment as
previously discussed. Additionally,
interest earning assets, excluding SCUSA,
decreased approximately $3.1 billion as
certain non-core assets ran-off and we
experienced decreased loan demand in our
commercial loan portfolio due to economic
conditions.
    
    The increase in provision for credit losses
in 2009 is related to the previously
mentioned deterioration in our loan
portfolios due to the current economic
environment.
    
    An increase in fees and other income of $1.1 billion. Included in fees and other income:
 (1)
    
    Net losses on investment securities of $157.8 million and $1.5 billion in 2009 and 2008,
respectively. Our 2009 and 2008 results included OTTI charges of $143.3 million and $307.9
million, respectively, on non-agency mortgage backed securities. The deteriorating economic
conditions have significantly impacted the fair value of certain non-agency mortgage backed
securities. The collateral for these securities consists of residential loans originated by a
diverse group of private label issuers. For the year ended December 31, 2009 and 2008, it was
concluded that the Company would not recover all of its outstanding principal on certain
bonds in our non-agency mortgage backed portfolio. Additionally, our 2009 and 2008 results
included OTTI charges of $36.9 million and $575.3 million, respectively, on Fannie Mae
(FNMA) and Freddie Mac (FHLMC) preferred stock. On September 7, 2008 the U.S. Treasury,
the Federal Reserve and the Federal Housing Finance Agency (FHFA) announced that the FHFA was
putting FNMA and FHLMC under conservatorship and giving management control to their
regulator, the FHFA. In connection with this action, the dividends on our preferred shares
were eliminated thereby significantly reducing the value of this investment. In the third
quarter of 2009, SHUSA decided to sell its entire FHLMC/FNMA preferred stock portfolio and
recorded a gain of $20.3 million since the market value of these securities had increased
since our last write down on March 31, 2009. Net losses on investment securities in 2008 also
included a $602.3 million loss on the sale of our CDO portfolio. See Note 6 for additional
details.(2)
    
    A decrease in capital markets revenues of $25.6 million due to charges of $19.3 million
to increase reserves for uncollectible swap receivables from customers due to deterioration
in the credit worthiness of these companies.(3)
    
    A decrease in mortgage banking revenues in 2009 of $116.3 million due to an increase to
recourse reserves on multi-family loan sales of $171.0 million due to worsening credit
conditions for these loans, partially offset by higher residential mortgage gains of $52.1
million due to increased volumes form the low interest rate environment which resulted in a
higher level of refinancings in 2009 compared to 2008.
 
    
    Increases in general and administrative
expenses in 2009 were due primarily to the
contribution of SCUSA. Excluding SCUSA, the
Companys general and administrative
expenses declined $216.9 million. This
reduction has been primarily due to cost
management initiatives put in place by
Santander since the acquisition.
Additionally, Sovereign Bank has reduced
its employee base 24% from December 2008 to
December 2009.
    
    Increases of $335.5 million and $99.9 million in merger-related and restructuring charges and
deposit insurance premiums have led to an increase in other expense. These increases were
partially offset by an impairment charge of $95.0 million in the fourth quarter of 2008
recorded on an equity method investment in a multifamily loan broker. In connection with the
acquisition by Santander, Sovereign Bank incurred merger-related and restructuring charges of
$233.3 million during the three months ended March 31, 2009. The majority of these costs
related to change in control payments to certain executives and severance charges of $152.2
million, debt extinguishment charges of $68.7 million as well as restricted stock
acceleration charges of $45.0 million. The Company also incurred fees of approximately $26.4
million to third parties to successfully close the transaction. Subsequent to the
acquisition, the Company decided to prepay $1.4 billion of higher cost FHLB advances to lower
funding costs in future periods and as a result incurred a debt extinguishment charge of
$68.7 million.
    
    SHUSA recorded an income tax benefit of $1.3 billion in 2009 compared to an income tax
provision of $723.6 million in 2008. As previously discussed 2008 results included a
valuation allowance of $1.4 billion due to the conclusion that it was more likely than not
that our deferred tax assets were not realizable on a stand alone basis. In 2009, SHUSA
reversed $1.3 billion of valuation allowance due to the contribution of SCUSA. See a later
section of the MD&A title income tax expense/(benefit) for further discussion.
 Net Interest Income.
  24




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Provision for Credit Losses.
     Non-interest Income/(Loss).
    25




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##### Table of Contents



Twelve-months ended December 31,2009
    
    
    2008Impairments to mortgage servicing rights
    
    $
    (3,274
    )
    
    $
    (47,342
    )Recoveries/(Impairments to) multi-family servicing rights
    
    
    596
    
    
    
    (5,916
    )Residential mortgage and multi-family servicing fees
    
    
    53,943
    
    
    
    50,002Amortization of residential mortgage and multi-family servicing rights
    
    
    (64,897
    )
    
    
    (36,259
    )Net gains on hedging activities
    
    
    (3,863
    )
    
    
    6,205Gain on sales of mortgages
    
    
    71,120
    
    
    
    18,985Gain on sales of multi-family loans
    
    
    (183,129
    )
    
    
    1,099Total
    
    $
    (129,504
    )
    
    $
    (13,226
    )
    December 31, 2009
    
    
    December 31, 2008
    
    
    December 31, 2007CPR speed
    
    
    24.44
    %
    
    
    29.65
    %
    
    
    14.70
    %Escrow credit spread
    
    
    3.17
    %
    
    
    4.35
    %
    
    
    5.12
    %
     General and Administrative Expenses.
 Other Expenses.
  26




---



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Income Tax Expense/(Benefit).
 Line of Business Results.
    27




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Critical Accounting Policies
   Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.
  28




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Goodwill.
     Derivatives and Hedging Activities
   Income Taxes.
    29




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##### Table of Contents



Financial Condition
 Loan Portfolio.
    Table 4: Composition of Loan Portfolio
 AT DECEMBER 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENTCommercial real estate loans
    
    $
    11,311,167
    
    
    
    17.4
    %
    
    $
    12,453,575
    
    
    
    21.6
    %
    
    $
    13,181,624
    
    
    
    23.6
    %
    
    $
    12,306,914
    
    
    
    21.2
    %
    
    $
    11,514,983
    
    
    
    18.4
    %Commercial and industrial loans
    
    
    11,101,187
    
    
    
    17.0
    
    
    
    12,071,896
    
    
    
    20.9
    
    
    
    14,078,893
    
    
    
    25.2
    
    
    
    14,359,688
    
    
    
    24.8
    
    
    
    13,188,909
    
    
    
    21.0Multi-family
    
    
    6,746,558
    
    
    
    10.3
    
    
    
    4,588,403
    
    
    
    8.0
    
    
    
    4,526,111
    
    
    
    8.1
    
    
    
    4,246,370
    
    
    
    7.3
    
    
    
    5,768,451
    
    
    
    9.2Total Commercial Loans
    
    
    29,158,912
    
    
    
    44.7
    
    
    
    29,113,874
    
    
    
    50.5
    
    
    
    31,786,628
    
    
    
    56.9
    
    
    
    30,912,972
    
    
    
    53.3
    
    
    
    30,472,343
    
    
    
    48.6Residential mortgages
    
    
    11,179,713
    
    
    
    17.2
    
    
    
    10,726,620
    
    
    
    18.6
    
    
    
    11,417,108
    
    
    
    20.5
    
    
    
    13,341,193
    
    
    
    23.0
    
    
    
    17,404,730
    
    
    
    27.7Home equity loans and lines of credit
    
    
    7,005,539
    
    
    
    10.7
    
    
    
    7,069,491
    
    
    
    12.2
    
    
    
    6,891,918
    
    
    
    12.3
    
    
    
    6,197,148
    
    
    
    10.7
    
    
    
    9,443,560
    
    
    
    15.1Total Consumer Loans secured by real estate
    
    
    18,185,252
    
    
    
    27.9
    
    
    
    17,796,111
    
    
    
    30.8
    
    
    
    18,309,026
    
    
    
    32.8
    
    
    
    19,538,341
    
    
    
    33.7
    
    
    
    26,848,290
    
    
    
    42.8Auto loans
    
    
    16,714,124
    
    
    
    25.7
    
    
    
    10,496,510
    
    
    
    18.2
    
    
    
    5,482,852
    
    
    
    9.8
    
    
    
    7,236,301
    
    
    
    12.5
    
    
    
    4,990,869
    
    
    
    7.9Other
    
    
    1,109,659
    
    
    
    1.7
    
    
    
    264,676
    
    
    
    0.5
    
    
    
    290,725
    
    
    
    0.5
    
    
    
    299,572
    
    
    
    0.5
    
    
    
    419,759
    
    
    
    0.7Total Consumer Loans
    
    
    36,009,035
    
    
    
    55.3
    
    
    
    28,557,297
    
    
    
    49.5
    
    
    
    24,082,603
    
    
    
    43.1
    
    
    
    27,074,214
    
    
    
    46.7
    
    
    
    32,258,918
    
    
    
    51.4Total Loans
    
    $
    65,167,947
    
    
    
    100.0
    %
    
    $
    57,671,171
    
    
    
    100.0
    %
    
    $
    55,869,231
    
    
    
    100.0
    %
    
    $
    57,987,186
    
    
    
    100.0
    %
    
    $
    62,731,261
    
    
    
    100.0
    %Total Loans with:Fixed rates
    
    $
    41,555,482
    
    
    
    63.8
    %
    
    $
    33,786,934
    
    
    
    58.6
    %
    
    $
    29,895,105
    
    
    
    53.5
    %
    
    $
    33,658,174
    
    
    
    58.0
    %
    
    $
    39,859,623
    
    
    
    63.5
    %Variable rates
    
    
    23,612,465
    
    
    
    36.2
    
    
    
    23,884,237
    
    
    
    41.4
    
    
    
    25,974,126
    
    
    
    46.5
    
    
    
    24,329,012
    
    
    
    42.0
    
    
    
    22,871,638
    
    
    
    36.5Total Loans
    
    $
    65,167,947
    
    
    
    100.0
    %
    
    $
    57,671,171
    
    
    
    100.0
    %
    
    $
    55,869,231
    
    
    
    100.0
    %
    
    $
    57,987,186
    
    
    
    100.0
    %
    
    $
    62,731,261
    
    
    
    100.0
    %
  Table 5: Commercial Loan Maturity Schedule
 AT DECEMBER 31, 2010, MATURINGIn One Year
    
    
    One To
    
    
    AfterOr Less
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial real estate loans
    
    $
    2,061,057
    
    
    $
    5,477,531
    
    
    $
    3,772,579
    
    
    $
    11,311,167Commercial and industrial loans
    
    
    2,728,893
    
    
    
    6,964,605
    
    
    
    1,407,689
    
    
    
    11,101,187Multi-family loans
    
    
    601,989
    
    
    
    3,528,831
    
    
    
    2,615,738
    
    
    
    6,746,558Total
    
    $
    5,391,939
    
    
    $
    15,970,967
    
    
    $
    7,796,006
    
    
    $
    29,158,912Loans with:Fixed rates
    
    $
    1,265,746
    
    
    $
    7,477,262
    
    
    $
    4,707,454
    
    
    $
    13,450,462Variable rates
    
    
    4,126,193
    
    
    
    8,493,705
    
    
    
    3,088,552
    
    
    
    15,708,450Total
    
    $
    5,391,939
    
    
    $
    15,970,967
    
    
    $
    7,796,006
    
    
    $
    29,158,912
  30




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##### Table of Contents



Investment Securities.
       Table 6: Investment Securities by Obligor
 AT DECEMBER 31,2010
    
    
    2009
    
    
    2008Investment securities available for sale:U.S. Treasury and government agencies
    
    $
    377,393
    
    
    $
    365,727
    
    
    $
    258,030FNMA, FHLMC, and FHLB securities
    
    
    4,324,002
    
    
    
    2,812,139
    
    
    
    5,122,097State and municipal securities
    
    
    1,882,280
    
    
    
    1,802,426
    
    
    
    1,629,113Other securities
    
    
    6,788,173
    
    
    
    8,629,106
    
    
    
    2,292,099Total investment securities available for sale
    
    $
    13,371,848
    
    
    $
    13,609,398
    
    
    $
    9,301,339FHLB stock
    
    
    614,241
    
    
    
    669,998
    
    
    
    674,498Other investments
    
    
    
    
    
    
    22,242
    
    
    
    44,273Total investment portfolio
    
    $
    13,986,089
    
    
    $
    14,301,638
    
    
    $
    10,020,110
 Table 7: Investment Securities of Single Issuers
 AT DECEMBER 31, 2010Amortized
    
    
    FairCost
    
    
    ValueFNMA
    
    $
    1,548,983
    
    
    $
    1,556,476FHLMC
    
    
    2,710,749
    
    
    
    2,747,526Total
    
    $
    4,259,732
    
    
    $
    4,304,002
 31




---



##### Table of Contents



Investment Securities Available for Sale.
 Goodwill and Intangible Assets.
   Other Assets.
 Deposits and Other Customer Accounts.
 Borrowings and Other Debt Obligations.
  32




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##### Table of Contents



Table 8: Details of Borrowings
 DECEMBER 31,2010
    
    
    2009
    
    
    2008Securities sold under repurchase agreements:Balance
    
    $
    1,389,382
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    0.31
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,572,187
    
    
    $
    
    
    
    $
    77,000Average amount outstanding during the year
    
    $
    781,938
    
    
    $
    
    
    
    $
    38,172Weighted average interest rate during the year
    
    
    0.29
    %
    
    
    0.00
    %
    
    
    5.44
    %Federal Funds Purchased:Balance
    
    $
    954,000
    
    
    $
    1,000,000
    
    
    $
    2,000,000Weighted average interest rate at year-end
    
    
    0.19
    %
    
    
    0.25
    %
    
    
    0.60
    %Maximum amount outstanding at any month-end during the year
    
    $
    2,010,000
    
    
    $
    3,187,000
    
    
    $
    2,830,000Average amount outstanding during the year
    
    $
    1,198,827
    
    
    $
    1,501,027
    
    
    $
    1,406,335Weighted average interest rate during the year
    
    
    0.21
    %
    
    
    0.27
    %
    
    
    1.81
    %Advances from Discount Window:Balance
    
    $
    
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    
    
    
    $
    
    
    
    $
    4,120,000Average amount outstanding during the year
    
    $
    
    
    
    $
    
    
    
    $
    510,109Weighted average interest rate during the year
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    1.75
    %FHLB advances:Balance
    
    $
    9,849,041
    
    
    $
    12,056,294
    
    
    $
    13,267,834Weighted average interest rate at year-end
    
    
    4.10
    %
    
    
    4.13
    %
    
    
    4.71
    %Maximum amount outstanding at any month-end during the year
    
    $
    12,307,909
    
    
    $
    12,991,887
    
    
    $
    23,981,010Average amount outstanding during the year
    
    $
    11,170,385
    
    
    $
    11,069,069
    
    
    $
    16,911,308Weighted average interest rate during the year
    
    
    4.50
    %
    
    
    5.43
    %
    
    
    4.70
    %Commercial paper:Balance
    
    $
    968,355
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    0.98
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,089,609
    
    
    $
    
    
    
    $
    Average amount outstanding during the year
    
    $
    369,156
    
    
    $
    
    
    
    $
    Weighted average interest rate during the year
    
    
    0.97
    %
    
    
    0.00
    %
    
    
    0.00
    %REIT preferred:Balance
    
    $
    147,530
    
    
    $
    146,115
    
    
    $
    147,961Weighted average interest rate at year-end
    
    
    14.20
    %
    
    
    14.34
    %
    
    
    14.10
    %Maximum amount outstanding at any month-end during the year
    
    $
    147,530
    
    
    $
    149,059
    
    
    $
    147,961Average amount outstanding during the year
    
    $
    146,783
    
    
    $
    148,195
    
    
    $
    147,122Weighted average interest rate during the year
    
    
    14.20
    %
    
    
    14.08
    %
    
    
    14.19
    %Credit Facilities:Balance
    
    $
    7,080,305
    
    
    $
    6,166,267
    
    
    $
    Weighted average interest rate at year-end
    
    
    1.79
    %
    
    
    1.79
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    7,359,911
    
    
    $
    6,166,267
    
    
    $
    180,000Average amount outstanding during the year
    
    $
    6,205,218
    
    
    $
    4,584,087
    
    
    $
    68,361Weighted average interest rate during the year
    
    
    3.34
    %
    
    
    3.51
    %
    
    
    4.40
    %SCUSA Asset-Backed Floating Rate Notes:Balance
    
    $
    8,246,611
    
    
    $
    2,249,839
    
    
    $
    Weighted average interest rate at year-end
    
    
    2.35
    %
    
    
    4.15
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    8,246,611
    
    
    $
    2,249,839
    
    
    $
    Average amount outstanding during the year
    
    $
    4,601,331
    
    
    $
    1,499,884
    
    
    $
    Weighted average interest rate during the year
    
    
    2.43
    %
    
    
    4.79
    %
    
    
    0.00
    %Sovereign Bank Senior Notes:Balance
    
    $
    1,348,111
    
    
    $
    1,346,373
    
    
    $
    1,344,702Weighted average interest rate at year-end
    
    
    3.92
    %
    
    
    3.92
    %
    
    
    2.76
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,348,111
    
    
    $
    1,346,373
    
    
    $
    1,344,702Average amount outstanding during the year
    
    $
    1,347,201
    
    
    $
    1,345,482
    
    
    $
    36,738Weighted average interest rate during the year
    
    
    3.91
    %
    
    
    3.87
    %
    
    
    3.35
    %SHUSA Senior Notes:Balance
    
    $
    249,332
    
    
    $
    1,347,032
    
    
    $
    1,293,859Weighted average interest rate at year-end
    
    
    3.73
    %
    
    
    2.89
    %
    
    
    2.38
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,347,557
    
    
    $
    1,347,031
    
    
    $
    1,293,859Average amount outstanding during the year
    
    $
    745,978
    
    
    $
    1,129,817
    
    
    $
    1,050,728Weighted average interest rate during the year
    
    
    4.07
    %
    
    
    3.80
    %
    
    
    4.45
    %Sovereign Bank Subordinated Notes:Balance
    
    $
    1,472,921
    
    
    $
    1,663,399
    
    
    $
    1,653,684Weighted average interest rate at year-end
    
    
    6.08
    %
    
    
    5.84
    %
    
    
    5.87
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,606,643
    
    
    $
    1,663,398
    
    
    $
    1,653,684Average amount outstanding during the year
    
    $
    1,535,701
    
    
    $
    1,658,375
    
    
    $
    1,464,616Weighted average interest rate during the year
    
    
    5.90
    %
    
    
    5.98
    %
    
    
    6.29
    %SHUSA subordinated notes:Balance
    
    $
    751,355
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    5.96
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    751,355
    
    
    $
    
    
    
    $
    Average amount outstanding during the year
    
    $
    625,152
    
    
    $
    
    
    
    $
    Weighted average interest rate during the year
    
    
    5.88
    %
    
    
    0.00
    %
    
    
    0.00
    %Junior Subordinated Debentures to Capital Trusts:Balance
    
    $
    1,173,174
    
    
    $
    1,259,832
    
    
    $
    1,256,145Weighted average interest rate at year-end
    
    
    6.50
    %
    
    
    6.46
    %
    
    
    7.23
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,214,085
    
    
    $
    1,259,833
    
    
    $
    1,256,145Average amount outstanding during the year
    
    $
    1,190,492
    
    
    $
    1,257,854
    
    
    $
    1,254,303Weighted average interest rate during the year
    
    
    6.95
    %
    
    
    6.85
    %
    
    
    7.35
    %
  33




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##### Table of Contents



Off-Balance Sheet Arrangements.
  Preferred Stock.
 Credit Risk Management
    Commercial Loans.
    34




---



##### Table of Contents



Consumer Loans Secured by Real Estate.
 Consumer Loans Not Secured by Real Estate.
  Collections.
 Non-performing Assets.
    35




---



##### Table of Contents



Table 9: Non-Performing Assets
 AT DECEMBER 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Non-accrual loans:ConsumerResidential
    
    $
    602,027
    
    
    $
    617,918
    
    
    $
    233,176
    
    
    $
    90,881
    
    
    $
    47,687Home equity loans and lines of credit
    
    
    125,310
    
    
    
    117,390
    
    
    
    69,247
    
    
    
    56,099
    
    
    
    10,312Auto loans and other consumer loans
    
    
    592,650
    
    
    
    535,902
    
    
    
    4,045
    
    
    
    3,816
    
    
    
    3,512Total consumer loans
    
    
    1,319,987
    
    
    
    1,271,210
    
    
    
    306,468
    
    
    
    150,796
    
    
    
    61,511Commercial
    
    
    528,333
    
    
    
    654,322
    
    
    
    244,847
    
    
    
    85,406
    
    
    
    69,207Commercial real estate
    
    
    653,221
    
    
    
    823,766
    
    
    
    319,565
    
    
    
    61,750
    
    
    
    75,710Multi-family
    
    
    224,728
    
    
    
    381,999
    
    
    
    42,795
    
    
    
    6,336
    
    
    
    1,486Total commercial loans
    
    
    1,406,282
    
    
    
    1,860,087
    
    
    
    607,207
    
    
    
    153,492
    
    
    
    146,403Total non-performing loans
    
    
    2,726,269
    
    
    
    3,131,297
    
    
    
    913,675
    
    
    
    304,288
    
    
    
    207,914Real estate owned
    
    
    143,149
    
    
    
    99,364
    
    
    
    49,900
    
    
    
    43,226
    
    
    
    22,562Other repossessed assets
    
    
    79,854
    
    
    
    18,716
    
    
    
    21,836
    
    
    
    14,062
    
    
    
    5,126Total other real estate owned and other repossessed assets
    
    
    223,003
    
    
    
    118,080
    
    
    
    71,736
    
    
    
    57,288
    
    
    
    27,688Total non-performing assets
    
    $
    2,949,272
    
    
    $
    3,249,377
    
    
    $
    985,411
    
    
    $
    361,576
    
    
    $
    235,602Past due 90 days or more as to interest or principal and
accruing interest
    
    $
    169
    
    
    $
    27,321
    
    
    $
    123,301
    
    
    $
    68,770
    
    
    $
    40,103Net loan charge-off rate to average loans (1)
    
    
    2.01
    %
    
    
    2.40
    %
    
    
    .83
    %
    
    
    .25
    %
    
    
    .96
    %Non-performing assets as a percentage of total assets,
excluding loans held for sale
    
    
    3.29
    
    
    
    3.92
    
    
    
    1.28
    
    
    
    .43
    
    
    
    .29Non-performing loans as a percentage of total loans
    
    
    4.18
    
    
    
    5.43
    
    
    
    1.64
    
    
    
    .53
    
    
    
    .38Non-performing assets as a percentage of total loans,
real estate owned and repossessed assets
    
    
    4.51
    
    
    
    5.62
    
    
    
    1.77
    
    
    
    .63
    
    
    
    .43Allowance for credit losses as a percentage of total
non-performing assets (2)
    
    
    84.7
    
    
    
    63.9
    
    
    
    118.5
    
    
    
    204.0
    
    
    
    206.4Allowance for credit losses as a percentage of total
non-performing loans (2)
    
    
    91.6
    
    
    
    66.3
    
    
    
    127.8
    
    
    
    242.4
    
    
    
    233.9
 (1)
    
    2006 includes lower of cost of market adjustments resulting in a charge-off of $382.5 million
on the correspondent home equity loans and a charge-off of approximately $7.1 million on the
purchased residential mortgage portfolio both of which were classified as held for sale at December
31, 2006. These charge-offs accounted for 71 basis points of the total 96 basis points above.(2)
    
    Allowance for credit losses is comprised of the allowance for loan losses and the reserve for
unfunded commitments, which is included in other liabilities.  Troubled Debt Restructurings
  DECEMBER 31,
    
    
    DECEMBER 31,2010
    
    
    2009Accruing:Commercial
    
    $
    35,629
    
    
    $
    Residential
    
    
    220,382
    
    
    
    23,125Consumer
    
    
    200,033
    
    
    
    68,179Total
    
    $
    456,044
    
    
    $
    91,304Non-accruing:Commercial
    
    
    68,517
    
    
    
    24,708Residential
    
    
    131,807
    
    
    
    31,498Consumer
    
    
    44,790
    
    
    
    16,145Total
    
    $
    245,114
    
    
    $
    72,351Total
    
    $
    701,158
    
    
    $
    163,655
  36




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##### Table of Contents



Potential Problem Loans
 Delinquencies.
 Allowance for Credit Losses
 Allowance for Loan Losses.
           37




---



##### Table of Contents



Reserve for Unfunded Lending Commitments
     38




---



##### Table of Contents



Table 10: Allocation of the Allowance for Credit Losses by Product Type
 AT DECEMBER 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % ofLoans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans to
    
    
    
    
    
    
    Loans toTotal
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    Total
    
    
    
    
    
    
    TotalAmount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansAllocated allowances:Commercial loans
    
    $
    905,786
    
    
    
    45
    %
    
    $
    989,192
    
    
    
    50
    %
    
    $
    752,835
    
    
    
    57
    %
    
    $
    433,951
    
    
    
    53
    %
    
    $
    375,014
    
    
    
    49
    %Consumer loans
    
    
    1,275,982
    
    
    
    55
    
    
    
    824,529
    
    
    
    50
    
    
    
    342,529
    
    
    
    43
    
    
    
    267,148
    
    
    
    47
    
    
    
    91,251
    
    
    
    51Unallocated allowance
    
    
    15,682
    
    
    
    n/a
    
    
    
    4,503
    
    
    
    n/a
    
    
    
    7,389
    
    
    
    n/a
    
    
    
    8,345
    
    
    
    n/a
    
    
    
    4,765
    
    
    
    n/aTotal allowance for
loan losses
    
    $
    2,197,450
    
    
    
    100
    %
    
    $
    1,818,224
    
    
    
    100
    %
    
    $
    1,102,753
    
    
    
    100
    %
    
    $
    709,444
    
    
    
    100
    %
    
    $
    471,030
    
    
    
    100
    %Reserve for unfunded
lending commitments
    
    
    300,621
    
    
    
    
    
    
    
    259,140
    
    
    
    
    
    
    
    65,162
    
    
    
    
    
    
    
    28,302
    
    
    
    
    
    
    
    15,256Total allowance for
credit losses
    
    $
    2,498,071
    
    
    
    
    
    
    $
    2,077,364
    
    
    
    
    
    
    $
    1,167,915
    
    
    
    
    
    
    $
    737,746
    
    
    
    
    
    
    $
    486,286
 Commercial Portfolio.
 Consumer Portfolio.
 Unallocated Allowance.
 Bank Regulatory Capital
   Table 11: Sovereign Bank Regulatory Capital Ratios
 OTS - REGULATIONSSovereignBank
    
    
    
    
    
    
    WellDecember 31,
    
    
    Minimum
    
    
    Capitalized2010
    
    
    Requirement
    
    
    RequirementTier 1 leverage capital ratio
    
    
    11.43
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier 1 risk-based capital ratio
    
    
    13.45
    
    
    
    4.00
    
    
    
    6.00Total risk-based capital ratio
    
    
    15.93
    
    
    
    8.00
    
    
    
    10.00
  39




---



##### Table of Contents



Liquidity and Capital Resources
          40




---



##### Table of Contents



Contractual Obligations and Other Commitments
  Contractual Obligations
 PAYMENTS DUE BY PERIODLess Than
    
    
    
    
    
    
    
    
    
    
    After(Dollars in thousands)
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsBorrowings and other debt obligations:FHLB advances(1)
    
    $
    11,423,020
    
    
    $
    2,822,678
    
    
    $
    1,961,338
    
    
    $
    4,065,835
    
    
    $
    2,570,169Securities sold under repurchase agreements(1)
    
    
    2,359,355
    
    
    
    2,359,355
    
    
    
    
    
    
    
    
    
    
    
    Fed Funds(1)
    
    
    954,003
    
    
    
    954,003
    
    
    
    
    
    
    
    
    
    
    
    Other debt obligations(1)(2)
    
    
    20,169,179
    
    
    
    7,321,756
    
    
    
    5,292,659
    
    
    
    2,501,401
    
    
    
    5,053,363Junior subordinated debentures to Capital
Trusts(1)(2)
    
    
    2,426,178
    
    
    
    403,638
    
    
    
    118,237
    
    
    
    118,237
    
    
    
    1,786,066Certificates of deposit(1)
    
    
    8,423,756
    
    
    
    6,457,316
    
    
    
    1,475,163
    
    
    
    478,864
    
    
    
    12,413Investment partnership commitments(3)
    
    
    966
    
    
    
    860
    
    
    
    26
    
    
    
    26
    
    
    
    54Operating leases
    
    
    755,041
    
    
    
    111,986
    
    
    
    191,516
    
    
    
    152,229
    
    
    
    299,310Total contractual cash obligations
    
    $
    46,511,498
    
    
    $
    20,431,592
    
    
    $
    9,038,939
    
    
    $
    7,319,592
    
    
    $
    9,721,375
 (1)
    
    Includes interest on both fixed and variable rate obligations. The interest associated with
variable rate obligations is based upon interest rates in effect at December 31, 2010. The
contractual amounts to be paid on variable rate obligations are affected by changes in market
interest rates. Future changes in market interest rates could materially affect the contractual
amounts to be paid.(2)
    
    Includes all carrying value adjustments, such as unamortized premiums or discounts and hedge
basis adjustments.(3)
    
    The commitments to fund investment partnerships represent future cash outlays for the
construction and development of properties for low-income housing and historic tax credit
projects. The timing and amounts of these commitments are projected based upon the financing
arrangements provided in each projects partnership or operating agreement and could change due
to variances in the construction schedule, project revisions, or the cancellation of the
project.    Other Commercial Commitments
 AMOUNT OF COMMITMENT EXPIRATION PER PERIODTotalAmounts
    
    
    Less Than
    
    
    
    
    
    
    
    
    
    
    Over(Dollars in thousands)
    
    Committed
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsCommitments to extend credit
    
    $
    16,443,257
    
    
    $
    6,549,715
    
    
    $
    3,308,101
    
    
    $
    1,573,349
    
    
    $
    5,012,092
    (1)Standby letters of credit
    
    
    3,280,899
    
    
    
    1,282,731
    
    
    
    1,524,486
    
    
    
    266,755
    
    
    
    206,927Loans sold with recourse
    
    
    268,195
    
    
    
    10,848
    
    
    
    71,967
    
    
    
    49,806
    
    
    
    135,574Forward buy commitments
    
    
    2,930,265
    
    
    
    2,846,994
    
    
    
    83,271
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    22,922,616
    
    
    $
    10,690,288
    
    
    $
    4,987,825
    
    
    $
    1,889,910
    
    
    $
    5,354,593
 (1)
    
    Of this amount, $4.8 billion represents the unused portion of home equity lines of credit.   41




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##### Table of Contents



Asset and Liability Management
     If interest rates changed in parallel
    
    The following estimated percentageby the amounts below at December 31, 2010
    
    increase/(decrease) to net interest income would resultUp 100 basis points
    
    
    2.28
    %Up 200 basis points
    
    
    3.87
    %Down 100 basis points
    
    
    (0.83
    )%
    The following estimated percentageincrease/(decrease) to MVE would resultIf interest rates changed in parallel by
    
    December 31, 2010
    
    
    December 31, 2009Base (in thousands)
    
    $
    6,910,151
    
    
    $
    6,150,298Up 200 basis points
    
    
    (8.43
    )%
    
    
    (9.55
    )%Up 100 basis points
    
    
    (3.86
    )%
    
    
    (4.53
    )%
       42




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##### Table of Contents



Table 12: Selected Quarterly Consolidated Financial Data
 THREE MONTHS ENDEDDec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,
    
    
    Dec. 31,
    
    
    Sept. 30,
    
    
    June 30,
    
    
    Mar. 31,2010
    
    
    2010
    
    
    2010
    
    
    2010
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Total interest income
    
    $
    1,289,618
    
    
    $
    1,211,761
    
    
    $
    1,156,849
    
    
    $
    1,126,261
    
    
    $
    1,067,757
    
    
    $
    1,075,857
    
    
    $
    1,128,812
    
    
    $
    1,151,160Total interest expense
    
    
    337,306
    
    
    
    333,292
    
    
    
    346,749
    
    
    
    368,503
    
    
    
    388,000
    
    
    
    422,915
    
    
    
    460,136
    
    
    
    509,031Net interest income
    
    
    952,312
    
    
    
    878,469
    
    
    
    810,100
    
    
    
    757,758
    
    
    
    679,757
    
    
    
    652,942
    
    
    
    668,676
    
    
    
    642,129Provision for credit losses
    
    
    321,376
    
    
    
    455,639
    
    
    
    437,304
    
    
    
    412,707
    
    
    
    434,788
    
    
    
    384,005
    
    
    
    455,796
    
    
    
    709,948Net interest
income/(loss) after provision for credit loss
    
    
    630,936
    
    
    
    422,830
    
    
    
    372,796
    
    
    
    345,051
    
    
    
    244,969
    
    
    
    268,937
    
    
    
    212,880
    
    
    
    (67,819
    )Gain/(loss)
on investment securities, net
    
    
    222
    
    
    
    131,113
    
    
    
    42,894
    
    
    
    26,327
    
    
    
    (46,683
    )
    
    
    (9,994
    )
    
    
    (23,473
    )
    
    
    (77,697
    )Total fees and other income
    
    
    245,121
    
    
    
    196,265
    
    
    
    211,267
    
    
    
    176,260
    
    
    
    113,187
    
    
    
    106,973
    
    
    
    182,211
    
    
    
    97,773General and
administrative and other expenses
    
    
    509,889
    
    
    
    442,627
    
    
    
    416,784
    
    
    
    412,797
    
    
    
    452,021
    
    
    
    460,092
    
    
    
    521,899
    
    
    
    690,151Income before income taxes
    
    
    366,390
    
    
    
    307,581
    
    
    
    210,173
    
    
    
    134,841
    
    
    
    (140,548
    )
    
    
    (94,176
    )
    
    
    (150,281
    )
    
    
    (737,894
    )Income tax (benefit)/provision
    
    
    (235,619
    )
    
    
    87,419
    
    
    
    66,130
    
    
    
    41,680
    
    
    
    (463
    )
    
    
    (1,304,283
    )
    
    
    (8,957
    )
    
    
    29,239Net income/(loss)
    
    $
    602,009
    
    
    $
    220,162
    
    
    $
    144,043
    
    
    $
    93,161
    
    
    $
    (140,085
    )
    
    $
    1,210,107
    
    
    $
    (141,324
    )
    
    $
    (767,133
    )
 2010 Fourth Quarter Results
    RECENT ACCOUNTING PRONOUNCEMENTS
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  
 ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 Index to Financial Statements and Supplementary Data
    
    PageReport of Management
    
    
    44Reports of Independent Registered Public Accounting Firms
    
    
    45-47Consolidated Balance Sheet
    
    
    48Consolidated Statements of Operations
    
    
    49Consolidated Statements of Stockholders Equity
    
    
    50-51Consolidated Statements of Cash Flow
    
    
    52Notes to Consolidated Financial Statements
    
    
    53-96
  43




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##### Table of Contents



Report of Managements Assessment of
Internal Control Over Financial Reporting
    /s/ Jorge Morán
    
    /s/ Guillermo SabaterJorge Morán
    
    Guillermo SabaterPresident and Chief Executive Officer
    
    Chief Financial Officer and Executive Vice President
   44




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SANTANDER HOLDINGS USA, INC.
          45




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SANTANDER HOLDINGS USA, INC.
      
  46




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SANTANDER HOLDINGS USA, INC.
        
  47




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##### Table of Contents



Consolidated Balance Sheets
 AT DECEMBER 31,(IN THOUSANDS)
    
    2010
    
    
    2009AssetsCash and amounts due from depository institutions
    
    $
    1,705,895
    
    
    $
    2,323,290Investment securities available for sale
    
    
    13,371,848
    
    
    
    13,609,398Other investments
    
    
    614,241
    
    
    
    692,240Loans held for investment
    
    
    65,017,884
    
    
    
    57,552,177Allowance for loan losses
    
    
    (2,197,450
    )
    
    
    (1,818,224
    )Net loans held for investment
    
    
    62,820,434
    
    
    
    55,733,953Loans held for sale
    
    
    150,063
    
    
    
    118,994Premises and equipment
    
    
    595,951
    
    
    
    477,812Accrued interest receivable
    
    
    406,617
    
    
    
    345,122Goodwill
    
    
    4,124,351
    
    
    
    4,135,540Core deposit and other intangibles, net of accumulated amortization of $997,671 in 2010 and $934,270 in 2009
    
    
    188,940
    
    
    
    245,641Bank owned life insurance
    
    
    1,519,462
    
    
    
    1,810,511Other assets
    
    
    4,154,013
    
    
    
    3,460,714Total Assets
    
    $
    89,651,815
    
    
    $
    82,953,215LiabilitiesDeposits and other customer accounts
    
    $
    42,673,293
    
    
    $
    44,428,065Borrowings and other debt obligations
    
    
    33,630,117
    
    
    
    27,235,151Advance payments by borrowers for taxes and insurance
    
    
    104,125
    
    
    
    87,445Other liabilities
    
    
    1,983,610
    
    
    
    1,815,019Total Liabilities
    
    
    78,391,145
    
    
    
    73,565,680Stockholders EquityPreferred stock; no par value; $25,000 liquidation preference; 7,500,000 shares authorized; 8,000 shares
outstanding in 2010 and in 2009
    
    
    195,445
    
    
    
    195,445Common stock; no par value; 800,000,000 shares authorized; 517,107,043 issued in 2010 and 511,107,043 issued in 2009
    
    
    11,117,328
    
    
    
    10,381,500Warrants and employee stock options issued
    
    
    285,435
    
    
    
    285,435Noncontrolling Interest
    
    
    25,636
    
    
    
    22,397Accumulated other comprehensive loss
    
    
    (234,190
    )
    
    
    (349,869
    )Retained (deficit)/earnings
    
    
    (128,984
    )
    
    
    (1,147,373
    )Total Stockholders Equity
    
    
    11,260,670
    
    
    
    9,387,535Total Liabilities and Stockholders Equity
    
    $
    89,651,815
    
    
    $
    82,953,215
   48




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##### Table of Contents



Consolidated Statements of Operations
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS)
    
    2010
    
    
    2009
    
    
    2008Interest Income:Interest-earning deposits
    
    $
    3,320
    
    
    $
    8,114
    
    
    $
    5,820Investment securities:Available for sale
    
    
    466,141
    
    
    
    383,926
    
    
    
    554,351Other
    
    
    1,235
    
    
    
    1,761
    
    
    
    23,786Interest on loans
    
    
    4,313,793
    
    
    
    4,029,785
    
    
    
    3,339,207Total interest income
    
    
    4,784,489
    
    
    
    4,423,586
    
    
    
    3,923,164Interest Expense:Deposits and other customer accounts
    
    
    228,633
    
    
    
    640,549
    
    
    
    951,588Borrowings and other debt obligations
    
    
    1,157,217
    
    
    
    1,139,533
    
    
    
    1,089,134Total interest expense
    
    
    1,385,850
    
    
    
    1,780,082
    
    
    
    2,040,722Net interest income
    
    
    3,398,639
    
    
    
    2,643,504
    
    
    
    1,882,442Provision for credit losses
    
    
    1,627,026
    
    
    
    1,984,537
    
    
    
    911,000Net interest income after provision for credit losses
    
    
    1,771,613
    
    
    
    658,967
    
    
    
    971,442Non-interest Income:Consumer banking fees
    
    
    531,337
    
    
    
    369,845
    
    
    
    312,627Commercial banking fees
    
    
    180,295
    
    
    
    187,276
    
    
    
    213,945Mortgage banking (expense)/revenue
    
    
    47,955
    
    
    
    (129,504
    )
    
    
    (13,226
    )Capital markets (expense)/revenue
    
    
    7,972
    
    
    
    (1,753
    )
    
    
    23,810Bank-owned life insurance
    
    
    54,112
    
    
    
    58,829
    
    
    
    75,990Miscellaneous income
    
    
    7,242
    
    
    
    15,451
    
    
    
    23,292Total fees and other income
    
    
    828,913
    
    
    
    500,144
    
    
    
    636,438Total other-than-temporary impairment losses
    
    
    (58,526
    )
    
    
    (604,489
    )
    
    
    (887,730
    )Portion of loss recognized in other comprehensive income
(before taxes)
    
    
    53,763
    
    
    
    424,293
    
    
    
    Gains/(Losses) on the sale of investment securities
    
    
    205,319
    
    
    
    22,349
    
    
    
    (567,451
    )Net gain/(loss) on investment securities recognized in earnings
    
    
    200,556
    
    
    
    (157,847
    )
    
    
    (1,455,181
    )Total non-interest income
    
    
    1,029,469
    
    
    
    342,297
    
    
    
    (818,743
    )General and administrative expenses:Compensation and benefits
    
    
    707,593
    
    
    
    716,418
    
    
    
    755,379Occupancy and equipment
    
    
    312,295
    
    
    
    318,706
    
    
    
    310,535Technology expense
    
    
    112,058
    
    
    
    107,100
    
    
    
    102,591Outside services
    
    
    123,958
    
    
    
    119,238
    
    
    
    64,474Marketing expense
    
    
    37,177
    
    
    
    36,318
    
    
    
    78,995Other administrative
    
    
    280,019
    
    
    
    222,680
    
    
    
    172,332Total general and administrative expenses
    
    
    1,573,100
    
    
    
    1,520,460
    
    
    
    1,484,306Other Expenses:Amortization of intangibles
    
    
    63,401
    
    
    
    75,692
    
    
    
    103,643Deposit insurance premiums and other costs
    
    
    93,225
    
    
    
    138,747
    
    
    
    37,506Equity method investments
    
    
    26,613
    
    
    
    21,412
    
    
    
    128,530Transaction related and integration charges and other
restructuring costs
    
    
    
    
    
    
    299,119
    
    
    
    32,348Loss on debt extinguishment
    
    
    25,758
    
    
    
    68,733
    
    
    
    Total other expenses
    
    
    208,997
    
    
    
    603,703
    
    
    
    302,027Income/(Loss) before income taxes
    
    
    1,018,985
    
    
    
    (1,122,899
    )
    
    
    (1,633,634
    )Income tax provision/(benefit)
    
    
    (40,390
    )
    
    
    (1,284,464
    )
    
    
    723,576NET INCOME/(LOSS)
    
    
    1,059,375
    
    
    
    161,565
    
    
    
    (2,357,210
    )Less:Net income attributable to noncontrolling interest
    
    
    37,239
    
    
    
    17,809
    
    
    
    Net income/(loss) attributable to SHUSA
    
    $
    1,022,136
    
    
    $
    143,756
    
    
    $
    (2,357,210
    )
   49




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##### Table of Contents



Consolidated Statements of Stockholders Equity
 Common
    
    
    
    
    
    
    
    
    WarrantsShares
    
    
    Preferred
    
    
    Common
    
    
    and Stock(IN THOUSANDS)
    
    Outstanding
    
    
    Stock
    
    
    Stock
    
    
    OptionsBalance, December 31, 2007
    
    
    481,404
    
    
    $
    195,445
    
    
    $
    6,295,572
    
    
    $
    348,365Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    180,548
    
    
    
    
    
    
    
    21,275
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    2,283
    
    
    
    
    
    
    
    1,401,924
    
    
    
    (1,349
    )Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,556Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    663,946
    
    
    $
    195,445
    
    
    $
    7,718,771
    
    
    $
    350,572Cumulative effect from change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at January 1, 2009
    
    
    663,946
    
    
    $
    195,445
    
    
    $
    7,718,771
    
    
    $
    350,572Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Contribution of SCUSA from Santander
    
    
    
    
    
    
    
    
    
    
    773,830
    
    
    
    Issuance of preferred stock to Santander
    
    
    
    
    
    
    1,800,000
    
    
    
    
    
    
    
    Conversion of preferred stock to common stock
    
    
    7,200
    
    
    
    (1,800,000
    )
    
    
    1,800,000
    
    
    
    Paydown of noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    4
    
    
    
    
    
    
    
    46,800
    
    
    
    346Vesting of employee share based awards
    
    
    
    
    
    
    
    
    
    
    42,099
    
    
    
    (65,483
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    Shares cancelled by Santander
    
    
    (160,038
    )
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    
    511,107
    
    
    $
    195,445
    
    
    $
    10,381,500
    
    
    $
    285,435Cumulative effect from change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at January 1, 2010
    
    
    511,107
    
    
    $
    195,445
    
    
    $
    10,381,500
    
    
    $
    285,435Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock to Santander
    
    
    6,000
    
    
    
    
    
    
    
    1,500,000
    
    
    
    Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    
    
    
    
    
    
    
    
    428
    
    
    
    Dividends to Santander
    
    
    
    
    
    
    
    
    
    
    (750,000
    )
    
    
    Dividends to noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    Balance, December 31, 2010
    
    
    517,107
    
    
    $
    195,445
    
    
    $
    11,117,328
    
    
    $
    285,435
   50




---



##### Table of Contents



Consolidated Statements of Stockholders Equity (continued)
 AccumulatedOther
    
    
    Retained
    
    
    TotalTreasury
    
    
    Noncontrolling
    
    
    Comprehensive
    
    
    (Deficit)/
    
    
    StockholdersStock
    
    
    Interest
    
    
    Income/(Loss)
    
    
    Earnings
    
    
    EquityBalance, December 31, 2007
    
    $
    (19,853
    )
    
    $
    
    
    
    $
    (326,133
    )
    
    $
    498,929
    
    
    $
    6,992,325Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,357,210
    )
    
    
    (2,357,210
    )Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    (352,423
    )
    
    
    
    
    
    
    (352,423
    )Pension liabilities
    
    
    
    
    
    
    
    
    
    
    (16,831
    )
    
    
    
    
    
    
    (16,831
    )Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    (90,427
    )
    
    
    
    
    
    
    (90,427
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,816,891
    )Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,275Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    13,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,414,449Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,556Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    (14,600
    )Stock repurchased
    
    
    (3,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,400
    )Balance, December 31, 2008
    
    $
    (9,379
    )
    
    $
    
    
    
    $
    (785,814
    )
    
    $
    (1,872,881
    )
    
    $
    5,596,714Cumulative effect from change in accounting principle
    
    
    
    
    
    
    
    
    
    
    (157,894
    )
    
    
    246,084
    
    
    
    88,190Balance at January 1, 2009
    
    $
    (9,379
    )
    
    $
    
    
    
    $
    (943,708
    )
    
    $
    (1,626,797
    )
    
    $
    5,684,904Comprehensive income:Net income
    
    
    
    
    
    
    17,809
    
    
    
    
    
    
    
    143,756
    
    
    
    161,565Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    487,461
    
    
    
    
    
    
    
    487,461Pension liabilities
    
    
    
    
    
    
    
    
    
    
    5,140
    
    
    
    
    
    
    
    5,140Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    141,234
    
    
    
    
    
    
    
    141,234Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    795,400Contribution of SCUSA from Santander
    
    
    
    
    
    
    5,512
    
    
    
    (39,996
    )
    
    
    350,268
    
    
    
    1,089,614Issuance of preferred stock to Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,000Conversion of preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Paydown of noncontrolling interest
    
    
    
    
    
    
    (924
    )
    
    
    
    
    
    
    
    
    
    
    (924
    )Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,193Employee stock options issued
    
    
    9,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,042
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    (14,600
    )Stock repurchased
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Shares cancelled by Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    $
    
    
    
    $
    22,397
    
    
    $
    (349,869
    )
    
    $
    (1,147,373
    )
    
    $
    9,387,535Cumulative effect from change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,747
    )
    
    
    (3,747
    )Balance at January 1, 2010
    
    $
    
    
    
    $
    22,397
    
    
    $
    (349,869
    )
    
    $
    (1,151,120
    )
    
    $
    9,383,788Comprehensive income:Net income
    
    
    
    
    
    
    37,239
    
    
    
    
    
    
    
    1,022,136
    
    
    
    1,059,375Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    83,624
    
    
    
    
    
    
    
    83,624Pension liabilities
    
    
    
    
    
    
    
    
    
    
    (581
    )
    
    
    
    
    
    
    (581
    )Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    32,636
    
    
    
    
    
    
    
    32,636Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,175,054Issuance of common stock to Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500,000Stock issued in connection with employee benefit and
incentive compensation plans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    428Dividends to Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (750,000
    )Dividends to noncontrolling interest
    
    
    
    
    
    
    (34,000
    )
    
    
    
    
    
    
    
    
    
    
    (34,000
    )Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,600
    )Balance, December 31, 2010
    
    $
    
    
    
    $
    25,636
    
    
    $
    (234,190
    )
    
    $
    (128,984
    )
    
    $
    11,260,670
   51




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##### Table of Contents



Consolidated Statements of Cash Flow
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS)
    
    2010
    
    
    2009
    
    
    2008Cash Flows From Operating Activities:Net (loss)/ income
    
    $
    1,059,375
    
    
    $
    161,565
    
    
    $
    (2,357,210
    )Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for credit losses
    
    
    1,627,026
    
    
    
    1,984,537
    
    
    
    911,000Deferred taxes
    
    
    (369,427
    )
    
    
    (1,462,852
    )
    
    
    837,028Depreciation and amortization
    
    
    320,713
    
    
    
    246,861
    
    
    
    225,913Impairment on equity method investment
    
    
    
    
    
    
    
    
    
    
    95,000Net amortization/accretion of investment securities and loan premiums and discounts
    
    
    (189,029
    )
    
    
    (311,201
    )
    
    
    (4,961
    )Net gains on the sale of loans
    
    
    (39,983
    )
    
    
    (76,765
    )
    
    
    (38,761
    )Net gain/ loss on investment securities
    
    
    (200,556
    )
    
    
    157,847
    
    
    
    1,455,181Net loss on real estate owned and premises and equipment
    
    
    13,502
    
    
    
    37,844
    
    
    
    12,379Loss on debt extinguishments
    
    
    25,758
    
    
    
    66,584
    
    
    
    Stock based compensation
    
    
    2,164
    
    
    
    47,534
    
    
    
    23,337Remittance to Parent for stock based compensation
    
    
    (1,800
    )
    
    
    
    
    
    
    Origination and purchase of loans held for sale, net of repayments
    
    
    (1,696,782
    )
    
    
    (5,971,514
    )
    
    
    (5,569,238
    )Proceeds from the sale of loans held for sale
    
    
    1,701,534
    
    
    
    6,236,879
    
    
    
    6,246,226Net change in:Accrued interest receivable
    
    
    11,902
    
    
    
    10,951
    
    
    
    98,922Other assets and bank owned life insurance
    
    
    505,094
    
    
    
    442,864
    
    
    
    (403,846
    )Other liabilities
    
    
    (20,226
    )
    
    
    (320,619
    )
    
    
    461,028Net cash provided by operating activities
    
    
    2,749,265
    
    
    
    1,250,515
    
    
    
    1,991,998Cash Flows From Investing Activities:Proceeds from sales investment securities:Available for sale
    
    
    5,075,900
    
    
    
    2,673,370
    
    
    
    5,203,297Proceeds from repayments and maturities of investment securities:Available for sale
    
    
    4,244,740
    
    
    
    8,248,589
    
    
    
    4,539,052Net change in other investments
    
    
    77,999
    
    
    
    26,531
    
    
    
    481,774Net change in securities available for sale
    
    
    
    
    
    
    
    
    
    
    2,000,000Purchases of investment securities:Available for sale
    
    
    (7,030,167
    )
    
    
    (14,653,872
    )
    
    
    (8,299,508
    )Net change in restricted cash
    
    
    (41,678
    )
    
    
    
    
    
    
    Proceeds from sales of loans
    
    
    7,941
    
    
    
    55,269
    
    
    
    177,739Purchase of loans
    
    
    (8,458,298
    )
    
    
    (2,765,449
    )
    
    
    (411,488
    )Net change in loans other than purchases and sales
    
    
    (727,365
    )
    
    
    8,173,134
    
    
    
    380,216Purchase of other assets from a third party
    
    
    (121,715
    )
    
    
    
    
    
    
    Proceeds from sales of premises and equipment and real estate owned
    
    
    55,448
    
    
    
    61,626
    
    
    
    37,424Purchases of premises and equipment
    
    
    (196,775
    )
    
    
    (37,716
    )
    
    
    (74,161
    )Net cash (paid) received from acquisitions
    
    
    
    
    
    
    (193,386
    )
    
    
    Net cash provided by/(used in) investing activities
    
    
    (7,113,970
    )
    
    
    1,588,096
    
    
    
    4,034,345Cash Flows From Financing Activities:Net change in deposits and other customer accounts
    
    
    (1,754,772
    )
    
    
    (4,010,508
    )
    
    
    (1,479,576
    )Net increase (decrease) in borrowings and other debt obligations
    
    
    93,980
    
    
    
    (2,915,106
    )
    
    
    (7,230,785
    )Proceeds from senior credit facility and senior notes, net of issuance costs
    
    
    11,852,208
    
    
    
    4,376,726
    
    
    
    2,088,452Repayments of borrowings and other debt obligations
    
    
    (7,196,186
    )
    
    
    (3,500,576
    )
    
    
    (180,000
    )Net increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    16,680
    
    
    
    (5,780
    )
    
    
    10,134Proceeds from issuance of common stock, net of issuance costs
    
    
    750,000
    
    
    
    1,800,000
    
    
    
    1,405,993Treasury stock repurchases, net of proceeds
    
    
    
    
    
    
    
    
    
    
    (2,208
    )Cash dividends to preferred stockholders
    
    
    (14,600
    )
    
    
    (14,600
    )
    
    
    (14,600
    )Net cash (used in)/provided by financing activities
    
    
    3,747,310
    
    
    
    (4,269,844
    )
    
    
    (5,402,590
    )Net change in cash and cash equivalents
    
    
    (617,395
    )
    
    
    (1,431,233
    )
    
    
    623,753Cash and cash equivalents at beginning of year
    
    
    2,323,290
    
    
    
    3,754,523
    
    
    
    3,130,770Cash and cash equivalents at end of year
    
    $
    1,705,895
    
    
    $
    2,323,290
    
    
    $
    3,754,523
 Supplemental Disclosures:
 AT DECEMBER 31,(IN THOUSANDS)
    
    2010
    
    
    2009
    
    
    2008Income taxes paid/(refund received)
    
    $
    528,151
    
    
    
    350,910
    
    
    $
    (5,429
    )Interest paid
    
    
    1,389,937
    
    
    
    1,790,303
    
    
    
    2,097,222
 AT DECEMBER 31,(IN THOUSANDS)
    
    2010
    
    
    2009
    
    
    2008Non Cash Transactions:Consolidation of dealer
floor plan securitization due
to early amortization event
    
    $
    
    
    
    $
    (855,000
    )
    
    $
    Assumption of securitized debt
    
    
    
    
    
    
    855,000
    
    
    
    Foreclosed real estate
    
    
    134,830
    
    
    
    79,730
    
    
    
    61,236Other repossessed assets
    
    
    1,486,457
    
    
    
    1,212,676
    
    
    
    Receipt of available for sale
mortgage backed securities in
exchange for mortgage loans
held for investment
    
    
    1,796,925
    
    
    
    
    
    
    
    780,797Consolidation of commercial
mortgage backed
securitization portfolio
    
    
    (860,486
    )
    
    
    
    
    
    
    Sale of previously
consolidated commercial
mortgage backed
securitization portfolio
    
    
    860,486
    
    
    
    
    
    
    
    Dividends declared
    
    
    784,000
   52




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies
   a. Principles of Consolidation 
 b. Use of Estimates 
 c. Revenue Recognition 
 d. Investment Securities and Other Investments 
   e. Loans Held for Sale 
 f. Mortgage Servicing Rights 
  53




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
   g. Allowance for Loan Losses and Reserve for Unfunded Lending Commitments 
           54




---



##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
          h. Loans 
     55




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
   i. Premises and Equipment 
 Office buildings
    
    10 to 30 yearsLeasehold improvements
    
    Remaining lease termFurniture, fixtures and equipment
    
    3 to 10 yearsAutomobiles
    
    5 years
  j. Other Real Estate Owned 
 k. Bank Owned Life Insurance
 l. Income Taxes 
      56




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
 m. Derivative Instruments and Hedging Activity 
     n. Forward Exchange 
 o. Consolidated Statement of Cash Flows 
 p. Goodwill and Core Deposit Intangibles 
  q. Asset Securitizations 
  r. Marketing expense 
  57




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
 s. Stock Based Compensation 
  GRANT DATE YEAR2009
    
    
    2008Expected volatility
    
    
    .492
    
    
    
    .280  .468Expected life in years
    
    
    6.00
    
    
    
    6.00Stock price on date of grant
    
    $
    3.04
    
    
    $
    4.77  7.73Exercise price
    
    $
    3.04
    
    
    $
    4.77  7.73Weighted average exercise price
    
    $
    3.04
    
    
    $
    5.27Weighted average fair value
    
    $
    3.04
    
    
    $
    2.54Expected dividend yield
    
    
    N/A
    
    
    
    N/ARisk-free interest rate
    
    
    2.32
    %
    
    
    2.84%  3.51
    %Vesting period in years
    
    
    3
    
    
    
    35
   t. Equity Method Investments 
 u.
Noncontrolling Interest 
 Note 2  Recent Accounting Pronouncements
     58




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 3  Acquisition of SHUSA by Santander
    Note 4  Goodwill and Other Intangible Assets
     YEAR
    
    AMOUNT2011
    
    $
    44,9632012
    
    
    33,1082013
    
    
    23,6302014
    
    
    14,8692015
    
    
    7,019
    59




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 4  Goodwill and Other Intangible Assets (continued)
  SpecializedRetail
    
    
    Business
    
    
    
    
    
    
    GlobalBanking
    
    
    Group
    
    
    Corporate
    
    
    Banking
    
    
    SCUSA
    
    
    TotalGoodwill at December 31, 2009
    
    $
    2,259,179
    
    
    $
    
    
    
    $
    1,172,302
    
    
    $
    
    
    
    $
    704,059
    
    
    $
    4,135,540Purchase accounting adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,189
    )
    
    
    (11,189
    )Goodwill at December 31, 2010
    
    $
    2,259,179
    
    
    $
    
    
    
    $
    1,172,302
    
    
    $
    
    
    
    $
    692,870
    
    
    $
    4,124,351
 Note 5  Restrictions on Cash and Amounts Due From Depository Institutions
  Note 6  Investment Securities
  AT DECEMBER 31,2010
    
    
    2009Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Value
    
    
    Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    ValueInvestment Securities
    Available for sale:U.S. Treasury and
government agency
securities
    
    $
    12,997
    
    
    
    
    
    
    
    
    
    
    
    12,997
    
    
    $
    364,596
    
    
    $
    116
    
    
    $
    102
    
    
    $
    364,610Debentures of FHLB, FNMA
and FHLMC
    
    
    24,291
    
    
    
    708
    
    
    
    
    
    
    
    24,999
    
    
    
    1,848,401
    
    
    
    992
    
    
    
    1,170
    
    
    
    1,848,223Corporate debt and
asset-backed securities
    
    
    5,246,878
    
    
    
    104,773
    
    
    
    24,261
    
    
    
    5,327,390
    
    
    
    6,652,059
    
    
    
    117,232
    
    
    
    12,119
    
    
    
    6,757,172Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,579
    
    
    
    181
    
    
    
    1
    
    
    
    2,759State and municipal
securities
    
    
    2,000,974
    
    
    
    1,609
    
    
    
    120,303
    
    
    
    1,882,280
    
    
    
    1,836,589
    
    
    
    14,434
    
    
    
    48,597
    
    
    
    1,802,426Mortgage-backed Securities:U.S. government agencies
    
    
    364,331
    
    
    
    75
    
    
    
    10
    
    
    
    364,396
    
    
    
    1,098
    
    
    
    21
    
    
    
    2
    
    
    
    1,117FHLMC and FNMA securities
    
    
    4,254,734
    
    
    
    51,473
    
    
    
    7,204
    
    
    
    4,299,003
    
    
    
    962,465
    
    
    
    4,876
    
    
    
    6,184
    
    
    
    961,157Non-agencies
    
    
    1,607,514
    
    
    
    260
    
    
    
    146,991
    
    
    
    1,460,783
    
    
    
    2,230,114
    
    
    
    1
    
    
    
    358,181
    
    
    
    1,871,934Total investment
securities available for
sale
    
    $
    13,511,719
    
    
    
    158,898
    
    
    
    298,769
    
    
    
    13,371,848
    
    
    $
    13,897,901
    
    
    $
    137,853
    
    
    $
    426,356
    
    
    $
    13,609,398
   60




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (continued)
    
    
    For debt securities, the ability and intent to hold provision was eliminated,
and impairment is now considered to be other-than-temporary if an entity (i) intends to
sell the security, (ii) more likely than not will be required to sell the security before
recovering its cost, or (iii) does not expect to recover the securitys entire amortized
cost basis (even if the entity does not intend to sell). This new framework does not apply
to equity securities (i.e., impaired equity securities will continue to be evaluated under
previously existing guidance).
 expected
to be collected
 
    
    If an entity intends to sell an impaired debt security or more likely than
not will be required to sell the security before recovery of its amortized cost basis less
any current-period credit loss, the impairment is other-than-temporary and should be
recognized currently in earnings in an amount equal to the entire difference between fair
value and amortized cost.
     Year Ended
    
    
    Year EndedDecember 31, 2010
    
    
    December 31, 2009Beginning balance at December 31, 2009 and December 31, 2008
    
    $
    206,155
    
    
    $
    62,834Additions for amount related to credit loss for which an
other-than-temporary-impairment was not previously
recognized
    
    
    4,763
    
    
    
    54,854Reductions for securities sold during the period
    
    
    
    
    
    
    Reductions for increases in cash flows expected to be
collected and recognized over the remaining life of
security (1)
    
    
    (70,762
    )
    
    
    Additional increases to credit losses for previously
recognized other-than-temporary-impairment charges when
there is no intent to sell the security(1)
    
    
    
    
    
    
    88,467Ending balance at December 31, 2010 and December 31, 2009
    
    $
    140,156
    
    
    $
    206,155
 (1)
    
    For the year ended December 31, 2010, SHUSA accreted into interest income $9.6 million of
the expected increase in cash flow on certain non-agency securities. The reason for the $70.8
million improvement in anticipated credit losses was due to increased prepayment speed assumptions
from reduced mortgage interest rates during 2010 as well as improvements in expected losses.
  61




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (continued)
  December 31, 2010
    
    
    December 31, 2009Loss severity
    
    
    49.21
    %
    
    
    49.45
    %Expected cumulative loss percentage
    
    
    22.99
    %
    
    
    32.15
    %Cumulative loss percentage to date
    
    
    4.72
    %
    
    
    3.01
    %Weighted average FICO
    
    
    711
    
    
    
    711Weighted average LTV
    
    
    68.4
    %
    
    
    70.1
    %
  AT DECEMBER 31, 2010Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesInvestment SecuritiesAvailable for sale investment securities:U.S. Treasury and government agency securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Debentures of FHLB, FNMA and FHLMC
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate debt and asset-backed securities
    
    
    1,196,575
    
    
    
    (16,854
    )
    
    
    105,431
    
    
    
    (7,407
    )
    
    
    1,302,006
    
    
    
    (24,261
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    State and municipal securities
    
    
    1,420,899
    
    
    
    (83,641
    )
    
    
    245,067
    
    
    
    (36,662
    )
    
    
    1,665,966
    
    
    
    (120,303
    )Mortgage-backed Securities:U.S. government agencies
    
    
    5,380
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    5,380
    
    
    
    (10
    )FHLMC and FNMA securities
    
    
    947,311
    
    
    
    (7,078
    )
    
    
    13,537
    
    
    
    (126
    )
    
    
    960,848
    
    
    
    (7,204
    )Non-agencies
    
    
    62,744
    
    
    
    (3,879
    )
    
    
    1,358,715
    
    
    
    (143,112
    )
    
    
    1,421,459
    
    
    
    (146,991
    )Total investment securities available for sale
    
    $
    3,632,909
    
    
    $
    (111,462
    )
    
    $
    1,722,750
    
    
    $
    (187,307
    )
    
    $
    5,355,659
    
    
    $
    (298,769
    )
 AT DECEMBER 31, 2009Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesInvestment SecuritiesAvailable for sale investment securities:U.S. Treasury and government agency securities
    
    $
    199,714
    
    
    $
    (102
    )
    
    $
    
    
    
    $
    
    
    
    $
    199,714
    
    
    $
    (102
    )Debentures of FHLB, FNMA and FHLMC
    
    
    1,250,970
    
    
    
    (1,170
    )
    
    
    
    
    
    
    
    
    
    
    1,250,970
    
    
    
    (1,170
    )Corporate debt and asset-backed securities
    
    
    1,118,889
    
    
    
    (4,641
    )
    
    
    53,929
    
    
    
    (7,478
    )
    
    
    1,172,818
    
    
    
    (12,119
    )Equity Securities
    
    
    
    
    
    
    
    
    
    
    253
    
    
    
    (1
    )
    
    
    253
    
    
    
    (1
    )State and municipal securities
    
    
    316,746
    
    
    
    (3,243
    )
    
    
    508,333
    
    
    
    (45,354
    )
    
    
    825,079
    
    
    
    (48,597
    )Mortgage-backed Securities:U.S. government agencies
    
    
    130
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    130
    
    
    
    (2
    )FHLMC and FNMA securities
    
    
    729,843
    
    
    
    (6,179
    )
    
    
    1,468
    
    
    
    (5
    )
    
    
    731,311
    
    
    
    (6,184
    )Non-agencies
    
    
    11
    
    
    
    (1
    )
    
    
    1,874,562
    
    
    
    (358,180
    )
    
    
    1,874,573
    
    
    
    (358,181
    )Total investment securities available for sale
    
    $
    3,616,303
    
    
    $
    (15,338
    )
    
    $
    2,438,545
    
    
    $
    (411,018
    )
    
    $
    6,054,848
    
    
    $
    (426,356
    )
   62




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 6  Investment Securities (continued)
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Proceeds from sales
    
    $
    5,075,900
    
    
    $
    2,673,370
    
    
    $
    5,203,297Gross realized gains
    
    
    192,161
    
    
    
    23,176
    
    
    
    50,316Gross realized losses
    
    
    (965
    )
    
    
    (827
    )
    
    
    (617,767
    )Net realized
(losses)/gains
    
    $
    191,196
    
    
    $
    22,349
    
    
    $
    (567,451
    )
    INVESTMENT SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 2010(1)Due After
    
    
    
    
    
    
    WeightedDue Within
    
    
    Due After 1
    
    
    Due After 5
    
    
    10 Years/No
    
    
    
    
    
    
    AverageOne Year
    
    
    Within 5 Yrs
    
    
    Within 10 Yrs
    
    
    Maturity
    
    
    Total
    
    
    Yield(2)U.S. Treasury and
government agency
    
    $
    12,997
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,997
    
    
    
    0.13
    %Debentures of FHLB, FNMA and
FHLMC
    
    
    4,999
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    24,999
    
    
    
    4.56
    %Corporate debt and asset
backed securities
    
    
    14,690
    
    
    
    3,879,648
    
    
    
    1,112,715
    
    
    
    320,337
    
    
    
    5,327,390
    
    
    
    2.87
    %State and Municipal securities
    
    
    
    
    
    
    783
    
    
    
    20,392
    
    
    
    1,861,105
    
    
    
    1,882,280
    
    
    
    4.91
    %Mortgage-backed Securities:U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    5,380
    
    
    
    359,016
    
    
    
    364,396
    
    
    
    2.94
    %FHLMC and FNMA securities
    
    
    23
    
    
    
    19,565
    
    
    
    195,122
    
    
    
    4,084,293
    
    
    
    4,299,003
    
    
    
    3.25
    %Non-agencies
    
    
    
    
    
    
    396
    
    
    
    108,832
    
    
    
    1,351,555
    
    
    
    1,460,783
    
    
    
    7.45
    %Total Fair Value
    
    $
    32,709
    
    
    $
    3,920,392
    
    
    $
    1,442,441
    
    
    $
    7,976,306
    
    
    $
    13,371,848
    
    
    
    3.78
    %Weighted average yield
    
    
    1.48
    %
    
    
    2.78
    %
    
    
    3.30
    %
    
    
    4.37
    %
    
    
    3.78
    %Total Amortized Cost
    
    $
    32,665
    
    
    $
    3,853,527
    
    
    $
    1,428,766
    
    
    $
    8,196,761
    
    
    $
    13,511,719
 (1)
    
    The maturities above do not represent the effective duration of SHUSAs portfolio since the amounts above are based on contractual maturities and do not contemplate
anticipated prepayments, with the exception of the securities identified in Note 2 below.(2)
    
    Weighted-average yields are based on amortized cost. Yields on tax-exempt securities are calculated on a tax equivalent basis and are based on an effective tax rate of 35%.
   63




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Notes to Consolidated Financial Statements
 Note 7  Loans
  AT DECEMBER 31,2010
    
    
    2009Commercial real estate loans(1)
    
    $
    11,311,167
    
    
    $
    12,453,575Commercial and industrial loans
    
    
    9,931,143
    
    
    
    10,754,692Multi-family loans
    
    
    6,746,558
    
    
    
    4,588,403Other
    
    
    1,170,044
    
    
    
    1,317,204Total Commercial Loans Held for Investment
    
    
    29,158,912
    
    
    
    29,113,874Residential mortgages
    
    
    11,029,650
    
    
    
    10,607,626Home equity loans and lines of credit
    
    
    7,005,539
    
    
    
    7,069,491Total consumer loans secured by real estate
    
    
    18,035,189
    
    
    
    17,677,117Auto loans
    
    
    16,714,124
    
    
    
    10,496,510Other
    
    
    1,109,659
    
    
    
    264,676Total Consumer Loans Held for Investment
    
    
    35,858,972
    
    
    
    28,438,303Total Loans Held for Investment (2)
    
    $
    65,017,884
    
    
    $
    57,552,177Total Loans Held for Investment with:Fixed rate
    
    $
    41,405,419
    
    
    $
    33,667,940Variable rate
    
    
    23,612,465
    
    
    
    23,884,237Total Loans Held for Investment(2)
    
    $
    65,017,884
    
    
    $
    57,552,177
 (1)
    
    Includes residential and commercial construction loans of $0.7 billion and $2.6 billion at December 31, 2010 and 2009, respectively.(2)
    
    Loan totals include deferred loan origination costs, net of deferred loan fees and unamortized purchase premiums, net of discounts.
These items resulted in net decreases in loans of $920.7 million and $382.6 million at December 31, 2010 and 2009, respectively.
Results for 2010 and 2009 include a net decrease of $971.1 million and $466.2 million, respectively, related to the contribution of
SCUSA. Loans pledged as collateral for borrowings totaled $47.7 billion and $41.3 billion at December 31, 2010 and 2009,
respectively.
    64




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (continued)
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Allowance for loan losses balance, beginning of period
    
    $
    1,818,224
    
    
    $
    1,102,753
    
    
    $
    709,444Allowance established in connection with reconsolidation of
previously unconsolidated securitized assets
    
    
    5,991
    
    
    
    
    
    
    
    Acquired allowance for loan losses due to SCUSA contribution from
Santander
    
    
    
    
    
    
    347,302
    
    
    
    Provision for loan losses (1)
    
    
    1,585,545
    
    
    
    1,790,559
    
    
    
    874,140Allowance released in connection with loan sales or securitizations
    
    
    
    
    
    
    
    
    
    
    (3,745
    )Charge-offs:Commercial
    
    
    650,888
    
    
    
    518,468
    
    
    
    238,470Consumer
    
    
    861,269
    
    
    
    1,232,070
    
    
    
    353,244Total charge-offs
    
    
    1,512,157
    
    
    
    1,750,538
    
    
    
    591,714Recoveries:Commercial
    
    
    54,768
    
    
    
    11,288
    
    
    
    13,378Consumer
    
    
    245,079
    
    
    
    316,860
    
    
    
    101,250Total recoveries
    
    
    299,847
    
    
    
    328,148
    
    
    
    114,628Charge-offs, net of recoveries
    
    
    1,212,310
    
    
    
    1,422,390
    
    
    
    477,086Allowance for loan losses balance, end of period
    
    
    2,197,450
    
    
    
    1,818,224
    
    
    
    1,102,753Reserve for unfunded lending commitments, beginning of period
    
    
    259,140
    
    
    
    65,162
    
    
    
    28,302Provision for unfunded lending commitments (1)
    
    
    41,481
    
    
    
    193,978
    
    
    
    36,860Reserve for unfunded lending commitments, end of period
    
    
    300,621
    
    
    
    259,140
    
    
    
    65,162Total allowance for credit losses
    
    $
    2,498,071
    
    
    $
    2,077,364
    
    
    $
    1,167,915
 (1)
    
    SHUSA defines the provision for credit losses on the consolidated statement of
operations as the sum of the total provision for loan losses and provision for unfunded
lending commitment.
  AT DECEMBER 31,2010
    
    
    2009Non-accrual loans:ConsumerResidential
    
    $
    602,027
    
    
    $
    617,918Home equity loans and lines of credit
    
    
    125,310
    
    
    
    117,390Auto loans and other consumer loans
    
    
    592,650
    
    
    
    535,902Total consumer loans
    
    
    1,319,987
    
    
    
    1,271,210Commercial
    
    
    528,333
    
    
    
    654,322Commercial real estate
    
    
    653,221
    
    
    
    823,766Multi-family
    
    
    224,728
    
    
    
    381,999Total commercial loans
    
    
    1,406,282
    
    
    
    1,860,087Total non-accrual loans
    
    
    2,726,269
    
    
    
    3,131,297Real estate owned
    
    
    143,149
    
    
    
    99,364Other repossessed assets
    
    
    79,854
    
    
    
    18,716Total other real estate owned and other repossessed assets
    
    
    223,003
    
    
    
    118,080Total non-performing assets
    
    $
    2,949,272
    
    
    $
    3,249,377
  65




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (continued)
  AT DECEMBER 31,2010
    
    
    2009Impaired loans with a related allowance
    
    $
    1,836,993
    
    
    $
    1,193,095Impaired loans without a related allowance
    
    
    299,501
    
    
    
    283,652Total impaired loans
    
    $
    2,136,494
    
    
    $
    1,476,747Allowance for impaired loans
    
    $
    417,873
    
    
    $
    363,059Total loans past due 90 days as to interest or principal and accruing interest
    
    $
    169
    
    
    $
    27,321
  Contractual
    
    
    Nonaccretable
    
    
    Accretable
    
    
    CarryingReceivable Amount
    
    
    Yield
    
    
    (Yield)/ Premium
    
    
    AmountBalance at January 1, 2010
    
    $
    2,042,594
    
    
    $
    (225,949
    )
    
    $
    (35,207
    )
    
    $
    1,781,438Additions (Loans acquired
during the period)
    
    
    9,469,913
    
    
    
    (989,010
    )
    
    
    291,309
    
    
    
    8,772,212Customer repayments
    
    
    (2,088,158
    )
    
    
    
    
    
    
    
    
    
    
    (2,088,158
    )Charge-offs
    
    
    (277,345
    )
    
    
    277,345
    
    
    
    
    
    
    
    Change in interest accrual
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion of loan discount
    
    
    
    
    
    
    
    
    
    
    (74,492
    )
    
    
    (74,492
    )Transfers
between nonaccretable and accretable yield
    
    
    
    
    
    
    (28,849
    )
    
    
    28,849
    
    
    
    Disposals related to loans sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2010
    
    $
    9,147,004
    
    
    $
    (966,463
    )
    
    $
    210,459
    
    
    $
    8,391,000
  66




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (continued)
     2010
    
    Commercial
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Allowance for loan losses balance, beginning of period
    
    $
    989,192
    
    
    $
    824,529
    
    
    $
    4,503
    
    
    $
    1,818,224Allowance established in connection with
reconsolidation of previously unconsolidated
securitized assets
    
    
    5,991
    
    
    
    
    
    
    
    
    
    
    
    5,991Provision for loan losses (1)
    
    
    506,723
    
    
    
    1,067,643
    
    
    
    11,179
    
    
    
    1,585,545Charge-offs
    
    
    (650,888
    )
    
    
    (861,269
    )
    
    
    
    
    
    
    (1,512,157
    )Recoveries
    
    
    54,768
    
    
    
    245,079
    
    
    
    
    
    
    
    299,847Charge-offs, net of recoveries
    
    
    (596,120
    )
    
    
    (616,190
    )
    
    
    
    
    
    
    (1,212,310
    )Allowance for loan losses balance, end of period
    
    $
    905,786
    
    
    $
    1,275,982
    
    
    $
    15,682
    
    
    $
    2,197,450Ending balance, individually evaluated for impairment
    
    $
    280,219
    
    
    $
    137,654
    
    
    $
    
    
    
    $
    417,873Ending balance, collectively evaluated for impairment
    
    
    625,567
    
    
    
    1,016,410
    
    
    
    
    
    
    
    1,641,977Purchased impaired loans
    
    
    
    
    
    
    137,600
    
    
    
    
    
    
    
    137,600Financing receivables:Ending balance
    
    $
    29,158,912
    
    
    $
    36,009,035
    
    
    $
    
    
    
    $
    65,167,947Ending balance, individually evaluated for impairment
    
    
    1,183,563
    
    
    
    949,156
    
    
    
    
    
    
    
    2,132,719Ending balance, collectively evaluated for impairment
    
    
    27,975,349
    
    
    
    26,668,879
    
    
    
    
    
    
    
    54,644,228Purchased impaired loans
    
    
    
    
    
    
    8,391,000
    
    
    
    
    
    
    
    8,391,000
  December 31,2010Non-accrual loans:Consumer:Home Mortgages
    
    $
    602,027Self Originated Home Equity
    
    
    63,686Indirect Auto
    
    
    563,002Remaining consumer
    
    
    91,272Total consumer loans
    
    
    1,319,987Commercial:Corporate Banking
    
    
    653,943Middle Market Commercial Real Estate
    
    
    379,898Continuing Care Retirement Communities
    
    
    126,704Santander Real Estate Capital
    
    
    203,802Remaining Commercial
    
    
    41,935Total commercial loans
    
    
    1,406,282Total non-performing loans
    
    $
    2,726,269
  67




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (continued)
  RecordedInvestment30-59 Days
    
    
    60-89 Days
    
    
    Greater Than
    
    
    Total Past
    
    
    
    
    
    
    Total Financing
    
    
    > 90 DaysPast Due
    
    
    Past Due
    
    
    90 Days
    
    
    Due
    
    
    Current
    
    
    Receivables
    
    
    and AccruingCorporate Banking
    
    $
    83,039
    
    
    
    51,675
    
    
    
    425,824
    
    
    
    560,538
    
    
    
    14,192,156
    
    
    
    14,752,694
    
    
    
    Middle Market Commercial Real Estate
    
    
    37,619
    
    
    
    24,980
    
    
    
    187,393
    
    
    
    249,992
    
    
    
    3,530,116
    
    
    
    3,780,108
    
    
    
    169Continuing Care Retirement Communities
    
    
    13,300
    
    
    
    
    
    
    
    107,579
    
    
    
    120,879
    
    
    
    460,168
    
    
    
    581,047
    
    
    
    Santander Real Estate Capital
    
    
    119,795
    
    
    
    27,819
    
    
    
    161,583
    
    
    
    309,197
    
    
    
    8,881,740
    
    
    
    9,190,937
    
    
    
    Remaining commercial
    
    
    5,491
    
    
    
    32,982
    
    
    
    8,312
    
    
    
    46,785
    
    
    
    807,341
    
    
    
    854,126
    
    
    
    Home Mortgages
    
    
    238,829
    
    
    
    106,756
    
    
    
    602,027
    
    
    
    947,612
    
    
    
    10,230,512
    
    
    
    11,178,124
    
    
    
    Self Originated Home Equity
    
    
    18,540
    
    
    
    12,774
    
    
    
    63,686
    
    
    
    95,000
    
    
    
    6,461,605
    
    
    
    6,556,605
    
    
    
    Indirect Auto
    
    
    1,455,595
    
    
    
    412,774
    
    
    
    140,238
    
    
    
    2,008,607
    
    
    
    14,762,568
    
    
    
    16,771,175
    
    
    
    Remaining consumer
    
    
    52,751
    
    
    
    26,116
    
    
    
    71,492
    
    
    
    150,359
    
    
    
    1,352,772
    
    
    
    1,503,131
    
    
    
    Total
    
    $
    2,024,959
    
    
    
    695,876
    
    
    
    1,768,134
    
    
    
    4,488,969
    
    
    
    60,678,978
    
    
    
    65,167,947
    
    
    
    169
  Recorded
    
    
    Unpaid Principal
    
    
    Related Specific2010
    
    Investment
    
    
    Balance
    
    
    ReservesWith no related allowance recorded:Corporate Banking
    
    $
    134,154
    
    
    $
    134,154
    
    
    $
    Middle Market Commercial Real Estate
    
    
    62,002
    
    
    
    62,002
    
    
    
    Continuing Care Retirement Communities
    
    
    983
    
    
    
    983
    
    
    
    Santander Real Estate Capital
    
    
    34,605
    
    
    
    34,605
    
    
    
    Remaining commercial
    
    
    
    
    
    
    
    
    
    
    Home Mortgages
    
    
    67,757
    
    
    
    67,757
    
    
    
    With an allowance recorded:Corporate Banking
    
    
    187,296
    
    
    
    345,322
    
    
    
    158,026Middle Market Commercial Real Estate
    
    
    257,639
    
    
    
    317,378
    
    
    
    59,739Continuing Care Retirement Communities
    
    
    104,084
    
    
    
    125,720
    
    
    
    21,636Santander Real Estate Capital
    
    
    96,583
    
    
    
    123,581
    
    
    
    26,998Remaining commercial
    
    
    25,998
    
    
    
    39,818
    
    
    
    13,820Home Mortgages
    
    
    545,077
    
    
    
    678,956
    
    
    
    133,879Indirect Auto
    
    
    202,443
    
    
    
    206,218
    
    
    
    3,775Total:Commercial
    
    
    903,344
    
    
    
    1,183,563
    
    
    
    280,219Consumer
    
    
    815,277
    
    
    
    952,931
    
    
    
    137,654Total
    
    $
    1,718,621
    
    
    $
    2,136,494
    
    
    $
    417,873
  68




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Loans (continued)
  PASS.
 SPECIAL MENTION.
 SUBSTANDARD.
 DOUBTFUL.
 LOSS.
 ContinuingMiddle Market
    
    
    Care
    
    
    SantanderCorporate
    
    
    Commercial Real
    
    
    Retirement
    
    
    Real Estate
    
    
    Remaining2010
    
    Banking
    
    
    Estate
    
    
    Communities
    
    
    Capital
    
    
    CommercialRegulatory RatingPass
    
    $
    12,709,768
    
    
    $
    2,306,926
    
    
    $
    307,890
    
    
    $
    8,482,219
    
    
    $
    765,492Special Mention
    
    
    796,484
    
    
    
    652,330
    
    
    
    55,886
    
    
    
    320,727
    
    
    
    12,488Substandard
    
    
    1,043,379
    
    
    
    632,901
    
    
    
    90,567
    
    
    
    312,130
    
    
    
    74,629Doubtful
    
    
    201,248
    
    
    
    187,951
    
    
    
    126,704
    
    
    
    75,861
    
    
    
    1,517Loss
    
    
    1,814
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,752,693
    
    
    $
    3,780,108
    
    
    $
    581,047
    
    
    $
    9,190,937
    
    
    $
    854,126
  2010
    
    Home Mortgages
    
    
    Self Originated Home Equity
    
    
    Indirect Auto
    
    
    Remaining ConsumerPerforming
    
    $
    10,576,097
    
    
    $
    6,492,919
    
    
    $
    15,931,345
    
    
    $
    1,688,687Nonperforming
    
    
    602,027
    
    
    
    63,686
    
    
    
    563,002
    
    
    
    91,272Total
    
    $
    11,178,124
    
    
    $
    6,556,605
    
    
    $
    16,494,347
    
    
    $
    1,779,959
  69




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 8  Mortgage Servicing Rights
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Gross balance, beginning of year
    
    $
    179,643
    
    
    $
    161,288
    
    
    $
    142,549Residential mortgage servicing assets recognized
    
    
    41,840
    
    
    
    74,240
    
    
    
    47,277Amortization of residential mortgage servicing rights
    
    
    (47,934
    )
    
    
    (55,885
    )
    
    
    (28,538
    )Gross balance, end of year
    
    
    173,549
    
    
    
    179,643
    
    
    
    161,288Valuation allowance
    
    
    (27,525
    )
    
    
    (52,089
    )
    
    
    (48,815
    )Balance, end of year
    
    $
    146,024
    
    
    $
    127,554
    
    
    $
    112,473
   December 31, 2010
    
    
    December 31, 2009
    
    
    December 31, 2008CPR speed
    
    
    16.82
    %
    
    
    24.44
    %
    
    
    29.65
    %Escrow credit spread
    
    
    2.41
    %
    
    
    3.17
    %
    
    
    4.35
    %
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Balance, beginning of year
    
    $
    52,089
    
    
    $
    48,815
    
    
    $
    1,473Increase/(decrease) in
valuation allowance for
residential mortgage servicing
rights
    
    
    (24,564
    )
    
    
    3,274
    
    
    
    47,342Balance, end of year
    
    $
    27,525
    
    
    $
    52,089
    
    
    $
    48,815
     70




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 9  Premises and Equipment
  AT DECEMBER 31,2010
    
    
    2009Land
    
    $
    57,101
    
    
    $
    61,288Office buildings
    
    
    203,447
    
    
    
    219,481Furniture, fixtures, and equipment
    
    
    467,212
    
    
    
    410,638Leasehold improvements
    
    
    310,680
    
    
    
    299,176Automobiles and other
    
    
    2,739
    
    
    
    2,3131,041,179
    
    
    
    992,896Less accumulated depreciation
    
    
    (445,228
    )
    
    
    (515,084
    )Total premises and equipment
    
    $
    595,951
    
    
    $
    477,812
  Note 10  Accrued Interest Receivable
  AT DECEMBER 31,2010
    
    
    2009Accrued interest receivable on:Investment securities
    
    $
    82,892
    
    
    $
    87,672Loans
    
    
    323,725
    
    
    
    257,450Total interest receivable
    
    $
    406,617
    
    
    $
    345,122
  71




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 11  Deposits
  AT DECEMBER 31,2010
    
    
    2009Balance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    RateDemand deposit accounts
    
    $
    7,141,527
    
    
    
    16.7
    %
    
    
    
    %
    
    $
    7,237,730
    
    
    
    16.3
    %
    
    
    
    %NOW accounts
    
    
    5,689,021
    
    
    
    13.3
    
    
    
    0.13
    
    
    
    5,703,789
    
    
    
    12.8
    
    
    
    0.16Money market accounts
    
    
    14,272,645
    
    
    
    33.5
    
    
    
    0.66
    
    
    
    13,158,001
    
    
    
    29.6
    
    
    
    0.82Savings accounts
    
    
    3,463,061
    
    
    
    8.1
    
    
    
    0.11
    
    
    
    3,537,983
    
    
    
    8.0
    
    
    
    0.14Certificates of deposit
    
    
    7,827,485
    
    
    
    18.4
    
    
    
    1.25
    
    
    
    8,515,350
    
    
    
    19.2
    
    
    
    1.64Total retail and commercial deposits
    
    
    38,393,739
    
    
    
    90.0
    
    
    
    0.53
    
    
    
    38,152,853
    
    
    
    85.9
    
    
    
    0.69Wholesale NOW accounts
    
    
    87,000
    
    
    
    0.2
    
    
    
    0.35
    
    
    
    27,570
    
    
    
    0.1
    
    
    
    0.50Wholesale money market accounts
    
    
    
    
    
    
    0.0
    
    
    
    
    
    
    
    486,944
    
    
    
    1.1
    
    
    
    0.19Wholesale certificates of deposit
    
    
    537,217
    
    
    
    1.3
    
    
    
    0.71
    
    
    
    1,724,841
    
    
    
    3.8
    
    
    
    2.20Total wholesale deposits
    
    
    624,217
    
    
    
    1.5
    
    
    
    0.66
    
    
    
    2,239,355
    
    
    
    5.0
    
    
    
    1.74Total government deposits
    
    
    1,889,397
    
    
    
    4.4
    
    
    
    0.43
    
    
    
    2,231,752
    
    
    
    5.0
    
    
    
    0.14Customer repurchase agreements &
Eurodollar deposits
    
    
    1,765,940
    
    
    
    4.1
    
    
    
    0.27
    
    
    
    1,804,105
    
    
    
    4.1
    
    
    
    0.22Total deposits (1)
    
    $
    42,673,293
    
    
    
    100.0
    %
    
    
    0.52
    %
    
    $
    44,428,065
    
    
    
    100.0
    %
    
    
    0.69
    %
 (1)
    
    Includes foreign deposits of $1.3 billion at both December 31, 2010 and December 31, 2009.
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008NOW accounts
    
    $
    7,979
    
    
    $
    16,632
    
    
    $
    41,227Money market accounts
    
    
    88,375
    
    
    
    153,961
    
    
    
    253,548Savings accounts
    
    
    4,740
    
    
    
    9,057
    
    
    
    24,785Certificates of deposit
    
    
    100,000
    
    
    
    366,116
    
    
    
    425,295Wholesale NOW accounts
    
    
    379
    
    
    
    521
    
    
    
    2,356Wholesale money market accounts
    
    
    228
    
    
    
    3,383
    
    
    
    32,979Wholesale certificates of deposit
    
    
    15,720
    
    
    
    73,088
    
    
    
    54,070Total government deposits
    
    
    7,355
    
    
    
    12,244
    
    
    
    81,288Customer repurchase agreements & Eurodollar deposits
    
    
    3,857
    
    
    
    5,547
    
    
    
    36,040Total interest expense on deposits
    
    $
    228,633
    
    
    $
    640,549
    
    
    $
    951,588
  Three months or less
    
    $
    636,429Over three through six months
    
    
    280,431Over six through twelve months
    
    
    1,022,823Over twelve months
    
    
    540,994Total
    
    $
    2,480,677
  2011
    
    $
    6,457,9782012
    
    
    812,4102013
    
    
    616,0982014
    
    
    57,8782015
    
    
    406,521Thereafter
    
    
    13,817Total
    
    $
    8,364,702
   72




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations
  AT DECEMBER 31,2010
    
    
    2009EFFECTIVE
    
    
    
    
    
    
    EFFECTIVEBALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATESovereign Bank borrowings and other debt obligationsOvernight federal funds purchased
    
    $
    954,000
    
    
    
    0.19
    %
    
    $
    1,000,000
    
    
    
    0.25
    %Federal Home Loan Bank (FHLB) advances, maturing through August 2018a
    
    
    9,849,041
    
    
    
    4.10
    
    
    
    12,056,294
    
    
    
    4.13Securities sold under repurchase agreementsb
    
    
    1,389,382
    
    
    
    0.31
    
    
    
    
    
    
    
    0.00Reit preferredc
    
    
    147,530
    
    
    
    14.20
    
    
    
    146,115
    
    
    
    14.342.75% senior notes, due January 2012d
    
    
    1,348,111
    
    
    
    3.92
    
    
    
    1,346,373
    
    
    
    3.923.500% subordinated debentures, due June 2013e
    
    
    
    
    
    
    0.00
    
    
    
    146,521
    
    
    
    3.583.750% subordinated debentures, due March 2014e
    
    
    219,530
    
    
    
    3.75
    
    
    
    242,520
    
    
    
    3.875.125% subordinated debentures, due March 2013e
    
    
    485,276
    
    
    
    5.28
    
    
    
    478,651
    
    
    
    5.354.375% subordinated debentures, due August 2013e
    
    
    271,945
    
    
    
    4.38
    
    
    
    299,883
    
    
    
    4.388.750% subordinated debentures, due May 2018e
    
    
    496,170
    
    
    
    8.82
    
    
    
    495,824
    
    
    
    8.82Holding company borrowings and other debt obligationsCommercial paperf
    
    
    968,355
    
    
    
    0.98
    
    
    
    
    
    
    
    0.00Unsecured note, due December 2010
    
    
    
    
    
    
    0.00
    
    
    
    28,000
    
    
    
    4.48Subordinated revolving credit facility, due December 2011
    
    
    100,000
    
    
    
    2.01
    
    
    
    100,000
    
    
    
    3.23Subordinated revolving credit facility, due December 2011
    
    
    150,000
    
    
    
    2.05
    
    
    
    117,000
    
    
    
    4.24SCUSA Warehouse lines with Santander and related subsidiariesg
    
    
    4,148,355
    
    
    
    1.57
    
    
    
    4,031,267
    
    
    
    1.94SCUSA Warehouse line due May 2011h
    
    
    475,825
    
    
    
    1.62
    
    
    
    1,000,000
    
    
    
    2.01SCUSA Warehouse line due March 2011h
    
    
    23,660
    
    
    
    3.11
    
    
    
    
    
    
    
    0.00SCUSA Warehouse line due May 2011h
    
    
    129,600
    
    
    
    3.40
    
    
    
    
    
    
    
    0.00SCUSA Warehouse line due June 2011h
    
    
    516,000
    
    
    
    1.71
    
    
    
    
    
    
    
    0.00SCUSA Warehouse line due August 2011h
    
    
    209,390
    
    
    
    5.85
    
    
    
    
    
    
    
    0.00SCUSA Warehouse line due September 2017h
    
    
    1,077,475
    
    
    
    1.96
    
    
    
    
    
    
    
    0.00Subordinated notes, due March 2020i
    
    
    751,355
    
    
    
    5.96
    
    
    
    
    
    
    
    0.004.8% senior notes, due September 2010
    
    
    
    
    
    
    0.00
    
    
    
    299,788
    
    
    
    4.80Floating rate senior notes, due March 2010
    
    
    
    
    
    
    0.00
    
    
    
    299,956
    
    
    
    0.484.9% senior notes, due September 2010
    
    
    
    
    
    
    0.00
    
    
    
    248,393
    
    
    
    4.932.5% senior notes, due June 2012j
    
    
    249,332
    
    
    
    3.73
    
    
    
    248,895
    
    
    
    3.73Santander Puerto Rico fixed rate senior notes, due February 2010k
    
    
    
    
    
    
    0.00
    
    
    
    250,000
    
    
    
    0.61Santander senior line of credit, due September 2011k
    
    
    250,000
    
    
    
    0.69
    
    
    
    890,000
    
    
    
    0.30TALF loan
    
    
    196,589
    
    
    
    2.22
    
    
    
    320,133
    
    
    
    2.13Asset backed notesl
    
    
    8,050,022
    
    
    
    2.35
    
    
    
    1,929,706
    
    
    
    4.49Junior subordinated debentures due to Capital Trust Entitiesm
    
    
    1,173,174
    
    
    
    6.50
    
    
    
    1,259,832
    
    
    
    6.46Total borrowings and other debt obligations
    
    $
    33,630,117
    
    
    
    3.07
    %
    
    $
    27,235,151
    
    
    
    3.65
    %
 a
    
    During the three-month period ended March 31, 2009, the Company retired
$1.4 billion of advances from the Federal Home Loan Bank (FHLB) incurring prepayment penalties of
$68.7 million. This decision was made to reduce interest expense in future periods since the
advances were at above market interest rates due to the current low rate environment. FHLB advances
are collateralized by qualifying mortgage-related assets as defined by the FHLB.b
    
    Included in borrowings and other debt obligations are sales of securities
under repurchase agreements. Repurchase agreements are treated as financings with the obligations
to repurchase securities sold reflected as a liability in the balance sheet. The dollar amount of
securities underlying the agreements remains recorded as an asset, although the securities
underlying the agreements are delivered to the brokers who arranged the transactions. In certain
instances, the broker may have sold, loaned, or disposed of the securities to other parties in the
normal course of their operations, and have agreed to deliver to SHUSA substantially similar
securities at the maturity of the agreements. The broker/dealers who participate with SHUSA in
these agreements are primarily broker/dealers reporting to the Federal Reserve Bank of New York.c
    
    On August 21, 2000, SHUSA received approximately $140 million of net
proceeds from the issuance of $161.8 million of 12% Series A Noncumulative Preferred Interests in
Sovereign Real Estate Investment Trust (SREIT), a subsidiary of Sovereign Bank, that holds
primarily residential real estate loans. The preferred stock was issued at a discount, and is being
amortized over the life of the preferred shares using the effective yield method. The preferred
shares may be redeemed at any time on or after May 16, 2020, at the option of SHUSA subject to the
approval of the OTS. Under certain circumstances, the preferred shares are automatically
exchangeable into preferred stock of Sovereign Bank. The offering was made exclusively to
institutional investors. The proceeds of this offering were principally used to repay corporate
debt.d
    
    In December 2008, Sovereign Bank issued $1.4 billion in 3 year fixed rate
FDIC-guaranteed senior unsecured notes under the TLG Program. The fixed rate note bears interest at
a rate of 2.75% and matures on January 17, 2012.
  73




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations (continued)
 e
    
    Sovereign Bank has issued various subordinated notes. These debentures are
non-callable fixed rate notes that are due between March 2013 through May 2018. These notes are
not subject to redemption prior to their maturity dates except in the case of the insolvency or
liquidation of Sovereign Bank, and then only with prior regulatory approval. These subordinated
notes qualify as Tier 2 regulatory capital for Sovereign Bank. Under the current OTS rules, 5 years
prior to maturity, 20% of the balance of the subordinated note will no longer qualify as Tier 2
capital. In each successive year prior to maturity, an additional 20% of the subordinated note will
no longer qualify as Tier 2 capital. Prior to December 31, 2010, the Company received approval from
the OTS to repurchase $271.9 million of 4.375% fixed rate/floating rate subordinated bank notes due
August 1, 2013 and $219.5 million of 3.75% fixed rate/floating rate subordinated bank notes due
April 1, 2014. The 4.375% notes were redeemable in whole or in part as of August 1, 2008 and the
3.75% notes were redeemable in whole or in part as of April 1, 2009. In anticipation of this
repurchase, the Company wrote off $5.2 million of unamortized discounts, purchase marks and
deferred issuance costs through loss on debt extinguishment at December 31, 2010.f
    
    During 2010, SHUSA initiated a holding company level commercial paper
issuance program, which is backed by committed lines from Santander, which at December 31, 2010 had
an outstanding balance of $968.4 million and an effective rate of 0.98%g
    
    During 2010, the Company, through its SCUSA subsidiary, entered into a $1.8
billion line with Santander, acting through its New York branch, which will mature on December 31,
2011. In addition, on December 31, 2010, the Company amended a warehouse line with Santander to
increase availability to $3.7 billion and extend the maturity date to December 31, 2011.h
    
    During 2010, the Company, through its SCUSA subsidiary entered into four
new warehouse line of credit agreements with various financial institutions with a total
availability of $2.5 billion. The proceeds from these new financing arrangements were used to pay
down other warehouse facilities and to fund loan growth during the period. These agreements have
maturity dates ranging from March 17, 2011 through August 17, 2011. The Company, through its SCUSA
subsidiary, also entered into a $1.2 billion amortizing term lending agreement with a final legal
maturity of September 2, 2017. Additionally, on May 7, 2010, SCUSA amended a warehouse line of
credit agreement to provide for borrowing capacity up to $900 million and to extend the maturity
date to May 6, 2011.SCUSA borrowings of $14.2 billion are collateralized by automobile retail installment contracts,
recreational vehicle and marine retail installment contracts and commercial loans at December 31,
2010.i
    
    In March 2010, the Company issued a $750 million subordinated note to Santander, which matures in
March 2020. This subordinated note bears interest at 5.75% until March 2015 and then bears interest
at 6.25% until maturity. Interest is being recognized at the effective interest rate of 5.96%.j
    
    In March 2010, SHUSA issued $250 million in 3.5 year fixed rate senior
unsecured notes with the FDIC-guarantee under the TLG Program at a rate of 2.50% which mature on
June 15, 2012.k
    
    On November 18, 2009, the Company entered into a line of credit agreement
with Banco Santander. This agreement provides borrowing capacity of up to $2.5 billion. At December
31, 2010, the outstanding balance under this line of credit is $250 million and bears interest of
0.69% and will mature in September 2011. The Company is in compliance with all covenants of its
credit agreement with Santander.l
    
    SHUSA, through its SCUSA subsidiary, has entered into various
securitization transactions involving their retail automotive installment loans that do not meet
the criteria for sale accounting. These transactions are accounted for as secured financings and
therefore both the securitized retail installment contracts and the related securitization debt,
issued by the special purpose entities, remain on the consolidated balance sheet. The securitized
retail automotive installment loans are available to satisfy the related securitization debt and
are not available to creditors. SCUSA had $8.1 billion of this variable rate securitized debt
outstanding at December 31, 2010 which had a weighted average interest rate of 2.35%. The maturity
of this debt is based on the timing of repayments from the securitized assets.m
    
    The total balance of junior subordinated debentures due to Capital Trust
Entities at December 31, 2010 was $1.2 billion. Included in this balance is the Trust PIERS. On
February 26, 2004, SHUSA completed the offering of $700 million of Trust PIERS, and in March 2004,
the Company raised an additional $100 million of Trust PIERS under this offering. The offering was
completed through Sovereign Capital Trust IV (the Trust), a special purpose entity established
to issue the Trust PIERS. Each Trust PIERS had an issue price of $50 and represents an undivided
beneficial ownership interest in the assets of the Trust, which consist of:
 
    
    Junior subordinated debentures issued by SHUSA, each of which will
have a principal amount at maturity of $50, and which have a stated
maturity of March 1, 2034; and
    
    Warrants to purchase shares of common stock from SHUSA at any time
prior to the close of business on March 1, 2034, by delivering junior
subordinated debentures (or, in the case of warrant exercises before
March 5, 2007, cash equal to the accreted principal amount of a junior
subordinated debenture).
   74




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Borrowings and Other Debt Obligations (continued)
    2011
    
    $
    12,403,5832012
    
    
    3,230,1772013
    
    
    3,411,4072014
    
    
    2,643,5012015
    
    
    2,783,572Thereafter
    
    
    9,157,877Total
    
    $
    33,630,117
 Note 13  Stockholders Equity
         Note 14  Regulatory Matters
    75




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 14  Regulatory Matters (continued)
    REGULATORY CAPITAL (IN THOUSANDS)Tier 1
    
    
    Tier 1
    
    
    TotalLeverage
    
    
    Risk-Based
    
    
    Risk-BasedCapital
    
    
    Capital
    
    
    CapitalRatio
    
    
    Ratio
    
    
    RatioSovereign Bank at December 31, 2010:Regulatory capital
    
    $
    7,736,164
    
    
    $
    7,680,472
    
    
    $
    9,092,918Minimum capital requirement(1)
    
    
    2,707,475
    
    
    
    2,283,372
    
    
    
    4,566,745Excess to minimum
    
    $
    5,028,689
    
    
    $
    5,397,100
    
    
    $
    4,526,173Capital ratio
    
    
    11.43
    %
    
    
    13.45
    %
    
    
    15.93
    %Sovereign Bank at December 31, 2009:Regulatory capital
    
    $
    5,292,202
    
    
    $
    5,252,657
    
    
    $
    7,239,965Minimum capital requirement(1)
    
    
    2,779,235
    
    
    
    2,323,303
    
    
    
    4,646,605Excess to minimum
    
    $
    2,512,967
    
    
    $
    2,929,354
    
    
    $
    2,593,360Capital ratio
    
    
    7.62
    %
    
    
    9.04
    %
    
    
    12.46
    %
 (1)
    
    As defined by OTS Regulations.
  Note 15  Stock-Based Compensation
   Weighted averageShares
    
    
    grant date fair valueTotal
non-vested restricted stock at December 31, 2009
    
    
    
    
    
    $
    n/aSantander performance shares granted in 2010
    
    
    899,610
    
    
    
    13.48Non-vested shares forfeited during 2010
    
    
    (70,200
    )
    
    
    13.48Total
non-vested restricted stock at December 31, 2010
    
    
    829,410
    
    
    $
    13.48
   76




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 15  Stock-Based Compensation (continued)
  Shares
    
    
    Price per shareOptions outstanding December 31, 2007 (7,075,060 exercisable)
    
    
    11,916,398
    
    
    $
    2.95  25.77Granted
    
    
    305,500
    
    
    $
    4.77  7.73Exercised
    
    
    (875,735
    )
    
    $
    6.39  12.16Forfeited
    
    
    (342,761
    )
    
    $
    6.40  24.30Expired
    
    
    (2,022,919
    )
    
    $
    6.40  22.32Options outstanding December 31, 2008 (6,468,629 exercisable)
    
    
    8,980,483
    
    
    $
    2.95  25.77Granted
    
    
    1,000,000
    
    
    $
    3.04  3.04Forfeited
    
    
    (9,978,848
    )
    
    $
    2.95  25.77Expired
    
    
    (1,635
    )
    
    $
    12.48  22.32Options outstanding December 31, 2009
    
    
    
    
    
    
    n/a
 th
  Note 16  Employee Benefit Plans
     77




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 16  Employee Benefit Plans (continued)
  Year ended December 31,2010
    
    
    2009Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    82,207
    
    
    $
    81,944Service cost
    
    
    291
    
    
    
    212Interest cost
    
    
    4,568
    
    
    
    4,562Actuarial gain
    
    
    5,115
    
    
    
    50Annuity payments
    
    
    (4,804
    )
    
    
    (4,561
    )Settlements
    
    
    
    
    
    
    Curtailments
    
    
    
    
    
    
    Projected benefit obligation at year end
    
    $
    87,377
    
    
    $
    82,207Change in plan assets:Fair value at beginning of year
    
    $
    65,525
    
    
    $
    62,423Actual return on plan assets
    
    
    5,254
    
    
    
    7,663Employer contributions
    
    
    
    
    
    
    Annuity payments
    
    
    (4,804
    )
    
    
    (4,561
    )Settlements
    
    
    
    
    
    
    Fair value at year end
    
    $
    65,975
    
    
    $
    65,525Components of net periodic pension expense:Service cost
    
    $
    291
    
    
    $
    212Interest cost
    
    
    4,568
    
    
    
    4,562Expected Return on plan assets
    
    
    (4,411
    )
    
    
    (4,199
    )Amortization of prior period service benefit
    
    
    
    
    
    
    Amortization of unrecognized actuarial loss
    
    
    2,113
    
    
    
    2,739Net periodic pension expense
    
    $
    2,561
    
    
    $
    3,314
  2010
    
    
    2009Discount rate
    
    
    5.25
    %
    
    
    5.75
    %Expected long-term return on plan assets
    
    
    7.00
    %
    
    
    7.00
    %Salary increase rate
    
    
    0.00
    %
    
    
    0.00
    %
  2011
    
    $
    4,609,9252012
    
    
    4,621,6262013
    
    
    4,699,9322014
    
    
    4,985,1882015
    
    
    5,081,7122016 to 2020
    
    
    27,025,636Total
    
    $
    51,024,019
   78




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Income Taxes
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Current:Foreign
    
    $
    93
    
    
    $
    108
    
    
    $
    104Federal
    
    
    287,169
    
    
    
    160,844
    
    
    
    (121,006
    )State
    
    
    41,775
    
    
    
    17,436
    
    
    
    7,450Total Current
    
    
    329,037
    
    
    
    178,388
    
    
    
    (113,452
    )Deferred:Federal
    
    
    (280,280
    )
    
    
    (1,434,236
    )
    
    
    837,412State
    
    
    (89,147
    )
    
    
    (28,616
    )
    
    
    (384
    )Total Deferred
    
    
    (369,427
    )
    
    
    (1,462,852
    )
    
    
    837,028Total income tax (benefit)/expense
    
    $
    (40,390
    )
    
    $
    (1,284,464
    )
    
    $
    723,576
  YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Federal income tax at statutory rate
    
    
    35.0
    %
    
    
    (35.0
    )%
    
    
    (35.0
    )%Increase/(decrease) in taxes resulting from:Valuation allowance
    
    
    (37.3
    )
    
    
    (83.2
    )
    
    
    87.7Tax-exempt income
    
    
    (2.6
    )
    
    
    (2.6
    )
    
    
    (3.1
    )Bank owned life insurance
    
    
    (1.9
    )
    
    
    0.4
    
    
    
    (1.6
    )State income taxes, net of federal tax benefit
    
    
    2.9
    
    
    
    0.3
    
    
    
    (2.4
    )Credit for synthetic fuelsLow income housing credits
    
    
    (3.9
    )
    
    
    (3.7
    )
    
    
    (2.5
    )Goodwill impairment chargeDisallowed interest deductions
    
    
    
    
    
    
    6.7
    
    
    
    Other
    
    
    3.8
    
    
    
    2.8
    
    
    
    1.2Effective tax rate
    
    
    (4.0
    )%
    
    
    (114.3
    )%
    
    
    44.3
    %
  79




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Income Taxes (continued)
  AT DECEMBER 31,2010
    
    
    2009Deferred tax assets:Allowance for loan losses
    
    $
    614,323
    
    
    $
    457,979Unrealized loss on available for sale portfolio
    
    
    55,536
    
    
    
    105,486Unrealized loss on derivatives
    
    
    73,242
    
    
    
    67,738Net operating loss carry forwards
    
    
    175,845
    
    
    
    367,710Non-solicitation payments
    
    
    39,188
    
    
    
    44,409Employee benefits
    
    
    52,012
    
    
    
    46,286General Business credit carry forwards
    
    
    266,317
    
    
    
    227,030Foreign tax credit carry forwards
    
    
    60,688
    
    
    
    60,688Broker commissions paid on originated mortgage loans
    
    
    34,227
    
    
    
    30,773Minimum tax credit carry forward
    
    
    167,452
    
    
    
    35,881IRC Section 382 recognized built in losses
    
    
    330,323
    
    
    
    329,929Other-than-temporary impairment on investments and equity method investments
    
    
    94,943
    
    
    
    93,197Deferred interest expense
    
    
    111,330
    
    
    
    129,118Other
    
    
    318,991
    
    
    
    311,376Total gross deferred tax assets
    
    
    2,394,417
    
    
    
    2,307,600Deferred tax liabilities:Purchase accounting adjustments
    
    
    22,427
    
    
    
    35,760Deferred income
    
    
    132,320
    
    
    
    102,418Originated mortgage servicing rights
    
    
    69,186
    
    
    
    69,498Depreciation and amortization
    
    
    166,950
    
    
    
    157,737Other
    
    
    245,976
    
    
    
    205,623Total gross deferred tax liabilities
    
    
    636,859
    
    
    
    571,036Valuation allowance
    
    
    (99,296
    )
    
    
    (408,264
    )Net deferred tax asset
    
    $
    1,658,262
    
    
    $
    1,328,300
      80




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Income Taxes (continued)
  Accrued
    
    
    UnrecognizedFederal State
    
    
    Interest and
    
    
    Income Tax(in thousands)
    
    and Local Tax
    
    
    Penalties
    
    
    BenefitsGross unrecognized tax benefits at January 1, 2008
    
    $
    77,344
    
    
    $
    10,117
    
    
    $
    87,461Additions based on tax positions related to 2008
    
    
    
    
    
    
    4,094
    
    
    
    4,094Additions for tax positions of prior years
    
    
    15,318
    
    
    
    1,224
    
    
    
    16,542Reductions to unrecognized tax benefits as a result of a
lapse of the applicable statute of limitations
    
    
    (1,861
    )
    
    
    (531
    )
    
    
    (2,392
    )Gross unrecognized tax benefits at January 1, 2009
    
    
    90,801
    
    
    
    14,904
    
    
    
    105,705Additions based on tax positions related to the current year
    
    
    
    
    
    
    1,448
    
    
    
    1,448Additions for tax positions of prior years
    
    
    
    
    
    
    1,664
    
    
    
    1,664Reductions for tax positions of prior years
    
    
    (731
    )
    
    
    (1,745
    )
    
    
    (2,476
    )Reductions to unrecognized tax benefits as a result of a
lapse of the applicable statute of limitations
    
    
    (6,671
    )
    
    
    (1,722
    )
    
    
    (8,393
    )Settlements
    
    
    (669
    )
    
    
    (231
    )
    
    
    (900
    )Gross unrecognized tax benefits at January 1, 2010
    
    
    82,730
    
    
    
    14,318
    
    
    
    97,048Additions based on tax positions related to the current year
    
    
    2,370
    
    
    
    5,882
    
    
    
    8,252Additions for tax positions of prior years
    
    
    34,580
    
    
    
    8,621
    
    
    
    43,201Reductions for tax positions of prior years
    
    
    (4,150
    )
    
    
    (163
    )
    
    
    (4,313
    )Reductions to unrecognized tax benefits as a result of a
lapse of the applicable statute of limitations
    
    
    (4,752
    )
    
    
    (1,899
    )
    
    
    (6,651
    )Settlements
    
    
    (415
    )
    
    
    (171
    )
    
    
    (586
    )Gross unrecognized tax benefits at December 31, 2010
    
    $
    110,363
    
    
    $
    26,588
    
    
    
    136,951Less: Federal, state and local income tax benefits
    
    
    
    
    
    
    
    
    
    
    (15,889
    )Net unrecognized tax benefits that if recognized would
impact the effective tax rate at December 31, 2010
    
    
    
    
    
    
    
    
    
    $
    121,062
      81




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Commitments and Contingencies
 Foreclosures.
 Financial Instruments.
  CONTRACT OR NOTIONALAMOUNT AT DECEMBER 31,2010
    
    
    2009Financial instruments whose contract amounts represent credit risk:Commitments to extend credit
    
    $
    16,443,257
    
    
    $
    14,652,163Standby letters of credit
    
    
    3,280,899
    
    
    
    2,401,959Loans sold with recourse
    
    
    268,195
    
    
    
    322,800Forward buy commitments
    
    
    2,930,265
    
    
    
    289,947
      Litigation.
     82




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Commitments and Contingencies (continued)
 Complaint from Trustee for the Trust PIERS
     Other
  Leases.
 AT DECEMBER 31, 2010Future MinimumLease
    
    
    Expected Sublease
    
    
    NetPayments
    
    
    Income
    
    
    Payments2011
    
    $
    111,986
    
    
    $
    (11,014
    )
    
    $
    100,9722012
    
    
    101,807
    
    
    
    (9,271
    )
    
    
    92,5362013
    
    
    89,709
    
    
    
    (4,995
    )
    
    
    84,7142014
    
    
    80,355
    
    
    
    (3,582
    )
    
    
    76,7732015
    
    
    71,874
    
    
    
    (2,450
    )
    
    
    69,424Thereafter
    
    
    299,310
    
    
    
    (3,852
    )
    
    
    295,458Total
    
    $
    755,041
    
    
    $
    (35,164
    )
    
    $
    719,877
   83




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 19  Fair Value Disclosures
         Fair Value Measurements at Reporting Date Using:Quoted Prices in Active
    
    
    Significant Other
    
    
    Significant
    
    
    Balance atMarkets for Identical
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    December 31,Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2010US Treasury and government agency securities
    
    $
    
    
    
    $
    12,997
    
    
    $
    
    
    
    $
    12,997Debentures of FHLB, FNMA and FHLMC
    
    
    
    
    
    
    24,999
    
    
    
    
    
    
    
    24,999Corporate debt and asset-backed securities
    
    
    
    
    
    
    5,275,981
    
    
    
    51,409
    
    
    
    5,327,390State and municipal securities
    
    
    
    
    
    
    1,882,280
    
    
    
    
    
    
    
    1,882,280Mortgage backed securities
    
    
    
    
    
    
    4,663,744
    
    
    
    1,460,438
    
    
    
    6,124,182Total investment securities available for sale
    
    
    
    
    
    
    11,860,001
    
    
    
    1,511,847
    
    
    
    13,371,848Loans held for sale
    
    
    
    
    
    
    150,063
    
    
    
    
    
    
    
    150,063Derivatives
    
    
    
    
    
    
    (181,946
    )
    
    
    (7,951
    )
    
    
    (189,897
    )Total, net
    
    $
    
    
    
    $
    11,828,118
    
    
    $
    1,503,896
    
    
    $
    13,332,014
  84




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 19  Fair Value Disclosures (continued)
 Fair Value Measurements at Reporting Date Using:Quoted Prices in Active
    
    
    Significant Other
    
    
    Significant
    
    
    Balance atMarkets for Identical
    
    
    Observable Inputs
    
    
    Unobservable Inputs
    
    
    December 31,Assets (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    2009US Treasury and government agency securities
    
    $
    
    
    
    $
    364,610
    
    
    $
    
    
    
    $
    364,610Debentures of FHLB, FNMA and FHLMC
    
    
    
    
    
    
    1,848,223
    
    
    
    
    
    
    
    1,848,223Corporate debt and asset-backed securities
    
    
    
    
    
    
    6,703,430
    
    
    
    53,742
    
    
    
    6,757,172Equity securities
    
    
    
    
    
    
    2,759
    
    
    
    
    
    
    
    2,759State and municipal securities
    
    
    
    
    
    
    1,802,426
    
    
    
    
    
    
    
    1,802,426Mortgage backed securities
    
    
    
    
    
    
    949,374
    
    
    
    1,874,601
    
    
    
    2,823,975Total investment securities available for sale
    
    
    
    
    
    
    11,670,822
    
    
    
    1,928,343
    
    
    
    13,599,165Loans held for sale
    
    
    
    
    
    
    118,994
    
    
    
    
    
    
    
    118,994Derivatives
    
    
    
    
    
    
    (193,749
    )
    
    
    (24,625
    )
    
    
    (218,374
    )Total, net
    
    $
    
    
    
    $
    11,596,067
    
    
    $
    1,903,718
    
    
    $
    13,499,785
   Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for
    
    
    Observable Inputs
    
    
    UnobservableIdentical Assets (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)
    
    
    TotalDecember 31, 2010Loans (1)
    
    $
    
    
    
    $
    2,148,261
    
    
    $
    
    
    
    $
    2,148,261Foreclosed assets (2)
    
    
    
    
    
    
    114,198
    
    
    
    
    
    
    
    114,198Mortgage servicing rights (3)
    
    
    
    
    
    
    
    
    
    
    146,028
    
    
    
    146,028December 31, 2009Loans (1)
    
    $
    
    
    
    $
    1,476,747
    
    
    $
    
    
    
    $
    1,476,747Foreclosed assets (2)
    
    
    
    
    
    
    118,080
    
    
    
    
    
    
    
    118,080Mortgage servicing rights (3)
    
    
    
    
    
    
    
    
    
    
    136,874
    
    
    
    136,874
 (1)
    
    These balances are measured at fair value on a non-recurring basis using the fair value of the underlying collateral.(2)
    
    Represents the fair value of foreclosed real estate and other collateral owned that were measured at fair value subsequent to their initial
classification as foreclosed assets.(3)
    
    These balances are measured at fair value on a non-recurring basis. Mortgage servicing rights are stratified for purposes of the impairment testing.
  Year ended December 31,2010
    
    
    2009Loans
    
    $
    (52,947
    )
    
    $
    (256,883
    )Foreclosed assets
    
    
    (10,869
    )
    
    
    (2,045
    )Mortgage servicing rights
    
    
    24,665
    
    
    
    (2,677
    )$
    (39,151
    )
    
    $
    (261,605
    )
  85




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 19  Fair Value Disclosures (continued)
  Investments
    
    
    MortgageAvailable for Sale
    
    
    Servicing Rights
    
    
    Derivatives
    
    
    TotalBalance at December 31, 2009
    
    $
    1,928,343
    
    
    $
    136,874
    
    
    $
    (24,625
    )
    
    $
    2,040,592Gains/(losses) in other
comprehensive income
    
    
    210,932
    
    
    
    
    
    
    
    3,156
    
    
    
    214,088Gains/(losses) in earnings
    
    
    (3,480
    )
    
    
    24,664
    
    
    
    (5,250
    )
    
    
    15,934Purchases/Additions
    
    
    
    
    
    
    41,840
    
    
    
    (5,240
    )
    
    
    36,600Repayments
    
    
    (623,948
    )
    
    
    
    
    
    
    24,008
    
    
    
    (599,940
    )Sales/Amortization
    
    
    
    
    
    
    (57,350
    )
    
    
    
    
    
    
    (57,350
    )Balance at December 31, 2010
    
    $
    1,511,847
    
    
    $
    146,028
    
    
    $
    (7,951
    )
    
    $
    1,649,924
 Note 20  Fair Value of Financial Instruments
  AT DECEMBER 31,2010
    
    
    2009Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueFinancial Assets:Cash and amounts due from depository institutions
    
    $
    1,705,895
    
    
    $
    1,705,895
    
    
    $
    2,323,290
    
    
    $
    2,323,290Available for sale investment securities
    
    
    13,371,848
    
    
    
    13,371,848
    
    
    
    13,609,398
    
    
    
    13,609,398Loans held for investment, net
    
    
    62,820,434
    
    
    
    61,453,371
    
    
    
    55,733,953
    
    
    
    53,483,141Loans held for sale
    
    
    150,063
    
    
    
    150,063
    
    
    
    118,994
    
    
    
    118,994Mortgage servicing rights
    
    
    146,028
    
    
    
    148,746
    
    
    
    136,874
    
    
    
    139,992Mortgage banking forward commitments
    
    
    3,488
    
    
    
    3,488
    
    
    
    2,013
    
    
    
    2,013Mortgage interest rate lock commitments
    
    
    734
    
    
    
    734
    
    
    
    325
    
    
    
    325Financial Liabilities:Deposits
    
    
    42,673,293
    
    
    
    42,592,642
    
    
    
    44,428,065
    
    
    
    43,699,060Borrowings and other debt obligations
    
    
    33,630,117
    
    
    
    34,764,709
    
    
    
    27,235,151
    
    
    
    27,961,841Interest rate derivative instruments
    
    
    190,038
    
    
    
    190,038
    
    
    
    220,387
    
    
    
    220,387Total return swap
    
    
    4,081
    
    
    
    4,081
    
    
    
    
    
    
    
    Precious metal forward sale agreements
    
    
    
    
    
    
    
    
    
    
    (1,421
    )
    
    
    (1,421
    )Precious metal forward settlement arrangements
    
    
    
    
    
    
    
    
    
    
    1,421
    
    
    
    1,421Unrecognized Financial Instruments:(1)Commitments to extend credit
    
    
    110,705
    
    
    
    110,617
    
    
    
    95,354
    
    
    
    95,278
 (1)
    
    The amounts shown under carrying value represent accruals or deferred income arising from those unrecognized financial instruments.
  Cash and amounts due from depository institutions and interest-earning deposits.
 Investment securities available for sale.
 Loans.
 Mortgage servicing rights.
 Mortgage interest rate lock commitments.
  86




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 20  Fair Value of Financial Instruments (continued)
 Deposits.
 Borrowings and other debt obligations.
 Commitments to extend credit.
 Precious metals customer forward settlement arrangements and precious metals forward sale
agreements.
 Interest rate derivative instruments.
 Note 21  Derivative Instruments and Hedging Activities
       Fair Value Hedges.
 Cash Flow Hedges.
  87




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Derivative Instruments and Hedging Activities (continued)
 Other Derivative Activities.
     Weighted AverageNotional
    
    
    
    
    
    
    
    
    
    
    Receive
    
    
    Pay
    
    
    LifeAmount
    
    
    Asset
    
    
    Liability
    
    
    Rate
    
    
    Rate
    
    
    (Years)December 31, 2010Cash flow hedges:Pay fixed  receive floating interest rate swaps
    
    $
    9,892,675
    
    
    $
    
    
    
    $
    174,362
    
    
    
    0.22
    %
    
    
    2.38
    %
    
    
    3.0December 31, 2009Cash flow hedges:Pay fixed  receive floating interest rate swaps
    
    $
    6,565,898
    
    
    $
    
    
    
    $
    204,034
    
    
    
    0.56
    %
    
    
    3.86
    %
    
    
    2.0
  AT DECEMBER 31,2010
    
    
    2009Net Asset
    
    
    Net Asset(Liability)
    
    
    (Liability)Mortgage banking derivatives:Forward commitmentsTo sell loans
    
    $
    3,488
    
    
    $
    2,013Interest rate lock commitments
    
    
    734
    
    
    
    325Total mortgage banking risk management
    
    
    4,222
    
    
    
    2,338Swaps receive fixed
    
    
    294,834
    
    
    
    266,770Swaps pay fixed
    
    
    (295,735
    )
    
    
    (266,355
    )Other
    
    
    64
    
    
    
    Net customer related swaps
    
    
    (837
    )
    
    
    415VISA total return swap
    
    
    (4,081
    )
    
    
    Precious metals forward sale agreements
    
    
    
    
    
    
    1,421Precious metals forward arrangements
    
    
    
    
    
    
    (1,421
    )Foreign exchange
    
    
    7,358
    
    
    
    5,852Total activity
    
    $
    6,662
    
    
    $
    8,605
  88




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Derivative Instruments and Hedging Activities (continued)
  Balance Sheet Effect at
    
    Income Statement Effect For The TwelveDerivative Activity
    
    December 31, 2010
    
    Months Ended December 31, 2010Cash flow hedges:Pay fixed-receive floating 
interest rate swaps
    
    Increases to other liabilities and deferred
taxes of $174.4 million and $63.2 million,
respectively and a net decrease to
stockholders equity of $109.0 million.
    
    Resulted in a decrease in net interest income of
$272.6 million.Other hedges:Forward commitments to sell loans
    
    Increase to other assets of $3.5 million.
    
    Increase to mortgage banking revenues of $1.5 million.Interest rate lock commitments
    
    Increase to mortgage loans of $0.7 million.
    
    Increase to mortgage banking revenues of $0.4 million.Net customer related hedges
    
    Increase to other liabilities of $0.8 million.
    
    Decrease in capital markets revenue of $1.3 million.Total return swap associated
with sale of Visa, Inc. Class B
shares
    
    Increase to other liabilities of $4.1 million
    
    Decrease in other non-interest income of $4.1 millionForeign Exchange
    
    Increase to other assets of $7.4 million.
    
    Increase in commercial banking revenue of $1.5 million.
  Balance Sheet Effect at
    
    Income Statement Effect For The TwelveDerivative Activity
    
    December 31, 2009
    
    Months Ended December 31, 2009Fair value hedges:Receive fixed-pay variable 
interest rate swaps
    
    No derivative positions designated in fair
value hedging relationships as of December
31, 2009.
    
    Resulted in a decrease of net interest income of
$106.2 million.Pay fixed-receive variable 
interest rate swaps
    
    No derivative positions designated in fair
value hedging relationships as of December
31, 2009.
    
    Resulted in a decrease of net interest income of $10.3
million.Cash flow hedges:Pay fixed-receive floating 
interest rate swaps
    
    Increases to other liabilities and
deferred taxes of $204.0 million and $74.2
million, respectively and a net decrease
to stockholders equity of $129.8 million.
    
    Resulted in a decrease in net interest income of
$254.4 million.Other hedges:Forward commitments to sell loans
    
    Increase to other assets of $2.0 million.
    
    Increase to mortgage banking revenues of $11.6 million.Interest rate lock commitments
    
    Increase to mortgage loans of $0.3 million.
    
    Decrease to mortgage banking revenues of $8.2 million.Net customer related hedges
    
    Increase to other assets of $0.4 million.
    
    Decrease in capital markets revenue of $23.9 million.Foreign Exchange
    
    Increase to other assets of $5.9 million.
    
    Increase in commercial banking revenue of $1.9 million.
  89




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Notes to Consolidated Financial Statements
 Note 22  Interests that Continue to be Held by SHUSA in Asset Securitizations
      90




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Notes to Consolidated Financial Statements
 Note 23  Other Comprehensive Income/(Loss)
  Total Other
    
    
    Total AccumulatedComprehensive Income
    
    
    Other Comprehensive IncomePretax
    
    
    Tax
    
    
    Net
    
    
    Beginning
    
    
    Net
    
    
    Ending2010
    
    Activity
    
    
    Effect
    
    
    Activity
    
    
    Balance
    
    
    Activity
    
    
    BalanceChange in accumulated losses/(gains) on cash flow hedge derivative
financial instruments
    
    $
    63,141
    
    
    $
    (20,779
    )
    
    $
    42,362Reclassification adjustment for net gains on cash flow hedge derivative
financial instruments
    
    
    (14,963
    )
    
    
    5,237
    
    
    
    (9,726
    )Net unrealized losses on cash flow hedge derivative financial instruments
    
    
    48,178
    
    
    
    (15,542
    )
    
    
    32,636
    
    
    $
    (157,576
    )
    
    $
    32,636
    
    
    $
    (124,940
    )Change in unrealized gains/(losses) on investment securities
available-for-sale
    
    
    (68,488
    )
    
    
    25,122
    
    
    
    (43,366
    )Reclassification adjustment for net gains included in net income
    
    
    200,556
    
    
    
    (73,566
    )
    
    
    126,990Net unrealized gains/(losses) on investment securities available-for-sale
    
    
    132,068
    
    
    
    (48,444
    )
    
    
    83,624
    
    
    
    (176,399
    )
    
    
    83,624
    
    
    
    (92,775
    )Amortization of defined benefit plans
    
    
    (916
    )
    
    
    335
    
    
    
    (581
    )
    
    
    (15,894
    )
    
    
    (581
    )
    
    
    (16,475
    )Total, December 31, 2010
    
    $
    179,330
    
    
    $
    (63,651
    )
    
    $
    115,679
    
    
    $
    (349,869
    )
    
    $
    115,679
    
    
    $
    (234,190
    )
 Total Other
    
    
    Total AccumulatedComprehensive Income
    
    
    Other Comprehensive IncomePretax
    
    
    Tax
    
    
    Net
    
    
    Beginning
    
    
    Net
    
    
    Ending2009
    
    Activity
    
    
    Effect
    
    
    Activity
    
    
    Balance
    
    
    Activity
    
    
    BalanceChange in accumulated losses/(gains) on cash flow hedge derivative
financial instruments
    
    $
    190,962
    
    
    $
    (68,964
    )
    
    $
    121,998Reclassification adjustment for net gains on cash flow hedge derivative
financial instruments
    
    
    (31,939
    )
    
    
    11,179
    
    
    
    (20,760
    )Net unrealized losses on cash flow hedge derivative financial instruments
    
    
    159,023
    
    
    
    (57,785
    )
    
    
    101,238
    
    
    $
    (258,814
    )
    
    $
    101,238
    
    
    $
    (157,576
    )Change in unrealized gains/(losses) on investment securities
available-for-sale
    
    
    928,639
    
    
    
    (341,353
    )
    
    
    587,286Cumulative effect of change in accounting principle
    
    
    (249,668
    )
    
    
    91,774
    
    
    
    (157,894
    )Reclassification adjustment for net gains included in net income
    
    
    (157,847
    )
    
    
    58,022
    
    
    
    (99,825
    )Net unrealized gains/(losses) on investment securities available-for-sale
    
    
    521,124
    
    
    
    (191,557
    )
    
    
    329,567
    
    
    
    (505,966
    )
    
    
    329,567
    
    
    
    (176,399
    )Amortization of defined benefit plans
    
    
    7,444
    
    
    
    (2,304
    )
    
    
    5,140
    
    
    
    (21,034
    )
    
    
    5,140
    
    
    
    (15,894
    )Total, December 31, 2009
    
    $
    687,591
    
    
    $
    (251,646
    )
    
    $
    435,945
    
    
    $
    (785,814
    )
    
    $
    435,945
    
    
    $
    (349,869
    )
 Total Other
    
    
    Total AccumulatedComprehensive Income
    
    
    Other Comprehensive IncomePretax
    
    
    Tax
    
    
    Net
    
    
    Beginning
    
    
    Net
    
    
    Ending2008
    
    Activity
    
    
    Effect
    
    
    Activity
    
    
    Balance
    
    
    Activity
    
    
    BalanceChange in accumulated losses/(gains) on cash flow hedge derivative
financial instruments
    
    $
    (119,402
    )
    
    $
    41,790
    
    
    $
    (77,612
    )Reclassification adjustment for net gains on cash flow hedge derivative
financial instruments
    
    
    (19,716
    )
    
    
    6,901
    
    
    
    (12,815
    )Net unrealized losses on cash flow hedge derivative financial instruments
    
    
    (139,118
    )
    
    
    48,691
    
    
    
    (90,427
    )
    
    $
    (168,387
    )
    
    $
    (90,427
    )
    
    $
    (258,814
    )Change in unrealized gains/(losses) on investment securities
available-for-sale
    
    
    898,383
    
    
    
    (329,755
    )
    
    
    568,628Reclassification adjustment for net gains included in net income
    
    
    (1,455,181
    )
    
    
    534,130
    
    
    
    (921,051
    )Net unrealized gains/(losses) on investment securities available-for-sale
    
    
    (556,798
    )
    
    
    204,375
    
    
    
    (352,423
    )
    
    
    (153,543
    )
    
    
    (352,423
    )
    
    
    (505,966
    )Amortization of defined benefit plans
    
    
    (25,838
    )
    
    
    9,007
    
    
    
    (16,831
    )
    
    
    (4,203
    )
    
    
    (16,831
    )
    
    
    (21,034
    )Total, December 31, 2008
    
    $
    (721,754
    )
    
    $
    262,073
    
    
    $
    (459,681
    )
    
    $
    (326,133
    )
    
    $
    (459,681
    )
    
    $
    (785,814
    )
  91




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Notes to Consolidated Financial Statements
 Note 24  Parent Company Financial Information
  BALANCE SHEET
 AT DECEMBER 31,2010
    
    
    2009AssetsCash and due from banks
    
    $
    304,786
    
    
    $
    109,473Available for sale investment securities
    
    
    44,832
    
    
    
    46,998Loans to non-bank subsidiaries
    
    
    10,000
    
    
    
    1,414,300Investment in subsidiaries:Bank subsidiary
    
    
    6,206,852
    
    
    
    5,802,358Non-bank subsidiaries
    
    
    7,486,648
    
    
    
    5,029,289Other assets
    
    
    799,713
    
    
    
    415,125Total Assets
    
    $
    14,852,831
    
    
    $
    12,817,543Liabilities and Stockholders EquityBorrowings:Borrowings and other debt obligations
    
    $
    3,392,216
    
    
    $
    3,248,446Borrowings from non-bank subsidiaries
    
    
    136,039
    
    
    
    134,709Other liabilities
    
    
    63,906
    
    
    
    46,853Total liabilities
    
    
    3,592,161
    
    
    
    3,430,008Stockholders Equity
    
    
    11,260,670
    
    
    
    9,387,535Total Liabilities and Stockholders Equity
    
    $
    14,852,831
    
    
    $
    12,817,543
 STATEMENT OF OPERATIONS
 YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Dividends from Bank subsidiary
    
    $
    
    
    
    $
    
    
    
    $
    24,252Dividends from non-bank subsidiaries
    
    
    366,000
    
    
    
    
    
    
    
    5,000Interest income
    
    
    8,256
    
    
    
    6,971
    
    
    
    24,024Other income
    
    
    268
    
    
    
    517
    
    
    
    279Total income
    
    
    374,524
    
    
    
    7,488
    
    
    
    53,555Interest expense
    
    
    147,548
    
    
    
    116,308
    
    
    
    133,144Other expense
    
    
    1,605
    
    
    
    45,555
    
    
    
    137,769Total expense
    
    
    149,153
    
    
    
    161,863
    
    
    
    270,913Loss before income taxes and equity in earnings of subsidiaries
    
    
    225,371
    
    
    
    (154,375
    )
    
    
    (217,358
    )Income tax (benefit)/provision
    
    
    (11,717
    )
    
    
    6,152
    
    
    
    35,122Income before equity in earnings of subsidiaries
    
    
    237,088
    
    
    
    (160,527
    )
    
    
    (252,480
    )Dividends in excess of current year earnings:Bank subsidiary
    
    
    
    
    
    
    
    
    
    
    (2,113,668
    )Non-bank subsidiaries
    
    
    
    
    
    
    
    
    
    
    8,938Equity in undistributed earnings/(loss) of:Bank subsidiary
    
    
    677,997
    
    
    
    48,644
    
    
    
    Non-bank subsidiaries
    
    
    144,290
    
    
    
    273,448
    
    
    
    Net (loss)/income
    
    $
    1,059,375
    
    
    $
    161,565
    
    
    $
    (2,357,210
    )
  92




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Notes to Consolidated Financial Statements
 Note
24  Parent Company Financial Information (continued)
 STATEMENT OF CASH FLOWS
 YEAR ENDED DECEMBER 31,2010
    
    
    2009
    
    
    2008Cash Flows from Operating Activities:Net income/(loss)
    
    $
    1,059,375
    
    
    $
    161,565
    
    
    $
    (2,357,210
    )Adjustments to reconcile net income to net cash provided by operating activities:Undistributed (earnings)/loss of:Bank subsidiary
    
    
    (677,997
    )
    
    
    (48,644
    )
    
    
    Non-bank subsidiaries
    
    
    (144,290
    )
    
    
    (273,448
    )
    
    
    Dividends in excess of current year earnings:Bank subsidiary
    
    
    
    
    
    
    
    
    
    
    2,113,668Non-bank subsidiaries
    
    
    
    
    
    
    
    
    
    
    (8,938
    )Stock based compensation expense
    
    
    2,227
    
    
    
    47,181
    
    
    
    23,337Remittance to Parent for stock based compensation
    
    
    (1,800
    )
    
    
    
    
    
    
    Other, net
    
    
    (361,253
    )
    
    
    (281,690
    )
    
    
    106,401Net cash (used in)/provided by operating activities
    
    
    (123,738
    )
    
    
    (395,036
    )
    
    
    (122,742
    )Cash Flows from Investing Activities:Net capital returned from/(contributed to) subsidiaries
    
    
    (1,961,634
    )
    
    
    (1,683,629
    )
    
    
    (789,377
    )Net (increase)/decrease in loans to subsidiaries
    
    
    1,404,300
    
    
    
    (1,138,787
    )
    
    
    1,450Net cash used in investing activities
    
    
    (557,334
    )
    
    
    (2,822,416
    )
    
    
    (787,927
    )Cash Flows from Financing Activities:Net change in borrowings:Repayment of other debt obligations
    
    
    (2,203,700
    )
    
    
    (200,000
    )
    
    
    (180,000
    )Net proceeds received from senior notes and senior credit facility
    
    
    1,375,000
    
    
    
    1,140,000
    
    
    
    248,465Net proceeds from commercial paper
    
    
    968,355
    
    
    
    
    
    
    
    Net change in borrowings from non-bank subsidiaries
    
    
    1,330
    
    
    
    1,800
    
    
    
    41,240Treasury stock repurchases, net of proceeds
    
    
    
    
    
    
    
    
    
    
    (2,208
    )Dividends to preferred stockholders
    
    
    (14,600
    )
    
    
    (14,600
    )
    
    
    (14,600
    )Net proceeds from the issuance of preferred stock
    
    
    750,000
    
    
    
    1,800,000
    
    
    
    Net proceeds from issuance of common stock
    
    
    
    
    
    
    
    
    
    
    1,405,993Net cash provided by/(used in) financing activities
    
    
    876,385
    
    
    
    2,727,200
    
    
    
    1,498,890(Decrease)/Increase in cash and cash equivalents
    
    
    195,313
    
    
    
    (490,252
    )
    
    
    588,221Cash and cash equivalents at beginning of period
    
    
    109,473
    
    
    
    599,725
    
    
    
    11,504Cash and cash equivalents at end of period
    
    $
    304,786
    
    
    $
    109,473
    
    
    $
    599,725
 Note 25  Business Segment Information
   93




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 25  Business Segment Information (continued)
   For the year ended
    
    
    
    
    
    Specialized
    
    
    
    
    
    
    GlobalDecember 31, 2010
    
    Retail
    
    

Business (1)
    
    
    Corporate
    
    
    Banking
    
    
    SCUSA
    
    

Other (3)
    
    
    TotalNet interest income/(expense)
    
    $
    681,072
    
    
    $
    267,223
    
    
    $
    339,770
    
    
    $
    26,378
    
    
    $
    1,755,440
    
    
    $
    328,756
    
    
    $
    3,398,639Fees and other income
    
    
    451,826
    
    
    
    30,970
    
    
    
    71,181
    
    
    
    8,108
    
    
    
    245,598
    
    
    
    21,230
    
    
    
    828,913Provision for credit losses
    
    
    243,845
    
    
    
    312,618
    
    
    
    153,084
    
    
    
    
    
    
    
    888,225
    
    
    
    29,254
    
    
    
    1,627,026General and administrative expenses
    
    
    920,381
    
    
    
    101,596
    
    
    
    131,812
    
    
    
    6,706
    
    
    
    391,815
    
    
    
    20,790
    
    
    
    1,573,100Income/(loss) before income taxes
    
    
    (152,249
    )
    
    
    (116,497
    )
    
    
    114,631
    
    
    
    27,705
    
    
    
    716,055
    
    
    
    429,340
    
    
    
    1,018,985Intersegment revenue/(expense) (2)
    
    
    (158,410
    )
    
    
    (534,257
    )
    
    
    (74,145
    )
    
    
    (4,900
    )
    
    
    
    
    
    
    771,712
    
    
    
    Total average assets
    
    $
    22,189,648
    
    
    $
    14,993,923
    
    
    $
    10,975,286
    
    
    
    1,738,677
    
    
    $
    11,959,260
    
    
    $
    22,986,577
    
    
    $
    84,843,371
 For the year ended
    
    
    
    
    
    Specialized
    
    
    
    
    
    
    GlobalDecember 31, 2009
    

Retail
(1)
    
    

Business
(1)
    
    
    Corporate
    
    
    Banking
    
    
    SCUSA
    
    

Other (3)
    
    
    TotalNet interest income/(expense)
    
    $
    608,985
    
    
    $
    311,164
    
    
    $
    319,594
    
    
    $
    6,725
    
    
    $
    1,277,358
    
    
    $
    119,678
    
    
    $
    2,643,504Fees and other income
    
    
    455,822
    
    
    
    (135,827
    )
    
    
    53,726
    
    
    
    17,114
    
    
    
    51,873
    
    
    
    57,436
    
    
    
    500,144Provision for credit losses
    
    
    194,672
    
    
    
    588,075
    
    
    
    303,706
    
    
    
    
    
    
    
    720,937
    
    
    
    177,147
    
    
    
    1,984,537General and administrative expenses
    
    
    988,178
    
    
    
    108,408
    
    
    
    135,507
    
    
    
    5,756
    
    
    
    253,031
    
    
    
    29,580
    
    
    
    1,520,460Income/(loss) before income taxes
    
    
    (305,643
    )
    
    
    (525,460
    )
    
    
    (79,901
    )
    
    
    8,382
    
    
    
    353,355
    
    
    
    (573,632
    )
    
    
    (1,122,899
    )Intersegment revenue/(expense) (2)
    
    
    54,152
    
    
    
    (657,934
    )
    
    
    (123,457
    )
    
    
    (1,580
    )
    
    
    
    
    
    
    728,819
    
    
    
    Total average assets
    
    $
    22,065,460
    
    
    $
    18,495,401
    
    
    $
    12,603,156
    
    
    
    816,412
    
    
    $
    6,911,119
    
    
    $
    21,457,234
    
    
    $
    82,348,782
 For the year ended
    
    
    
    
    
    Specialized
    
    
    
    
    
    
    GlobalDecember 31, 2008
    

Retail
(1)
    
    

Business
(1)
    
    
    Corporate
    
    
    Banking
    
    
    SCUSA
    
    

Other (3)
    
    
    TotalNet interest income/(expense)
    
    $
    813,235
    
    
    $
    347,611
    
    
    $
    407,101
    
    
    $
    (1,015
    )
    
    $
    
    
    
    $
    315,510
    
    
    $
    1,882,442Fees and other income
    
    
    381,404
    
    
    
    92,780
    
    
    
    66,880
    
    
    
    659
    
    
    
    
    
    
    
    94,715
    
    
    
    636,438Provision for credit losses
    
    
    203,051
    
    
    
    456,144
    
    
    
    258,172
    
    
    
    
    
    
    
    
    
    
    
    (6,367
    )
    
    
    911,000General and administrative expenses
    
    
    1,132,225
    
    
    
    125,636
    
    
    
    176,171
    
    
    
    9,609
    
    
    
    
    
    
    
    40,665
    
    
    
    1,484,306Income/(loss) before income taxes
    
    
    (257,647
    )
    
    
    (161,947
    )
    
    
    35,354
    
    
    
    (9,966
    )
    
    
    
    
    
    
    (1,239,428
    )
    
    
    (1,633,634
    )Intersegment revenue/(expense) (2)
    
    
    258,302
    
    
    
    (930,610
    )
    
    
    (244,983
    )
    
    
    (1,015
    )
    
    
    
    
    
    
    918,306
    
    
    
    Total average assets
    
    $
    23,527,864
    
    
    $
    24,125,811
    
    
    $
    13,392,209
    
    
    
    238,850
    
    
    $
    
    
    
    $
    17,397,165
    
    
    $
    78,681,899
 (1)
    
    The Specialized Business Segment fees and other income includes charges of $188.9 million associated with increasing multi-family recourse reserves for loans
sold to Fannie Mae for the twelve months ended December 31, 2009.(2)
    
    Intersegment revenues/(expense) represent charges or credits for funds used or provided by each of the segments and are included in net interest income/(expense).(3)
    
    Included in Other in 2009 and 2008 were OTTI charges of $36.9 million and $575.3 million on FNMA and FHLMC preferred stock, OTTI charges of $143.3 million and
$307.9 million on non-agency mortgage backed securities. 2008 results also include a loss of $602.3 million on the sale of our CDO investment portfolio. Included
in Other in 2009 and 2008 were net transaction related, integration charges and other restructuring costs of $299.1 million and $32.3 million, respectively.
Finally 2009 and 2008 results also included a deferred tax valuation allowance reversal of $1.3 billion and a charge of $1.4 billion, respectively.
  94




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Notes to Consolidated Financial Statements
 Note 26  Transaction Related, Integration Charges and Other Restructuring Costs
  2010
    
    
    2009
    
    
    2008Transaction related, integration charges and other restructuring costs
    
    $
    
    
    
    $
    299,119
    
    
    $
    32,348
     Contracttermination
    
    
    Severance
    
    
    TotalAccrued at December 31, 2008
    
    $
    7,008
    
    
    $
    28,352
    
    
    $
    35,360Payments
    
    
    (11,397
    )
    
    
    (133,650
    )
    
    
    (145,047
    )Charges recorded in earnings
    
    
    32,194
    
    
    
    152,198
    
    
    
    184,392Accrued at December 31, 2009
    
    $
    27,805
    
    
    $
    46,900
    
    
    $
    74,705Payments
    
    
    (10,566
    )
    
    
    (31,695
    )
    
    
    (42,261
    )Charges recorded in earnings
    
    
    
    
    
    
    
    
    
    
    Accrued at December 31, 2010
    
    $
    17,239
    
    
    $
    15,205
    
    
    $
    32,444
  Note 27  Related Party Transactions
          95




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 27  Related Party Transactions (continued)
  
    
    Nw Services Co., a Santander affiliate doing business as Aquanima, is under contract
with Sovereign Bank to provide procurement services, with fees paid in 2010 in the amount
of $2.2 million and $2.0 million in 2009.
 
    
    Santander, acting through its New York branch, is under contract with Sovereign Bank to
provide investment advisory and support for derivative transactions. There were no fees
paid in 2010 and 2009.
 
    
    Geoban, S.A., a Santander affiliate, is under contract with Sovereign Bank to provide
administrative services, consulting and professional services, application support and
back-office services, including debit card disputes and claims support, and consumer and
mortgage loan set-up and review, with fees paid in 2010 in the amount of $9.8 million. No
fees were paid under this agreement in 2009.
 
    
    Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with
Sovereign Bank to provide information technology development, support and administration,
with fees paid in 2010 in the amount of $121.0 million and $5.7 million in 2009.
 
    
    Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under contract
with Sovereign Bank to provide professional services, and administration and support of
information technology production systems, telecommunications and internal/external
applications, with fees paid in 2010 in the amount of $58.1 million and 3.4 million in
2009.
 
    
    Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under
contract with Sovereign Bank to provide administrative services and back-office support for
Sovereign Banks derivative, foreign exchange and hedging transactions and programs, with
fees paid in 2010 in the amount of $0.1 million. There were no fees paid in 2009 with
respect to this agreement.
 
    
    Santander Global Facilities (SGF), a Santander affiliate, is under contract with
Sovereign Bank to provide administration and management of employee benefits and payroll
functions for Sovereign Bank and other affiliates. There were no fees were paid under this
agreement in 2010. There were fees paid in 2009 in the amount of $0.5 million.
 
    
    SGF is under contract with Sovereign Bank and other Santander affiliates pursuant to
which Sovereign Bank shall share in certain employee benefits and payroll processing
services provided by third party vendors through sponsorship by SGF. In the twelve months
ended December 31, 2010, fees in the amount of $5.0 million were paid to SGF with respect
to this agreement. There were no fees paid to SGF in 2009 with respect to this agreement.
 
    
    SGF is under contract with Sovereign Bank to provide property management services. In
the twelve months ended December 31, 2010, fees in the amount of $5.0 million were paid to
SGF with respect to this agreement.
   Note 28  Subsequent Events
     96




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Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A.
    
    Controls and Procedures.
  Internal Control  Integrated Framework Internal Control  Integrated Framework,
 
 Item 9B.
    
    Other Information
  
 PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance.
 Directors of SHUSA
       97




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Executive Officers of SHUSA
  Jorge Morán  Age 46. Mr. Morán was appointed President and Chief Executive Officer of the
Company on January 27, 2011, effective February 1, 2011 and also serves as Chairman of each of
the Executive and Risk Management Committees of the Board and as a member of the Compensation
Committee of the Board. He is also chairman of the SHUSA Management Executive Committee. Mr.
Morán joined the Santander Group in 2002. Prior to joining SHUSA, Mr. Morán was a Senior
Executive Vice President of Banco Santander, head of its Global Insurance Division and a member
of the Groups management committee. Previously he held a number of executive management
positions, including Chief Operating Officer of Abbey, Santanders business in the U.K. and,
from 2005 until 2008, a member of its Board of Directors. Before joining Santander, Mr. Morán
was Chief Executive Officer of Morgan Stanley for Spain and Portugal and a partner of AB
Asesores, a brokerage and asset management company. Mr. Morán also worked as a director of
marketing for Natwest (now a unit of the Royal Bank of Scotland) and with Citibank in Spain.
 Edvaldo Morata  Age 47. Mr. Morata was appointed Chief of Staff to the CEO at Sovereign Bank
in 2009 and also as Managing Director of Corporate Banking in 2010. He is a member of the SHUSA
Management Executive Committee. Mr. Morata has more than 20 years experience in financial
services. He joined the Santander Group in 1996. Most recently, he was Santanders Chief
Executive for Asia in Hong Kong. Previously, he held a number of executive management
positions, including head of Asset Management and Private Banking in Brazil and head of
Banespas International Department when it was acquired by Santander in 2001. Mr. Morata was
also a member of the Executive Committee of Santander Brazil. Before joining Santander, Mr.
Morata worked for a number of financial institutions including American Express, ING and
Citibank.
 Juan Guillermo Sabater  Age 42. Mr. Sabater was appointed Chief Financial Officer of the
Company in May of 2009. He is also a member of SHUSA Management Executive Committee. Mr.
Sabater has 19 years of experience in the banking industry, all of them with Santander. Prior
to joining Sovereign Bank, Mr. Sabater worked as a Chief Financial Officer as well in Grupo
Santander Chile since September 2006. From 2003  2006 Mr. Sabater was the Controller for
Grupo Santanders Consumer Finance Division in Madrid, Spain.
 Nuno G. Matos  Age 43. Mr. Matos has served as Managing Director of Retail Business
Development and SME Banking since 2009 and was appointed as Managing Director of Retail Banking
in 2011. He has served on the Board of Directors since March of 2009 and is also a member of
the Risk and CRA Committees of the Board. He is also a member of the SHUSA Management Executive
Committee. Prior to joining SHUSA, Mr. Matos held a number of senior executive management
positions for the Grupo in Europe and South America since joining Santander in 1994. Since
2002, Mr. Matos had worked for Grupo Santander Brazil, where he headed operations and control
for the wholesale bank and most recently led the credit and debit card business for both Banco
Real and Santander.
 Juan Dávila  Age 41. Mr. Dávila was appointed Chief Risk Management Officer for Sovereign
Bank in 2009. He is also a member of the SHUSA Management Executive Committee. Prior to his
appointment as Chief Risk Management Officer, Mr. Dávila held an executive position in the
Banks Risk Management Group since he joined the Bank in 2007. From 2004  2007, Mr. Dávila
served as Chief Risk Officer at Banco Santander, Puerto Rico, responsible for all credit and
market risk exposure of the holding company and subsidiaries and was head of the Credit
Committee and led a team of more than 125 employees comprising areas of credit, monitoring,
market risk, credit policy and risk infrastructure. Mr. Dávila has also held various other
senior executive management positions with Banesto, Grupo Santander, including the role of risk
manager for the Andalucia Region and manager of the risk analysis center for small businesses.
  98




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##### Table of Contents



Kirk W. Walters  Age 55. Mr. Walters is Senior Executive Vice President of SHUSA, served on
the Board from January of 2009 to March 2, 2011 and served as a member of the Executive and
Risk Committees of the Board and as a member of the SHUSA Management Executive Committee. Mr.
Walters has announced that he is resigning as an officer and employee of the Company effective
as of March 16, 2011. Mr. Walters served as interim President and Chief Executive Officer from
October 2008 until Sovereign Bank was acquired by Banco Santander on January 30, 2009. Mr.
Walters joined Sovereign Bank in February 2008 as Executive Vice President and Chief Financial
Officer from Chittenden Corporation. At Chittenden, Mr. Walters served as Executive Vice
President and Chief Financial Officer for 12 years. Prior to joining Chittenden, he worked at
Northeast Federal Corporation in Hartford, Connecticut, from 1989 to 1995 in a series of
executive positions, including Senior Executive Vice President and Chief Financial Officer; and
Chairman, President and Chief Executive Officer.
 Jose Castello Orta  Age 49. Mr. Castello was appointed Managing Director of Global Banking
and Markets in November of 2009. He is also a member of the SHUSA Management Executive
Committee. Mr. Castello has over 20 years experience in the financial services industry. He
has held a number of executive management positions with the Santander Group. Most recently,
he was Head of U.S. Global Corporate Banking for Santander. In 2003 Mr. Castello was the head
of Santanders European and American Multinational Group, and from 2005  2009 he was the
Head of Corporate and Investment Banking USA.
 Eduardo J. Stock  Age 49. Mr. Stock was appointed Managing Director of the Manufacturing
Group in March of 2009. He is also a member of the SHUSA Management Executive Committee. Mr.
Stock joined Banco Santander in 1993 as head of Treasury and Research for Santander Negócios
Portugal. During his tenure at Santander, he held a number of senior executive management
positions in the Groups Portuguese business. Most recently, he served as Chief Financial
Officer and head of IT and Operations for Santander Totta, as well as President of Isban
Portugal.
 Francisco J. Simon  Age 39. Mr. Simon was appointed Managing Director of Human Resources in
January of 2009. He is also a member of the SHUSA Management Executive Committee. Prior to
joining Sovereign Bank, Mr. Simon worked in the human resources areas of other Santander
affiliates. From 2000  2003 he served as Coordinator of Human Resources for Santander
International Private Banking Groups; from 2003  2008 he was Director of Human Resources for
Banco Santander Swiss; and from 2008  2009 he was Director of Human Resources for Banco
Santander, New York. Mr. Simon received his law degree from San Pablo University, where he
specialized in Finance, Labor Law and Criminology.
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  Procedures for Nominations to the SHUSA Board
  Matters Relating to the Audit Committee of the Board
  
 Item 11.
    
    Executive Compensation.
 Compensation Discussion and Analysis
    99




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
    
    the general philosophy and objectives behind their compensation,
 
    
    the role and involvement of the parties in the analysis and decisions regarding
their compensation,
 
    
    the general process of determining their compensation,
 
    
    each component of their compensation, and
 
    
    the rationale behind the components of their compensation.
 General Philosophy and Objectives
  
    
    attract, motivate, and retain highly skilled executives with the business
experience and acumen necessary for achieving our long-term business objectives;
 
    
    link pay to performance;
 
    
    align, to an appropriate extent, the interests of management with those of
Santander and its shareholders; and
 
    
    use our compensation practices to support our core values and strategic mission
and vision.
    The Parties Involved in Determining Executive Compensation
 The Role of the Compensation Committee
  
    
    approving the terms of our incentive compensation programs, including the
Executive Bonus Program in which our named executive officers participate;
 
    
    reviewing and approving the risk assessment process to be utilized by the
management compensation risk mitigation committee (which we describe below) in
connection with our incentive compensation programs, including the Executive Bonus
Program;
 
    
    monitoring the performance and regularly reviewing the design and function of the
incentive compensation programs, including the Executive Bonus Program, to assess
whether the overall design and performance of such programs are consistent with the
Companys safety and soundness and do not encourage employees, including our named
executive officers, to take excessive risk;
 
    
    approving amounts paid under the incentive compensation programs, including the
Executive Bonus Program;
 
    
    administering our qualified retirement plan under which all eligible employees
can participate, including the named executive officers, as well as certain deferred
compensation plans; and
 
    
    approving our affirmative action plan and reviewing, at least annually, the
Companys hiring, termination, compensation and other employment practices as they
relate to the Companys affirmative action plan.
  100




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##### Table of Contents




    
    evaluate the standards of the Executive Bonus Program against the guidance issued
by the regulatory authorities applicable to us;
 
    
    review the incentive compensation proposed to be granted to our named executive
officers; and
 
    
    approve any required reports on executive compensation for inclusion in our
filings with the SEC, including this Annual Report on Form 10-K.
  The Role of the Evaluation and Bonus Committee
  The Role of the Appointments and Remuneration Committee
  The Role of the Executive Committee
  The Role of Management
    The Role of Outside Independent Compensation Advisors
   Components of Executive Compensation
   101




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##### Table of Contents



Base Salary
  Annual Discretionary Bonuses
  Retention Bonuses
  Short-Term Incentive Compensation
         
    
    70% of SHUSAs actual profits before taxes for 2010 divided by its budgeted
profits before taxes for 2010 and
 
    
    30% of Santanders actual profits before taxes for 2010 divided by its budgeted
profits before taxes for 2010.
  102




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##### Table of Contents



Achievement of Profits Budget
    
    Percentage Payout of Target Bonus Amount130%
    
    150%120%
    
    140%110%
    
    130%105%
    
    120%100%
    
    110%95%
    
    100%90%
    
    90%80%
    
    80%75%
    
    65%70%
    
    50%<70%
    
    0%
   
       103




---



##### Table of Contents



Long-Term Incentive Compensation
    Other Compensation
     104




---



##### Table of Contents



Retirement Benefits
  Employment and Letter Agreements
  Benchmarking
  Matters Relating to the Compensation Committee of the Board
 Compensation Committee Report
   
  Compensation Committee Interlocks and Insider Participation
    105




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##### Table of Contents



Non-EquityIncentivePlan
    
    
    All OtherStock
    
    
    Option
    
    
    Compen-
    
    
    Compen-Name and
    
    
    
    
    
    Salary
    
    
    
    
    
    
    Awards
    
    
    Awards
    
    
    sation
    
    
    sationPrincipal Position
    
    Year
    
    
    ($)(6)
    
    
    Bonus ($)
    
    
    ($)(7)
    
    
    ($)
    
    
    ($)(8)
    
    
    ($)(9)
    
    
    Total ($)Gabriel Jaramillo(1)
    
    
    2010
    
    
    $
    2,013,000
    
    
    $
    0
    
    
    $
    1,264,942
    
    
    $
    0
    
    
    $
    3,635,537
    
    
    $
    1,041,281
    
    
    $
    7,954,760Chairman, President,
    
    
    2009
    
    
    $
    1,869,987
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    4,560,000
    
    
    $
    1,051,301
    
    
    $
    7,481,288and Chief Executive
OfficerGuillermo Sabater
    
    
    2010
    
    
    $
    283,944
    
    
    $
    0
    
    
    $
    202,200
    
    
    $
    0
    
    
    $
    748,000
    
    
    $
    351,257
    
    
    $
    1,585,401Chief Financial Officer
    
    
    2009
    
    
    $
    224,036
    
    
    $
    62,627
    
    
    $
    54,824
    
    
    $
    0
    
    
    $
    275,000
    
    
    $
    292,324
    
    
    $
    908,811Edvaldo Morata (2)
    
    
    2010
    
    
    $
    428,239
    
    
    $
    0
    
    
    $
    337,000
    
    
    $
    0
    
    
    $
    1,726,963
    
    
    $
    596,442
    
    
    $
    3,088,644Chief of Staff and
Managing Director-
Corporate BankingNuno Matos (3)
    
    
    2010
    
    
    $
    364,703
    
    
    $
    0
    
    
    $
    370,700
    
    
    $
    0
    
    
    $
    1,547,238
    
    
    $
    403,814
    
    
    $
    2,686,455Managing Director -
    
    
    2009
    
    
    $
    359,476
    
    
    $
    187,880
    
    
    $
    148,808
    
    
    $
    0
    
    
    $
    1,025,000
    
    
    $
    325,887
    
    
    $
    2,047,051Retail Business 
Development and
MarketingEduardo Stock(4)
    
    
    2010
    
    
    $
    523,491
    
    
    $
    0
    
    
    $
    337,000
    
    
    $
    0
    
    
    $
    1,315,673
    
    
    $
    516,342
    
    
    $
    2,692,506Managing Director -
ManufacturingRichard Toomey(5)
    
    
    2010
    
    
    $
    400,672
    
    
    $
    0
    
    
    $
    202,200
    
    
    $
    0
    
    
    $
    260,000
    
    
    $
    1,916,129
    
    
    $
    2,779,001General Counsel
 Footnotes:
 1.
    
    Mr. Jaramillo also served as a director of SHUSA and Sovereign Bank for 2010. Mr. Jaramillo
stepped down as our President and Chief Executive Officer on January 31, 2011. Effective
February 1, 2011, we appointed him as our and Sovereign Banks non-executive chairman.2.
    
    Mr. Morata commenced employment with us on December 31, 2009.3.
    
    Mr. Matos also served as a director of SHUSA and Sovereign Bank for 2010. Mr. Matos
receives no compensation for his service as a director. Effective January 3, 2011, Mr. Matos
assumed the position of Managing Director of Retail Banking.4.
    
    Mr. Stock commenced employment with us on April 1, 2009.5.
    
    Mr. Toomey terminated employment on September 2, 2010. Pursuant to an agreement, dated
August 31, 2010, Mr. Toomey is continuing to serve as our general counsel. For more information
about Mr. Toomeys agreements, see the description under the caption Description of Employment
and Related Agreements.6.
    
    Amounts in this column are based on actual base compensation paid through December 31, 2010.
Mr. Jaramillo received no compensation for his service as a director after he began serving as
our Chairman, President, and Chief Executive Officer. See the discussion following the table
entitled Director Compensation in Fiscal Year 2010 for more information about the Director
Plan.  106




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##### Table of Contents



7.
    
    The amounts in these columns reflect the grant date fair value of such awards in accordance
with A.S.C. Topic 718, for equity awards granted under Santanders equity compensation plans.
We include the assumptions used in the calculation of these amounts in the footnotes to our
audited financial statements included in this Annual Report on Form 10-K for the fiscal year
ended December 31, 2010. We describe Santanders equity compensation programs under the caption
Our Equity Compensation Plans. Mr. Toomey forfeited his award upon his termination of
employment on September 2, 2010.8.
    
    The amounts in this column for 2009 for Messrs. Sabater and Matos reflect the amounts
received as sign-on bonuses pursuant to the terms of their letter agreements. The amounts in
this column for 2010 reflect an adjustment in the amounts that we paid to Messrs. Morata, Matos,
and Stock pursuant to the tax equalization provisions of their respective letter agreements.
The bonuses earned by Messrs. Morata, Matos, and Stock before adjustment were: Named Executive Officer
    
    BonusEdvaldo Morata
    
    $
    1,520,000Nuno Matos
    
    $
    1,760,000Eduardo Stock
    
    $
    1,520,000
 For more information about Messrs. Sabaters, Moratas, Matoss, and Stocks letter agreements,
see the descriptions under the caption Description of Employment and Related Agreements.  107




---



##### Table of Contents



9.
    
    Includes the following amounts that we paid to or on behalf of the named executive officers: Year
    
    
    Jaramillo
    
    
    Sabater
    
    
    Morata
    
    
    Matos
    
    
    Stock
    
    
    ToomeyProvision of Car, Car
    
    
    2010
    
    
    $
    0
    
    
    $
    12,912
    
    
    $
    7,770
    
    
    $
    12,912
    
    
    $
    22,778
    
    
    $
    6,000Allowance, or Personal
    
    
    2009
    
    
    $
    132,079
    
    
    $
    5,932
    
    
    $
    
    
    
    $
    12,142
    
    
    $
    
    
    
    $
    Use of Company Automobile(*)Santander Contribution to
    
    
    2010
    
    
    $
    0
    
    
    $
    37,832
    
    
    $
    0
    
    
    $
    40,969
    
    
    $
    108,105
    
    
    $
    0Deferred Compensation Plan
    
    
    2009
    
    
    $
    0
    
    
    $
    29,196
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    Club
    
    
    2010
    
    
    $
    1,873
    
    
    $
    0
    
    
    $
    1,330
    
    
    $
    1,282
    
    
    $
    1,282
    
    
    $
    0Membership
    
    
    2009
    
    
    $
    2,888
    
    
    $
    0
    
    
    $
    
    
    
    $
    738
    
    
    $
    
    
    
    $
    Relocation Expenses
    
    
    2010
    
    
    $
    0
    
    
    $
    0
    
    
    $
    237,492
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0and Temporary
    
    
    2009
    
    
    $
    10,591
    
    
    $
    71,452
    
    
    $
    
    
    
    $
    37,438
    
    
    $
    
    
    
    $
    HousingHousing Allowance,
    
    
    2010
    
    
    $
    570,000
    
    
    $
    235,157
    
    
    $
    126,154
    
    
    $
    138,557
    
    
    $
    127,261
    
    
    $
    275,000Utility Payments,
    
    
    2009
    
    
    $
    411,400
    
    
    $
    50,672
    
    
    $
    
    
    
    $
    58,777
    
    
    $
    
    
    
    $
    and Per DiemLegal and Financial
    
    
    2010
    
    
    $
    65,173
    
    
    $
    4,390
    
    
    $
    12,185
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Consulting
    
    
    2009
    
    
    $
    64,811
    
    
    $
    0
    
    
    $
    
    
    
    $
    1,295
    
    
    $
    
    
    
    $
    ExpensesLife Insurance Allowance
    
    
    2010
    
    
    $
    65,605
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    7,099and Medical and
    
    
    2009
    
    
    $
    63,897
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    Dental ReimbursementsTax
    
    
    2010
    
    
    $
    332,870
    
    
    $
    82,717
    
    
    $
    184,095
    
    
    $
    129,271
    
    
    $
    138,708
    
    
    $
    118,030Reimbursements (**)
    
    
    2009
    
    
    $
    362,387
    
    
    $
    91,680
    
    
    $
    
    
    
    $
    147,363
    
    
    $
    
    
    
    $
    School Tuition
    
    
    2010
    
    
    $
    0
    
    
    $
    47,170
    
    
    $
    22,138
    
    
    $
    65,899
    
    
    $
    75,897
    
    
    $
    0and Language
    
    
    2009
    
    
    $
    0
    
    
    $
    40,400
    
    
    $
    
    
    
    $
    64,511
    
    
    $
    
    
    
    $
    ClassesPaid Parking
    
    
    2010
    
    
    $
    5,760
    
    
    $
    5,760
    
    
    $
    5,280
    
    
    $
    5,760
    
    
    $
    5,760
    
    
    $
    02009
    
    
    $
    3,248
    
    
    $
    2,992
    
    
    $
    
    
    
    $
    3,623
    
    
    $
    
    
    
    $
    Airfare for Annual
    
    
    2010
    
    
    $
    0
    
    
    $
    25,318
    
    
    $
    0
    
    
    $
    9,163
    
    
    $
    36,551
    
    
    $
    0Trip Home
    
    
    2009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    Severance Payment
    
    
    2010
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,510,0002009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    Total
    
    
    2010
    
    
    $
    1,041,281
    
    
    $
    351,257
    
    
    $
    596,442
    
    
    $
    403,814
    
    
    $
    516,342
    
    
    $
    1,916,1292009
    
    
    $
    1,051,301
    
    
    $
    292,324
    
    
    $
    
    
    
    $
    325,887
    
    
    $
    
    
    
    $
    
 (*)
    
    The value that we attribute to the personal use of SHUSA-provided automobiles (as calculated
in accordance with Internal Revenue Service guidelines) is generally included as compensation
on the Forms W-2 of the named executive officers who receive such benefits. Each such named
executive officer is responsible for paying income tax on such amount (generally subject to
the right of each named executive officer to receive a tax gross-up payment with respect to
the provision of such benefits). We determined the aggregate incremental cost of any personal
use of company automobiles in accordance with the requirements of the U.S. Treasury Regulation
§ 1.61-21.(**)
    
    Includes amounts paid to gross up for tax purposes certain perquisites in accordance with an
applicable employment or letter agreement. We describe these payments in more detail in the
narrative following the section entitled Employment and Related Agreements.  108




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Grants of Plan-Based Awards  2010
 Estimated Possible
    
    
    All OtherFuture
    
    
    Stock
    
    
    All Other
    
    
    
    
    
    
    GrantEstimated Possible Future
    
    
    Payouts Under
    
    
    Awards:
    
    
    Option
    
    
    Exercise
    
    
    Date FairPayouts Under Non-Equity
    
    
    Equity
    
    
    Number
    
    
    Awards:
    
    
    or Base
    
    
    Value ofIncentive Plan
    
    
    Incentive Plan
    
    
    of Shares
    
    
    Number of
    
    
    Price of
    
    
    Stock andAwards (1)
    
    
    Awards
    
    
    of Stock
    
    
    Securities
    
    
    Option
    
    
    OptionGrant
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    Minimum
    
    
    Target
    
    
    or Units
    
    
    Underlying
    
    
    Awards
    
    
    AwardsName
    
    Date
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    (#)
    
    
    (#) (2)
    
    
    (#) (3)
    
    
    Options (#)
    
    
    ($/Sh)
    
    
    ($)Gabriel Jaramillo
    
    
    2/16/2010
    
    
    $
    2,400,000
    
    
    $
    4,800,000
    
    
    $
    7,200,000
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    808,8002/22/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,511
    
    
    
    
    
    
    
    
    
    
    $
    391,731Guillermo Sabater
    
    
    2/16/2010
    
    
    $
    175,000
    
    
    $
    350,000
    
    
    $
    525,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    202,200Edvaldo Morata
    
    
    2/16/2010
    
    
    $
    415,000
    
    
    $
    830,000
    
    
    $
    1,245,000
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    337,000Nuno Matos
    
    
    2/16/2010
    
    
    $
    475,000
    
    
    $
    950,000
    
    
    $
    1,425,000
    
    
    
    
    
    
    
    27,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    370,700Eduardo Stock
    
    
    2/16/2010
    
    
    $
    375,000
    
    
    $
    750,000
    
    
    $
    1,125,000
    
    
    
    
    
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    337,000Richard Toomey
    
    
    2/16/2010
    
    
    $
    187,500
    
    
    $
    375,000
    
    
    $
    562,000
    
    
    
    
    
    
    
    15,000
    (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    202,200
 Footnotes:
 (1)
    
    These columns reflect the estimated possible payouts for named executive officers under the
applicable bonus program for fiscal year 2010 based on the performance targets that we set in
July 2010. We report the actual awards paid out under our bonus programs in the Summary
Compensation Table and describe our bonus programs in the Compensation Discussion & Analysis.(2)
    
    This column reflects the minimum and target numbers of shares that each named executive
officer may receive under the I-12 Plan. We describe the I-12 Plan under the caption Our
Equity Compensation Plans.(3)
    
    This column reflects Santanders matching contribution in shares of Santander common stock
that Mr. Jaramillo will be entitled to receive under the Obligatory Investment Plan if he
remains employed at Santander through March 2013. We describe the Obligatory Investment Plan
under the caption The Obligatory Investment Plan.(4)
    
    Mr. Toomey forfeited this award upon his termination of employment.  109




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Outstanding Equity Awards at Fiscal 2010 Year End
 Stock AwardsEquity Incentive Plan AwardsNumber of
    
    
    Market or PayoutNumber of Shares
    
    
    Market Value of
    
    
    Unearned Shares,
    
    
    Value of Unearnedor Units of Stock
    
    
    Shares or Units of
    
    
    Units or Other
    
    
    Shares, Units orthat have not
    
    
    Stock that have not
    
    
    Rights that have not
    
    
    Other Rights thatName
    
    Vested (#)
    
    
    Vested ($)
    
    
    Vested (#)
    
    
    have not Vested ($)Gabriel Jaramillo
    
    
    
    
    
    
    
    
    
    
    60,000
    (2)
    
    $
    629,39427,335
    (3)
    
    $
    286,74234,511
    (4)
    
    $
    362,017Guillermo Sabater
    
    
    
    
    
    
    
    
    
    
    7,000
    (1)
    
    $
    73,42915,000
    (2)
    
    $
    157,349Edvaldo Morata
    
    
    
    
    
    
    
    
    
    
    16,200
    (1)
    
    $
    169,93625,000
    (2)
    
    $
    262,248Nuno Matos
    
    
    
    
    
    
    
    
    
    
    19,000
    (1)
    
    $
    199,30827,500
    (2)
    
    $
    288,472Eduardo Stock
    
    
    
    
    
    
    
    
    
    
    24,000
    (1)
    
    $
    251,75825,000
    (2)
    
    $
    262,248Richard Toomey
    
    
    
    
    
    
    
    
    
    
    0
    
    
    $
    0
 Footnotes :
 (1)
    
    Santander awarded these restricted stock units on February 3, 2009, as part of the I-11
Plan. These units vest in accordance with the terms of the I-11 Plan, which we describe under
the caption The Performance Shares Plan.(2)
    
    Santander awarded these restricted stock units on February 16, 2010, as part of the I-12
Plan. The units vest in accordance with the terms of the I-12 Plan, which we describe under the
caption The Performance Shares Plan.(3)
    
    Santander awarded these shares on February 26, 2008, under the Obligatory Investment Plan.
The units vest in accordance with the terms of the Obligatory Investment Plan, which we describe
under the caption The Obligatory Investment Plan.(4)
    
    Santander awarded these shares on February 22, 2010, under the Obligatory Investment Plan.
The units vest in accordance with the terms of the Obligatory Investment Plan.  110




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Option Exercises and Stock Vested  2010
 Option Awards
    
    
    Stock AwardsNumber of Shares
    
    
    
    
    
    
    Number of SharesAcquired on
    
    
    Value Realized
    
    
    Acquired on
    
    
    Value RealizedName
    
    Exercise (#)
    
    
    on Exercise ($)
    
    
    Vesting (#)
    
    
    on Vesting (#)Gabriel Jaramillo
    
    
    0
    
    
    $
    0
    
    
    
    73,882
    
    
    $
    806,791Guillermo Sabater
    
    
    0
    
    
    $
    0
    
    
    
    5,447
    
    
    $
    59,481Edvaldo Morata
    
    
    0
    
    
    $
    0
    
    
    
    14,254
    
    
    $
    155,654Nuno Matos
    
    
    0
    
    
    $
    0
    
    
    
    16,342
    
    
    $
    178,455Eduardo Stock
    
    
    0
    
    
    $
    0
    
    
    
    19,974
    
    
    $
    218,116Richard Toomey
    
    
    0
    
    
    $
    0
    
    
    
    0
    
    
    $
    0
 Our Equity Compensation Plans
  The Performance Shares Plan
   
    
    Each cycle is for a three-year period, with payout of shares no later than July 31 of
the year following the end of the cycle, as follows:
 Plan
    
    Cycle
    
    Date of PayoutI-10 Plan
    
    2007 through 2009
    
    No later than July 31, 2010I-11 Plan
    
    2008 through 2010
    
    No later than July 31, 2011I-12 Plan
    
    2009 through 2011
    
    No later than July 31, 2012I-13 Plan
    
    2010 through 2012
    
    No later than July 31, 2013
 
    
    Santander determined the maximum number of shares that each participant is eligible
to receive under the I-10 Plan by dividing a percentage of the participants base salary
by the daily average weighted volume of the average weighted listing prices of
Santanders shares on May 7, 2007 (13.46), and the maximum number of shares under the
I-11 Plan, the I-12 Plan, and the I-13 Plan per participant was not based on a
mathematical calculation, rather it was entirely discretionary based on the each
participants level within the Santander organization.
  111




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
    
    Each plan provides that a percentage of the maximum number of shares will vest in
accordance with:
 
    
    in the case of the I-10 and I-11 Plans, pre-established Santander total
shareholder return (which we refer to as TSR) and growth in earnings per share
goals compared to a peer group, with each goal weighted 50%; and
    
    in the case of the I-12 and I-13 Plans, pre-established Santander TSR goals
compared to a peer group.
 
    
    Each plan defines TSR as the difference (expressed as a percentage) between the value
of a hypothetical investment in ordinary shares of each of the members of a peer group
and Santander at the end of the cycle and the value of the same investment at the
beginning of the cycle. Santander will consider dividends or similar amounts received
by shareholders as if such amounts were invested in more shares. Santander uses the
trading price on the exchange with the highest trading volume to calculate the initial
and final share prices.
    
    Santander chooses the peer group from among the worlds largest financial
institutions, on the basis of their market capitalization, geographic location, and the
nature of their businesses. The peer group may vary slightly from plan to plan.
Santander may remove a member of the peer group from the calculations in the event the
member is acquired by another company, is delisted, or otherwise is otherwise ceases to
be in existence. In such a case, Santander will adjust the maximum number of shares
that a participant earns to equitably reflect such removal.
    
    Each plan (except the I-12 and I-13 Plans, for which it is inapplicable) defines
growth in earnings per share as the percentage ratio between the earnings per common
share as the applicable entity discloses in its consolidated annual financial statements
at the beginning and end of each cycle.
    
    In order for a participant to receive the shares under each plan, the plan requires
the participant to remain continuously employed at Santander or a subsidiary through the
June 30 of the year following the end of the cycle, except in the cases of retirement,
involuntary termination, unilateral waiver by the participant for good cause (as
provided under Spanish law), unfair dismissal, forced leave of absence, permanent
disability, or death, in which case, the participant (or his or her beneficiary, in the
case of death), will receive a pro-rated portion of the participants award that he or
she would otherwise be entitled to if the participant had remain employed based on the
number of days that the participant was employed.
  Named Executive Officer
    
    I-11 Plan
    
    
    I-12 PlanGabriel Jaramillo
    
    
    0
    
    
    
    60,000Guillermo Sabater
    
    
    7,000
    
    
    
    15,000Edvaldo Morata
    
    
    16,200
    
    
    
    25,000Nuno Matos
    
    
    19,000
    
    
    
    27,500Eduardo Stock
    
    
    24,000
    
    
    
    25,000Richard Toomey
    
    
    0
    
    
    
    0
  112




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##### Table of Contents



Named Executive Officer
    
    SharesGabriel Jaramillo
    
    
    60,000Guillermo Sabater
    
    
    17,000Edvaldo Morata
    
    
    25,000Nuno Matos
    
    
    28,000Eduardo Stock
    
    
    28,000Richard Toomey
    
    
    0
 The I-10 Plan and I-11 Plan
  Santanders position
    
    
    Percentage of sharesSantanders position
    
    Percentage of shares
    
    in the EPS growth
    
    
    to be deliveredin the TSR ranking
    
    earned of maximum
    
    ranking
    
    
    of maximum1st to 6th
    
    50%
    
    1st to 6th
    
    
    50%7th
    
    43%
    
    7th
    
    
    43%8th
    
    36%
    
    8th
    
    
    36%9th
    
    29%
    
    9th
    
    
    29%10th
    
    22%
    
    10th
    
    
    22%11th
    
    15%
    
    11th
    
    
    15%12th or below
    
    0%
    
    12th or below
    
    
    0%
 The I-12 Plan and I-13 Plan
  Percentage of sharesSantanders position in the TSR ranking
    
    earned of maximum1st to 5th
    
    
    100.0%6th
    
    
    82.5%7th
    
    
    65.0%8th
    
    
    47.5%9th
    
    
    30.0%10th or below
    
    
    0%
  113




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Deferred Bonus Plan
  Variable Compensation Tranche
    
    Required Deferral Above Tranche< $400,000
    
    
    0%$400,000 to < $800,000
    
    
    20%$800,000 to < $1,600,000
    
    
    30%$1,600,000 to < $3,200,000
    
    
    40%$3,200,000 +
    
    
    50%
  
    
    Santanders deficient financial performance;
    
    the participants breach of internal rules, including those any related to risk;
    
    material restatement of Banco Santanders financial statements; or
    
    significant variation in the economic capital or in the qualitative valuation of
risks.
   Named Executive Officer
    
    Amount Deferred*
    
    
    Shares*Gabriel Jaramillo
    
    $
    2,355,537
    
    
    
    221,385Guillermo Sabater
    
    $
    92,000
    
    
    
    8,647Edvaldo Morata
    
    $
    496,160
    
    
    
    56,034Nuno Matos
    
    $
    620,459
    
    
    
    58,318Eduardo Stock
    
    $
    465,345
    
    
    
    43,739Richard Toomey
    
    $
    0
    
    
    
    0
 *
    
    Number of shares based on an exchange rate of 1.32 to $1 and an 8.06 per share price on the
deferral date. Amounts deferred by and shares awarded to Messrs. Morata, Matos, and Stock are
estimates subject to the tax equalization provisions of their respective letter agreements.  114




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The Obligatory Investment Plan
    
    
    deficient financial performance by Santander during the three-year period,
    
    poor conduct by the participant,
    
    breach or falsification in violation of the internal risk rules, and
    
    material restatement of the entitys financial statements.
  Description of Employment and Related Agreements
  Gabriel Jaramillo
    115




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##### Table of Contents




    
    an annual allowance of $60,290, on a grossed-up basis for federal, state, and
local income and employment tax purposes, for his life insurance premiums;
 
    
    reimbursement of membership fees, on a grossed-up basis, for two country clubs
(with such memberships in our name and transferable to other executives); and
 
    
    participate in all long-term incentive compensation programs and all other
employee benefit plans and programs generally available to senior executives.
  
    
    a monthly housing allowance of $30,500;
 
    
    use of two cars, provided and maintained by us, and one full-time driver, who
will be our employee;
 
    
    an annual allowance of $30,000 for tax planning and preparation services; and
 
    
    reimbursement of legal expenses that Mr. Jaramillo incurred in connection with
the negotiation and execution of the agreement, up to $40,000.
   
    
    an amount equal to the sum of his current base salary and the annual bonus last
paid (which would be deemed to be $4,800,000 if, as of the date of termination,
the annual bonus for 2009 had not been paid) (which we refer to as the last
annual bonus), payable in 12 substantially equal monthly installments;
 
    
    a lump sum payment equal to the last annual bonus, pro-rated through the date
of termination;
 
    
    continuation of health benefits for Mr. Jaramillo and his dependents, on the
same basis as provided to actively employed senior executives, until the earlier
of the end of the 12-month period following termination or the date Mr. Jaramillo
becomes eligible for such benefits from another employer; and
 
    
    reimbursement, on a grossed-up basis, of all reasonable moving and travel
expenses (which we refer to as the relocation expenses) incurred in relocating
Mr. Jaramillo and his family to Brazil (or such other location but the relocation
expenses to such other location may not be more than the expenses Mr. Jaramillo
and his family would have incurred had they relocated to Brazil).
  116




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##### Table of Contents




    
    willful (or grossly negligent) and continued failure to perform duties,
    
    conviction of or plea of guilty or no contest to a felony,
    
    any governmental body recommends termination of employment,
    
    failure to cooperate in any regulatory investigation,
    
    material breach by Mr. Jaramillo of the agreement or any lawful written policies
concerning any material matter, or
    
    willful (or grossly negligent) misconduct in performing duties that materially
injures to us.
  
    
    a material reduction in base salary (except as consistent with general reductions for
directors and officers as provided in our compensation policies);
    
    our material breach of the agreement; or
    
    a material negative change in title, duties, or authority.
  Guillermo Sabater
     117




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
    
    a monthly housing allowance of $10,000 (with the cost of utilities for such housing
borne by us), on a grossed-up basis for federal, state, and local income and employment
tax purposes;
 
    
    relocation expenses for Mr. Sabater and his family of up to $17,396, on a grossed-up
basis;
 
    
    moving expenses (or 7,000 in lieu thereof);
 
    
    travel expenses;
 
    
    reimbursement for the cost of annual visits by Mr. Sabater and his family to Spain;
 
    
    payment of registration and fees associated with schooling for Mr. Sabaters
dependents through high school;
 
    
    language lessons for Mr. Sabater and his household family members up to a maximum of
1,500 per family member; and
 
    
    a one-time payment of $62,627, on a grossed-up basis, for Mr. Sabaters relocation to
the United States and other benefits inherent in his previous assignment in Chile which
he received in 2009.
    Edvaldo Morata
      
    
    a monthly housing allowance of $10,000 (plus an additional $420 per month for the
cost of utilities for such housing), on a grossed-up basis for federal, state, and local
income and employment tax purposes;
 
    
    relocation payment of $18,500, on a grossed-up basis;
 
    
    moving expenses (or 7,000 in lieu thereof);
 
    
    reimbursement for the cost of airfare for annual visits by Mr. Morata and his family
to Sao Paulo;
 
    
    payment of registration and fees associated with schooling for Mr. Moratas
school-age children on assignment through high school;
 
    
    payment of costs associated with work permits and visas, job training, and job
searches for Mr. Moratas spouse, up to a maximum of $7,400 (on a grossed-up basis);
  118




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##### Table of Contents




    
    language lessons for Mr. Morata and his household family members up to a maximum of
50 school hours per family member; and
 
    
    a payment of $221,357 (with 50% paid on the first payroll date following commencement
of employment and 50% paid 12 months thereafter), on a grossed-up basis, for Mr.
Moratas relocation to the United States and other benefits inherent in his previous
assignment in Hong Kong.
  
    
    we (or Mr. Morata, as applicable) will be responsible for the difference, if any,
between the taxes due on Mr. Moratas U.S. income under U.S. tax laws and Brazilian tax
laws;
 
    
    we will reimburse Mr. Morata for tax planning and preparation services;
 
    
    we will provide Mr. Morata with a guaranteed exchange rate of $1 to 0.5787100 BRL for
transfers from the United States to Brazil, up to $154,803 per year.
   Nuno Matos
      
    
    a monthly housing allowance of $10,000 (with the cost of utilities for such housing
borne by us), on a grossed-up basis for federal, state, and local income and employment
tax purposes,
 
    
    relocation expenses for Mr. Matos and his family of up to $26,904, on a grossed-up
basis,
 
    
    moving expenses (or 7,000 in lieu thereof),
 
    
    travel expenses,
 
    
    reimbursement for the cost of annual visits by Mr. Matos and his family to Portugal,
 
    
    payment of registration and fees associated with schooling for Mr. Matoss dependents
through high school,
 
    
    language lessons for Mr. Matos and his household family members up to a maximum of
1,500 per member, and
 
    
    a one-time payment of $188,880, on a grossed-up basis, for Mr. Matoss relocation to
the United States, and other benefits inherent in his previous assignment in Brazil.
  
    
    we (or Mr. Matos, as applicable) will be responsible for the difference, if any,
between the taxes due on Mr. Matoss U.S. income under U.S. tax laws and Portuguese tax
laws;
 
    
    we will reimburse Mr. Matos for any tax benefits he would have been able to deduct
had he remained in Portugal;
 
    
    we will reimburse Mr. Matos for tax planning and preparation services;
 
    
    we will provide Mr. Matos with a guaranteed exchange rate of 1 to $1.3917 for
transfers from the United States to Portugal, up to $109,782 per year.
  119




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##### Table of Contents



Eduardo Stock
      
    
    a monthly housing allowance of $8,500 (with the cost of utilities for such housing
borne by us), on a grossed-up basis for federal, state, and local income and employment
tax purposes;
 
    
    relocation expenses for Mr. Stock and his family of up to $34,793, on a grossed-up
basis;
 
    
    moving expenses (or 7,000 in lieu thereof);
 
    
    lodging in a hotel in Boston, plus laundry expenses and a per diem of $208, for up to
one month upon arrival;
 
    
    until Mr. Stocks family was settled, he could take a flight every 20 days to
Portugal at our expense, which flights ended in 2009;
 
    
    travel expenses;
 
    
    reimbursement for the cost of annual visits by Mr. Stock and his family to Portugal
and semi-annual visits by Mr. Stocks children to Boston;
 
    
    payment of registration and fees associated with schooling for Mr. Stocks dependents
through high school;
 
    
    use of a company car in accordance with our policies;
 
    
    language lessons for Mr. Stock and his household family members up to a maximum of
1,500 per family member;
 
    
    payment of costs associated with work permits and visas, job training, and job
searches for Mr. Stocks spouse, up to a maximum of $6,950 (on a grossed-up basis); and
 
    
    payment of 7,043 annually, to reimburse Mr. Stock for his contributions to
Portugals social security system.
  
    
    we (or Mr. Stock, as applicable) will be responsible for the difference, if any,
between the taxes due on Mr. Stocks U.S. income under U.S. tax laws and Portuguese tax
laws;
 
    
    we will reimburse Mr. Stock for any tax benefits he would have been able to deduct
had he remained in Portugal;
 
    
    we will reimburse Mr. Stock for tax planning and preparation services;
 
    
    we will provide Mr. Stock with a guaranteed exchange rate of 1 to $1.3917 for
transfers from the United States to Portugal, up to $162,944 per year.
   120




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Richard Toomey
  
    
    a lump sum payment equal to two times the sum of his annual base salary then in
effect plus his target bonus under the Executive Bonus Program for 2010;
 
    
    a payment under the Executive Bonus Program for 2010 equal to the payment that he
would have received had he remained employed through the end of 2010 payable under the
same terms and at the same time as bonuses under such program were paid to other
employees; and
 
    
    reimbursement of the COBRA premiums for medical coverage for himself and his
dependents through the earliest of (a) 18 months from date of his retirement or (b) the
date that he becomes eligible to participate in a comparable plan of a subsequent
employer.
   
    
    for one year, not to, directly or indirectly, become involved in a directly or
indirectly competing business of ours;
 
    
    for two years, not to solicit our customers or employees;
 
    
    to refrain from disparaging us or any of our related entities; and
 
    
    to cooperate with us and our counsel in connection with any current or future legal
matters.
   Deferred Compensation Arrangements
 Deferred Compensation Plan
  
    
    Participants may defer up to 100% of their cash bonus and choose among various
investment options upon which the rate of return of amounts deferred will be based. We
adjust participants accounts periodically to reflect the deemed gains and losses
attributable to the deferred amounts. The specific investment options mirror the
investment options in our qualified retirement plan with some additional alternative
investments available.
 
    
    We distribute all account balances in cash.
 
    
    Participants are always 100% vested in all amounts deferred.
 
    
    Directors of SHUSA and Sovereign Bank may defer receipt of cash fees received for
service as a director into the Deferred Compensation Plan.
 
    
    Distribution events will be only as permitted under Code Section 409A.
   121




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##### Table of Contents



Other Arrangements
   Nonqualified Deferred Compensation  2010
 AggregateExecutive
    
    
    Employer
    
    
    Aggregate
    
    
    
    
    
    
    BalanceContributions
    
    
    Contributions
    
    
    Earnings
    
    
    Aggregate
    
    
    At Last Fiscalin Last
    
    
    in Last
    
    
    in Last Fiscal
    
    
    Withdrawals/
    
    
    YearFiscal Year
    
    
    Fiscal Year
    
    
    Year
    
    
    Distributions
    
    
    EndName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Guillermo Sabater
    
    $
    0
    
    
    $
    37,832
    
    
    $
    6,153
    
    
    $
    0
    
    
    $
    178,553Nuno Matos
    
    $
    0
    
    
    $
    270,397
    
    
    $
    4,060
    
    
    $
    0
    
    
    $
    274,457
 Potential Payments upon Termination or Change in Control
  Termination for
    
    
    Involuntary
    
    
    VoluntaryDeath or
    
    
    Termination not
    
    
    Termination forDisability
    
    
    for Cause
    
    
    Good ReasonGabriel JaramilloSeverance:- Base Salary
    
    $
    0
    
    
    $
    2,013,000
    
    
    $
    2,013,000- Last Annual Bonus
    
    $
    0
    
    
    $
    4,560,000
    
    
    $
    4,560,000- Pro Rata Last Annual Bonus
    
    $
    4,560,000
    
    
    $
    4,560,000
    
    
    $
    4,560,000Continuation of Health Benefits
    
    $
    0
    
    
    $
    12,438
    
    
    $
    12,438Relocation Expenses
    
    $
    0
    
    
    $
    56,047
    
    
    $
    56,047Total
    
    $
    4,560,000
    
    
    $
    11,201,486
    
    
    $
    11,201,486Guillermo SabaterRelocation Expenses
    
    $
    0
    
    
    $
    25,000
    
    
    $
    25,000Total
    
    $
    0
    
    
    $
    25,000
    
    
    $
    25,000Edvaldo MorataRelocation Expenses
    
    $
    0
    
    
    $
    34,755
    
    
    $
    34,755Total
    
    $
    0
    
    
    $
    34,755
    
    
    $
    34,755Nuno MatosRelocation Expenses
    
    $
    0
    
    
    $
    24,930
    
    
    $
    24,930Total
    
    $
    0
    
    
    $
    24,930
    
    
    $
    24,930Eduardo StockRelocation Expenses
    
    $
    0
    
    
    $
    27,878
    
    
    $
    27,878Total
    
    $
    0
    
    
    $
    27,878
    
    
    $
    27,878Richard Toomey
    
    $
    0
    
    
    $
    0
    
    
    $
    0Total
    
    $
    0
    
    
    $
    0
    
    
    $
    0
  122




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Director Compensation in Fiscal Year 2010
  
    
    attracting and retaining directors who were independent, interested, diligent, and
actively involved in our affairs and who satisfy the standards of Santander, the sole
shareholder of our common stock; and
 
    
    providing a simple straight-forward package that compensates our directors for the
responsibilities and demands of the role of director.
  Fees Earned orName
    
    Paid in Cash ($) (1)
    
    
    Total ($)John P. Hamill
    
    $
    100,705
    
    
    $
    100,705Marian L. Heard
    
    $
    165,818
    
    
    $
    165,818Gonzalo de Las Heras
    
    $
    0
    
    
    $
    0Nuno Matos
    
    $
    0
    
    
    $
    0Alberto Sánchez
    
    $
    0
    
    
    $
    0Wolfgang Schoellkopf
    
    $
    211,527
    
    
    $
    211,527Anthony Terracciano (2)
    
    $
    75,000
    
    
    $
    75,000Kirk W. Walters
    
    $
    0
    
    
    $
    0Juan Andres Yanes
    
    $
    0
    
    
    $
    0
 Footnotes:
 1.
    
    Reflects amounts paid in 2011 for the fourth quarter of 2010 and the first three quarters of
2010. Messrs. Matos, Sánchez, Walters, and Yanes did not receive compensation for service on
the Board for 2010. Mr. Jaramillo received no compensation for serving as a director of SHUSA
and Sovereign Bank for 2010.2.
    
    Mr. Terracciano terminated service on the board effective February 2010.  123




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Director Compensation
  
    
    $140,000 in cash annually; plus
    
    $50,000 in cash annually for each non-executive director who serves on the Executive
Committee; plus
    
    $35,000 in cash annually for the non-executive directors who serve as the chairs of
the Audit Committee and the Compensation Committee; plus
    
    $5,000 in cash annually for each other board committee for which such non-executive
director serves as chair.
   Directors Participation in Deferred Compensation Plan
   
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
    124




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Item 13.
    
    Related Party Transactions
 Certain Relationships and Related Transactions
  Santander Relationship
               
    
    In 2006 Santander extended a $425 million unsecured line of credit to Sovereign Bank
for federal funds and Eurodollar borrowings and for the confirmation of standby letters
of credit issued by Sovereign Bank. The line was increased to $2.5 billion in 2009.
This line of credit can be cancelled by either Sovereign Bank or Santander at any time
and can be replaced by Sovereign Bank at any time. For 2010, the highest balance
outstanding was $1,972,921,810 and the principal balance as of December 31, 2010 was
$1,735,361,677, all of which was for confirmation of standby letters of credit.
Sovereign Bank paid $14,119,180 in fees to Santander in 2010 in connection with this
line of credit.
 
    
    In 2009 the Company established a $1 billion line of credit with Santanders New York
branch. This line can be cancelled by either the Company or Santander at any time and
can be replaced by the Company at any time. For 2010, the highest balance outstanding
was $890 million and the balance as of December 31, 2010 was $250 million. The Company
paid $557,128 in interest and $1,722,986 in non-use fees to Santander on this line of
credit for 2010.
  125




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##### Table of Contents




    
    In December of 2009 the Company borrowed $250 million from Santander Overseas Bank,
Inc. For 2010, the highest outstanding balance on the line was $250 million and the
balance as of December 31, 2010 was $0. The Company paid $269,514 in interest to
Santander Overseas Bank, Inc. with respect to this line in 2010.
 
    
    In 2009 Santanders New York Branch provided a $2,055,054 letter of credit on behalf
of Sovereign Bank. Sovereign Bank paid Santander $15,755 in fees for the letter of
credit in 2010.
 
    
    In March 2010, SHUSA issued to Santander a $750 million subordinated note due March
15, 2020 bearing an interest rate of 5.75% through March 14, 2015 and 6.25% beginning
March 15, 2015 and until the Note is repaid. SHUSA paid Santander $23,239,583.33 in
interest in 2010.
 
    
    In 2010 Banco Santander S.A. provided a $250 million letter of credit on behalf of
Sovereign Bank. Sovereign Bank paid Santander $1,901,042 in fees for the letter of
credit in 2010.
 
    
    In 2010 the Company established a $1.5 billion line of credit with Santanders New
York branch. This line can be cancelled by either the Company or Santander at any time
and can be replaced by the Company at any time. For 2010, the highest balance
outstanding (and the balance as of December 31, 2010) was $0. The Company did not pay
any interest to Santander with respect to this line of credit for 2010.
 
    
    In 2010 Sovereign Bank issued a Certificate of Deposit to Banco Santander
International, in the amount of $10,000,000 accruing interest at .55%. The Certificate
of Deposit was redeemed and was at $0 as of December 31, 2010.
 
    
    SCUSA has established a $1 billion line of credit with Santanders New York branch
for letters of credit. For 2010, the highest balance outstanding under this line was
$473.7 million and the balance as of December 31, 2010 was $198.5 million. As of
December 31, 2010 the facility commitment was reduced to $500 million. In 2010, SCUSA
paid $6,666,457 in interest and fees on this line of credit.
 
    
    SCUSA has established a $100 million revolving line of credit with Santander Benelux,
SA, NV (Benelux). This line of credit can be cancelled by either SCUSA or Benelux at
any time and can be replaced by SCUSA at any time. For all of 2010, the line was fully
utilized. In 2010, SCUSA paid Benelux $2,144,103.36 in interest on this line of credit.
 
    
    SCUSA has established a $150 million revolving line of credit with Benelux. This
line of credit can be cancelled by either SCUSA or Benelux at any time and can be
replaced by SCUSA at any time. The highest balance on the line during 2010 was $150
million. The outstanding balance of the line as of December 31, 2010 was $150 million.
In 2010, SCUSA paid Benelux $1,860,143.13 in interest on this line of credit.
 
    
    Santander Consumer Receivables 2 LLC (a subsidiary of SCUSA) has a $3.65 billion line
of credit with Santanders New York branch. This line of credit can be cancelled by
either the Santander Consumer Receivables 2 LLC or Santander at any time and can be
replaced by Santander Consumer Receivables 2 LLC at any time. The highest outstanding
balance of the line in 2010 was $2,930,200,000. As of December 31, 2010, the balance of
the line was $2,552,000,000. In 2010, Santander Consumer Receivables 2 LLC paid
$30,482,170 in interest on this line of credit.
 
    
    SCUSA is under contract with Sovereign Bank for Sovereign Bank to provide SCUSA
consulting services, fair lending consultant support and specialized technology
resources for fair lending risk mitigation, with fees paid in 2010 in the amount of
$41,653.
 
    
    SCUSA is under contract with Sovereign Bank to service Sovereign Banks retail auto
loan portfolio. In 2010, Sovereign Bank paid $29.3 million to SCUSA with respect to this
agreement.
  
    
    NW Services Co., a Santander affiliate doing business as Aquanima, is under contract
with Sovereign Bank to provide procurement services, with total fees paid in 2010 in the
amount of $2,200,000.
 
    
    Santander, acting through its New York branch, is under contract with Sovereign Bank
to provide investment advisory and support for derivative transactions, there were no
fees paid in 2010.
 
    
    Geoban, S.A., a Santander affiliate, is under contract with Sovereign Bank to provide
administrative services, consulting and professional services, application support and
back-office services, including debit card disputes and claims support, and consumer and
mortgage loan set-up and review; with total fees paid in 2010 in the amount of
$9,823,021.
 
    
    Ingenieria De Software Bancario S.L., a Santander affiliate, is under contract with
Sovereign Bank to provide information technology development, support and
administration, with total fees paid in 2010 in the amount of $120,919,987.
 
    
    Produban Servicios Informaticos Generales S.L., a Santander affiliate, is under
contract with Sovereign Bank to provide professional services, and administration and
support of information technology production systems, telecommunications and
internal/external applications, with total fees paid in 2010 in the amount of
$58,131,584
  126




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##### Table of Contents




    
    Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under
contract with Sovereign Bank to provide administrative services and back-office support
for derivative and foreign exchange transactions, with total fees paid in 2010 in the
amount of $132,756.
 
    
    Santander Global Facilities (SGF), a Santander affiliate, is under contracts with
Sovereign Bank pursuant to which: (a) SGF shall provide administration and management
of employee benefits and payroll functions for Sovereign Bank and other affiliates; (b)
Sovereign Bank shall share in certain employee benefits and payroll processing services
provided by third party through sponsorship by SGF; and (c) SGF shall provide property
management services to Sovereign Bank; with total fees paid in 2010 in the amount of
$9,931,057.
 Loans to Directors and Executive Officers
  (1)
    Approval of Related Transactions
  Director Independence
  1
    
    Regulation O deals with loans by federally regulated banks to Insiders. For purposes of
Regulation O, an insider (Insider) means an executive officer, director or 10% controlling
shareholder of the applicable bank or bank holding company, or an entity controlled by such
executive officer, director or controlling shareholder.
    127




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##### Table of Contents



Item 14.
    
    Principal Accounting Fees and Services.
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees of the Independent Auditor
  Fiscal Year Ended December 31, 2010
 December 31, 2010Audit Fees
    
    $
    4,812,000Audit-Related Fees
    
    
    552,900Tax Fees
    
    
    86,920All Other Fees
    
    
    449,333Total Fees
    
    $
    5,901,153
      Fiscal Year Ended December 31, 2009
 December 31, 2009Audit Fees
    
    $
    4,700,000Audit-Related Fees
    
    
    141,400Tax Fees
    
    
    245,627All Other Fees
    
    
    0Total Fees
    
    $
    5,087,027
    Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor
   128




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules.
 (a) 1. Financial Statements.
  
    
    Consolidated Balance Sheets
    
    Consolidated Statements of Operations
    
    Consolidated Statements of Stockholders Equity
    
    Consolidated Statements of Cash Flows
    
    Notes to Consolidated Financial Statements
 2. Financial Statement Schedules.
  (b) Exhibits.
 (2.1
    )
    
    Transaction Agreement, dated as of October 13, 2008, between Santander Holdings USA, Inc.
and Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to SHUSAs Current Report
on Form 8-K filed October 16, 2008)(3.1
    )
    
    Amended and Restated Articles of Incorporation of Santander Holdings USA, Inc. (Incorporated
by reference to Exhibit 3.1 to SHUSAs Current Report on Form 8-K filed January 30, 2009)(3.2
    )
    
    Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc.
(Incorporated by reference to Exhibit 3.1 to SHUSAs Current Report on Form 8-K filed March
27, 2009)(3.3
    )
    
    Articles of Amendment to the Articles of Incorporation of Santander Holdings USA, Inc.
(Incorporated by reference to Exhibit 3.1 to SHUSAs Current Report on Form 8-K filed February
5, 2010)(3.4
    )
    
    Amended and Restated Bylaws of Santander Holdings USA, Inc. (Incorporated by reference to
Exhibit 3.2 to Sovereigns Current Report on Form 8-K filed January 30, 2009)(4.1
    )
    
    Santander Holdings USA, Inc. has certain debt obligations outstanding. None of the
instruments evidencing such debt authorizes an amount of securities in excess of 10% of the
total assets of Santander Holdings USA, Inc. and its subsidiaries on a consolidated basis;
therefore, copies of such instruments are not included as exhibits to this Annual Report on
Form 10-K. Santander Holdings USA, Inc. agrees to furnish copies to the SEC on request(4.2
    )
    
    Fiscal Agency Agreement dated December 22, 2008 between Sovereign Bank and The Bank of New
York Mellon Trust Company, N.A., as fiscal agent (Incorporated by reference to Exhibit 4.1 to
SHUSAs Current Report on Form 8-K filed December 22, 2008)(4.3
    )
    
    Fiscal Agency Agreement dated December 22, 2008 between Santander Holdings USA, Inc. and The
Bank of New York Mellon Trust Company, N.A., as fiscal agent (Incorporated by reference to
Exhibit 4.2 to SHUSAs Current Report on Form 8-K filed December 22, 2008)(10.1
    )
    
    Commercial Paper Dealer Agreement between Santander Holdings USA, Inc. and Santander
Investment Securities Inc., dated as of July 15, 2010 (Incorporated by reference to Exhibit
10.1.1 to SHUSAs Current Report on Form 8-K filed July 21, 2010)(16.1
    )
    
    Letter from Ernst & Young LLP, dated March 27, 2009 (Incorporated by reference to Exhibit
16.1 to SHUSAs Current Report on Form 8-K filed March 27, 2009)(16.2
    )
    
    Letter from Ernst & Young, dated April 9, 2009 (Incorporated by reference to Exhibit 16.1 to
SHUSAs Current Report on Form 8-K filed April 9, 2009)(21
    )
    
    Subsidiaries of Registrant(23.1
    )
    
    Consent of Ernst & Young LLP(23.2
    )
    
    Consent of Deloitte & Touche LLP(31.1
    )
    
    Chief Executive Officer certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act(31.2
    )
    
    Chief Financial Officer certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Exchange Act(32.1
    )
    
    Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(32.2
    )
    
    Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  129




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##### Table of Contents



Signatures
  SANTANDER HOLDINGS USA, INC.
(Registrant)By:
    /s/  Jorge MoránName:
    Jorge MoránTitle:
    President, Chief Executive Officer   Signature
    
    Title
    
    Date/s/ Jorge Morán
    
    President
    
    March 10, 2011Jorge Morán
    
    Chief Executive Officer(Principal Executive Officer)/s/ Guillermo Sabater
    
    Senior Executive Vice President
    
    March 10, 2011Guillermo Sabater
    
    Chief Financial OfficerChief Administration Officer(Principal Financial Officer)/s/ Gabriel Jaramillo
    
    Chairman of the Board
    
    March 10, 2011Gabriel Jaramillo/s/ Gonzalo de Las Heras
    
    Director
    
    March 10, 2011Gonzalo de Las Heras/s/ John Hamill
    
    Director
    
    March 10, 2011John Hamill/s/ Marian L. Heard
    
    Director
    
    March 10, 2011Marian L. Heard/s/ Nuno Matos
    
    Senior Executive Vice President
    
    March 10, 2011Nuno Matos
    
    Managing Director of Retail Banking/s/ Alberto Sánchez
    
    Director
    
    March 10, 2011Alberto Sánchez/s/ Wolfgang Schoellkopf
    
    Director
    
    March 10, 2011Wolfgang Schoellkopf/s/ Kirk Walters
    
    Senior Executive Vice President
    
    March 10, 2011Kirk Walters
    
    Managing Director ofSpecialized Businesses and Treasury/s/ Juan Andres Yanes
    
    Director
    
    March 10, 2011Juan Andres Yanes
  130