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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, 2009,
 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 
of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)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
 o þ
 þ o
 o o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



Form 10-K Cross Reference Index
 PageForward-Looking Statements
    
    
    3PART IItem 1  Business
    
    
    4-7Item 1A  Risk Factors
    
    
    8-10Item 1B  Unresolved Staff Comments
    
    
    10Item 2  Properties
    
    
    10Item 3  Legal Proceedings
    
    
    11Item 4  Submission of Matters to a Vote of Security Holders
    
    
    11Item 4A  Executive Officers of the Registrant
    
    
    11-12PART IIItem 5  Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    12Item 6  Selected Financial Data
    
    
    13Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-45Item 7A  Quantitative and Qualitative Disclosures About Market Risk
    
    
    45Item 8  Financial Statements and Supplementary Data
    
    
    45-96Item 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
    
    
    99-125Item 12  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    126Item 13  Certain Relationships and Related Transactions, and Director Independence
    
    
    126-129Item 14  Principal Accounting Fees and Services
    
    
    129-130PART IVItem 15  Exhibits and Financial Statement Schedules
    
    
    131Signatures
    
    
    132Exhibit 21Exhibit 23.1Exhibit 23.2Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   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;
 
    
    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 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; and
 
    
    deposit attrition, operating costs, customer losses and business disruptions following
the acquisition of SHUSA by Santander, including difficulties in maintaining relationships
with employees, could be greater than expected.
 
    
    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
  Environmental Laws
   4




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Supervision and Regulation
 General.
   Holding Company Regulation.
 Control of Sovereign.
   
 Regulatory Capital Requirements.
   Standards for Safety and Soundness.
  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.
 Other Loan Limitations.
  6




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Federal Reserve Regulation.
  Federal Home Loan Bank System.
  Community Reinvestment Act.
 Other Legislation.
  Corporate Information. www.sec.gov
  7




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Item 1A  Risk Factors
  
    
    The Current Economic Downturn May Continue to Cause A Deterioration In
Our Asset Quality and Adversely Affect Our Earnings and Cash Flow.
  
    
    Disruptions in the Global Financial Markets have Affected, and May
Continue to Adversely Affect, SHUSAs Business and Results of
Operations.
   
    
    SHUSA May Experience Further Write-Downs of its Financial Instruments
and Other Losses Related to Volatile and Illiquid Market Conditions.
  
    
    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.
  
    
    Impact of Future Regulation Changes May Have an Adverse Impact on Our Profitability.
   
    
    The Preparation of SHUSAs Financial Statements Requires the Use of Estimates That May Vary From Actual Results.
   8




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
    
    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.
   
    
    Changing Interest Rates May Adversely Affect Our Profits.
  
    
    We Experience Intense Competition for Loans and Deposits.
  
    
    We Are Subject to Substantial Regulation Which Could Adversely Affect Our Business and Operations.
     9




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##### Table of Contents




    
    Changes in Accounting Standards Could Impact Reported Earnings.
  
    
    We Rely on Third Parties for Important Products and Services.
  
    
    Our Framework for Managing Risks May Not be Effective in Mitigating Risk and Loss to Our Company.
  
    
    Our Disclosure Controls and Procedures Over Financial Reporting May Not Prevent or Detect All Errors or Acts of Fraud.
   
    
    Integration Risks Exist Related to the Acquisition of the Company by Santander.
  
 Item 1B- Unresolved Staff Comments
  
 Item 2  Properties
             10




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Item 3  Legal Proceedings
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 4A  Executive Officers of the Registrant
            11




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PART II
 
 Item 5  Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
   12




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Item 6  Selected Financial Data
 SELECTED FINANCIAL DATAAT OR FOR THE YEAR ENDED DECEMBER 31,(Dollars in thousands, except per share data)
    
    2009(1)
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance Sheet DataTotal assets
    
    $
    82,953,215
    
    
    $
    77,093,668
    
    
    $
    84,746,396
    
    
    $
    89,641,849
    
    
    $
    63,678,726Loans held for investment, net of allowance
    
    
    55,733,953
    
    
    
    54,439,146
    
    
    
    56,729,982
    
    
    
    54,648,310
    
    
    
    43,204,701Loans held for sale
    
    
    118,994
    
    
    
    327,332
    
    
    
    547,760
    
    
    
    7,611,921
    
    
    
    311,578Investment securities
    
    
    14,301,638
    
    
    
    10,020,110
    
    
    
    15,142,392
    
    
    
    14,877,640
    
    
    
    12,557,328Deposits and other customer accounts
    
    
    44,428,065
    
    
    
    48,438,573
    
    
    
    49,915,905
    
    
    
    52,384,554
    
    
    
    37,977,706Borrowings and other debt obligations
    
    
    27,235,151
    
    
    
    20,964,185
    
    
    
    26,272,512
    
    
    
    27,006,102
    
    
    
    18,926,557Stockholders equity
    
    $
    9,387,535
    
    
    $
    5,596,714
    
    
    $
    6,992,325
    
    
    $
    8,644,399
    
    
    $
    5,810,699Summary Statement of OperationsTotal interest income
    
    $
    4,423,586
    
    
    $
    3,923,164
    
    
    $
    4,656,256
    
    
    $
    4,326,404
    
    
    $
    2,962,587Total interest expense
    
    
    1,780,082
    
    
    
    2,040,722
    
    
    
    2,813,013
    
    
    
    2,528,814
    
    
    
    1,353,706Net interest income
    
    
    2,643,504
    
    
    
    1,882,442
    
    
    
    1,843,243
    
    
    
    1,797,590
    
    
    
    1,608,881Provision for credit losses(2)
    
    
    1,984,537
    
    
    
    911,000
    
    
    
    407,692
    
    
    
    484,461
    
    
    
    90,000Net interest income after provision for credit
losses
    
    
    658,967
    
    
    
    971,442
    
    
    
    1,435,551
    
    
    
    1,313,129
    
    
    
    1,518,881Total non-interest income(2)
    
    
    342,297
    
    
    
    (818,743
    )
    
    
    354,396
    
    
    
    285,574
    
    
    
    602,664General and administrative expenses
    
    
    1,520,460
    
    
    
    1,484,306
    
    
    
    1,336,865
    
    
    
    1,284,329
    
    
    
    1,084,390Other expenses(3)
    
    
    603,703
    
    
    
    302,027
    
    
    
    1,862,794
    
    
    
    295,243
    
    
    
    145,035(Loss)/Income before income taxes
    
    
    (1,122,899
    )
    
    
    (1,633,634
    )
    
    
    (1,409,712
    )
    
    
    19,131
    
    
    
    892,120Income tax (benefit)/provision(4)
    
    
    (1,284,464
    )
    
    
    723,576
    
    
    
    (60,450
    )
    
    
    (117,780
    )
    
    
    215,960Net (Loss)/Income
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )
    
    $
    136,911
    
    
    $
    676,160Selected Financial RatiosReturn on average assets(5)
    
    
    0.20
    %
    
    
    (2.99
    )%
    
    
    (1.62
    )%
    
    
    0.17
    %
    
    
    1.11
    %Return on average equity(6)
    
    
    1.98
    %
    
    
    (31.27
    )%
    
    
    (15.40
    )%
    
    
    1.82
    %
    
    
    11.92
    %Average equity to average assets(7)
    
    
    9.89
    %
    
    
    9.55
    %
    
    
    10.52
    %
    
    
    9.46
    %
    
    
    9.34
    %
 (1)
    
    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 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 2009 and 2008 were negatively impacted by the deterioration in the credit quality of our loan portfolios which was impacted by the
weakening of the United States economy as well as declines in residential and commercial real estate prices. See additional discussion in Managements Discussion and
Analysis. 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)
    
    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 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 will be significantly impacted by the current recessionary environment. 2007 results
include a $1.6 billion goodwill impairment charge.(4)
    
    2008 results were negatively impacted by the establishment of a $1.4 billion valuation allowance against deferred tax assets. Given that SHUSA has recorded significant
losses in recent periods and due to the challenging economic conditions anticipated in 2009, the Company concluded that it was more likely than not that the majority
of our deferred tax assets would not be realized in future periods on a stand alone basis. This conclusion was made without regards to the anticipated benefits that
our pending transaction with Santander will have on the company. During 2009, Santander contributed SCUSA into SHUSA. As a result of incorporating future taxable
income projections of SCUSA, SHUSA was able to reduce its deferred tax valuation allowance by $1.3 billion in 2009 which resulted in a significant tax benefit recorded
in 2009.(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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Managements Discussion and Analysis
 
 Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A)
 EXECUTIVE SUMMARY
    1)
    
    stabilizing our financial condition with respect to liquidity and capital;2)
    
    improving risk management and collections;3)
    
    improving our margins and efficiency; and4)
    
    reorganizing to align to Santander business models with a strong commercial focus.
        14




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




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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/(losses)
    
    
    342,297
    
    
    
    (818,743
    )General and administrative expenses
    
    
    1,520,460
    
    
    
    1,484,306Other expenses
    
    
    603,703
    
    
    
    302,027Net income/(loss)
    
    $
    161,565
    
    
    $
    (2,357,210
    )
  Three-Month
    
    
    Three-MonthPeriod Ended
    
    
    Period Ended
    
    
    VarianceDecember 31, 2009
    
    
    December 31, 2008
    
    
    Increase/(Decrease)SHUSA
    
    
    
    
    
    Q409 SHUSAexcluding
    
    
    
    
    
    excluding SCUSA vsTotal
    
    
    SCUSA
    
    
    SCUSA
    
    
    Total
    
    
    Q408 SHUSANet interest income
    
    $
    679,757
    
    
    $
    291,162
    
    
    $
    388,595
    
    
    $
    418,610
    
    
    $
    (30,015
    )Provision for credit losses
    
    
    434,788
    
    
    
    124,488
    
    
    
    310,300
    
    
    
    340,000
    
    
    
    (29,700
    )Fees and other income
    
    
    66,504
    
    
    
    9,619
    
    
    
    56,885
    
    
    
    (201,884
    )
    
    
    258,769Compensation and benefits
    
    
    167,380
    
    
    
    28,532
    
    
    
    138,848
    
    
    
    184,700
    
    
    
    (45,852
    )Occupancy and equipment expenses
    
    
    79,040
    
    
    
    4,586
    
    
    
    74,454
    
    
    
    80,930
    
    
    
    (6,476
    )Technology expense
    
    
    28,019
    
    
    
    4,274
    
    
    
    23,745
    
    
    
    26,733
    
    
    
    (2,988
    )Outside services
    
    
    27,933
    
    
    
    13,551
    
    
    
    14,382
    
    
    
    17,694
    
    
    
    (3,312
    )Marketing expense
    
    
    6,796
    
    
    
    451
    
    
    
    6,345
    
    
    
    23,279
    
    
    
    (16,934
    )Other administrative expenses
    
    
    66,331
    
    
    
    29,113
    
    
    
    37,218
    
    
    
    54,023
    
    
    
    (16,805
    )General and administrative expense
    
    
    375,499
    
    
    
    80,507
    
    
    
    294,992
    
    
    
    387,359
    
    
    
    (92,367
    )Other expenses
    
    
    76,522
    
    
    
    827
    
    
    
    75,695
    
    
    
    160,244
    
    
    
    (84,549
    )Income before income taxes
    
    
    (140,548
    )
    
    
    94,959
    
    
    
    (235,507
    )
    
    
    (670,877
    )
    
    
    435,370Income tax provision/(benefit)
    
    
    (463
    )
    
    
    43,738
    
    
    
    (44,201
    )
    
    
    932,316
    
    
    
    (976,517
    )Net income
    
    $
    (140,085
    )
    
    $
    51,221
    
    
    $
    (191,306
    )
    
    $
    (1,603,193
    )
    
    $
    1,411,887
  16




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Twelve-Month
    
    
    Twelve-MonthPeriod Ended
    
    
    Period Ended
    
    
    VarianceDecember 31, 2009
    
    
    December 31, 2008
    
    
    Increase/(Decrease)SHUSA
    
    
    
    
    
    2009 SHUSAexcluding
    
    
    
    
    
    excluding SCUSA vsTotal
    
    
    SCUSA
    
    
    SCUSA
    
    
    Total
    
    
    2008 SHUSANet interest income
    
    $
    2,643,504
    
    
    $
    1,277,358
    
    
    $
    1,366,146
    
    
    $
    1,882,442
    
    
    $
    (516,296
    )Provision for credit losses
    
    
    1,984,537
    
    
    
    720,937
    
    
    
    1,263,600
    
    
    
    911,000
    
    
    
    352,600Fees and other income
    
    
    342,297
    
    
    
    30,712
    
    
    
    311,585
    
    
    
    (818,743
    )
    
    
    1,130,328Compensation and benefits
    
    
    716,418
    
    
    
    88,858
    
    
    
    627,560
    
    
    
    755,379
    
    
    
    (127,819
    )Occupancy and equipment expenses
    
    
    318,706
    
    
    
    17,952
    
    
    
    300,754
    
    
    
    310,535
    
    
    
    (9,781
    )Technology expense
    
    
    107,100
    
    
    
    10,400
    
    
    
    96,700
    
    
    
    102,591
    
    
    
    (5,891
    )Outside services
    
    
    119,238
    
    
    
    57,461
    
    
    
    61,777
    
    
    
    64,474
    
    
    
    (2,697
    )Marketing expense
    
    
    36,318
    
    
    
    1,116
    
    
    
    35,202
    
    
    
    78,995
    
    
    
    (43,793
    )Other administrative expenses
    
    
    222,680
    
    
    
    77,244
    
    
    
    145,436
    
    
    
    172,332
    
    
    
    (26,896
    )General and administrative expense
    
    
    1,520,460
    
    
    
    253,031
    
    
    
    1,267,429
    
    
    
    1,484,306
    
    
    
    (216,877
    )Other expenses
    
    
    603,703
    
    
    
    1,907
    
    
    
    601,796
    
    
    
    302,027
    
    
    
    299,769Income before income taxes
    
    
    (1,122,899
    )
    
    
    332,195
    
    
    
    (1,455,094
    )
    
    
    (1,633,634
    )
    
    
    178,540Income tax provision/(benefit)
    
    
    (1,284,464
    )
    
    
    143,834
    
    
    
    (1,428,298
    )
    
    
    723,576
    
    
    
    (2,151,874
    )Net income
    
    $
    161,565
    
    
    $
    188,361
    
    
    $
    (26,796
    )
    
    $
    (2,357,210
    )
    
    $
    2,330,414
 SHUSAexcludingTotal
    
    
    SCUSA
    
    
    SCUSAASSETSCash and amounts due from depository
institutions
    
    $
    2,323,290
    
    
    $
    34,932
    
    
    $
    2,288,358Investment securities
    
    
    14,301,638
    
    
    
    437,151
    
    
    
    13,864,487Loans held for investment
    
    
    57,552,177
    
    
    
    7,850,666
    
    
    
    49,701,511Allowance for loan losses
    
    
    (1,818,224
    )
    
    
    (384,399
    )
    
    
    (1,433,825
    )Net loans held for investment
    
    
    55,733,953
    
    
    
    7,466,267
    
    
    
    48,267,686Loans held for sale
    
    
    118,994
    
    
    
    
    
    
    
    118,994Goodwill
    
    
    4,135,540
    
    
    
    704,059
    
    
    
    3,431,481Other intangibles
    
    
    245,641
    
    
    
    50,953
    
    
    
    194,688Other assets
    
    
    6,094,159
    
    
    
    415,111
    
    
    
    5,679,048Total assets
    
    $
    82,953,215
    
    
    $
    9,108,473
    
    
    $
    73,844,742LIABILITIESDeposits
    
    $
    44,428,065
    
    
    $
    
    
    
    $
    44,428,065Borrowings and other debt obligations
    
    
    27,235,151
    
    
    
    7,526,106
    
    
    
    19,709,045Other liabilities
    
    
    1,902,464
    
    
    
    276,988
    
    
    
    1,625,476Total liabilities
    
    
    73,565,680
    
    
    
    7,803,094
    
    
    
    65,762,586STOCKHOLDERS EQUITYPreferred stock
    
    
    195,445
    
    
    
    
    
    
    
    195,445Common stock
    
    
    10,397,214
    
    
    
    789,544
    
    
    
    9,607,670Warrants
    
    
    285,435
    
    
    
    
    
    
    
    285,435Accumulated other comprehensive income
    
    
    (349,869
    )
    
    
    (11,670
    )
    
    
    (338,199
    )Retained earnings
    
    
    (1,140,690
    )
    
    
    527,505
    
    
    
    (1,668,195
    )Total stockholders equity
    
    
    9,387,535
    
    
    
    1,305,379
    
    
    
    8,082,156Total liabilities and stockholders equity
    
    $
    82,953,215
    
    
    $
    9,108,473
    
    
    $
    73,844,742
  FICO Band
    
    % of Portfolio> 650
    
    
    20
    %650-601
    
    
    28
    %600-551
    
    
    26
    %550-501
    
    
    15
    %<=500
    
    
    11
    %
  17




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##### Table of Contents




    
    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 7 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.
   18




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##### Table of Contents



Table 1: Net Interest Margin
 YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Interest-earning deposits
    
    $
    2,772,893
    
    
    $
    7,771
    
    
    
    0.28
    %
    
    $
    256,268
    
    
    $
    4,285
    
    
    
    1.67
    %
    
    $
    307,596
    
    
    $
    16,562
    
    
    
    5.38
    %Investment securities(1)Available for sale
    
    
    10,855,257
    
    
    
    428,161
    
    
    
    3.94
    
    
    
    10,498,218
    
    
    
    621,906
    
    
    
    5.92
    
    
    
    12,971,273
    
    
    
    804,025
    
    
    
    6.20Other
    
    
    700,414
    
    
    
    1,761
    
    
    
    0.25
    
    
    
    930,926
    
    
    
    23,786
    
    
    
    2.56
    
    
    
    901,197
    
    
    
    51,645
    
    
    
    5.73Total investments
    
    
    14,328,564
    
    
    
    437,693
    
    
    
    3.05
    
    
    
    11,685,412
    
    
    
    649,977
    
    
    
    5.56
    
    
    
    14,180,066
    
    
    
    872,232
    
    
    
    6.15Loans:Commercial loan
    
    
    26,192,894
    
    
    
    1,153,341
    
    
    
    4.40
    
    
    
    27,501,518
    
    
    
    1,560,936
    
    
    
    5.68
    
    
    
    25,422,607
    
    
    
    1,823,144
    
    
    
    7.17Multi-family
    
    
    4,530,207
    
    
    
    253,687
    
    
    
    5.60
    
    
    
    4,628,080
    
    
    
    275,500
    
    
    
    5.95
    
    
    
    4,657,978
    
    
    
    296,126
    
    
    
    6.36Consumer:Residential mortgage
    
    
    11,001,667
    
    
    
    574,454
    
    
    
    5.22
    
    
    
    12,234,402
    
    
    
    687,691
    
    
    
    5.62
    
    
    
    14,525,467
    
    
    
    825,685
    
    
    
    5.68Home equity loans and lines of
credit
    
    
    6,912,879
    
    
    
    302,619
    
    
    
    4.38
    
    
    
    6,509,952
    
    
    
    367,645
    
    
    
    5.65
    
    
    
    6,868,727
    
    
    
    469,760
    
    
    
    6.84Total consumer loans secured by
real estate
    
    
    17,914,546
    
    
    
    877,073
    
    
    
    4.90
    
    
    
    18,744,354
    
    
    
    1,055,336
    
    
    
    5.63
    
    
    
    21,394,194
    
    
    
    1,295,445
    
    
    
    6.06Auto loans
    
    
    10,366,356
    
    
    
    1,740,423
    
    
    
    16.79
    
    
    
    6,485,098
    
    
    
    440,309
    
    
    
    6.79
    
    
    
    6,374,225
    
    
    
    433,172
    
    
    
    6.80Other
    
    
    275,388
    
    
    
    19,105
    
    
    
    6.94
    
    
    
    303,131
    
    
    
    23,136
    
    
    
    7.63
    
    
    
    360,486
    
    
    
    31,248
    
    
    
    8.67Total Consumer
    
    
    28,556,290
    
    
    
    2,636,601
    
    
    
    9.23
    
    
    
    25,532,583
    
    
    
    1,518,781
    
    
    
    5.95
    
    
    
    28,128,905
    
    
    
    1,759,865
    
    
    
    6.26Total loans
    
    
    59,279,391
    
    
    
    4,043,629
    
    
    
    6.82
    
    
    
    57,662,181
    
    
    
    3,355,217
    
    
    
    5.82
    
    
    
    58,209,490
    
    
    
    3,879,135
    
    
    
    6.66Allowance for loan losses
    
    
    (1,745,257
    )
    
    
    
    
    
    
    
    
    
    
    (836,217
    )
    
    
    
    
    
    
    
    
    
    
    (533,263
    )
    
    
    
    
    
    
    Net loans(1)(2)
    
    
    57,534,134
    
    
    
    4,043,629
    
    
    
    7.03
    
    
    
    56,825,964
    
    
    
    3,355,217
    
    
    
    5.90
    
    
    
    57,676,227
    
    
    
    3,879,135
    
    
    
    6.73Total interest-earning assets
    
    
    71,862,698
    
    
    
    4,481,322
    
    
    
    6.24
    
    
    
    68,511,376
    
    
    
    4,005,194
    
    
    
    5.85
    
    
    
    71,856,293
    
    
    
    4,751,367
    
    
    
    6.61Non-interest-earning assets
    
    
    10,486,084
    
    
    
    
    
    
    
    
    
    
    
    10,170,523
    
    
    
    
    
    
    
    
    
    
    
    11,459,739
    
    
    
    
    
    
    
    Total assets
    
    $
    82,348,782
    
    
    $
    4,481,322
    
    
    
    5.44
    %
    
    $
    78,681,899
    
    
    $
    4,005,194
    
    
    
    5.09
    %
    
    $
    83,316,032
    
    
    $
    4,751,367
    
    
    
    5.70
    %Interest-bearing liabilities:Deposits:Retail and commercial deposits
    
    $
    33,161,719
    
    
    $
    545,766
    
    
    
    1.65
    %
    
    $
    31,253,414
    
    
    $
    744,856
    
    
    
    2.38
    %
    
    $
    31,228,313
    
    
    $
    968,509
    
    
    
    3.10
    %Wholesale deposits
    
    
    4,108,495
    
    
    
    76,992
    
    
    
    1.87
    
    
    
    3,529,553
    
    
    
    89,404
    
    
    
    2.53
    
    
    
    6,751,606
    
    
    
    357,603
    
    
    
    5.29Government deposits
    
    
    2,080,676
    
    
    
    12,244
    
    
    
    0.59
    
    
    
    3,181,711
    
    
    
    81,288
    
    
    
    2.55
    
    
    
    3,826,924
    
    
    
    193,066
    
    
    
    5.05Customer repurchase agreements
    
    
    1,675,575
    
    
    
    5,547
    
    
    
    0.33
    
    
    
    2,346,152
    
    
    
    36,040
    
    
    
    1.54
    
    
    
    2,545,304
    
    
    
    108,137
    
    
    
    4.25Total deposits
    
    
    41,026,465
    
    
    
    640,549
    
    
    
    1.56
    
    
    
    40,310,830
    
    
    
    951,588
    
    
    
    2.36
    
    
    
    44,352,147
    
    
    
    1,627,315
    
    
    
    3.67Total borrowings and other debt
obligations
    
    
    24,193,790
    
    
    
    1,139,533
    
    
    
    4.71
    
    
    
    22,887,793
    
    
    
    1,089,134
    
    
    
    4.76
    
    
    
    22,397,019
    
    
    
    1,185,698
    
    
    
    5.39Total interest bearing liabilities
    
    
    65,220,255
    
    
    
    1,780,082
    
    
    
    2.73
    
    
    
    63,198,623
    
    
    
    2,040,722
    
    
    
    3.23
    
    
    
    66,749,166
    
    
    
    2,813,013
    
    
    
    4.25Non-interest-bearing DDA
    
    
    6,809,303
    
    
    
    
    
    
    
    
    
    
    
    6,548,894
    
    
    
    
    
    
    
    
    
    
    
    6,386,359
    
    
    
    
    
    
    
    Non-interest-bearing liabilities
    
    
    2,170,858
    
    
    
    
    
    
    
    
    
    
    
    1,416,627
    
    
    
    
    
    
    
    
    
    
    
    1,418,950
    
    
    
    
    
    
    
    Total liabilities
    
    
    74,200,416
    
    
    
    1,780,082
    
    
    
    2.40
    
    
    
    71,164,144
    
    
    
    2,040,722
    
    
    
    2.87
    
    
    
    74,554,475
    
    
    
    2,813,013
    
    
    
    3.80Stockholders equity
    
    
    8,148,366
    
    
    
    
    
    
    
    
    
    
    
    7,517,755
    
    
    
    
    
    
    
    
    
    
    
    8,761,557
    
    
    
    
    
    
    
    Total liabilities and
stockholders equity
    
    $
    82,348,782
    
    
    $
    1,780,082
    
    
    
    2.16
    %
    
    $
    78,681,899
    
    
    $
    2,040,722
    
    
    
    2.59
    %
    
    $
    83,316,032
    
    
    $
    2,813,013
    
    
    
    3.40
    %Net interest spread(3)
    
    
    
    
    
    
    
    
    
    
    3.51
    %
    
    
    
    
    
    
    
    
    
    
    2.62
    %
    
    
    
    
    
    
    
    
    
    
    2.37
    %Taxable equivalent interest
income/net interest margin
    
    
    
    
    
    
    2,701,240
    
    
    
    3.76
    %
    
    
    
    
    
    
    1,964,472
    
    
    
    2.87
    %
    
    
    
    
    
    
    1,938,354
    
    
    
    2.67
    %Tax equivalent basis adjustment
    
    
    
    
    
    
    (57,736
    )
    
    
    
    
    
    
    
    
    
    
    (82,030
    )
    
    
    
    
    
    
    
    
    
    
    (95,111
    )Net interest income
    
    
    
    
    
    $
    2,643,504
    
    
    
    
    
    
    
    
    
    
    $
    1,882,442
    
    
    
    
    
    
    
    
    
    
    $
    1,843,243Ratio of interest-earning assets
to interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    1.10
    x
    
    
    
    
    
    
    
    
    
    
    1.08
    x
    
    
    
    
    
    
    
    
    
    
    1.08
    x
 (1)
    
    The average balance of our non-taxable investment securities for the year-ended December 31, 2009, 2008 and
2007 were $1.7 billion, $2.5 billion and $3.1 billion, respectively. Tax equivalent adjustments to interest
on investment securities available for sale for the years ended December 31, 2009, 2008 and 2007 were $43.9
million, $66.0 million and $80.5 million, respectively. Tax equivalent adjustments to loans for the years
ended December 31, 2009, 2008 and 2007, were $13.8 million, $16.0 million and $14.7 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 $1.6 million, $2.8 million and $14.1 million for the years ended December 31, 2009,
2008 and 2007, 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.  19




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##### Table of Contents



Table 2: Volume/Rate Analysis
 YEAR ENDED DECEMBER 31,2009 VS. 2008
    
    
    2008 VS. 2007INCREASE/(DECREASE)
    
    
    INCREASE/(DECREASE)Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    TotalInterest-earning assets:Interest-earning deposits
    
    $
    9,790
    
    
    $
    (6,304
    )
    
    $
    3,486
    
    
    $
    (2,392
    )
    
    $
    (9,885
    )
    
    $
    (12,277
    )Investment securities available for sale
    
    
    20,498
    
    
    
    (214,243
    )
    
    
    (193,745
    )
    
    
    (147,782
    )
    
    
    (34,337
    )
    
    
    (182,119
    )Investment securities other
    
    
    (4,746
    )
    
    
    (17,279
    )
    
    
    (22,025
    )
    
    
    1,651
    
    
    
    (29,510
    )
    
    
    (27,859
    )Net loans(1)
    
    
    42,302
    
    
    
    646,110
    
    
    
    688,412
    
    
    
    (56,435
    )
    
    
    (467,483
    )
    
    
    (523,918
    )Total interest-earning assets
    
    
    
    
    
    
    
    
    
    
    476,128
    
    
    
    
    
    
    
    
    
    
    
    (746,173
    )Interest-bearing liabilities:Deposits
    
    
    16,608
    
    
    
    (327,647
    )
    
    
    (311,039
    )
    
    
    (137,518
    )
    
    
    (538,209
    )
    
    
    (675,727
    )Borrowings
    
    
    61,609
    
    
    
    (11,210
    )
    
    
    50,399
    
    
    
    25,968
    
    
    
    (122,532
    )
    
    
    (96,564
    )Total interest-bearing liabilities
    
    
    
    
    
    
    
    
    
    
    (260,640
    )
    
    
    
    
    
    
    
    
    
    
    (772,291
    )Net change in net interest income
    
    $
    (10,373
    )
    
    $
    747,141
    
    
    $
    736,768
    
    
    $
    (93,408
    )
    
    $
    119,526
    
    
    $
    26,118
 (1)
    
    Includes non-accrual loans and loans held for sale. Provision for Credit Losses.
      20




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##### Table of Contents



Table 3: Reconciliation of the Allowance for Credit Losses
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Allowance for loan losses, beginning
of period
    
    $
    1,102,753
    
    
    $
    709,444
    
    
    $
    471,030
    
    
    $
    419,599
    
    
    $
    391,003Allowance acquired in acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,824
    
    
    
    28,778Acquired allowance for loan losses
due to SCUSA contribution from
Parent
    
    
    347,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for loan losses (2)
    
    
    1,790,559
    
    
    
    874,140
    
    
    
    394,646
    
    
    
    487,418
    
    
    
    89,501Allowance released in connection
with loan sales or securitizations
    
    
    
    
    
    
    (3,745
    )
    
    
    (12,409
    )
    
    
    (4,728
    )
    
    
    (8,010
    )Charge-offs:Commercial
    
    
    518,468
    
    
    
    238,470
    
    
    
    65,670
    
    
    
    56,916
    
    
    
    40,935Consumer secured by real estate
    
    
    110,732
    
    
    
    75,978
    
    
    
    26,809
    
    
    
    463,902
    
    
    
    24,125Consumer not secured by real estate
    
    
    1,121,338
    
    
    
    277,266
    
    
    
    126,385
    
    
    
    73,958
    
    
    
    71,906Total charge-offs (1)
    
    
    1,750,538
    
    
    
    591,714
    
    
    
    218,864
    
    
    
    594,776
    
    
    
    136,966Recoveries:Commercial
    
    
    11,288
    
    
    
    13,378
    
    
    
    15,187
    
    
    
    14,097
    
    
    
    13,100Consumer secured by real estate
    
    
    12,283
    
    
    
    9,027
    
    
    
    11,193
    
    
    
    9,933
    
    
    
    7,085Consumer not secured by real estate
    
    
    304,577
    
    
    
    92,223
    
    
    
    48,661
    
    
    
    41,663
    
    
    
    35,108Total recoveries
    
    
    328,148
    
    
    
    114,628
    
    
    
    75,041
    
    
    
    65,693
    
    
    
    55,293Charge-offs, net of recoveries
    
    
    1,422,390
    
    
    
    477,086
    
    
    
    143,823
    
    
    
    529,083
    
    
    
    81,673Allowance for loan losses, end of
period
    
    $
    1,818,224
    
    
    $
    1,102,753
    
    
    $
    709,444
    
    
    $
    471,030
    
    
    $
    419,599Reserve for unfunded lending
commitments, beginning of period
    
    
    65,162
    
    
    
    28,302
    
    
    
    15,256
    
    
    
    18,212
    
    
    
    17,713Provision for unfunded lending
commitments (2)
    
    
    193,978
    
    
    
    36,860
    
    
    
    13,046
    
    
    
    (2,956
    )
    
    
    499Reserve for unfunded lending
commitments, end of period (3)
    
    
    259,140
    
    
    
    65,162
    
    
    
    28,302
    
    
    
    15,256
    
    
    
    18,212Total allowance for credit losses
    
    $
    2,077,364
    
    
    $
    1,167,915
    
    
    $
    737,746
    
    
    $
    486,285
    
    
    $
    437,811Net charge-offs to average loans (1)
    
    
    2.40
    %
    
    
    0.83
    %
    
    
    0.25
    %
    
    
    0.96
    %
    
    
    0.20
    %
 (1)
    
    The 2006 consumer secured by real estate 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).
    21




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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/losses on hedging activities
    
    
    (3,863
    )
    
    
    6,205Gain on sales of mortgages
    
    
    71,120
    
    
    
    18,985Gain/loss 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
    %
        22




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
    
    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 sellthe 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.
 
    
    If a credit loss exists, but an entity does not intend to sell the impaired debt
security and is not more likely than not to be required to sell before recovery, the
impairment is other-than-temporary and should be separated into (i) the estimated amount
relating to credit loss, and (ii) the amount relating to all other factors. Only the
estimated credit loss amount is recognized currently in earnings, with the remainder of the
loss amount recognized in other comprehensive income.
   General and Administrative Expenses.
 Other Expenses.
    23




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Income Tax Expense/(Benefit).
   Line of Business Results.
    24




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25




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RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 YEAR ENDED DECEMBER 31,(Dollars in thousands, except per share data)
    
    2008
    
    
    2007Net interest income
    
    $
    1,882,442
    
    
    $
    1,843,243Provision for credit losses
    
    
    911,000
    
    
    
    407,692Total non-interest income
    
    
    (818,743
    )
    
    
    354,396General and administrative expenses
    
    
    1,484,306
    
    
    
    1,336,865Other expenses
    
    
    302,027
    
    
    
    1,862,794Net (loss)/income
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )
  
    
    Net interest income increased 2.1%
during 2008 due to an expansion in net
interest margin to 2.87% from 2.67%
partially offset by a $3.3 billion
decline in earning assets.
    
    The increase in provision for credit
losses in 2008 is related to the
previously mentioned deterioration in
our loan portfolios due to the current
economic environment.
    
    Included in non-interest income:
 (1)
    
    Net losses on investment securities of $1.5 billion and
$176.4 million in 2008 and 2007, respectively. Our 2008 and
2007 results included OTTI charges of $575.3 million and
$180.5 million, respectively, on FNMA and FHLMC preferred
stock. Net losses on investment securities in 2008 also
included a $602.3 million loss on the sale of our CDO
portfolio and a $307.9 million OTTI charge on non-agency
mortgage backed securities. See Note 7 for additional
details.(2)
    
    An increase in capital markets revenues of $43.1 million
due to charges of $46.9 million related to customers who
defaulted on repurchase agreements and other financing
obligations during 2007.(3)
    
    An increase in mortgage banking revenues in 2008 of
$54.6 million due to a $119.9 million lower of cost or market
adjustment related to certain correspondent home equity loans
in the first quarter of 2007. These loans were classified as
held for sale at the end of 2006 but management determined in
the first quarter of 2007 to retain the loans in the
portfolio. An additional adjustment was recorded prior to
this reclassification to write these loans down to fair
value. Mortgage banking revenues included a $47.3 million
residential MSR impairment in 2008 due to increased
prepayment speed assumptions due to lower market interest
rates.
 
    
    Increases in general and administrative
expenses in 2008 were due primarily to
increased cash based compensation of
$68.3 million. REO and loan expenses
also increased $17.6 million as a
result of deteriorating credit
conditions. Marketing expense increased
$22.9 million due to the certain retail
banking initiatives during 2008 as well
as advertising campaigns incurred in
the fourth quarter of 2008 to reclaim
deposits lost at the end of the third
quarter and related to the Santander
transaction.
 
    
    Other expenses have decreased due primarily to non-deductible
goodwill impairment charges of $943 million in our Metro New
York reporting unit (now classified in our Retail Banking
segment) and $634 million in our Shared Services Consumer
(now principally our Specialized Business segment) reporting
unit in 2007. SHUSA also recorded restructuring and ESOP
termination charges of $102.1 million in 2007. 2008 results
included an impairment charge of $95.0 million on an equity
method investment. Additionally, deposit insurance premiums
increased $28.5 million due to FDIC regulations to implement
the Reform Act.
 
    
    SHUSA recorded an income tax expense of $723.6 million in
2008 compared to a benefit of $60.5 million in 2007. 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. 2007 tax results were
significantly impacted by the aforementioned significant
charges which magnified the impact of our favorable permanent
tax-free items.
 Net Interest Income.
     26




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Provision for Credit Losses.
       Non-interest Income/(Loss).
    27




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Twelve-months ended December 31,2008
    
    
    2007Impairments to mortgage servicing rights
    
    $
    (47,342
    )
    
    $
    (1,415
    )Impairments to multi-family servicing rights
    
    
    (5,916
    )
    
    
    Residential mortgage and multi-family servicing fees
    
    
    50,002
    
    
    
    42,197Amortization of residential mortgage and multi-family servicing rights
    
    
    (36,259
    )
    
    
    (36,806
    )Net gains on hedging activities
    
    
    6,205
    
    
    
    51Net gain recorded on commercial mortgage backed securitization
    
    
    
    
    
    
    4,475Gain on sales of mortgages
    
    
    18,985
    
    
    
    18,295Gain on sales of multi-family loans
    
    
    1,099
    
    
    
    26,203Loss related to correspondent home equity portfolio
    
    
    
    
    
    
    (120,792
    )Total
    
    $
    (13,226
    )
    
    $
    (67,792
    )
     December 31, 2008
    
    
    December 31, 2007
    
    
    December 31, 2006CPR speed
    
    
    29.65
    %
    
    
    14.70
    %
    
    
    14.23
    %Escrow credit spread
    
    
    4.35
    %
    
    
    5.12
    %
    
    
    4.85
    %
     General and Administrative Expenses.
 Other Expenses.
  28




---



##### Table of Contents



Income Tax Expense/(Benefit).
 Line of Business Results.
    Critical Accounting Policies
    29




---



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Allowance for Loan Losses and Reserve for Unfunded Lending Commitments.
 Goodwill.
      Derivatives and Hedging Activities
   30




---



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Income Taxes.
     Financial Condition
 Loan Portfolio.
    31




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Table 4: Composition of Loan Portfolio
 AT DECEMBER 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENT
    
    
    BALANCE
    
    
    PERCENTCommercial real estate loans
    
    $
    12,453,575
    
    
    
    21.6
    %
    
    $
    13,181,624
    
    
    
    23.6
    %
    
    $
    12,306,914
    
    
    
    21.2
    %
    
    $
    11,514,983
    
    
    
    18.4
    %
    
    $
    7,209,180
    
    
    
    16.4
    %Commercial and industrial loans
    
    
    12,071,896
    
    
    
    20.9
    
    
    
    14,078,893
    
    
    
    25.2
    
    
    
    14,359,688
    
    
    
    24.8
    
    
    
    13,188,909
    
    
    
    21.0
    
    
    
    9,426,466
    
    
    
    21.4Multi-family
    
    
    4,588,403
    
    
    
    8.0
    
    
    
    4,526,111
    
    
    
    8.1
    
    
    
    4,246,370
    
    
    
    7.3
    
    
    
    5,768,451
    
    
    
    9.2
    
    
    
    
    
    
    
    Total Commercial Loans
    
    
    29,113,874
    
    
    
    50.5
    
    
    
    31,786,628
    
    
    
    56.9
    
    
    
    30,912,972
    
    
    
    53.3
    
    
    
    30,472,343
    
    
    
    48.6
    
    
    
    16,635,646
    
    
    
    37.8Residential mortgages
    
    
    10,726,620
    
    
    
    18.6
    
    
    
    11,417,108
    
    
    
    20.5
    
    
    
    13,341,193
    
    
    
    23.0
    
    
    
    17,404,730
    
    
    
    27.7
    
    
    
    12,462,802
    
    
    
    28.4Home equity loans and lines of credit
    
    
    7,069,491
    
    
    
    12.2
    
    
    
    6,891,918
    
    
    
    12.3
    
    
    
    6,197,148
    
    
    
    10.7
    
    
    
    9,443,560
    
    
    
    15.1
    
    
    
    9,793,124
    
    
    
    22.3Total Consumer Loans secured by real estate
    
    
    17,796,111
    
    
    
    30.8
    
    
    
    18,309,026
    
    
    
    32.8
    
    
    
    19,538,341
    
    
    
    33.7
    
    
    
    26,848,290
    
    
    
    42.8
    
    
    
    22,255,926
    
    
    
    50.7Auto loans
    
    
    10,496,510
    
    
    
    18.2
    
    
    
    5,482,852
    
    
    
    9.8
    
    
    
    7,236,301
    
    
    
    12.5
    
    
    
    4,990,869
    
    
    
    7.9
    
    
    
    4,566,052
    
    
    
    10.4Other
    
    
    264,676
    
    
    
    0.5
    
    
    
    290,725
    
    
    
    0.5
    
    
    
    299,572
    
    
    
    0.5
    
    
    
    419,759
    
    
    
    0.7
    
    
    
    478,254
    
    
    
    1.1Total Consumer Loans
    
    
    28,557,297
    
    
    
    49.5
    
    
    
    24,082,603
    
    
    
    43.1
    
    
    
    27,074,214
    
    
    
    46.7
    
    
    
    32,258,918
    
    
    
    51.4
    
    
    
    27,300,232
    
    
    
    62.2Total Loans
    
    $
    57,671,171
    
    
    
    100.0
    %
    
    $
    55,869,231
    
    
    
    100.0
    %
    
    $
    57,987,186
    
    
    
    100.0
    %
    
    $
    62,731,261
    
    
    
    100.0
    %
    
    $
    43,935,878
    
    
    
    100.0
    %Total Loans with:Fixed rates
    
    $
    33,786,934
    
    
    
    58.6
    %
    
    $
    29,895,105
    
    
    
    53.5
    %
    
    $
    33,658,174
    
    
    
    58.0
    %
    
    $
    39,859,623
    
    
    
    63.5
    %
    
    $
    26,273,442
    
    
    
    59.8
    %Variable rates
    
    
    23,884,237
    
    
    
    41.4
    
    
    
    25,974,126
    
    
    
    46.5
    
    
    
    24,329,012
    
    
    
    42.0
    
    
    
    22,871,638
    
    
    
    36.5
    
    
    
    17,662,436
    
    
    
    40.2Total Loans
    
    $
    57,671,171
    
    
    
    100.0
    %
    
    $
    55,869,231
    
    
    
    100.0
    %
    
    $
    57,987,186
    
    
    
    100.0
    %
    
    $
    62,731,261
    
    
    
    100.0
    %
    
    $
    43,935,878
    
    
    
    100.0
    %
  Table 5: Commercial Loan Maturity Schedule
 AT DECEMBER 31, 2009, MATURINGIn One Year
    
    
    One To
    
    
    AfterOr Less
    
    
    Five Years
    
    
    Five Years
    
    
    TotalCommercial real estate loans
    
    $
    2,486,085
    
    
    $
    5,883,325
    
    
    $
    4,084,165
    
    
    $
    12,453,575Commercial and industrial loans
    
    
    4,355,059
    
    
    
    5,874,581
    
    
    
    1,842,256
    
    
    
    12,071,896Multi-family loans
    
    
    544,975
    
    
    
    2,548,933
    
    
    
    1,494,495
    
    
    
    4,588,403Total
    
    $
    7,386,119
    
    
    $
    14,306,839
    
    
    $
    7,420,916
    
    
    $
    29,113,874Loans with:Fixed rates
    
    $
    1,988,958
    
    
    $
    6,675,635
    
    
    $
    4,117,417
    
    
    $
    12,782,010Variable rates
    
    
    5,397,161
    
    
    
    7,631,204
    
    
    
    3,303,499
    
    
    
    16,331,864Total
    
    $
    7,386,119
    
    
    $
    14,306,839
    
    
    $
    7,420,916
    
    
    $
    29,113,874
 Investment Securities.
   32




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Table 6: Investment Securities by Obligor
 AT DECEMBER 31,2009
    
    
    2008
    
    
    2007Investment securities available for sale:U.S. Treasury and government agencies
    
    $
    365,727
    
    
    $
    258,030
    
    
    $
    2,341,770FNMA, FHLMC, and FHLB securities
    
    
    2,812,139
    
    
    
    5,122,097
    
    
    
    4,959,380State and municipal securities
    
    
    1,802,426
    
    
    
    1,629,113
    
    
    
    2,502,424Other securities
    
    
    8,629,106
    
    
    
    2,292,099
    
    
    
    4,138,273Total investment securities available for sale
    
    $
    13,609,398
    
    
    $
    9,301,339
    
    
    $
    13,941,847FHLB stock
    
    
    669,998
    
    
    
    674,498
    
    
    
    942,651Other investments
    
    
    22,242
    
    
    
    44,273
    
    
    
    257,894Total investment portfolio
    
    $
    14,301,638
    
    
    $
    10,020,110
    
    
    $
    15,142,392
  33




---



##### Table of Contents



Table 7: Investment Securities of Single Issuers
 AT DECEMBER 31, 2009Amortized
    
    
    FairCost
    
    
    ValueFNMA
    
    $
    999,461
    
    
    $
    995,779FHLMC
    
    
    1,540,507
    
    
    
    1,542,261Total
    
    $
    2,539,968
    
    
    $
    2,538,040
 Investment Securities Available for Sale.
 Goodwill and Intangible Assets.
  Other Assets.
 Deposits and Other Customer Accounts.
 Borrowings and Other Debt Obligations.
  34




---



##### Table of Contents



Table 8: Details of Borrowings
 DECEMBER 31,2009
    
    
    2008
    
    
    2007Securities sold under repurchase agreements:Balance
    
    $
    
    
    
    $
    
    
    
    $
    76,526Weighted average interest rate at year-end
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    4.12
    %Maximum amount outstanding at any month-end during the year
    
    $
    
    
    
    $
    77,000
    
    
    $
    200,775Average amount outstanding during the year
    
    $
    
    
    
    $
    38,172
    
    
    $
    122,801Weighted average interest rate during the year
    
    
    0.00
    %
    
    
    5.44
    %
    
    
    5.56
    %Federal Funds Purchased:Balance
    
    $
    1,000,000
    
    
    $
    2,000,000
    
    
    $
    2,720,000Weighted average interest rate at year-end
    
    
    0.25
    %
    
    
    0.60
    %
    
    
    4.22
    %Maximum amount outstanding at any month-end during the year
    
    $
    3,187,000
    
    
    $
    2,830,000
    
    
    $
    2,720,000Average amount outstanding during the year
    
    $
    1,501,027
    
    
    $
    1,406,335
    
    
    $
    1,074,294Weighted average interest rate during the year
    
    
    0.27
    %
    
    
    1.81
    %
    
    
    5.19
    %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
    
    $
    
    
    
    $
    4,120,000
    
    
    $
    Average amount outstanding during the year
    
    $
    
    
    
    $
    510,109
    
    
    $
    Weighted average interest rate during the year
    
    
    0.00
    %
    
    
    1.75
    %
    
    
    0.00
    %FHLB advances:Balance
    
    $
    12,056,294
    
    
    $
    13,267,834
    
    
    $
    19,705,438Weighted average interest rate at year-end
    
    
    2.64
    %
    
    
    4.71
    %
    
    
    4.64
    %Maximum amount outstanding at any month-end during the year
    
    $
    12,991,887
    
    
    $
    23,981,010
    
    
    $
    21,074,719Average amount outstanding during the year
    
    $
    11,069,069
    
    
    $
    16,911,308
    
    
    $
    16,557,692Weighted average interest rate during the year
    
    
    5.43
    %
    
    
    4.70
    %
    
    
    4.99
    %REIT preferred:Balance
    
    $
    146,115
    
    
    $
    147,961
    
    
    $
    146,430Weighted average interest rate at year-end
    
    
    14,34
    %
    
    
    14.10
    %
    
    
    14.68
    %Maximum amount outstanding at any month-end during the year
    
    $
    149,059
    
    
    $
    147,961
    
    
    $
    157,065Average amount outstanding during the year
    
    $
    148,195
    
    
    $
    147,122
    
    
    $
    149,919Weighted average interest rate during the year
    
    
    14.08
    %
    
    
    14.19
    %
    
    
    13.86
    %Senior Credit Facility:Balance
    
    $
    6,166,267
    
    
    $
    
    
    
    $
    180,000Weighted average interest rate at year-end
    
    
    1.79
    %
    
    
    0.00
    %
    
    
    5.55
    %Maximum amount outstanding at any month-end during the year
    
    $
    6,166,267
    
    
    $
    180,000
    
    
    $
    180,000Average amount outstanding during the year
    
    $
    4,584,087
    
    
    $
    68,361
    
    
    $
    128,274Weighted average interest rate during the year
    
    
    3.51
    %
    
    
    4.40
    %
    
    
    6.27
    %Asset-Backed Floating Rate Notes:Balance
    
    $
    2,249,839
    
    
    $
    
    
    
    $
    Weighted average interest rate at year-end
    
    
    4.15
    %
    
    
    0.00
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    2,249,839
    
    
    $
    
    
    
    $
    1,971,000Average amount outstanding during the year
    
    $
    1,499,884
    
    
    $
    
    
    
    $
    904,537Weighted average interest rate during the year
    
    
    4.79
    %
    
    
    0.00
    %
    
    
    5.19
    %Bank Senior Notes:Balance
    
    $
    1,346,373
    
    
    $
    1,344,702
    
    
    $
    Weighted average interest rate at year-end
    
    
    3.92
    %
    
    
    2.76
    %
    
    
    0.00
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,346,373
    
    
    $
    1,344,702
    
    
    $
    Average amount outstanding during the year
    
    $
    1,345,482
    
    
    $
    36,738
    
    
    $
    Weighted average interest rate during the year
    
    
    3.87
    %
    
    
    3.35
    %
    
    
    0.00
    %Bancorp Senior Notes:Balance
    
    $
    1,347,032
    
    
    $
    1,293,859
    
    
    $
    1,042,527Weighted average interest rate at year-end
    
    
    2.89
    %
    
    
    2.38
    %
    
    
    5.14
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,347,031
    
    
    $
    1,293,859
    
    
    $
    1,042,527Average amount outstanding during the year
    
    $
    1,129,817
    
    
    $
    1,050,728
    
    
    $
    974,605Weighted average interest rate during the year
    
    
    3.80
    %
    
    
    4.45
    %
    
    
    5.61
    %Bank Subordinated Notes:Balance
    
    $
    1,663,399
    
    
    $
    1,653,684
    
    
    $
    1,148,813Weighted average interest rate at year-end
    
    
    5.84
    %
    
    
    5.87
    %
    
    
    4.65
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,663,398
    
    
    $
    1,653,684
    
    
    $
    1,148,813Average amount outstanding during the year
    
    $
    1,658,375
    
    
    $
    1,464,616
    
    
    $
    1,143,874Weighted average interest rate during the year
    
    
    5.98
    %
    
    
    6.29
    %
    
    
    5.49
    %Junior Subordinated Debentures to Capital Trusts:Balance
    
    $
    1,259,832
    
    
    $
    1,256,145
    
    
    $
    1,252,778Weighted average interest rate at year-end
    
    
    6.46
    %
    
    
    7.23
    %
    
    
    7.30
    %Maximum amount outstanding at any month-end during the year
    
    $
    1,259,833
    
    
    $
    1,256,145
    
    
    $
    1,433,534Average amount outstanding during the year
    
    $
    1,257,854
    
    
    $
    1,254,303
    
    
    $
    1,340,564Weighted average interest rate during the year
    
    
    6.85
    %
    
    
    7.35
    %
    
    
    7.68
    %
  35




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##### Table of Contents



Off-Balance Sheet Arrangements.
  Preferred Stock.
 Credit Risk Management
    Commercial Loans.
    36




---



##### Table of Contents



Consumer Loans Secured by Real Estate.
 Consumer Loans Not Secured by Real Estate.
  Collections.
 Non-performing Assets.
   37




---



##### Table of Contents



Table 9: Non-Performing Assets
 AT DECEMBER 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Non-accrual loans:ConsumerResidential
    
    $
    617,918
    
    
    $
    233,176
    
    
    $
    90,881
    
    
    $
    47,687
    
    
    $
    30,393Home equity loans and lines of credit
    
    
    117,390
    
    
    
    69,247
    
    
    
    56,099
    
    
    
    10,312
    
    
    
    55,543Auto loans and other consumer loans
    
    
    535,902
    
    
    
    4,045
    
    
    
    3,816
    
    
    
    3,512
    
    
    
    3,166Total consumer loans
    
    
    1,271,210
    
    
    
    306,468
    
    
    
    150,796
    
    
    
    61,511
    
    
    
    89,102Commercial
    
    
    654,322
    
    
    
    244,847
    
    
    
    85,406
    
    
    
    69,207
    
    
    
    68,572Commercial real estate
    
    
    823,766
    
    
    
    319,565
    
    
    
    61,750
    
    
    
    75,710
    
    
    
    31,800Multi-family
    
    
    381,999
    
    
    
    42,795
    
    
    
    6,336
    
    
    
    1,486
    
    
    
    Total commercial loans
    
    
    1,860,087
    
    
    
    607,207
    
    
    
    153,492
    
    
    
    146,403
    
    
    
    100,372Total non-performing loans
    
    
    3,131,297
    
    
    
    913,675
    
    
    
    304,288
    
    
    
    207,914
    
    
    
    189,474Real estate owned
    
    
    99,364
    
    
    
    49,900
    
    
    
    43,226
    
    
    
    22,562
    
    
    
    11,411Other repossessed assets
    
    
    18,716
    
    
    
    21,836
    
    
    
    14,062
    
    
    
    5,126
    
    
    
    4,678Total other real estate owned and other repossessed assets
    
    
    118,080
    
    
    
    71,736
    
    
    
    57,288
    
    
    
    27,688
    
    
    
    16,089Total non-performing assets
    
    $
    3,249,377
    
    
    $
    985,411
    
    
    $
    361,576
    
    
    $
    235,602
    
    
    $
    205,563Past due 90 days or more as to interest or principal and
accruing interest
    
    $
    27,321
    
    
    $
    123,301
    
    
    $
    68,770
    
    
    $
    40,103
    
    
    $
    54,794Net loan charge-off rate to average loans (1)
    
    
    2.40
    %
    
    
    .83
    %
    
    
    .25
    %
    
    
    .96
    %
    
    
    .20
    %Non-performing assets as a percentage of total assets,
excluding loans held for sale
    
    
    3.92
    
    
    
    1.28
    
    
    
    .43
    
    
    
    .29
    
    
    
    .32Non-performing loans as a percentage of total loans
    
    
    5.43
    
    
    
    1.64
    
    
    
    .53
    
    
    
    .38
    
    
    
    .44Non-performing assets as a percentage of total loans held
for investment, real estate owned and repossessed assets
    
    
    5.62
    
    
    
    1.77
    
    
    
    .63
    
    
    
    .43
    
    
    
    .47Allowance for credit losses as a percentage of total
non-performing assets (2)
    
    
    63.9
    
    
    
    118.5
    
    
    
    204.0
    
    
    
    206.4
    
    
    
    213.0Allowance for credit losses as a percentage of total
non-performing loans (2)
    
    
    66.3
    
    
    
    127.8
    
    
    
    242.4
    
    
    
    233.9
    
    
    
    231.1
 (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 31,2009Accruing:Commercial
    
    $
    Residential
    
    
    23,125Consumer
    
    
    4,181Total
    
    $
    27,306Non-accruing:Commercial
    
    
    24,708Residential
    
    
    31,498Consumer
    
    
    13,323Total
    
    $
    69,529Total
    
    $
    96,835
  38




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##### Table of Contents



Potential Problem Loans
 Delinquencies.
  Allowance for Credit Losses
 Allowance for Loan Losses.
          39




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##### Table of Contents



Reserve for Unfunded Lending Commitments
     40




---



##### Table of Contents



Table 10: Allocation of the Allowance for Credit Losses by Product Type
 AT DECEMBER 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005% 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
    
    $
    958,856
    
    
    
    50
    %
    
    $
    752,835
    
    
    
    57
    %
    
    $
    433,951
    
    
    
    53
    %
    
    $
    375,014
    
    
    
    49
    %
    
    $
    220,314
    
    
    
    38
    %Consumer loans
secured by real
estate
    
    
    335,228
    
    
    
    31
    
    
    
    193,430
    
    
    
    33
    
    
    
    117,380
    
    
    
    34
    
    
    
    45,521
    
    
    
    43
    
    
    
    142,728
    
    
    
    51Consumer loans not
secured by real
estate
    
    
    519,637
    
    
    
    19
    
    
    
    149,099
    
    
    
    10
    
    
    
    149,768
    
    
    
    13
    
    
    
    45,730
    
    
    
    8
    
    
    
    50,557
    
    
    
    11Unallocated
allowance
    
    
    4,503
    
    
    
    n/a
    
    
    
    7,389
    
    
    
    n/a
    
    
    
    8,345
    
    
    
    n/a
    
    
    
    4,765
    
    
    
    n/a
    
    
    
    6,000
    
    
    
    n/aTotal allowance for
loan losses
    
    $
    1,818,224
    
    
    
    100
    %
    
    $
    1,102,753
    
    
    
    100
    %
    
    $
    709,444
    
    
    
    100
    %
    
    $
    471,030
    
    
    
    100
    %
    
    $
    419,599
    
    
    
    100
    %Reserve for
unfunded lending
commitments
    
    
    259,140
    
    
    
    
    
    
    
    65,162
    
    
    
    
    
    
    
    28,302
    
    
    
    
    
    
    
    15,256
    
    
    
    
    
    
    
    18,212Total allowance for
credit losses
    
    $
    2,077,364
    
    
    
    
    
    
    $
    1,167,915
    
    
    
    
    
    
    $
    737,746
    
    
    
    
    
    
    $
    486,286
    
    
    
    
    
    
    $
    437,811
 Commercial Portfolio.
 Consumer Loans Secured by Real Estate Portfolio.
 Consumer Loans Not Secured by Real Estate Portfolio.
 Unallocated Allowance.
 Bank Regulatory Capital
   41




---



##### Table of Contents



Table 11: Sovereign Bank Regulatory Capital Ratios
 OTS - REGULATIONSSovereignBank
    
    
    
    
    
    
    WellDecember 31,
    
    
    Minimum
    
    
    Capitalized2009
    
    
    Requirement
    
    
    RequirementTier 1 leverage capital to tangible assets
    
    
    7.62
    %
    
    
    4.00
    %
    
    
    5.00
    %Tier 1 risk-based capital to risk
adjusted assets
    
    
    9.04
    
    
    
    4.00
    
    
    
    6.00Total risk-based capital to risk adjusted
assets
    
    
    12.46
    
    
    
    8.00
    
    
    
    10.00
 Liquidity and Capital Resources
         42




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##### 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)
    
    $
    13,980,846
    
    
    $
    7,320,664
    
    
    $
    1,358,118
    
    
    $
    813,536
    
    
    $
    4,488,528Fed Funds(1)
    
    
    1,000,007
    
    
    
    1,000,007
    
    
    
    
    
    
    
    
    
    
    
    Other debt obligations(1)(2)
    
    
    12,060,759
    
    
    
    8,065,500
    
    
    
    3,502,344
    
    
    
    341,751
    
    
    
    151,164Junior subordinated debentures to Capital
Trusts(1)(2)
    
    
    3,839,290
    
    
    
    81,794
    
    
    
    171,169
    
    
    
    179,476
    
    
    
    3,406,851Certificates of deposit(1)
    
    
    10,390,149
    
    
    
    9,461,557
    
    
    
    740,082
    
    
    
    148,650
    
    
    
    39,860Investment partnership commitments(3)
    
    
    1,157
    
    
    
    1,038
    
    
    
    26
    
    
    
    26
    
    
    
    67Operating leases
    
    
    832,640
    
    
    
    106,831
    
    
    
    191,937
    
    
    
    155,756
    
    
    
    378,116Total contractual cash obligations
    
    $
    42,104,848
    
    
    $
    26,037,391
    
    
    $
    5,963,676
    
    
    $
    1,639,195
    
    
    $
    8,464,586
 (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, 2009. 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
    
    $
    14,652,163
    
    
    $
    5,869,480
    
    
    $
    2,992,557
    
    
    $
    1,039,207
    
    
    $
    4,750,919
    (1)Standby letters of credit
    
    
    2,401,959
    
    
    
    686,249
    
    
    
    1,245,787
    
    
    
    239,220
    
    
    
    230,703Loans sold with recourse
    
    
    322,800
    
    
    
    37,956
    
    
    
    42,025
    
    
    
    73,676
    
    
    
    169,143Forward buy commitments
    
    
    289,947
    
    
    
    275,532
    
    
    
    14,415
    
    
    
    
    
    
    
    Total commercial commitments
    
    $
    17,666,869
    
    
    $
    6,869,217
    
    
    $
    4,294,784
    
    
    $
    1,352,103
    
    
    $
    5,150,765
 (1)
    
    Of this amount, $4.5 billion represents the unused portion of home equity lines of credit.   43




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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, 2009
    
    increase/(decrease) to net interest income would resultUp 100 basis points
    
    
    0.67
    %Down 100 basis points
    
    
    (0.97
    )%
    The following estimated percentageincrease/(decrease) to MVE would resultIf interest rates changed in parallel by
    
    December 31, 2009
    
    
    December 31, 2008Base (in thousands)
    
    $
    6,150,298
    
    
    $
    6,735,655Up 200 basis points
    
    
    (9.55
    )%
    
    
    (5.80
    )%Up 100 basis points
    
    
    (4.53
    )%
    
    
    (2.51
    )%
       44




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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. 31,2009
    
    
    2009
    
    
    2009
    
    
    2009
    
    
    2008
    
    
    2008
    
    
    2008
    
    
    2008Total interest income
    
    $
    1,067,757
    
    
    $
    1,075,857
    
    
    $
    1,128,812
    
    
    $
    1,151,160
    
    
    $
    885,353
    
    
    $
    959,822
    
    
    $
    1,001,820
    
    
    $
    1,076,169Total interest expense
    
    
    388,000
    
    
    
    422,915
    
    
    
    460,136
    
    
    
    509,031
    
    
    
    466,743
    
    
    
    473,880
    
    
    
    500,900
    
    
    
    599,199Net interest income
    
    
    679,757
    
    
    
    652,942
    
    
    
    668,676
    
    
    
    642,129
    
    
    
    418,610
    
    
    
    485,942
    
    
    
    500,920
    
    
    
    476,970Provision for credit losses
    
    
    434,788
    
    
    
    384,005
    
    
    
    455,796
    
    
    
    709,948
    
    
    
    340,000
    
    
    
    304,000
    
    
    
    132,000
    
    
    
    135,000Net interest income after
provision for credit loss
    
    
    244,969
    
    
    
    268,937
    
    
    
    212,880
    
    
    
    (67,819
    )
    
    
    78,610
    
    
    
    181,942
    
    
    
    368,920
    
    
    
    341,970(Loss)/gain on investment
securities, net
    
    
    (46,683
    )
    
    
    (9,994
    )
    
    
    (23,473
    )
    
    
    (77,697
    )
    
    
    (312,646
    )
    
    
    (1,158,578
    )
    
    
    1,908
    
    
    
    14,135Total fees and other income
    
    
    113,187
    
    
    
    106,973
    
    
    
    182,211
    
    
    
    97,773
    
    
    
    110,762
    
    
    
    162,842
    
    
    
    205,209
    
    
    
    157,625General and administrative
and other expenses
    
    
    452,021
    
    
    
    460,092
    
    
    
    521,899
    
    
    
    690,151
    
    
    
    547,603
    
    
    
    427,737
    
    
    
    419,478
    
    
    
    391,515Income before income taxes
    
    
    (140,548
    )
    
    
    (94,176
    )
    
    
    (150,281
    )
    
    
    (737,894
    )
    
    
    (670,877
    )
    
    
    (1,241,531
    )
    
    
    156,559
    
    
    
    122,215Income tax (benefit)/provision
    
    
    (463
    )
    
    
    (1,304,283
    )
    
    
    (8,957
    )
    
    
    29,239
    
    
    
    932,316
    
    
    
    (259,940
    )
    
    
    29,120
    
    
    
    22,080Net (loss)/income
    
    $
    (140,085
    )
    
    $
    1,210,107
    
    
    $
    (141,324
    )
    
    $
    (767,133
    )
    
    $
    (1,603,193
    )
    
    $
    (981,591
    )
    
    $
    127,439
    
    
    $
    100,135
 2009 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
    
    
    46Reports of Independent Registered Public Accounting Firms
    
    
    47-49Consolidated Balance Sheet
    
    
    50Consolidated Statements of Operations
    
    
    51Consolidated Statements of Stockholders Equity
    
    
    52-53Consolidated Statements of Cash Flow
    
    
    54-55Notes to Consolidated Financial Statements
    
    
    56-96
  45




---



##### Table of Contents



Report of Managements Assessment of
 Internal Control Over Financial Reporting
    /s/ Gabriel Jaramillo

Gabriel Jaramillo
    
    /s/ Guillermo Sabater

Guillermo SabaterChairman and Chief Executive Officer
    
    Chief Financial Officer and Executive Vice President
   46




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND STOCKHOLDERS OF  SANTANDER HOLDINGS USA, INC.
      /s/ Deloitte & Touche LLP
 
  47




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND STOCKHOLDERS OF  SANTANDER HOLDINGS USA, INC.
     /s/ Ernst & Young LLP
 
  48




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 THE BOARD OF DIRECTORS AND SHAREHOLDERS OF  SANTANDER HOLDINGS USA, INC.
     .
  /s/ Deloitte & Touche LLP
 
  49




---



##### Table of Contents



Consolidated Balance Sheets
 AT DECEMBER 31,(IN THOUSANDS, EXCEPT SHARE DATA)
    
    2009
    
    
    2008AssetsCash and amounts due from depository institutions
    
    $
    2,323,290
    
    
    $
    3,754,523Investment securities available for sale
    
    
    13,609,398
    
    
    
    9,301,339Other investments
    
    
    692,240
    
    
    
    718,771Loans held for investment
    
    
    57,552,177
    
    
    
    55,541,899Allowance for loan losses
    
    
    (1,818,224
    )
    
    
    (1,102,753
    )Net loans held for investment
    
    
    55,733,953
    
    
    
    54,439,146Loans held for sale
    
    
    118,994
    
    
    
    327,332Premises and equipment
    
    
    477,812
    
    
    
    550,150Accrued interest receivable
    
    
    345,122
    
    
    
    251,612Goodwill
    
    
    4,135,540
    
    
    
    3,431,481Core deposit and other intangibles, net of accumulated amortization
of $934,270 in 2009 and $858,578 in 2008
    
    
    245,641
    
    
    
    268,472Bank owned life insurance
    
    
    1,810,511
    
    
    
    1,847,688Other assets
    
    
    3,460,714
    
    
    
    2,203,154Total Assets
    
    $
    82,953,215
    
    
    $
    77,093,668LiabilitiesDeposits and other customer accounts
    
    $
    44,428,065
    
    
    $
    48,438,573Borrowings and other debt obligations
    
    
    27,235,151
    
    
    
    20,964,185Advance payments by borrowers for taxes and insurance
    
    
    87,445
    
    
    
    93,225Other liabilities
    
    
    1,815,019
    
    
    
    2,000,971Total Liabilities
    
    
    73,565,680
    
    
    
    71,496,954Stockholders EquityPreferred stock; no par value; $25,000 liquidation preference;
7,500,000 shares authorized; 8,000 shares outstanding in 2009 and
8,000 shares issued and outstanding in 2008
    
    
    195,445
    
    
    
    195,445Common stock; no par value; 800,000,000 shares authorized;
511,107,043 issued in 2009 and 666,161,708 issued in 2008
    
    
    10,397,214
    
    
    
    7,718,771Warrants and employee stock options issued
    
    
    285,435
    
    
    
    350,572Treasury stock at cost; 0 shares in 2009 and 2,217,811 shares in 2008
    
    
    
    
    
    
    (9,379
    )Accumulated other comprehensive loss
    
    
    (349,869
    )
    
    
    (785,814
    )Retained (deficit)/earnings
    
    
    (1,140,690
    )
    
    
    (1,872,881
    )Total Stockholders Equity
    
    
    9,387,535
    
    
    
    5,596,714Total Liabilities and Stockholders Equity
    
    $
    82,953,215
    
    
    $
    77,093,668
   50




---



##### Table of Contents



Consolidated Statements of Operations
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS, EXCEPT PER SHARE DATA)
    
    2009
    
    
    2008
    
    
    2007Interest Income:Interest-earning deposits
    
    $
    8,114
    
    
    $
    5,820
    
    
    $
    19,112Investment securities:Available for sale
    
    
    383,926
    
    
    
    554,351
    
    
    
    721,015Other
    
    
    1,761
    
    
    
    23,786
    
    
    
    51,645Interest on loans
    
    
    4,029,785
    
    
    
    3,339,207
    
    
    
    3,864,484Total interest income
    
    
    4,423,586
    
    
    
    3,923,164
    
    
    
    4,656,256Interest Expense:Deposits and other customer accounts
    
    
    640,549
    
    
    
    951,588
    
    
    
    1,627,315Borrowings and other debt obligations
    
    
    1,139,533
    
    
    
    1,089,134
    
    
    
    1,185,698Total interest expense
    
    
    1,780,082
    
    
    
    2,040,722
    
    
    
    2,813,013Net interest income
    
    
    2,643,504
    
    
    
    1,882,442
    
    
    
    1,843,243Provision for credit losses
    
    
    1,984,537
    
    
    
    911,000
    
    
    
    407,692Net interest income after provision for credit losses
    
    
    658,967
    
    
    
    971,442
    
    
    
    1,435,551Non-interest Income:Consumer banking fees
    
    
    369,845
    
    
    
    312,627
    
    
    
    295,815Commercial banking fees
    
    
    187,276
    
    
    
    213,945
    
    
    
    202,304Mortgage banking (expense)/revenue
    
    
    (129,504
    )
    
    
    (13,226
    )
    
    
    (67,792
    )Capital markets (expense)/revenue
    
    
    (1,753
    )
    
    
    23,810
    
    
    
    (19,266
    )Bank-owned life insurance
    
    
    58,829
    
    
    
    75,990
    
    
    
    85,855Miscellaneous income
    
    
    15,451
    
    
    
    23,292
    
    
    
    33,835Total fees and other income
    
    
    500,144
    
    
    
    636,438
    
    
    
    530,751Total other-than-temporary impairment losses
    
    
    (604,489
    )
    
    
    (887,730
    )
    
    
    (180,549
    )Portion of loss recognized in other comprehensive income (before taxes)
    
    
    424,293
    
    
    
    
    
    
    
    Gains/(Losses) on the sale of investment securities
    
    
    22,349
    
    
    
    (567,451
    )
    
    
    4,194Net loss on investment securities recognized in earnings
    
    
    (157,847
    )
    
    
    (1,455,181
    )
    
    
    (176,355
    )Total non-interest income
    
    
    342,297
    
    
    
    (818,743
    )
    
    
    354,396General and administrative expenses:Compensation and benefits
    
    
    716,418
    
    
    
    755,379
    
    
    
    673,528Occupancy and equipment
    
    
    318,706
    
    
    
    310,535
    
    
    
    308,698Technology expense
    
    
    107,100
    
    
    
    102,591
    
    
    
    96,265Outside services
    
    
    119,238
    
    
    
    64,474
    
    
    
    67,509Marketing expense
    
    
    36,318
    
    
    
    78,995
    
    
    
    56,101Other administrative
    
    
    222,680
    
    
    
    172,332
    
    
    
    134,764Total general and administrative expenses
    
    
    1,520,460
    
    
    
    1,484,306
    
    
    
    1,336,865Other Expenses:Amortization of intangibles
    
    
    75,692
    
    
    
    103,643
    
    
    
    126,717Deposit insurance premiums and other costs
    
    
    138,747
    
    
    
    37,506
    
    
    
    8,973Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    1,576,776Equity method investments
    
    
    21,412
    
    
    
    128,530
    
    
    
    46,484Transaction related and integration charges and other restructuring costs
    
    
    299,119
    
    
    
    32,348
    
    
    
    89,130Loss on debt extinguishment
    
    
    68,733
    
    
    
    
    
    
    
    14,714Total other expenses
    
    
    603,703
    
    
    
    302,027
    
    
    
    1,862,794Income/(Loss) before income taxes
    
    
    (1,122,899
    )
    
    
    (1,633,634
    )
    
    
    (1,409,712
    )Income tax (benefit)/provision
    
    
    (1,284,464
    )
    
    
    723,576
    
    
    
    (60,450
    )NET INCOME/(LOSS)
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )
   51




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##### Table of Contents



Consolidated Statements of Stockholders Equity
 Common
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    UnallocatedShares
    
    
    Preferred
    
    
    Common
    
    
    and Stock
    
    
    Stock Held(IN THOUSANDS)
    
    Outstanding
    
    
    Stock
    
    
    Stock
    
    
    Options
    
    
    by ESOPBalance, December 31, 2006
    
    
    473,755
    
    
    $
    195,445
    
    
    $
    6,183,281
    
    
    $
    343,391
    
    
    $
    (19,019
    )Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilitiesCash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cumulative transition adjustment related to the adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock
    
    
    980
    
    
    
    
    
    
    
    21,885
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and incentive compensation plans
    
    
    5,874
    
    
    
    
    
    
    
    71,426
    
    
    
    (1,614
    )
    
    
    11,425Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,588
    
    
    
    ESOP shares sold in conjunction with plan termination
    
    
    1,102
    
    
    
    
    
    
    
    18,980
    
    
    
    
    
    
    
    7,594Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (307
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    481,404
    
    
    $
    195,445
    
    
    $
    6,295,572
    
    
    $
    348,365
    
    
    $
    Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilitiesCash 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,556
    
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (289
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    663,946
    
    
    $
    195,445
    
    
    $
    7,718,771
    
    
    $
    350,572
    
    
    $
    Cumulative effect of adopting FSP FAS 115-2 and FAS 124-2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at January 1, 2009
    
    
    663,946
    
    
    
    195,445
    
    
    
    7,718,771
    
    
    
    350,572
    
    
    
    Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension liabilitiesCash flow hedge derivative financial instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Contribution of SCUSA from Parent
    
    
    
    
    
    
    
    
    
    
    789,544
    
    
    
    
    
    
    
    Issuance of preferred stock to Santander
    
    
    
    
    
    
    1,800,000
    
    
    
    
    
    
    
    
    
    
    
    Conversion of preferred stock to common stock
    
    
    7,200
    
    
    
    (1,800,000
    )
    
    
    1,800,000
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and incentive compensation plans
    
    
    4
    
    
    
    
    
    
    
    46,800
    
    
    
    346
    
    
    
    Vesting of employee share based awards
    
    
    
    
    
    
    
    
    
    
    42,099
    
    
    
    (65,483
    )
    
    
    Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock repurchased
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shares cancelled by Santander
    
    
    (160,038
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    
    511,107
    
    
    $
    195,445
    
    
    $
    10,397,214
    
    
    $
    285,435
    
    
    $
    
   52




---



##### Table of Contents



Consolidated Statements of Stockholders Equity (continued)
 AccumulatedOther
    
    
    Retained
    
    
    TotalTreasury
    
    
    Comprehensive
    
    
    (Deficit)/
    
    
    StockholdersStock
    
    
    Income/(Loss)
    
    
    Earnings
    
    
    EquityBalance, December 31, 2006
    
    $
    (49,028
    )
    
    $
    (24,746
    )
    
    $
    2,015,075
    
    
    $
    8,644,399Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (1,349,262
    )
    
    
    (1,349,262
    )Change in unrealized gain/(loss), net of tax:Investments available for sale
    
    
    
    
    
    
    (191,795
    )
    
    
    
    
    
    
    (191,795
    )Pension liabilities
    
    
    
    
    
    
    1,908
    
    
    
    
    
    
    
    1,908Cash flow hedge derivative financial instruments
    
    
    
    
    
    
    (111,500
    )
    
    
    
    
    
    
    (111,500
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,650,649
    )Cumulative transition adjustment related to the adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    952
    
    
    
    952Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,885Stock issued in connection with employee benefit and incentive compensation plans
    
    
    36,743
    
    
    
    
    
    
    
    
    
    
    
    117,980Employee stock options issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,588ESOP shares sold in conjunction with plan termination
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,574Dividends paid on common stock
    
    
    
    
    
    
    
    
    
    
    (153,236
    )
    
    
    (153,236
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    (14,600
    )Stock repurchased
    
    
    (7,568
    )
    
    
    
    
    
    
    
    
    
    
    (7,568
    )Balance, 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 paid 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 of adopting FSP FAS 115-2 and FAS 124-2
    
    
    
    
    
    
    (157,894
    )
    
    
    246,084
    
    
    
    88,190Balance at January 1, 2009
    
    
    (9,379
    )
    
    
    (943,708
    )
    
    
    (1,626,797
    )
    
    
    5,684,904Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    161,565
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    883,590Contribution of SCUSA from Parent
    
    
    
    
    
    
    (39,996
    )
    
    
    339,142
    
    
    
    1,088,690Issuance of preferred stock to Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,800,000Conversion of preferred stock to common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued in connection with employee benefit and incentive compensation plans
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    47,193Employee stock options issued
    
    
    9,342
    
    
    
    
    
    
    
    
    
    
    
    (14,042
    )Dividends paid on preferred stock
    
    
    
    
    
    
    
    
    
    
    (14,600
    )
    
    
    (14,600
    )Stock repurchased
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    (10
    )Shares cancelled by Santander
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance, December 31, 2009
    
    $
    
    
    
    $
    (349,869
    )
    
    $
    (1,140,690
    )
    
    $
    9,387,535
   53




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##### Table of Contents



Consolidated Statements of Cash Flow
 FOR THE YEAR ENDED DECEMBER 31,(IN THOUSANDS)
    
    2009
    
    
    2008
    
    
    2007Cash Flows From Operating Activities:Net (loss)/ income
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )Adjustments to reconcile net income to net cash provided by (used in) operating activities:Provision for credit losses
    
    
    1,984,537
    
    
    
    911,000
    
    
    
    407,692Deferred taxes
    
    
    (1,462,852
    )
    
    
    837,028
    
    
    
    (171,565
    )Depreciation and amortization
    
    
    246,861
    
    
    
    225,913
    
    
    
    266,715Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    1,576,776Impairment on equity method investment
    
    
    
    
    
    
    95,000
    
    
    
    Net amortization/accretion of investment securities and loan premiums and discounts
    
    
    (311,201
    )
    
    
    (4,961
    )
    
    
    48,019Net gains on the sale of loans
    
    
    (76,765
    )
    
    
    (38,761
    )
    
    
    (16,178
    )Net loss on investment securities
    
    
    157,847
    
    
    
    1,455,181
    
    
    
    176,355Net loss on real estate owned and premises and equipment
    
    
    37,844
    
    
    
    12,379
    
    
    
    6,132Loss on debt extinguishments
    
    
    66,584
    
    
    
    
    
    
    
    14,714Stock based compensation
    
    
    47,534
    
    
    
    23,337
    
    
    
    28,011Allocation of Employee Stock Ownership Plan
    
    
    
    
    
    
    
    
    
    
    40,119Origination and purchase of loans held for sale, net of repayments
    
    
    (5,971,514
    )
    
    
    (5,569,238
    )
    
    
    (5,113,911
    )Proceeds from the sale of loans held for sale
    
    
    6,236,879
    
    
    
    6,246,226
    
    
    
    4,966,782Net change in:Accrued interest receivable
    
    
    10,951
    
    
    
    98,922
    
    
    
    72,367Other assets and bank owned life insurance
    
    
    442,864
    
    
    
    (403,846
    )
    
    
    (286,585
    )Other liabilities
    
    
    (320,619
    )
    
    
    461,028
    
    
    
    (34,712
    )Net cash provided by operating activities
    
    
    1,250,515
    
    
    
    1,991,998
    
    
    
    631,469Cash Flows From Investing Activities:Proceeds from sales investment securities:Available for sale
    
    
    2,673,370
    
    
    
    5,203,297
    
    
    
    669,053Held to maturity
    
    
    
    
    
    
    
    
    
    
    Proceeds from repayments and maturities of investment securities:Available for sale
    
    
    8,248,589
    
    
    
    4,539,052
    
    
    
    4,203,214Net change in other investments
    
    
    26,531
    
    
    
    481,774
    
    
    
    (197,533
    )Net change in securities available for sale
    
    
    
    
    
    
    2,000,000
    
    
    
    (1,800,620
    )Purchases of investment securities:Available for sale
    
    
    (14,653,872
    )
    
    
    (8,299,508
    )
    
    
    (3,593,836
    )Proceeds from sales of loans
    
    
    55,269
    
    
    
    177,739
    
    
    
    9,461,279Purchase of loans
    
    
    (2,765,449
    )
    
    
    (411,488
    )
    
    
    (290,720
    )Net change in loans other than purchases and sales
    
    
    8,173,134
    
    
    
    380,216
    
    
    
    (4,384,354
    )Proceeds from sales of premises and equipment and real estate owned
    
    
    61,626
    
    
    
    37,424
    
    
    
    47,691Purchases of premises and equipment
    
    
    (37,716
    )
    
    
    (74,161
    )
    
    
    (70,254
    )Net cash (paid) received from acquisitions
    
    
    (193,386
    )
    
    
    
    
    
    
    Net cash provided by/(used in) investing activities
    
    
    1,588,096
    
    
    
    4,034,345
    
    
    
    4,043,920Cash Flows From Financing Activities:Net change in deposits and other customer accounts
    
    
    (4,010,508
    )
    
    
    (1,479,576
    )
    
    
    (2,478,869
    )Net increase (decrease) in borrowings and other debt obligations
    
    
    (2,915,106
    )
    
    
    (7,230,785
    )
    
    
    1,024,006Proceeds from senior credit facility and senior notes, net of issuance costs
    
    
    4,376,726
    
    
    
    2,088,452
    
    
    
    580,000Repayments of borrowings and other debt obligations
    
    
    (3,500,576
    )
    
    
    (180,000
    )
    
    
    (2,347,090
    )Net increase (decrease) in advance payments by borrowers for taxes and insurance
    
    
    (5,780
    )
    
    
    10,134
    
    
    
    (14,950
    )Maturity of minority interest
    
    
    
    
    
    
    
    
    
    
    (11,822
    )Proceeds from issuance of common stock, net of issuance costs
    
    
    1,800,000
    
    
    
    1,405,993
    
    
    
    35,627Sale of unallocated ESOP shares
    
    
    
    
    
    
    
    
    
    
    26,574Treasury stock repurchases, net of proceeds
    
    
    
    
    
    
    (2,208
    )
    
    
    5,624Cash dividends paid to preferred stockholders
    
    
    (14,600
    )
    
    
    (14,600
    )
    
    
    (14,600
    )Cash dividends paid to common stockholders
    
    
    
    
    
    
    
    
    
    
    (153,236
    )Net cash (used in)/provided by financing activities
    
    
    (4,269,844
    )
    
    
    (5,402,590
    )
    
    
    (3,348,736
    )Net change in cash and cash equivalents
    
    
    (1,431,233
    )
    
    
    623,753
    
    
    
    1,326,653Cash and cash equivalents at beginning of year
    
    
    3,754,523
    
    
    
    3,130,770
    
    
    
    1,804,117Cash and cash equivalents at end of year
    
    $
    2,323,290
    
    
    $
    3,754,523
    
    
    $
    3,130,770
   54




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##### Table of Contents



Supplemental Disclosures:
 AT DECEMBER 31,(IN THOUSANDS)
    
    2009
    
    
    2008
    
    
    2007Income taxes paid/(refund received)
    
    $
    350,910
    
    
    $
    (5,429
    )
    
    $
    204,090Interest paid
    
    
    1,790,303
    
    
    
    2,097,222
    
    
    
    2,984,896
      55




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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 
  
    
    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 sellthe 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.
 
    
    If a credit loss exists, but an entity does not intend to sell the impaired debt
security and is not more likely than not to be required to sell before recovery, the
impairment is other-than-temporary and should be separated into (i) the estimated amount
relating to credit loss, and (ii) the amount relating to all other factors. Only the
estimated credit loss amount is recognized currently in earnings, with the remainder of the
loss amount recognized in other comprehensive income.
    56




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
  e. Loans Held for Sale 
 f. Mortgage Servicing Rights 
  
 g. Allowance for Loan Losses and Reserve for Unfunded Lending Commitments 
        57




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
             h. Loans 
  58




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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 
   59




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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 
  60




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
 p. Goodwill and Core Deposit Intangibles 
  q. Asset Securitizations 
   r. Marketing expense 
 s. Stock Based Compensation 
  GRANT DATE YEAR2009
    
    
    2008
    
    
    2007Expected volatility
    
    
    .492
    
    
    
    .280 - .468
    
    
    
    .214 - .235Expected life in years
    
    
    6.00
    
    
    
    6.00
    
    
    
    6.00Stock price on date of grant
    
    $
    3.04
    
    
    $
    4.77 - 7.73
    
    
    $
    17.62 - 25.76Exercise price
    
    $
    3.04
    
    
    $
    4.77 - 7.73
    
    
    $
    17.62 - 25.76Weighted average exercise price
    
    $
    3.04
    
    
    $
    5.27
    
    
    $
    22.74Weighted average fair value
    
    $
    3.04
    
    
    $
    2.54
    
    
    $
    6.24Expected dividend yield
    
    
    N/A
    
    
    
    N/A
    
    
    
    1.24% - 1.82
    %Risk-free interest rate
    
    
    2.32
    %
    
    
    2.84% - 3.51
    %
    
    
    4.07% - 5.04
    %Vesting period in years
    
    
    3
    
    
    
    3-5
    
    
    
    3-5
   t. Equity Method Investments 
  61




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 1  Summary of Significant Accounting Policies (continued)
  Note 2  Recent Accounting Pronouncements
    Note 3  Acquisition of SHUSA by Santander
     62




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 4  Contribution of SCUSA
   Period EndedDecember 31, 2009(in thousands)Net interest income
    
    $
    1,277,358Provision for credit losses
    
    
    720,937Fees and other income
    
    
    30,712Compensation and benefits
    
    
    88,858Occupancy and equipment expenses
    
    
    17,952Technology expense
    
    
    10,400Outside services
    
    
    57,461Marketing expense
    
    
    1,116Other administrative expenses
    
    
    77,244General and administrative expense
    
    
    253,031Other expenses
    
    
    1,907Income before income taxes
    
    
    332,195Income tax provision
    
    
    143,834Net income
    
    $
    188,361
  (in thousands)ASSETSCash and amounts due from depository institutions
    
    $
    23,300Loans held for investment
    
    
    5,799,980Allowance for loan losses
    
    
    (347,302
    )Net loans held for investment
    
    
    5,452,678Goodwill
    
    
    673,598Other intangibles
    
    
    50,860Other assets
    
    
    462,829Total assets
    
    $
    6,663,265LIABILITIESBorrowings and other debt obligations
    
    $
    5,432,338Other liabilities
    
    
    132,648Total liabilities
    
    
    5,564,986STOCKHOLDERS EQUITYCommon stock
    
    
    799,133Accumulated other comprehensive income
    
    
    (39,996
    )Retained earnings
    
    
    339,142Total stockholders equity
    
    
    1,098,279Total liabilities and stockholders equity
    
    $
    6,663,265
  63




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 5  Goodwill and Other Intangible Assets
     YEAR
    
    AMOUNT2010
    
    $
    56,6172011
    
    
    44,9632012
    
    
    33,1082013
    
    
    23,6302014
    
    
    14,869
   Note 6  Restrictions on Cash and Amounts Due From Depository Institutions
   64




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Investment Securities
  AT DECEMBER 31,2009
    
    
    2008Amortized
    
    
    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
    
    $
    364,596
    
    
    $
    116
    
    
    $
    102
    
    
    $
    364,610
    
    
    $
    243,796
    
    
    $
    991
    
    
    $
    
    
    
    $
    244,787Debentures of FHLB,
FNMA and FHLMC
    
    
    1,848,401
    
    
    
    992
    
    
    
    1,170
    
    
    
    1,848,223
    
    
    
    4,597,607
    
    
    
    21,175
    
    
    
    64
    
    
    
    4,618,718Corporate debt and
asset-backed securities
    
    
    6,652,059
    
    
    
    117,232
    
    
    
    12,119
    
    
    
    6,757,172
    
    
    
    164,648
    
    
    
    9
    
    
    
    18,861
    
    
    
    145,796Equity securities (1)
    
    
    2,579
    
    
    
    181
    
    
    
    1
    
    
    
    2,759
    
    
    
    63,317
    
    
    
    533
    
    
    
    36,757
    
    
    
    27,093State and municipal
securities
    
    
    1,836,589
    
    
    
    14,434
    
    
    
    48,597
    
    
    
    1,802,426
    
    
    
    1,840,080
    
    
    
    
    
    
    
    210,967
    
    
    
    1,629,113Mortgage-backed
Securities:U.S. government agencies
    
    
    1,098
    
    
    
    21
    
    
    
    2
    
    
    
    1,117
    
    
    
    13,329
    
    
    
    78
    
    
    
    164
    
    
    
    13,243FHLMC and FNMA
securities
    
    
    962,465
    
    
    
    4,876
    
    
    
    6,184
    
    
    
    961,157
    
    
    
    470,522
    
    
    
    8,508
    
    
    
    2,744
    
    
    
    476,286Non-agencies
    
    
    2,230,114
    
    
    
    1
    
    
    
    358,181
    
    
    
    1,871,934
    
    
    
    2,698,673
    
    
    
    1
    
    
    
    552,371
    
    
    
    2,146,303Total investment
securities available
for sale
    
    $
    13,897,901
    
    
    $
    137,853
    
    
    $
    426,356
    
    
    $
    13,609,398
    
    
    $
    10,091,972
    
    
    $
    31,295
    
    
    $
    821,928
    
    
    $
    9,301,339
 (1)
    
    Equity securities at December 31, 2008 consist principally of preferred stock of FHLMC and
FNMA. These securities were sold in the third quarter of 2009.       65




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  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 EndedDecember 31, 2009Beginning balance at December 31, 2008
    
    $
    62,834Additions for amount related to credit loss for which an OTTI was not previously recognized
    
    
    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
    
    
    Additional increases to credit losses for previously recognized OTTI charges when there is no intent to sell the
security
    
    
    88,467Ending balance at December 31, 2009
    
    $
    206,155
  December 31, 2009Loss severity
    
    
    49.45
    %Expected cumulative loss percentage
    
    
    32.15
    %Cumulative loss percentage to date
    
    
    3.01
    %Weighted average FICO
    
    
    711Weighted average LTV
    
    
    70.1
    %
  66




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Investment Securities (continued)
  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
    )
 AT DECEMBER 31, 2008Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    LossesInvestment SecuritiesAvailable for sale investment securities:Debentures of FHLB, FNMA and FHLMC
    
    $
    99,762
    
    
    $
    (64
    )
    
    $
    
    
    
    $
    
    
    
    $
    99,762
    
    
    $
    (64
    )Corporate debt and asset-backed securities
    
    
    11
    
    
    
    
    
    
    
    43,896
    
    
    
    (18,861
    )
    
    
    43,907
    
    
    
    (18,861
    )Equity Securities
    
    
    19,892
    
    
    
    (36,756
    )
    
    
    253
    
    
    
    (1
    )
    
    
    20,145
    
    
    
    (36,757
    )State and municipal securities
    
    
    259,702
    
    
    
    (20,875
    )
    
    
    1,367,975
    
    
    
    (190,092
    )
    
    
    1,627,677
    
    
    
    (210,967
    )Mortgage-backed Securities:U.S. government agencies
    
    
    10,197
    
    
    
    (142
    )
    
    
    879
    
    
    
    (22
    )
    
    
    11,076
    
    
    
    (164
    )FHLMC and FNMA securities
    
    
    228,474
    
    
    
    (2,196
    )
    
    
    13,970
    
    
    
    (548
    )
    
    
    242,444
    
    
    
    (2,744
    )Non-agencies
    
    
    467,437
    
    
    
    (139,985
    )
    
    
    1,331,833
    
    
    
    (412,386
    )
    
    
    1,799,270
    
    
    
    (552,371
    )Total investment securities available for sale
    
    $
    1,085,475
    
    
    $
    (200,018
    )
    
    $
    2,758,806
    
    
    $
    (621,910
    )
    
    $
    3,844,281
    
    
    $
    (821,928
    )
   YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Proceeds from sales
    
    $
    2,673,370
    
    
    $
    5,203,297
    
    
    $
    669,053Gross realized gains
    
    
    23,176
    
    
    
    50,316
    
    
    
    4,821Gross realized losses
    
    
    (827
    )
    
    
    (617,767
    )
    
    
    (627
    )Net realized
(losses)/gains
    
    $
    22,349
    
    
    $
    (567,451
    )
    
    $
    4,194
   67




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 7  Investment Securities (continued)
   INVESTMENT SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, 2009(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
    
    $
    364,610
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    364,610
    
    
    
    0.54
    %Debentures of FHLB, FNMA and
FHLMC
    
    
    1,657,644
    
    
    
    190,579
    
    
    
    
    
    
    
    
    
    
    
    1,848,223
    
    
    
    0.37
    %Corporate debt and asset
backed securities
    
    
    353,331
    
    
    
    4,117,590
    
    
    
    2,187,371
    
    
    
    98,880
    
    
    
    6,757,172
    
    
    
    3.3
    %Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,759
    
    
    
    2,759
    
    
    
    
    %State and Municipal securities
    
    
    
    
    
    
    
    
    
    
    36,134
    
    
    
    1,766,292
    
    
    
    1,802,426
    
    
    
    4.46
    %Mortgage-backed Securities:U.S. government agencies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,117
    
    
    
    1,117
    
    
    
    6.43
    %FHLMC and FNMA securities
    
    
    115,017
    
    
    
    31,431
    
    
    
    192,803
    
    
    
    621,906
    
    
    
    961,157
    
    
    
    3.25
    %Non-agencies
    
    
    
    
    
    
    434
    
    
    
    172,380
    
    
    
    1,699,120
    
    
    
    1,871,934
    
    
    
    4.38
    %Total Fair Value
    
    $
    2,490,602
    
    
    $
    4,340,034
    
    
    $
    2,588,688
    
    
    $
    4,190,074
    
    
    $
    13,609,398
    
    
    
    3.13
    %Weighted average yield
    
    
    0.52
    %
    
    
    3.05
    %
    
    
    3.61
    %
    
    
    4.44
    %
    
    
    3.13
    %Total Amortized Cost
    
    $
    2,490,222
    
    
    $
    4,271,207
    
    
    $
    2,557,067
    
    
    $
    4,579,405
    
    
    $
    13,897,901
 (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%.  Note 8  Loans
  AT DECEMBER 31,2009
    
    
    2008Commercial real estate loans(1)
    
    $
    12,453,575
    
    
    $
    13,181,624Commercial and industrial loans
    
    
    10,754,692
    
    
    
    12,428,069Multi-family loans
    
    
    4,588,403
    
    
    
    4,512,608Other
    
    
    1,317,204
    
    
    
    1,650,824Total Commercial Loans Held for Investment
    
    
    29,113,874
    
    
    
    31,773,125Residential mortgages
    
    
    10,607,626
    
    
    
    11,103,279Home equity loans and lines of credit
    
    
    7,069,491
    
    
    
    6,891,918Total consumer loans secured by real estate
    
    
    17,677,117
    
    
    
    17,995,197Auto loans
    
    
    10,496,510
    
    
    
    5,482,852Other
    
    
    264,676
    
    
    
    290,725Total Consumer Loans Held for Investment
    
    
    28,438,303
    
    
    
    23,768,774Total Loans Held for Investment (2)
    
    $
    57,552,177
    
    
    $
    55,541,899Total Loans Held for Investment with:Fixed rate
    
    $
    33,667,940
    
    
    $
    29,559,229Variable rate
    
    
    23,884,237
    
    
    
    25,982,670Total Loans Held for Investment(2)
    
    $
    57,552,177
    
    
    $
    55,541,899
 (1)
    
    Includes residential and commercial construction loans of $2.6 billion and $2.7 billion at December 31, 2009 and 2008, 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 a net decrease in loans of $382.6 million and an increase of $150.4 million at December 31, 2009 and 2008,
respectively. Results for 2009 include a net decrease of $466.2 million related to the contribution of SCUSA. Loans pledged as
collateral for borrowings totaled $41.3 billion and $42.7 billion at December 31, 2009 and 2008.  68




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 8  Loans (continued)
  AT DECEMBER 31,2009
    
    
    2008Multi-family
    
    $
    
    
    
    $
    13,503Residential mortgages
    
    
    118,994
    
    
    
    313,829Total Loans Held for Sale
    
    $
    118,994
    
    
    $
    327,332Total Loans Held for Sale with:Fixed rate
    
    $
    118,994
    
    
    $
    327,332Variable rate
    
    
    
    
    
    
    Total Loans Held for Sale
    
    $
    118,994
    
    
    $
    327,332
  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Allowance for loan losses balance, beginning of
period
    
    $
    1,102,753
    
    
    $
    709,444
    
    
    $
    471,030Acquired allowance for loan losses due to SCUSA
contribution from Parent
    
    
    347,302
    
    
    
    
    
    
    
    Provision for loan losses (1)
    
    
    1,790,559
    
    
    
    874,140
    
    
    
    394,646Allowance released in connection with loan
sales or securitizations
    
    
    
    
    
    
    (3,745
    )
    
    
    (12,409
    )Charge-offs:Commercial
    
    
    518,468
    
    
    
    238,470
    
    
    
    65,670Consumer secured by real estate (1)
    
    
    110,732
    
    
    
    75,978
    
    
    
    26,809Consumer not secured by real estate
    
    
    1,121,338
    
    
    
    277,266
    
    
    
    126,385Total charge-offs
    
    
    1,750,538
    
    
    
    591,714
    
    
    
    218,864Recoveries:Commercial
    
    
    11,288
    
    
    
    13,378
    
    
    
    15,187Consumer secured by real estate
    
    
    12,283
    
    
    
    9,027
    
    
    
    11,193Consumer not secured by real estate
    
    
    304,577
    
    
    
    92,223
    
    
    
    48,661Total recoveries
    
    
    328,148
    
    
    
    114,628
    
    
    
    75,041Charge-offs, net of recoveries
    
    
    1,422,390
    
    
    
    477,086
    
    
    
    143,823Allowance for loan losses balance, end of period
    
    $
    1,818,224
    
    
    $
    1,102,753
    
    
    $
    709,444Reserve for unfunded lending commitments,
beginning of period
    
    
    65,162
    
    
    
    28,302
    
    
    
    15,256Provision for unfunded lending commitments
(1)
    
    
    193,978
    
    
    
    36,860
    
    
    
    13,046Reserve for unfunded lending commitments, end
of period
    
    
    259,140
    
    
    
    65,162
    
    
    
    28,302Total allowance for credit losses
    
    $
    2,077,364
    
    
    $
    1,167,915
    
    
    $
    737,746
 (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.  69




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 8  Loans (continued)
  AT DECEMBER 31,2009
    
    
    2008Non-accrual loans:
    
    $
    
    
    
    $Consumer:Residential mortgages
    
    
    617,918
    
    
    
    233,176Home equity loans and lines of credit
    
    
    117,390
    
    
    
    69,247Auto loans and other consumer loans
    
    
    535,902
    
    
    
    4,045Total consumer loans
    
    
    1,271,210
    
    
    
    306,468Commercial
    
    
    654,322
    
    
    
    244,847Commercial real estate
    
    
    823,766
    
    
    
    319,565Multi-family
    
    
    381,999
    
    
    
    42,795Total commercial loans
    
    
    1,860,087
    
    
    
    607,207Total non-performing loans
    
    
    3,131,297
    
    
    
    913,675Other real estate owned
    
    
    99,364
    
    
    
    49,900Other repossessed assets
    
    
    18,716
    
    
    
    21,836Total other real estate owned and other repossessed assets
    
    
    118,080
    
    
    
    71,736Total non-performing assets
    
    $
    3,249,377
    
    
    $
    985,411
  AT DECEMBER 31,2009
    
    
    2008Impaired loans with a related allowance
    
    $
    1,193,095
    
    
    $
    469,363Impaired loans without a related allowance
    
    
    283,652
    
    
    
    Total impaired loans
    
    $
    1,476,747
    
    
    $
    469,363Allowance for impaired loans
    
    $
    363,059
    
    
    $
    106,176Total loans past due 90 days as to interest or principal and accruing interest
    
    $
    27,321
    
    
    $
    123,301
  Contractual
    
    
    Nonaccretable
    
    
    Accretable
    
    
    CarryingReceivable Amount
    
    
    Yield
    
    
    Yield
    
    
    AmountBalance at January 1, 2009
    
    $
    656,780
    
    
    $
    (86,757
    )
    
    $
    (50,375
    )
    
    $
    519,648Additions (Loans acquired
during the period)
    
    
    1,769,021
    
    
    
    (206,300
    )
    
    
    (750
    )
    
    
    1,561,971Customer repayments
    
    
    (281,700
    )
    
    
    
    
    
    
    
    
    
    
    (281,700
    )Charge-offs
    
    
    (99,717
    )
    
    
    67,069
    
    
    
    
    
    
    
    (32,648
    )Change in interest accrual
    
    
    (1,129
    )
    
    
    
    
    
    
    
    
    
    
    (1,129
    )Accretion of loan discount
    
    
    
    
    
    
    
    
    
    
    15,918
    
    
    
    15,918Disposals related to loans sold
    
    
    (661
    )
    
    
    39
    
    
    
    
    
    
    
    (622
    )Balance at December 31, 2009
    
    $
    2,042,594
    
    
    $
    (225,949
    )
    
    $
    (35,207
    )
    
    $
    1,781,438
  70




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 9  Mortgage Servicing Rights
  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Gross balance, beginning of year
    
    $
    161,288
    
    
    $
    142,549
    
    
    $
    118,637Residential mortgage servicing assets recognized
    
    
    74,240
    
    
    
    47,277
    
    
    
    51,139Amortization of residential mortgage servicing rights
    
    
    (55,885
    )
    
    
    (28,538
    )
    
    
    (26,063
    )Write-off of servicing assets
    
    
    
    
    
    
    
    
    
    
    (1,164
    )Gross balance, end of year
    
    
    179,643
    
    
    
    161,288
    
    
    
    142,549Valuation allowance
    
    
    (52,089
    )
    
    
    (48,815
    )
    
    
    (1,473
    )Balance, end of year
    
    $
    127,554
    
    
    $
    112,473
    
    
    $
    141,076
   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
    %
  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Balance, beginning of year
    
    $
    48,815
    
    
    $
    1,473
    
    
    $
    1,222Write-offs of reserves
    
    
    
    
    
    
    
    
    
    
    (1,164
    )Increase in valuation
allowance for residential
mortgage servicing rights
    
    
    3,274
    
    
    
    47,342
    
    
    
    1,415Balance, end of year
    
    $
    52,089
    
    
    $
    48,815
    
    
    $
    1,473
     71




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 10  Premises and Equipment
  AT DECEMBER 31,2009
    
    
    2008Land
    
    $
    61,288
    
    
    $
    63,198Office buildings
    
    
    219,481
    
    
    
    236,102Furniture, fixtures, and equipment
    
    
    410,638
    
    
    
    399,040Leasehold improvements
    
    
    299,176
    
    
    
    302,159Automobiles and other
    
    
    2,313
    
    
    
    6,877992,896
    
    
    
    1,007,376Less accumulated depreciation
    
    
    (515,084
    )
    
    
    (457,226
    )Total premises and equipment
    
    $
    477,812
    
    
    $
    550,150
  Note 11  Accrued Interest Receivable
  AT DECEMBER 31,2009
    
    
    2008Accrued interest receivable on:Investment securities
    
    $
    87,672
    
    
    $
    42,196Loans
    
    
    257,450
    
    
    
    209,416Total interest receivable
    
    $
    345,122
    
    
    $
    251,612
  72




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 12  Deposits
  AT DECEMBER 31,2009
    
    
    2008Balance
    
    
    Percent
    
    
    Rate
    
    
    Balance
    
    
    Percent
    
    
    RateDemand deposit accounts
    
    $
    7,237,730
    
    
    
    16.3
    %
    
    
    
    %
    
    $
    6,684,232
    
    
    
    13.8
    %
    
    
    
    %NOW accounts
    
    
    5,703,789
    
    
    
    12.8
    
    
    
    0.16
    
    
    
    5,031,748
    
    
    
    10.4
    
    
    
    0.56Money market accounts
    
    
    13,158,001
    
    
    
    29.6
    
    
    
    0.82
    
    
    
    10,483,151
    
    
    
    21.6
    
    
    
    2.39Savings accounts
    
    
    3,537,983
    
    
    
    8.0
    
    
    
    0.14
    
    
    
    3,582,150
    
    
    
    7.4
    
    
    
    0.46Certificates of deposit
    
    
    8,515,350
    
    
    
    19.2
    
    
    
    1.64
    
    
    
    13,559,146
    
    
    
    28.0
    
    
    
    3.37Total retail and commercial deposits
    
    
    38,152,853
    
    
    
    85.9
    
    
    
    0.69
    
    
    
    39,340,427
    
    
    
    81.2
    
    
    
    1.91Wholesale NOW accounts
    
    
    27,570
    
    
    
    0.1
    
    
    
    0.50
    
    
    
    67,213
    
    
    
    0.2
    
    
    
    2.27Wholesale money market accounts
    
    
    486,944
    
    
    
    1.1
    
    
    
    0.19
    
    
    
    1,701,734
    
    
    
    3.5
    
    
    
    0.46Wholesale certificates of deposit
    
    
    1,724,841
    
    
    
    3.8
    
    
    
    2.20
    
    
    
    3,004,958
    
    
    
    6.2
    
    
    
    3.54Total wholesale deposits
    
    
    2,239,355
    
    
    
    5.0
    
    
    
    1.74
    
    
    
    4,773,905
    
    
    
    9.9
    
    
    
    2.43Total government deposits
    
    
    2,231,752
    
    
    
    5.0
    
    
    
    0.14
    
    
    
    2,633,859
    
    
    
    5.4
    
    
    
    1.01Customer repurchase agreements &
Eurodollar deposits
    
    
    1,804,105
    
    
    
    4.1
    
    
    
    0.22
    
    
    
    1,690,382
    
    
    
    3.5
    
    
    
    0.41Total deposits (1)
    
    $
    44,428,065
    
    
    
    100.0
    %
    
    
    0.69
    %
    
    $
    48,438,573
    
    
    
    100.0
    %
    
    
    1.86
    %
 (1)
    
    Includes foreign deposits of $1.3 billion and $0.9 billion at December 31, 2009 and December 31, 2008, respectively.  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007NOW accounts
    
    $
    16,632
    
    
    $
    41,227
    
    
    $
    56,110Money market accounts
    
    
    153,961
    
    
    
    253,548
    
    
    
    347,077Savings accounts
    
    
    9,057
    
    
    
    24,785
    
    
    
    33,328Certificates of deposit
    
    
    366,116
    
    
    
    425,295
    
    
    
    531,993Wholesale NOW accounts
    
    
    521
    
    
    
    2,356
    
    
    
    10,535Wholesale money market accounts
    
    
    3,383
    
    
    
    32,979
    
    
    
    130,617Wholesale certificates of deposit
    
    
    73,088
    
    
    
    54,070
    
    
    
    216,451Total government deposits
    
    
    12,244
    
    
    
    81,288
    
    
    
    193,067Customer repurchase agreements & Eurodollar deposits
    
    
    5,547
    
    
    
    36,040
    
    
    
    108,137Total interest expense on deposits
    
    $
    640,549
    
    
    $
    951,588
    
    
    $
    1,627,315
  Three months or less
    
    $
    1,736,985Over three through six months
    
    
    2,228,138Over six through twelve months
    
    
    2,316,646Over twelve months
    
    
    667,693Total
    
    $
    6,949,462
  2010
    
    $
    9,369,0452011
    
    
    279,3172012
    
    
    422,9182013
    
    
    82,0362014
    
    
    48,454Thereafter
    
    
    38,421Total
    
    $
    10,240,191
   73




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 13  Borrowings and Other Debt Obligations
  AT DECEMBER 31,2009
    
    
    2008EFFECTIVE
    
    
    
    
    
    
    EFFECTIVEBALANCE
    
    
    RATE
    
    
    BALANCE
    
    
    RATESovereign Bank borrowings and other debt obligationsOvernight federal funds purchased
    
    $
    1,000,000
    
    
    
    0.25
    %
    
    $
    2,000,000
    
    
    
    0.60
    %Federal Home Loan Bank (FHLB) advances, maturing through
December 2018
    
    
    12,056,294
    
    
    
    2.64
    
    
    
    13,267,834
    
    
    
    4.71Reit preferred
    
    
    146,115
    
    
    
    14.34
    
    
    
    147,961
    
    
    
    14.102.75% senior notes, due January 2012
    
    
    1,346,373
    
    
    
    3.92
    
    
    
    1,344,702
    
    
    
    3.923.500% subordinated debentures, due June 2013
    
    
    146,521
    
    
    
    3.58
    
    
    
    145,518
    
    
    
    3.613.750% subordinated debentures, due March 2014
    
    
    242,520
    
    
    
    3.87
    
    
    
    240,753
    
    
    
    3.895.125% subordinated debentures, due March 2013
    
    
    478,651
    
    
    
    5.35
    
    
    
    472,056
    
    
    
    5.434.375% subordinated debentures, due August 2013
    
    
    299,883
    
    
    
    4.38
    
    
    
    299,853
    
    
    
    4.388.750% subordinated debentures, due May 2018
    
    
    495,824
    
    
    
    8.82
    
    
    
    495,504
    
    
    
    8.83Holding company borrowings and other debt obligationsUnsecured note, due December 2010
    
    
    28,000
    
    
    
    4.48
    
    
    
    
    
    
    
    Subordinated revolving credit facility, due December 2010
    
    
    100,000
    
    
    
    3.23
    
    
    
    
    
    
    
    Subordinated revolving credit facility, due December 2010
    
    
    117,000
    
    
    
    4.24
    
    
    
    
    
    
    
    Warehouse line with Wachovia, NA, due March 2010
    
    
    1,000,000
    
    
    
    2.01
    
    
    
    
    
    
    
    Warehouse lines with Santander and related subsidiaries
    
    
    4,031,267
    
    
    
    1.94
    
    
    
    
    
    
    
    4.80% senior notes, due September 2010
    
    
    299,788
    
    
    
    4.80
    
    
    
    299,470
    
    
    
    4.81Floating rate senior notes, due March 2009
    
    
    
    
    
    
    
    
    
    
    199,976
    
    
    
    2.48Floating rate senior notes, due March 2010
    
    
    299,956
    
    
    
    0.48
    
    
    
    299,755
    
    
    
    1.734.900% senior notes, due September 2010
    
    
    248,393
    
    
    
    4.93
    
    
    
    246,184
    
    
    
    4.982.50% senior notes, due June 2012
    
    
    248,895
    
    
    
    3.73
    
    
    
    248,474
    
    
    
    3.73Santander Puerto Rico fixed rate senior notes, due February 2010
    
    
    250,000
    
    
    
    0.61
    
    
    
    
    
    
    
    Santander senior line of credit, due March 2010
    
    
    890,000
    
    
    
    0.30
    
    
    
    
    
    
    
    TALF loan
    
    
    320,133
    
    
    
    2.13
    
    
    
    
    
    
    
    Asset backed notes
    
    
    1,929,706
    
    
    
    4.49
    
    
    
    
    
    
    
    Junior subordinated debentures due to Capital Trust Entities
    
    
    1,259,832
    
    
    
    6.46
    
    
    
    1,256,145
    
    
    
    7.23Total borrowings and other debt obligations
    
    $
    27,235,151
    
    
    
    2.99
    %
    
    $
    20,964,185
    
    
    
    4.51
    %
       74




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 13  Borrowings and Other Debt Obligations (continued)
              
    
    A 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).
  75




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 13  Borrowings and Other Debt Obligations (continued)
     2010
    
    $
    15,665,6632011
    
    
    546,7342012
    
    
    2,761,6512013
    
    
    1,814,8012014
    
    
    472,238Thereafter
    
    
    5,974,064Total
    
    $
    27,235,151
 Note 14  Stockholders Equity
        76




---



##### Table of Contents



Notes to Consolidated Financial Statements
 Note 15  Regulatory Matters
      REGULATORY CAPITAL (IN THOUSANDS)Tier 1
    
    
    Tier 1
    
    
    TotalLeverage
    
    
    Risk-Based
    
    
    Risk-BasedCapital To
    
    
    Capital To
    
    
    Capital ToTangible
    
    
    Risk Adjusted
    
    
    Risk AdjustedAssets
    
    
    Assets
    
    
    AssetsSovereign 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
    
    $
    2,512,967
    
    
    $
    2,929,354
    
    
    $
    2,593,360Capital ratio
    
    
    7.62
    %
    
    
    9.04
    %
    
    
    12.46
    %Sovereign Bank at December 31, 2008:Regulatory capital
    
    $
    4,434,350
    
    
    $
    4,166,510
    
    
    $
    6,449,472Minimum capital requirement(1)
    
    
    2,979,778
    
    
    
    2,528,501
    
    
    
    5,057,002Excess
    
    $
    1,454,572
    
    
    $
    1,638,009
    
    
    $
    1,392,470Capital ratio
    
    
    5.95
    %
    
    
    6.59
    %
    
    
    10.20
    %
 (1)
    
    As defined by OTS Regulations.   77




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 16  Stock-Based Compensation
   Shares
    
    
    Price per shareOptions outstanding December 31, 2006 (9,111,666 exercisable)
    
    
    14,767,710
    
    
    $
    2.95 - 25.77Granted
    
    
    115,077
    
    
    $
    17.62 - 25.76Exercised
    
    
    (2,466,307
    )
    
    $
    2.95 - 22.32Forfeited
    
    
    (356,235
    )
    
    $
    6.67 - 25.77Expired
    
    
    (143,847
    )
    
    $
    6.40 - 22.32Options 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
   Shares
    
    
    Weighted average(in thousands)
    
    
    grant date fair valueTotal non-vested restricted stock at December 31, 2008
    
    
    5,029,895
    
    
    $
    16.54Restricted stock granted in 2009
    
    
    200,000
    
    
    
    3.04Vested restricted stock in 2009
    
    
    (5,191,821
    )
    
    
    16.02Non-vested shares forfeited during 2009
    
    
    (38,074
    )
    
    
    17.08Total non-vested restricted stock at December 31, 2009
    
    
    
    
    
    $
    n/a
  Note 17  Employee Benefit Plans
    78




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 17  Employee Benefit Plans (continued)
    Year ended December 31,2009
    
    
    2008Change in benefit obligation:Benefit obligation at beginning of year
    
    $
    81,944
    
    
    $
    80,994Service cost
    
    
    212
    
    
    
    Interest cost
    
    
    4,562
    
    
    
    4,910Actuarial gain
    
    
    50
    
    
    
    773Annuity payments
    
    
    (4,561
    )
    
    
    (4,733
    )Settlements
    
    
    
    
    
    
    Curtailments
    
    
    
    
    
    
    Projected benefit obligation at year end
    
    $
    82,207
    
    
    $
    81,944Change in plan assets:Fair value at beginning of year
    
    $
    62,423
    
    
    $
    89,885Actual return on plan assets
    
    
    7,663
    
    
    
    (22,729
    )Employer contributions
    
    
    
    
    
    
    Annuity payments
    
    
    (4,561
    )
    
    
    (4,733
    )Settlements
    
    
    
    
    
    
    Fair value at year end
    
    $
    65,525
    
    
    $
    62,423Components of net periodic pension expense:Service cost
    
    $
    212
    
    
    $
    Interest cost
    
    
    4,562
    
    
    
    4,532Expected Return on plan assets
    
    
    (4,199
    )
    
    
    (7,894
    )Amortization of prior period service benefit
    
    
    
    
    
    
    Amortization of unrecognized actuarial loss
    
    
    2,739
    
    
    
    Net periodic pension expense
    
    $
    3,314
    
    
    $
    (3,362
    )
  2009
    
    
    2008Discount rate
    
    
    5.75
    %
    
    
    5.75
    %Expected long-term return on plan assets
    
    
    7.00
    %
    
    
    9.00
    %Salary increase rate
    
    
    0.00
    %
    
    
    0.00
    %
  2010
    
    $
    4,491,4452011
    
    
    4,496,4042012
    
    
    4,564,7762013
    
    
    4,674,9282014
    
    
    4,904,3762015 to 2019
    
    
    26,454,290Total
    
    $
    49,586,219
   79




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes
  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Current:Foreign (1)
    
    $
    108
    
    
    $
    104
    
    
    $
    22,929Federal
    
    
    160,844
    
    
    
    (121,006
    )
    
    
    83,194State
    
    
    17,436
    
    
    
    7,450
    
    
    
    4,992Total Current
    
    
    178,388
    
    
    
    (113,452
    )
    
    
    111,115Deferred:Federal
    
    
    (1,434,236
    )
    
    
    837,412
    
    
    
    (171,565
    )State
    
    
    (28,616
    )
    
    
    (384
    )
    
    
    Total Deferred
    
    
    (1,462,852
    )
    
    
    837,028
    
    
    
    (171,565
    )Total income tax (benefit)/expense
    
    $
    (1,284,464
    )
    
    $
    723,576
    
    
    $
    (60,450
    )
 (1)
    
    Current foreign income tax expense in 2007 relates to interest income on assets that
SHUSA transferred to a consolidated foreign special purpose entity to support a borrowing
arrangement that SHUSA has with an international bank. Foreign taxes paid on this income are
credited against United States income taxes for federal income tax purposes. See Note 13 for
further discussion.  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Federal income tax at statutory rate
    
    
    (35.0)
    %
    
    
    (35.0)
    %
    
    
    (35.0)
    %Increase/(decrease) in taxes resulting from:Valuation allowance
    
    
    (83.2
    )
    
    
    87.7
    
    
    
    Tax-exempt income
    
    
    (2.6
    )
    
    
    (3.1
    )
    
    
    (4.2
    )Bank owned life insurance
    
    
    0.4
    
    
    
    (1.6
    )
    
    
    (2.1
    )State income taxes, net of federal tax benefit
    
    
    0.3
    
    
    
    (2.4
    )
    
    
    0.2Credit for synthetic fuels
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Low income housing credits
    
    
    (3.7
    )
    
    
    (2.5
    )
    
    
    (2.8
    )Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    39.1Disallowed interest deductions
    
    
    6.7
    
    
    
    
    
    
    
    Other
    
    
    2.8
    
    
    
    1.2
    
    
    
    1.7Effective tax rate
    
    
    (114.3)
    %
    
    
    44.3
    %
    
    
    (4.3)
    %
  80




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes (continued)
  AT DECEMBER 31,2009
    
    
    2008Deferred tax assets:Allowance for loan losses
    
    $
    457,979
    
    
    $
    369,617Unrealized loss on available for sale portfolio
    
    
    105,486
    
    
    
    285,488Unrealized loss on derivatives
    
    
    67,738
    
    
    
    119,693Net operating loss carry forwards
    
    
    367,710
    
    
    
    190,472Non-solicitation payments
    
    
    44,409
    
    
    
    52,483Employee benefits
    
    
    46,286
    
    
    
    26,105General Business credit carry forwards
    
    
    227,030
    
    
    
    173,805Foreign tax credit carry forwards
    
    
    60,688
    
    
    
    72,903Broker commissions paid on originated mortgage loans
    
    
    30,773
    
    
    
    33,543Minimum tax credit carry forward
    
    
    35,881
    
    
    
    36,455IRC Section 382 recognized built in losses
    
    
    329,929
    
    
    
    Other-than-temporary impairment on investments and equity method investments
    
    
    93,197
    
    
    
    459,359Deferred interest expense
    
    
    129,118
    
    
    
    64,901Other
    
    
    311,376
    
    
    
    203,573Total gross deferred tax assets
    
    
    2,307,600
    
    
    
    2,088,397Deferred tax liabilities:Purchase accounting adjustments
    
    
    35,760
    
    
    
    55,073Deferred income
    
    
    102,418
    
    
    
    27,173Originated mortgage servicing rights
    
    
    69,498
    
    
    
    64,721Depreciation and amortization
    
    
    157,737
    
    
    
    112,425Other
    
    
    205,623
    
    
    
    162,412Total gross deferred tax liabilities
    
    
    571,036
    
    
    
    421,804Valuation allowance
    
    
    (408,264
    )
    
    
    (1,432,771
    )Net deferred tax asset
    
    $
    1,328,300
    
    
    $
    233,822
      81




---



##### Table of Contents



Notes to Consolidated Financial Statements
 Note 18  Income Taxes (continued)
  (in thousands)Gross unrecognized tax benefits at January 1, 2007
    
    
    81,542Additions based on tax positions related to 2007
    
    
    9,196Adjustments related to unrecognized tax benefits associated with business combinations
    
    
    (140
    )Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations
    
    
    (3,137
    )Gross unrecognized tax benefits at January 1, 2008
    
    
    87,461Additions based on tax positions related to 2008
    
    
    4,094Additions for tax positions of prior years
    
    
    16,542Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations
    
    
    (2,392
    )Gross unrecognized tax benefits at January 1, 2009
    
    $
    105,705Additions based on tax positions related to the current year
    
    
    1,448Additions for tax positions of prior years
    
    
    1,664Reductions for tax positions of prior years
    
    
    (2,476
    )Reductions to unrecognized tax benefits as a result of a lapse of the applicable statute of limitations
    
    
    (8,393
    )Settlements
    
    
    (900
    )Gross unrecognized tax benefits at December 31, 2009
    
    
    97,048Less: Federal, state and local income tax benefits
    
    
    (15,941
    )Net unrecognized tax benefits that if recognized would impact the effective tax rate at December 31, 2009
    
    
    81,107
      82




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 19  Commitments and Contingencies
 Financial Instruments.
  CONTRACT OR NOTIONALAMOUNT AT DECEMBER 31,2009
    
    
    2008Financial instruments whose contract amounts represent credit risk:Commitments to extend credit
    
    $
    14,652,163
    
    
    $
    16,279,059Standby letters of credit
    
    
    2,401,959
    
    
    
    2,801,433Loans sold with recourse
    
    
    322,800
    
    
    
    985,418Forward buy commitments
    
    
    289,947
    
    
    
    895,285
      Litigation.
 Leases.
 AT DECEMBER 31, 2009Future MinimumLease
    
    
    Expected Sublease
    
    
    NetPayments
    
    
    Income
    
    
    Payments2010
    
    $
    106,831
    
    
    $
    (11,686
    )
    
    $
    95,1452011
    
    
    100,479
    
    
    
    (9,644
    )
    
    
    90,8352012
    
    
    91,458
    
    
    
    (8,253
    )
    
    
    83,2052013
    
    
    82,367
    
    
    
    (4,045
    )
    
    
    78,3222014
    
    
    73,389
    
    
    
    (2,640
    )
    
    
    70,749Thereafter
    
    
    378,116
    
    
    
    (6,416
    )
    
    
    371,700Total
    
    $
    832,640
    
    
    $
    (42,684
    )
    
    $
    789,956
   83




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 20  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)
    
    
    2009Assets:US 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
    
    
    
    1,884,834
    
    
    
    2,834,208Total investment securities available for sale
    
    
    
    
    
    
    11,670,822
    
    
    
    1,938,576
    
    
    
    13,609,398Loans held for sale
    
    
    
    
    
    
    118,994
    
    
    
    
    
    
    
    118,994Derivatives
    
    
    
    
    
    
    (193,749
    )
    
    
    24,625
    
    
    
    (218,049
    )Total
    
    $
    
    
    
    $
    11,595,742
    
    
    $
    1,963,201
    
    
    $
    13,510,343
  84




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 20  Fair Value Disclosures (continued)
   Quoted Prices in Active
    
    
    Significant Other
    
    
    SignificantMarkets for
    
    
    Observable Inputs
    
    
    UnobservableIdentical Assets (Level 1)
    
    
    (Level 2)
    
    
    Inputs (Level 3)
    
    
    TotalDecember 31, 2009Loans (1)
    
    $
    
    
    
    $
    1,476,747
    
    
    $
    
    
    
    $
    1,476,747Foreclosed assets (2)
    
    
    
    
    
    
    118,080
    
    
    
    
    
    
    
    118,080Mortgage servicing rights (3)
    
    
    
    
    
    
    
    
    
    
    136,874
    
    
    
    136,874December 31, 2008Loans (1)
    
    $
    
    
    
    $
    469,363
    
    
    $
    
    
    
    $
    469,363Foreclosed assets (2)
    
    
    
    
    
    
    71,429
    
    
    
    
    
    
    
    71,429Mortgage servicing rights (3)
    
    
    
    
    
    
    
    
    
    
    127,811
    
    
    
    127,811
 (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 31,2009
    
    
    2008Loans
    
    $
    (256,883
    )
    
    
    (39,297
    )Foreclosed assets
    
    
    (2,045
    )
    
    
    (5,874
    )Mortgage servicing rights
    
    
    (2,677
    )
    
    
    (53,257
    )(261,605
    )
    
    
    (98,428
    )
  Investments
    
    
    Mortgage
    
    
    
    
    
    
    OtherAvailable for Sale
    
    
    Servicing Rights
    
    
    Derivatives
    
    
    Assets
    
    
    TotalBalance at December 31, 2008
    
    $
    1,190,868
    
    
    $
    127,811
    
    
    
    8,573
    
    
    $
    3,474
    
    
    $
    1,330,726Gains/(losses) in other
comprehensive income
    
    
    729,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    729,804Gains/(losses) in earnings
    
    
    (177,742
    )
    
    
    (2,677
    )
    
    
    (8,248
    )
    
    
    
    
    
    
    (188,667
    )Reclassification from level 2
    
    
    1,161,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,161,397Reclassification to level 2
    
    
    (601,683
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (601,683
    )Purchases/Additions
    
    
    25
    
    
    
    77,243
    
    
    
    24,300
    
    
    
    
    
    
    
    101,568Repayments
    
    
    (364,093
    )
    
    
    
    
    
    
    
    
    
    
    (3,474
    )
    
    
    (367,567
    )Sales/Amortization
    
    
    
    
    
    
    (65,503
    )
    
    
    
    
    
    
    
    
    
    
    (65,503
    )Balance at December 31, 2009
    
    $
    1,938,576
    
    
    $
    136,874
    
    
    $
    24,625
    
    
    $
    
    
    
    $
    2,100,075
   85




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note 21  Fair Value of Financial Instruments
   AT DECEMBER 31,2009
    
    
    2008Carrying
    
    
    
    
    
    
    CarryingValue
    
    
    Fair Value
    
    
    Value
    
    
    Fair ValueFinancial Assets:Cash and amounts due from depository institutions
    
    $
    2,323,290
    
    
    $
    2,323,290
    
    
    $
    3,754,523
    
    
    $
    3,754,523Available for sale investment securities
    
    
    13,609,398
    
    
    
    13,609,398
    
    
    
    9,301,339
    
    
    
    9,301,339Loans held for investment, net
    
    
    55,733,953
    
    
    
    53,483,141
    
    
    
    54,300,618
    
    
    
    51,693,533Loans held for sale
    
    
    118,994
    
    
    
    118,994
    
    
    
    327,332
    
    
    
    327,332Mortgage servicing rights
    
    
    136,874
    
    
    
    139,992
    
    
    
    127,811
    
    
    
    128,558Mortgage banking forward commitments
    
    
    2,013
    
    
    
    2,013
    
    
    
    (9,598
    )
    
    
    (9,598
    )Mortgage interest rate lock commitments
    
    
    325
    
    
    
    325
    
    
    
    8,573
    
    
    
    8,573Financial Liabilities:Deposits
    
    
    44,428,065
    
    
    
    43,699,060
    
    
    
    48,438,573
    
    
    
    48,906,511Borrowings and other debt obligations
    
    
    27,235,151
    
    
    
    27,961,841
    
    
    
    20,816,224
    
    
    
    21,005,248Interest rate derivative instruments
    
    
    220,387
    
    
    
    220,387
    
    
    
    291,991
    
    
    
    291,991Precious metal forward sale agreements
    
    
    (1,421
    )
    
    
    (1,421
    )
    
    
    (1,227
    )
    
    
    (1,227
    )Precious metal forward settlement arrangements
    
    
    1,421
    
    
    
    1,421
    
    
    
    1,227
    
    
    
    1,227Unrecognized Financial Instruments:(1)Commitments to extend credit
    
    
    95,354
    
    
    
    95,278
    
    
    
    113,175
    
    
    
    113,085
 (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.
 Deposits.
 Borrowings and other debt obligations.
 Commitments to extend credit.
  86




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Notes to Consolidated Financial Statements
 Note 21  Fair Value of Financial Instruments (continued)
 Precious metals customer forward settlement arrangements and precious metals forward sale
agreements.
 Interest rate derivative instruments.
 Note 22  Derivative Instruments and Hedging Activities
       Fair Value Hedges.
 Cash Flow Hedges.
 Other Derivative Activities.
     87




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Notes to Consolidated Financial Statements
 Note 22  Derivative Instruments and Hedging Activities (continued)
  Weighted AverageNotional
    
    
    
    
    
    
    
    
    
    
    Receive
    
    
    Pay
    
    
    LifeAmount
    
    
    Asset
    
    
    Liability
    
    
    Rate
    
    
    Rate
    
    
    (Years)December 31, 2009Fair value hedges:Receive fixed  pay variable interest rate swaps
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    
    
    %
    
    
    n/aCash flow hedges:Pay fixed  receive floating interest rate swaps
    
    
    6,565,898
    
    
    
    
    
    
    
    204,034
    
    
    
    0.56
    %
    
    
    3.86
    %
    
    
    2.0Total derivatives used in hedging relationships
    
    $
    6,565,898
    
    
    $
    
    
    
    $
    204,034
    
    
    
    0.56
    %
    
    
    3.86
    %
    
    
    2.0December 31, 2008Fair value hedges:Receive fixed  pay variable interest rate swaps
    
    $
    678,000
    
    
    $
    6,262
    
    
    $
    369
    
    
    
    6.02
    %
    
    
    5.02
    %
    
    
    7.7Cash flow hedges:Pay fixed  receive floating interest rate swaps
    
    
    6,800,000
    
    
    
    4,154
    
    
    
    357,969
    
    
    
    2.45
    %
    
    
    5.13
    %
    
    
    1.5Total derivatives used in hedging relationships
    
    $
    7,478,000
    
    
    $
    10,416
    
    
    $
    358,338
    
    
    
    2.77
    %
    
    
    5.12
    %
    
    
    2.1
  AT DECEMBER 31,2009
    
    
    2008Net Asset
    
    
    Net Asset(Liability)
    
    
    (Liability)Mortgage banking derivatives:Forward commitmentsTo sell loans
    
    $
    2,013
    
    
    $
    (9,598
    )Interest rate lock commitments
    
    
    325
    
    
    
    8,573Total mortgage banking risk management
    
    
    2,338
    
    
    
    (1,025
    )Swaps receive fixed
    
    
    266,770
    
    
    
    502,890Swaps pay fixed
    
    
    (266,355
    )
    
    
    (478,398
    )Market value hedge
    
    
    
    
    
    
    (134
    )Net Customer related swaps
    
    
    415
    
    
    
    24,358Precious metals forward sale agreements
    
    
    1,421
    
    
    
    (1,227
    )Precious metals forward arrangements
    
    
    (1,421
    )
    
    
    1,227Foreign exchange
    
    
    5,852
    
    
    
    7,736Total activity
    
    $
    8,605
    
    
    $
    31,069
  88




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Notes to Consolidated Financial Statements
 Note 22  Derivative Instruments and Hedging Activities (continued)
  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.Forward commitments to sell
precious metals inventory
    
    Insignificant balance sheet effect at December 31, 2009.
    
    Increase to commercial banking revenues of $0 million.Foreign Exchange
    
    Increase to other assets of $5.9 million.
    
    Increase in commercial banking revenue of $1.9 million.
  Balance Sheet Effect at
    
    Income Statement Effect For The TwelveDerivative Activity
    
    December 31, 2008
    
    Months Ended December 31, 2008Fair value hedges:Receive fixed-pay variable 
interest rate swaps
    
    Increases to borrowings, CDs, other assets,
and other liabilities of $6.1 million, $1.4
million, $6.3 million and $0.4 million,
respectively.
    
    Resulted in an increase of net interest income of $8.3
million.Cash flow hedges:Pay fixed-receive floating 
interest rate swaps
    
    Increases to other assets, other liabilities,
and deferred taxes of $4.2 million, $358.0
million, and $129.1 million, respectively and
a net decrease to stockholders equity of
$224.7 million.
    
    Resulted in a decrease in net interest income of $140.8
million.Other hedges:Forward commitments to sell loans
    
    Increase to other liabilities of $9.6 million.
    
    Decrease to mortgage banking revenues of $4.9 million.Interest rate lock commitments
    
    Increase to mortgage loans of $8.6 million.
    
    Increase to mortgage banking revenues of $6.5 million.Net customer related hedges
    
    Increase to other assets of $24.4 million.
    
    Decrease in capital markets revenue of $10.4 million.Forward commitments to sell
precious metals inventory
    
    Increase to other liabilities of $0 million.
    
    Increase to commercial banking revenues of $1.0 million.Foreign Exchange
    
    Increase to other assets of $7.7 million.
    
    Increase in commercial banking revenue of $5.8 million.
  89




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Notes to Consolidated Financial Statements
 Note 23  Interests that Continue to be Held by SHUSA in Asset Securitizations
    2009PrincipalTotal
    
    
    90 Days
    
    
    Net CreditPrincipal
    
    
    Past Due
    
    
    LossesHome Equity Loans and Lines of Credit
    
    $
    7,143,141
    
    
    $
    110,007
    
    
    $
    58,575Commercial Real Estate and Multi-family Loans
    
    
    17,939,629
    
    
    
    981,638
    
    
    
    141,259Total Owned and Securitized
    
    $
    25,082,770
    
    
    $
    1,091,645
    
    
    $
    199,834Less:Securitized Home Equity Loans
    
    
    73,650
    
    
    
    3,993
    
    
    
    3,397Securitized Commercial Real Estate and Multi-family Loans
    
    
    897,651
    
    
    
    31,984
    
    
    
    4,967Total Securitized Loans
    
    
    971,301
    
    
    
    35,977
    
    
    
    8,364Net Loans
    
    $
    24,111,469
    
    
    $
    1,055,668
    
    
    $
    191,470
 2008PrincipalTotal
    
    
    90 Days
    
    
    Net CreditPrincipal
    
    
    Past Due
    
    
    LossesHome Equity Loans and Lines of Credit
    
    $
    6,979,236
    
    
    $
    103,089
    
    
    $
    43,138Commercial Real Estate and Multi-family Loans
    
    
    18,654,325
    
    
    
    255,865
    
    
    
    56,068Automotive Floor Plan Loans
    
    
    1,243,146
    
    
    
    620
    
    
    
    1,603Total Owned and Securitized
    
    $
    26,876,707
    
    
    $
    359,574
    
    
    $
    100,809Less:Securitized Home Equity Loans
    
    
    87,318
    
    
    
    15,588
    
    
    
    2,433Securitized Commercial Real Estate and Multi-family Loans
    
    
    946,591
    
    
    
    25,189
    
    
    
    Securitized Automotive Floor Plan Loans and other assets
    
    
    855,000
    
    
    
    
    
    
    
    1,464Total Securitized Loans
    
    
    1,888,909
    
    
    
    40,777
    
    
    
    3,897Net Loans
    
    $
    24,987,798
    
    
    $
    318,797
    
    
    $
    96,912
   90




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Notes to Consolidated Financial Statements
 Note 24  Comprehensive (Loss)/Income
  YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Net (loss)/income
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )Adoption of new accounting principal related to impairments on investment securities (see Note 7)
    
    
    88,190
    
    
    
    
    
    
    
    Change in accumulated losses/(gains) on cash flow hedge derivative financial instruments,
net of tax
    
    
    120,921
    
    
    
    (102,947
    )
    
    
    (121,056
    )Change in unrealized gains/(losses) on investment securities available-for-sale,
net of tax
    
    
    387,070
    
    
    
    (1,276,463
    )
    
    
    (306,413
    )Less reclassification adjustments:Derivative instruments
    
    
    (20,313
    )
    
    
    (12,520
    )
    
    
    (9,556
    )Pension plans
    
    
    (5,140
    )
    
    
    16,831
    
    
    
    (1,908
    )Investments available for sale
    
    
    (100,391
    )
    
    
    (924,040
    )
    
    
    (114,618
    )Comprehensive (loss)/income
    
    $
    883,590
    
    
    $
    (2,816,891
    )
    
    $
    (1,650,649
    )
  Note 25  Parent Company Financial Information
  BALANCE SHEET
 AT DECEMBER 31,2009
    
    
    2008AssetsCash and due from banks
    
    $
    109,473
    
    
    $
    599,725Available for sale investment securities
    
    
    46,998
    
    
    
    46,998Loans to non-bank subsidiaries
    
    
    1,414,300
    
    
    
    275,513Investment in subsidiaries:Bank subsidiary
    
    
    5,802,358
    
    
    
    3,651,917Non-bank subsidiaries
    
    
    5,029,289
    
    
    
    3,363,294Other assets
    
    
    415,125
    
    
    
    222,514Total Assets
    
    $
    12,817,543
    
    
    $
    8,159,961Liabilities and Stockholders EquityBorrowings:Borrowings and other debt obligations
    
    $
    3,248,446
    
    
    $
    2,303,725Borrowings from non-bank subsidiaries
    
    
    134,709
    
    
    
    132,909Other liabilities
    
    
    46,853
    
    
    
    126,613Total liabilities
    
    
    3,430,008
    
    
    
    2,563,247Stockholders Equity
    
    
    9,387,535
    
    
    
    5,596,714Total Liabilities and Stockholders Equity
    
    $
    12,817,543
    
    
    $
    8,159,961
  91




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Notes to Consolidated Financial Statements
 Note 25  Parent Company Financial Information (continued)
 STATEMENT OF OPERATIONS
 YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Dividends from Bank subsidiary
    
    $
    
    
    
    $
    24,252
    
    
    $
    194,018Dividends from non-bank subsidiaries
    
    
    
    
    
    
    5,000
    
    
    
    7,664Interest income
    
    
    6,971
    
    
    
    24,024
    
    
    
    18,874Other income
    
    
    517
    
    
    
    279
    
    
    
    567Total income
    
    
    7,488
    
    
    
    53,555
    
    
    
    221,123Interest expense
    
    
    116,308
    
    
    
    133,144
    
    
    
    158,366Other expense
    
    
    45,555
    
    
    
    137,769
    
    
    
    50,637Total expense
    
    
    161,863
    
    
    
    270,913
    
    
    
    209,003Income/(loss) before income taxes and equity in earnings of subsidiaries
    
    
    (154,375
    )
    
    
    (217,358
    )
    
    
    12,120Income tax benefit
    
    
    6,152
    
    
    
    35,122
    
    
    
    (89,247
    )Income before equity in earnings of subsidiaries
    
    
    (160,527
    )
    
    
    (252,480
    )
    
    
    101,367Dividends in excess of current year earnings:Bank subsidiary
    
    
    
    
    
    
    (2,113,668
    )
    
    
    (1,434,026
    )Non-bank subsidiaries
    
    
    
    
    
    
    8,938
    
    
    
    (16,603
    )Equity in undistributed earnings/(loss) of:Bank subsidiary
    
    
    48,644
    
    
    
    
    
    
    
    Non-bank subsidiaries
    
    
    273,448
    
    
    
    
    
    
    
    Net (loss)/income
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )
 STATEMENT OF CASH FLOWS
 YEAR ENDED DECEMBER 31,2009
    
    
    2008
    
    
    2007Cash Flows from Operating Activities:Net income/(loss)
    
    $
    161,565
    
    
    $
    (2,357,210
    )
    
    $
    (1,349,262
    )Adjustments to reconcile net income to net cash provided by operating activities:Undistributed (earnings)/loss of:Bank subsidiary
    
    
    (48,644
    )
    
    
    
    
    
    
    Non-bank subsidiaries
    
    
    (273,448
    )
    
    
    
    
    
    
    Dividends in excess of current year earnings:Bank subsidiary
    
    
    
    
    
    
    2,113,668
    
    
    
    1,434,026Non-bank subsidiaries
    
    
    
    
    
    
    (8,938
    )
    
    
    16,603Loss on retirement borrowings and other debt obligations
    
    
    
    
    
    
    
    
    
    
    7,561Stock based compensation expense
    
    
    47,181
    
    
    
    23,337
    
    
    
    28,011Allocation of Employee Stock Ownership Plan
    
    
    
    
    
    
    
    
    
    
    40,119Other, net
    
    
    (281,690
    )
    
    
    106,401
    
    
    
    19,826Net cash (used in)/provided by operating activities
    
    
    (395,036
    )
    
    
    (122,742
    )
    
    
    196,884Cash Flows from Investing Activities:Net capital returned from/(contributed to) subsidiaries
    
    
    (1,683,629
    )
    
    
    (789,377
    )
    
    
    (930
    )Net (increase)/decrease in loans to subsidiaries
    
    
    (1,138,787
    )
    
    
    1,450
    
    
    
    (276,963
    )Net cash used in investing activities
    
    
    (2,822,416
    )
    
    
    (787,927
    )
    
    
    (277,893
    )Cash Flows from Financing Activities:Net change in borrowings:Repayment of other debt obligations
    
    
    (200,000
    )
    
    
    (180,000
    )
    
    
    (377,637
    )Net proceeds received from senior notes and senior credit facility
    
    
    1,140,000
    
    
    
    248,465
    
    
    
    580,000Net change in borrowings from non-bank subsidiaries
    
    
    1,800
    
    
    
    41,240
    
    
    
    (26,365
    )Treasury stock repurchases, net of proceeds
    
    
    
    
    
    
    (2,208
    )
    
    
    5,624Cash dividends paid to preferred stockholders
    
    
    (14,600
    )
    
    
    (14,600
    )
    
    
    (14,600
    )Cash dividends paid to common stockholders
    
    
    
    
    
    
    
    
    
    
    (153,236
    )Sale of unallocated ESOP shares
    
    
    
    
    
    
    
    
    
    
    26,574Net proceeds from the issuance of preferred stock
    
    
    1,800,000
    
    
    
    
    
    
    
    Net proceeds from issuance of common stock
    
    
    
    
    
    
    1,405,993
    
    
    
    35,627Net cash provided by/(used in) financing activities
    
    
    2,727,200
    
    
    
    1,498,890
    
    
    
    75,987(Decrease)/Increase in cash and cash equivalents
    
    
    (490,252
    )
    
    
    588,221
    
    
    
    (5,022
    )Cash and cash equivalents at beginning of period
    
    
    599,725
    
    
    
    11,504
    
    
    
    16,526Cash and cash equivalents at end of period
    
    $
    109,473
    
    
    $
    599,725
    
    
    $
    11,504
  92




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Notes to Consolidated Financial Statements
 Note 26  Business Segment Information
     93




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Notes to Consolidated Financial Statements
 Note 26  Business Segment Information (continued)
  December 31, 2009Specialized
    
    
    MiddleRetail
    
    
    Business(1)
    
    
    Market
    
    
    SCUSA
    
    
    Other (2)
    
    
    TotalNet interest income/(expense)
    
    $
    594,332
    
    
    $
    325,695
    
    
    $
    326,619
    
    
    $
    1,277,358
    
    
    $
    119,500
    
    
    $
    2,643,504Fees and other income
    
    
    467,311
    
    
    
    (124,052
    )
    
    
    71,361
    
    
    
    30,712
    
    
    
    54,812
    
    
    
    500,144Provision for credit losses
    
    
    333,296
    
    
    
    566,632
    
    
    
    363,672
    
    
    
    720,937
    
    
    
    
    
    
    
    1,984,537General and administrative expenses
    
    
    899,714
    
    
    
    81,717
    
    
    
    75,050
    
    
    
    253,031
    
    
    
    210,948
    
    
    
    1,520,460Depreciation/Amortization
    
    
    97,197
    
    
    
    9,839
    
    
    
    2,133
    
    
    
    11,247
    
    
    
    126,445
    
    
    
    246,861Income/(loss) before income taxes
    
    
    (280,981
    )
    
    
    (449,421
    )
    
    
    (54,749
    )
    
    
    332,195
    
    
    
    (669,943
    )
    
    
    (1,122,899
    )Intersegment revenue/(expense) (1)
    
    
    71,762
    
    
    
    (661,667
    )
    
    
    (138,702
    )
    
    
    
    
    
    
    728,607
    
    
    
    Total average assets
    
    $
    21,551,815
    
    
    $
    19,338,816
    
    
    $
    12,682,802
    
    
    $
    6,911,119
    
    
    $
    21,864,230
    
    
    $
    82,348,782
 December 31, 2008Specialized
    
    
    MiddleRetail
    
    
    Business(1)
    
    
    Market
    
    
    Other (2)
    
    
    TotalNet interest income/(expense)
    
    $
    806,949
    
    
    $
    332,221
    
    
    $
    429,490
    
    
    $
    313,782
    
    
    $
    1,882,442Fees and other income
    
    
    381,092
    
    
    
    92,780
    
    
    
    70,474
    
    
    
    92,092
    
    
    
    636,438Provision for credit losses
    
    
    201,122
    
    
    
    449,777
    
    
    
    260,101
    
    
    
    
    
    
    
    911,000General and administrative expenses
    
    
    1,029,918
    
    
    
    103,573
    
    
    
    125,071
    
    
    
    225,744
    
    
    
    1,484,306Depreciation/Amortization
    
    
    72,778
    
    
    
    8,901
    
    
    
    3,458
    
    
    
    140,776
    
    
    
    225,913Income/(loss) before income taxes
    
    
    (72,984
    )
    
    
    (155,273
    )
    
    
    110,509
    
    
    
    (1,515,886
    )
    
    
    (1,633,634
    )Intersegment revenue/(expense) (1)
    
    
    267,707
    
    
    
    (930,611
    )
    
    
    (254,389
    )
    
    
    917,293
    
    
    
    Total average assets
    
    $
    23,333,825
    
    
    $
    24,125,815
    
    
    $
    13,586,277
    
    
    $
    17,635,982
    
    
    $
    78,681,899
 December 31, 2007Specialized
    
    
    MiddleRetail
    
    
    Business(1)
    
    
    Market
    
    
    Other (2)
    
    
    TotalNet interest income/(expense)
    
    $
    1,531,522
    
    
    $
    290,862
    
    
    $
    241,095
    
    
    $
    (220,236
    )
    
    $
    1,843,243Fees and other income
    
    
    425,229
    
    
    
    (20,856
    )
    
    
    8,386
    
    
    
    117,992
    
    
    
    530,751Provision for credit losses
    
    
    83,015
    
    
    
    254,344
    
    
    
    70,333
    
    
    
    
    
    
    
    407,692General and administrative expenses
    
    
    916,143
    
    
    
    96,366
    
    
    
    115,376
    
    
    
    208,980
    
    
    
    1,336,865Depreciation/Amortization
    
    
    73,444
    
    
    
    12,169
    
    
    
    3,711
    
    
    
    177,391
    
    
    
    266,715Income/(loss) before income taxes
    
    
    (54,615
    )
    
    
    (711,970
    )
    
    
    126,348
    
    
    
    (769,475
    )
    
    
    (1,409,712
    )Intersegment revenue/(expense) (1)
    
    
    1,167,534
    
    
    
    (1,151,924
    )
    
    
    (555,452
    )
    
    
    539,842
    
    
    
    Total average assets
    
    $
    24,937,389
    
    
    $
    24,186,587
    
    
    $
    11,585,210
    
    
    $
    22,606,846
    
    
    $
    83,316,032
 (1)
    
    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).(2)
    
    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. 2007
results included an OTTI charge of $180.5 million on FNMA and FHLMC preferred stock. Included in Other in 2009, 2008 and 2007 were net transaction related,
integration charges and other restructuring costs of $299.1 million, $32.3 million and $89.1 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. The 2007 results included a non-deductible, non-cash ESOP
termination charge of $40.1 million based on the value of its common stock on the date that the ESOP was repaid. See Note 27 for further details.  Retail Banking
    
    
    Specialized
    
    
    MiddleDivision
    
    
    Business Group
    
    
    Market
    
    
    SCUSA
    
    
    TotalGoodwill at December 31, 2009
    
    $
    2,259,179
    
    
    $
    
    
    
    $
    1,172,302
    
    
    $
    704,059
    
    
    $
    4,135,540
   94




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Notes to Consolidated Financial Statements
 Note 27  Transaction Related, Integration Charges and Other Restructuring Costs
  2009
    
    
    2008
    
    
    2007Transaction related, integration charges and other restructuring costs
    
    $
    299,119
    
    
    $
    32,348
    
    
    $
    89,130
      Contracttermination
    
    
    Severance
    
    
    Other
    
    
    TotalAccrued at December 31, 2007
    
    $
    9,173
    
    
    $
    11,126
    
    
    $
    2,000
    
    
    $
    22,299Payments
    
    
    (2,165
    )
    
    
    (6,127
    )
    
    
    (2,000
    )
    
    
    (10,292
    )Charges recorded in earnings
    
    
    
    
    
    
    23,353
    
    
    
    
    
    
    
    23,353Accrued 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
    
    
    $
    
    
    
    $
    74,705
  Note 28  Related Party Transactions
        95




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Notes to Consolidated Financial Statements
 Note 28  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 2009 in the amount
of $2 million.
    
    Geoban, S.A., a Santander affiliate, is under contract with Sovereign Bank to provide
services in the form debit card disputes and claims support, and consumer and mortgage loan
set-up and review. 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 2009 in the amount of $5.7 million.
    
    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 2009 in the amount of $3.4 million.
    
    Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under
contract with Sovereign Bank to provide logistical support for Sovereign Banks derivative
and hedging transactions and programs. 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, with fees paid in 2009 in the amount of
$0.5 million.
    
    SGF in 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. There were no fees
paid to SGF in 2009 with respect to this agreement.
  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
             98




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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
 Explanatory Note
      99




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Compensation of the Executives
  
    
    our 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 achievement 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 Bank Board
   
    
    administer our executive compensation programs in a manner that furthers our
strategic goals and serve the interests of Santanders shareholders;
    
    review compensation-related performance objectives for the Executives that support
our strategic goals and initiatives; and
    
    approve the compensation arrangements with respect to our non-employee directors.
  100




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The Role of Management
  
    
    evaluating the performance of the Executives;
    
    setting individual financial and nonfinancial performance targets and weightings for
the Executives;
    
    recommending salary levels and incentive awards for the Executives and other team
members who report to them; and
    
    participating in Bank Board meetings at the Bank Boards request to provide
background information regarding our strategic goals and initiatives.
 The Role of Outside Independent Compensation Advisors
  The Rationale Behind the Compensation of the Executives
 Business Context
  Benchmarking
  Components of the Executive Compensation of the Executives
  Base Salary
  
    
    the overall job scope and responsibilities;
    
    the executives qualifications, including education and experience level;
    
    the goals and objectives established for the executive;
    
    individual performance versus objectives;
    
    the executives past performance; and
    
    competitive salary practices at peer companies.
  101




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##### Table of Contents



Annual Discretionary Bonuses
  Retention Bonuses
  Short-Term Incentive Compensation
     
    
    70% of SHUSAs actual EBIT for 2009 divided by its budgeted EBIT
for 2009; and
 
    
    30% of Santanders actual EBIT for 2009 divided by its budgeted
EBIT for 2009.
  Achievement of EBIT 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%
    102




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Long-Term Incentive Compensation
    Perquisites
  Employment and Letter Agreements
   103




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##### Table of Contents



Compensation of the Transferred Executives
  
    
    Santanders general philosophy and objectives behind their compensation in 2009,
    
    the role and involvement of the parties in the analysis and decisions regarding their
compensation,
    
    the general process of determining their compensation,
    
    the rationale behind the components of their compensation, and
    
    each component of their compensation.
 General Philosophy and Objectives
  
    
    attract, motivate, and retain highly skilled executives with the business experience
and acumen necessary for achievement Santanders long-term business objectives;
    
    link pay to performance;
    
    align, to an appropriate extent, the interests of management with those of
Santanders shareholders; and
    
    use our compensation practices to support Santanders core values and strategic
mission and vision.
   
    
    market data of comparable financial institutions;
    
    internal pay equity; and
    
    individual performance, and level of responsibility, and track record within the
organization.
 The Parties Involved in Determining Executive Compensation
 The Role of the Evaluation and Bonus Committee
  The Role of the Executive Committee
   104




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The Role of the Appointments and Remuneration Committee
  The Role of Management
   The Role of Outside Independent Compensation Advisors
  Components of the Executive Compensation of the Transferred Executives
  Base Salary
  Short-Term Incentive Compensation
    Long-Term Incentive Compensation
   105




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Perquisites
  Retirement Benefits
  Employment and Letter Agreements
  Matters Relating to the Compensation Committee of the Board
 Compensation Committee Report
   
  Compensation Committee Interlocks and Insider Participation
   106




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##### Table of Contents



Summary Compensation Table  2009
 Non-EquityIncentiveOption
    
    
    Plan
    
    
    All OtherSalary
    
    
    Bonus
    
    
    Stock Awards
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName and Principal Position
    
    Year
    
    
    ($)(8)
    
    
    ($)(9)
    
    
    ($)(10)
    
    
    ($)(10)
    
    
    ($)(11)
    
    
    ($)(12)
    
    
    ($)Gabriel Jaramillo (1)
    
    
    2009
    
    
    $
    1,869,987
    
    
    $
    0
    
    
    $
    247,832
    
    
    $
    0
    
    
    $
    4,560,000
    
    
    $
    1,051,301
    
    
    $
    7,729,120Chairman, President, and
Chief Executive OfficerGuillermo Sabater (2)
    
    
    2009
    
    
    $
    224,036
    
    
    $
    62,627
    
    
    $
    44,557
    
    
    $
    0
    
    
    $
    275,000
    
    
    $
    263,128
    
    
    $
    869,348Chief Financial OfficerRoy J. Lever
    
    
    2009
    
    
    $
    363,462
    
    
    $
    100,000
    
    
    $
    402,220
    
    
    $
    0
    
    
    $
    300,000
    
    
    $
    1,331,008
    
    
    $
    2,496,690Managing Director of
    
    
    2008
    
    
    $
    343,270
    
    
    $
    602,974
    
    
    $
    79,801
    
    
    $
    0
    
    
    $
    0
    
    
    $
    23,920
    
    
    $
    1,049,966Retail BankingPatrick J. Sullivan (3)
    
    
    2009
    
    
    $
    415,502
    
    
    $
    165,000
    
    
    $
    719,533
    
    
    $
    0
    
    
    $
    255,000
    
    
    $
    1,316,387
    
    
    $
    2,871,422Chief Executive Officer of
    
    
    2008
    
    
    $
    398,186
    
    
    $
    263,915
    
    
    $
    286,924
    
    
    $
    3,223
    
    
    $
    0
    
    
    $
    47,564
    
    
    $
    999,811Sovereign BankNew
England Division
    
    
    2007
    
    
    $
    323,465
    
    
    $
    106,313
    
    
    $
    160,529
    
    
    $
    24,885
    
    
    $
    0
    
    
    $
    26,604
    
    
    $
    641,796Nuno Matos (4)
    
    
    2009
    
    
    $
    359,476
    
    
    $
    187,880
    
    
    $
    125,721
    
    
    $
    0
    
    
    $
    1,025,000
    
    
    $
    325,887
    
    
    $
    2,023,964Managing Director 
Retail Business
Development and MarketingKirk W. Walters (5)
    
    
    2009
    
    
    $
    636,923
    
    
    $
    0
    
    
    $
    822,194
    
    
    $
    699,206
    
    
    $
    904,830
    
    
    $
    8,232,938
    
    
    $
    11,296,091Senior Executive Vice
    
    
    2008
    
    
    $
    449,615
    
    
    $
    1,100,000
    
    
    $
    235,015
    
    
    $
    62,794
    
    
    $
    0
    
    
    $
    143,121
    
    
    $
    1,990,546President; Former Interim
President and Chief
Executive Officer; Former
Chief Financial OfficerPaul A. Perrault (6)
    
    
    2009
    
    
    $
    61,538
    
    
    $
    0
    
    
    $
    608,000
    
    
    $
    1,490,000
    
    
    $
    0
    
    
    $
    7,122,462
    
    
    $
    9,282,000Former President and
Chief Executive OfficerSalvatore J. Rinaldi (7)
    
    
    2009
    
    
    $
    80,769
    
    
    $
    0
    
    
    $
    751,117
    
    
    $
    0
    
    
    $
    0
    
    
    $
    3,072,639
    
    
    $
    3,904,525Former Chief of Staff to
    
    
    2008
    
    
    $
    407,885
    
    
    $
    311,590
    
    
    $
    272,330
    
    
    $
    3,223
    
    
    $
    0
    
    
    $
    30,062
    
    
    $
    1,025,089the Chief Executive
Officer
    
    
    2007
    
    
    $
    329,039
    
    
    $
    90,450
    
    
    $
    152,043
    
    
    $
    24,885
    
    
    $
    0
    
    
    $
    25,322
    
    
    $
    621,739
 Footnotes:1
    
    Mr. Jaramillo began serving as our Chairman, President, and Chief Executive Officer on
February 1, 2009. Mr. Jaramillo also served as a director of SHUSA and Sovereign Bank for
2009.2
    
    Mr. Sabater began serving as our Chief Financial Officer on May 1, 2009.3
    
    Mr. Sullivans employment resigned effective March 19, 2010.  107




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##### Table of Contents



4
    
    Mr. Matoss employment commenced on April 9, 2009. Mr. Matos also has served as a director
of SHUSA and Sovereign Bank since March 24, 2009. Mr. Matos receives no compensation for his
service as a director.5
    
    Mr. Walters served as our Chief Financial Officer and our Interim President and Chief
Executive Officer, through January 2, 2009. From January 3, 2009, through May 1, 2009, Mr.
Walters served as our Senior Executive Vice President and Chief Administrative Officer and
continued to serve as Chief Financial Officer. On May 1, 2009, Mr. Walters ceased serving as
our Chief Financial Officer. Mr. Walters also has served as a director of SHUSA and Sovereign
Bank since February 1, 2009. Mr. Walters receives no compensation for his service as a
director.6
    
    Mr. Perrault served as our President and Chief Executive Officer from January 3, 2009,
through January 30, 2009.7
    
    Mr. Rinaldis employment terminated on February 27, 2009.8
    
    Amounts in this column are based on actual base compensation paid through December 31, 2009.
The total for Mr. Jaramillo includes $11,833 that he earned for service as a director of SHUSA
and Sovereign Bank for 2009 under the Director Plan before he began serving as our Chairman,
President, and Chief Executive Officer. Mr. Jaramillo also received $35,500 in January 2009
under the Director Plan for his service on the Board in the fourth quarter of 2008. Mr.
Jaramillo has received no compensation for his service as a director since he began serving as
our Chairman, President, and Chief Executive Officer. See the discussion following the table
entitled Director Compensation in Fiscal Year 2009 for more information about the Director
Plan.9
    
    The amounts in this column for 2009 for Messrs. Lever and Sullivan reflect the discretionary
$100,000 Leadership Awards they received for 2009 performance. The amount in this column for
Mr. Sullivan also includes the $65,000 retention bonus that Mr. Sullivan received pursuant to
the terms of his letter agreement because he was employed with us on July 31, 2009. 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. For more information about
Messrs. Sullivans, Sabaters, and Matoss letter agreements, see the description under the
caption Description of Employment and Related Agreements.10
    
    The amounts in these columns for Messrs. Jaramillo, Sabater, and Matos include amounts that
Santander recognized for financial statement reporting purposes in 2009 for equity awards that
Santander granted under the I-09, I-10, and I-11 Plans prior to their commencing service with
SHUSA. The amounts for Messrs. Lever, Sullivan, Walters, Perrault, and Rinaldi in these
columns reflect the dollar amount that SHUSA recognized for financial statement reporting
purposes for the applicable fiscal year, in accordance with FASB ASC Topic 718 (formerly known
as SFAS 123(R)), for equity awards granted under our equity compensation plans and our Bonus
Deferral Program (which, for years prior to 2007, we paid in our common stock and which we now
pay in cash) and thus may include amounts from awards granted in and before the applicable
fiscal year. 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, 2009. Amounts in these do not include amounts that
Santander recognized for financial statement reporting purposes in 2009 for stock awarded to
Mr. Jaramillo under the Obligatory Investment Plan. SHUSAs and Santanders equity
compensation programs under the caption Our Equity Compensation Plans.11
    
    The amount in this column for 2009 for Mr. Walters includes $454,830, which represents the
cash payment received by Mr. Walters as a result of the vesting on January 30, 2009, of
180,955 restricted stock units awarded pursuant to the terms of his employment agreement. Mr.
Walters did not receive any value for the 700,000 stock appreciation rights awarded to him
pursuant to the terms of his employment agreement as such rights were underwater at the time
of their cancellation. In our prior Annual Report on Form 10-K, we incorrectly categorized
these restricted stock units and stock appreciate rights as equity incentive plan awards.
Because these awards were to be settled in cash, they are treated as non-equity incentive
awards.12
    
    Includes the following amounts that we paid to or on behalf of the named executive officers: Year
    
    
    Jaramillo
    
    
    Sabater
    
    
    Lever
    
    
    Sullivan
    
    
    Matos
    
    
    Walters
    
    
    Perrault
    
    
    RinaldiCar Allowance or Personal Use of Company Automobile(*)
    
    
    2009
    
    
    $
    132,079
    
    
    $
    5,932
    
    
    $
    9,000
    
    
    $
    9,000
    
    
    $
    12,142
    
    
    $
    9,000
    
    
    $
    0
    
    
    $
    1,5002008
    
    
    $
    
    
    
    $
    
    
    
    $
    9,200
    
    
    $
    9,000
    
    
    $
    
    
    
    $
    10,996
    
    
    $
    
    
    
    $
    12,1882007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,188Club Membership
    
    
    2009
    
    
    $
    2,888
    
    
    $
    0
    
    
    $
    500
    
    
    $
    8,766
    
    
    $
    738
    
    
    $
    630
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    22,321
    
    
    $
    
    
    
    $
    400
    
    
    $
    
    
    
    $
    4,1802007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,736
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,916Company Contribution to SHUSA Retirement Plan (**)
    
    
    2009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    9,800
    
    
    $
    9,800
    
    
    $
    0
    
    
    $
    9,800
    
    
    $
    0
    
    
    $
    9,8002008
    
    
    $
    
    
    
    $
    
    
    
    $
    9,200
    
    
    $
    9,200
    
    
    $
    
    
    
    $
    8,797
    
    
    $
    
    
    
    $
    8,4662007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,337Dividends Paid on Vesting of Restricted Stock
    
    
    2009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    14,909
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    15,0502008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    1,523
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    1,0882007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    881
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    881Relocation Expenses and Temporary Housing
    
    
    2009
    
    
    $
    10,591
    
    
    $
    71,452
    
    
    $
    0
    
    
    $
    0
    
    
    $
    37,438
    
    
    $
    72,724
    
    
    $
    20,803
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    122,928
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Housing Allowance, Utility Payments, and Per Diem
    
    
    2009
    
    
    $
    411,400
    
    
    $
    50,672
    
    
    $
    0
    
    
    $
    0
    
    
    $
    58,777
    
    
    $
    0
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Severance Payments Pursuant to Employment Agreement
    
    
    2009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    4,859,178
    
    
    $
    2,205,0002008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Legal and Financial Consulting Expenses
    
    
    2009
    
    
    $
    64,811
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,295
    
    
    $
    0
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Life Insurance Allowance and Medical and Dental Reimbursements
    
    
    2009
    
    
    $
    63,897
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
  108




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##### Table of Contents



Year
    
    
    Jaramillo
    
    
    Sabater
    
    
    Lever
    
    
    Sullivan
    
    
    Matos
    
    
    Walters
    
    
    Perrault
    
    
    RinaldiPayments to Terminate Existing Employment Agreements
    
    
    2009
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,305,948
    
    
    $
    1,268,152
    
    
    $
    0
    
    
    $
    5,455,616
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Tax Reimbursements (***)
    
    
    2009
    
    
    $
    362,387
    
    
    $
    91,680
    
    
    $
    0
    
    
    $
    0
    
    
    $
    147,363
    
    
    $
    2,682,080
    
    
    $
    2,242,481
    
    
    $
    839,3692008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0School Tuition and Language Classes
    
    
    2009
    
    
    $
    0
    
    
    $
    40,400
    
    
    $
    0
    
    
    $
    0
    
    
    $
    64,511
    
    
    $
    0
    
    
    $
    0
    
    
    $
    02008
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    0
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    02007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Paid Parking (****)
    
    
    2009
    
    
    $
    3,248
    
    
    $
    2,992
    
    
    $
    5,760
    
    
    $
    5,760
    
    
    $
    3,623
    
    
    $
    3,088
    
    
    $
    0
    
    
    $
    1,9202008
    
    
    $
    
    
    
    $
    
    
    
    $
    5,520
    
    
    $
    5,520
    
    
    $
    
    
    
    $
    0
    
    
    $
    
    
    
    $
    4,1402007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,987
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    0Total
    
    
    2009
    
    
    $
    1,051,301
    
    
    $
    263,128
    
    
    $
    1,331,008
    
    
    $
    1,316,387
    
    
    $
    325,887
    
    
    $
    8,232,938
    
    
    $
    7,122,462
    
    
    $
    3,072,6392008
    
    
    $
    
    
    
    $
    
    
    
    $
    23,920
    
    
    $
    47,564
    
    
    $
    
    
    
    $
    143,121
    
    
    $
    
    
    
    $
    30,0622007
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    26,604
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    25,322
 (*)
    
    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 (subject to the right of Messrs. Jaramillo, Sabater, and Matos 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. Under the terms of his
employment agreement, Mr. Jaramillo is entitled to the use of a SHUSA-provided driver
but we did not provide a driver for him in 2009.(**)
    
    Includes our matching contribution to each named executive officers 401(k)
account under our retirement plan for 2009, 2008, and 2007. Includes the value as of
December 31, 2007, of the shares of our common stock allocated as our contribution to
each named executive officers ESOP account under our retirement plan. We did not make
an ESOP contribution for 2008 or 2009.(***)
    
    Includes amounts paid to gross up for tax purposes certain perquisites and
severance payments in accordance with an applicable employment agreement. We describe
these payments in more detail in the narrative following the section entitled
Employment and Related Agreements.(****)
    
    Includes benefits provided in 2008 and 2007 not previously disclosed. Grants of Plan-Based Awards  2009
 All OtherEstimated Possible
    
    
    All Other
    
    
    Option
    
    
    ExerciseFuture
    
    
    Stock
    
    
    Awards:
    
    
    or
    
    
    GrantEstimated Possible Future
    
    
    Payouts Under
    
    
    Awards:
    
    
    Number
    
    
    Base
    
    
    Date FairPayouts Under Non-Equity
    
    
    Equity
    
    
    Number of
    
    
    of
    
    
    Price
    
    
    Value ofIncentive Plan
    
    
    Incentive Plan
    
    
    Shares
    
    
    Securities
    
    
    of
    
    
    Stock andAwards (1)
    
    
    Awards (2)
    
    
    of Stock or
    
    
    Underlying
    
    
    Option
    
    
    OptionGrant
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    Minimum
    
    
    Target
    
    
    Units
    
    
    Options
    
    
    Awards
    
    
    AwardsName
    
    Date
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    (#)
    
    
    (#)`
    
    
    (#) (3)
    
    
    (#) (4)
    
    
    ($/Sh)
    
    
    ($)Gabriel Jaramillo
    
    
    
    
    
    $
    2,400,000
    
    
    $
    4,800,000
    
    
    $
    7,200,000Guillermo Sabater
    
    
    2/3/2009
    
    
    $
    150,000
    
    
    $
    300,000
    
    
    $
    450,000
    
    
    
    2,850
    
    
    
    19,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    54,824Roy J. Lever
    
    
    
    
    
    $
    150,000
    
    
    $
    300,000
    
    
    $
    450,000Patrick J. Sullivan
    
    
    
    
    
    $
    136,039
    
    
    $
    272,077
    
    
    $
    408,116
  109




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##### Table of Contents



All OtherEstimated Possible
    
    
    All Other
    
    
    Option
    
    
    ExerciseFuture
    
    
    Stock
    
    
    Awards:
    
    
    or
    
    
    GrantEstimated Possible Future
    
    
    Payouts Under
    
    
    Awards:
    
    
    Number
    
    
    Base
    
    
    Date FairPayouts Under Non-Equity
    
    
    Equity
    
    
    Number of
    
    
    of
    
    
    Price
    
    
    Value ofIncentive Plan
    
    
    Incentive Plan
    
    
    Shares
    
    
    Securities
    
    
    of
    
    
    Stock andAwards (1)
    
    
    Awards (2)
    
    
    of Stock or
    
    
    Underlying
    
    
    Option
    
    
    OptionGrant
    
    
    Threshold
    
    
    Target
    
    
    Maximum
    
    
    Minimum
    
    
    Target
    
    
    Units
    
    
    Options
    
    
    Awards
    
    
    AwardsName
    
    Date
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    (#)
    
    
    (#)`
    
    
    (#) (3)
    
    
    (#) (4)
    
    
    ($/Sh)
    
    
    ($)Nuno Matos
    
    
    2/3/2009
    
    
    $
    475,000
    
    
    $
    950,000
    
    
    $
    1,425,000
    
    
    
    1,050
    
    
    
    7,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    148,808Kirk W. Walters
    
    
    
    
    
    $
    325,000
    
    
    $
    650,000
    
    
    $
    975,000Paul A. Perrault
    
    
    1/3/2009
    
    
    
    
    
    
    $
    800,000
    
    
    
    
    
    
    
    
    
    
    
    850,000
    
    
    
    
    
    
    
    
    
    
    $
    3.04
    
    
    $
    1,266,5001/3/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    $
    3.04
    
    
    $
    223,5001/3/2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    $
    608,000Salvatore J. Rinaldi
 Footnotes:(1)
    
    These columns reflect the estimated possible payouts for named executive officers under the
applicable bonus program for fiscal year 2009 based on the performance targets that we set in
July 2009. Mr. Rinaldi did not participate in a bonus program in 2009 and we set Mr.
Perraults possible bonus payouts pursuant to the terms of his negotiated employment
agreement, which we describe under the heading Description of Employment and Related
Agreements. 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)
    
    For Messrs. Sabater and Matos, these columns reflect the minimum and target numbers of shares
that they may receive under the I-11 Plan. We describe the I-11 Plan under the caption Our
Equity Compensation Plans. For Mr. Perrault, these columns reflects the number of options to
purchase shares of our common stock that we granted to Mr. Perrault under the 2004 Plan
pursuant to the terms of his employment agreement. Mr. Perraults options were subject to a
vesting schedule, which schedule was accelerated upon the termination of his employment as we
describe below under the caption Description of Employment and Related Agreements.(3)
    
    For Mr. Perrault, this column reflects the number of shares of restricted stock that we
granted to Mr. Perrault under the 2001 Plan pursuant to the terms of his employment agreement.
Mr. Perraults restricted stock awards were subject to a vesting schedule, which schedule was
accelerated upon the termination of his employment as we describe below under the caption
Description of Employment and Related Agreements. This column does not reflect 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
December 31, 2011. We describe the Obligatory Investment Plan under the caption Our Equity
Compensation Plans.(4)
    
    This column reflects the number of options to purchase shares of our common stock that we
granted to Mr. Perrault under the 2001 Plan pursuant to the terms of his employment agreement.
Mr. Perraults options were subject to a vesting schedule, which schedule was accelerated
upon the termination of his employment as we describe below under the caption Description of
Employment and Related Agreements.  110




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##### Table of Contents



Outstanding Equity Awards at Fiscal 2009 Year End
 Stock AwardsEquityIncentivePlan Awards:MarketEquity Incentive
    
    
    or PayoutPlan Awards:
    
    
    Value ofMarket Value of
    
    
    Number
    
    
    UnearnedNumber of
    
    
    Shares or Units
    
    
    of Unearned
    
    
    Shares,Shares or
    
    
    of
    
    
    Shares,
    
    
    Units or OtherUnits of Stock
    
    
    Stock that have
    
    
    Units or Other
    
    
    Rights thatthat have not
    
    
    not
    
    
    Rights that have
    
    
    haveName
    
    Vested(#)
    
    
    Vested($)
    
    
    not Vested(#)
    
    
    not Vested($)Gabriel Jaramillo
    
    
    
    
    
    
    
    
    
    
    81,377
    (1)
    
    $
    1,345,567Guillermo Sabater
    
    
    
    
    
    
    
    
    
    
    6,000
    (1)
    
    $
    99,2107,000
    (2)
    
    $
    115,745Roy J. Lever
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0Patrick J. Sullivan
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0Nuno Matos
    
    
    
    
    
    
    
    
    
    
    18,000
    (1)
    
    $
    297,63019,000
    (2)
    
    $
    314,165Kirk W. Walters
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0Paul A. Perrault
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0Salvatore J. Rinaldi
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    0
 Footnotes:(1)
    
    Santander awarded these restricted stock units on March 24, 2008, as
part of the I-10 Plan. These units vest in accordance with the terms
of the I-10 Plan. This column does not reflect shares that Mr.
Jaramillo is entitled to receive pursuant to the terms of the
Obligatory Investment Plan as Santanders matching contribution if he
remains employed with Santander through December 31, 2010. We
describe the I-10 Plan and the Obligatory Investment Plan under the
caption Our Equity Compensation Plans.(2)
    
    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 Our Equity
Compensation Plans. Option Exercises and Stock Vested  2009
 Option Awards
    
    
    Stock AwardsNumber of
    
    
    
    
    
    
    Number of Shares
    
    
    ValueShares Acquired
    
    
    Value Realized
    
    
    Acquired on
    
    
    Realized onName
    
    on Exercise(#)
    
    
    on Exercise($)
    
    
    Vesting(#)
    
    
    Vesting($)Gabriel Jaramillo
    
    
    0
    
    
    $
    0
    
    
    
    49,255
    (1)
    
    $
    581,214Guillermo Sabater
    
    
    0
    
    
    $
    0
    
    
    
    3,632
    (1)
    
    $
    42,858Roy J. Lever
    
    
    0
    
    
    $
    0
    
    
    
    43,860
    (2)
    
    $
    108,334Patrick J. Sullivan
    
    
    0
    
    
    $
    0
    
    
    
    72,971
    (2)
    
    $
    180,238Nuno Matos
    
    
    0
    
    
    $
    0
    
    
    
    9,987
    (1)
    
    $
    117,847Kirk W. Walters
    
    
    0
    
    
    $
    0
    
    
    
    100,000
    (2)
    
    $
    247,000Paul A. Perrault
    
    
    0
    
    
    $
    0
    
    
    
    200,000
    (2)
    
    $
    494,000Salvatore J. Rinaldi
    
    
    0
    
    
    $
    0
    
    
    
    83,133
    (2)
    
    $
    205,339
 Footnotes:(1)
    
    Reflects shares of Santander common stock.(2)
    
    Reflects shares of SHUSA (formerly Sovereign Bancorp, Inc.) common stock.  111




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##### Table of Contents



Our Equity Compensation Plans   Explanatory Note
  The 2004 Plan
     The 2001 Plan
    The 1996 Plan
  The 1993 Plan
  The Performance Shares Plan
   112




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##### Table of Contents




    
    Each cycle is for a three-year period, except for the I-09 Plan, which is for two
years, 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-09 Plan
    
    2007 through 2008
    
    No later than July 31, 2009I-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, 2012
 
    
    The maximum number of shares that each participant is eligible to receive under
the I-09 Plan and the I-10 was determined 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 and the I-12 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.
 
    
    Each plan provides that a percentage of the maximum number of shares will vest in
accordance with:
 
    
    in the case of the I-09, 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 Plan, 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 the
peer group and Santander at the end of the cycle and the value of the same
investment at the beginning of the cycle. Dividends or similar amounts received by
shareholders will be considered as if such amounts were invested in more shares.
The trading price on the exchange with the highest trading volume will be used to
calculate the initial and final share prices.
 
    
    Each plan (except the I-12 Plan, 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.
 
    
    The peer group is chosen from among the worlds largest financial institutions,
on the basis of their market capitalization, geographic location, and the nature of
their businesses. A member of the peer group may be removed from the calculations
in the event it 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.
 
    
    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, 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.
  Named Executive Officer
    
    I-09 Plan
    
    
    I-10 Plan
    
    
    I-11 PlanGabriel Jaramillo
    
    
    54,251
    
    
    
    81,377
    
    
    
    0Guillermo Sabater
    
    
    4,000
    
    
    
    6,000
    
    
    
    7,000Nuno Matos
    
    
    11,000
    
    
    
    18,000
    
    
    
    19,000
  113




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##### Table of Contents



Named Executive Officer
    
    SharesGabriel Jaramillo
    
    
    60,000Guillermo Sabater
    
    
    15,000Roy J. Lever
    
    
    18,000Nuno Matos
    
    
    27,500Kirk W. Walters
    
    
    18,000
 The I-09 Plan and I-10 Plan
  Santanders position
    
    Percentage of sharesSantanders position
    
    Percentage of shares
    
    in the EPS growth
    
    to be deliveredin the TSR ranking
    
    earned over maximum
    
    ranking
    
    over 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%
  ABN AMRO Holding
    
    JP Morgan Chase & Co.Banco Bilbao Vizcaya Argentaria, S.A.
    
    Lloyds TSB Group CBanco Itau
    
    Mitsubishi UFJ Financial Group, Inc.Bank of America
    
    Nordea Bank ABBarclays
    
    Royal Bank of CanadaBNP Paribas
    
    Royal Bank of Scotland GroupCitigroup
    
    Société Générale S.A.Credit Agricole
    
    UBS AGHBOS plc
    
    UniCredito ItalianoHSBC Holdings plc
    
    Wells Fargo & Co.Intesa Sanpaolo S.p.A.
 The I-11 Plan
  Percentage
    
    Santanders position
    
    Percentage of sharesSantanders position
    
    of shares earned
    
    in the EPS growth
    
    to be deliveredin the TSR ranking
    
    over maximum
    
    ranking
    
    over 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%
  114




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##### Table of Contents



Banco Itaú
    
    JP Morgan Chase & Co.Banco Bilbao Vizcaya Argentaria, S.A.
    
    Lloyds TSB GroupBank of America
    
    Mitsubishi UFJ Financial Group, Inc.Barclays
    
    Nordea Bank ABBNP Paribas
    
    Royal Bank of CanadaCitigroup
    
    Royal Bank of Scotland GroupCredit Agricole
    
    Société Générale S.A.Deutsche Bank
    
    UBS AGHBOS plc
    
    UniCredito ItalianoHSBC Holdings plc
    
    Wells Fargo & Co.Intesa Sanpaolo S.p.A.
 The I-12 Plan
  Percentage ofshares earned overSantanders position in the TSR ranking
    
    maximum1st to 5th
    
    100.0%6th
    
    82.5%7th
    
    65.0%8th
    
    47.5%9th
    
    30.0%10th or below
    
    0%
  Banco Bilbao Vizcaya Argentaria, S.A.
    
    Mitsubishi UFJ Financial Group, Inc.BNP Paribas
    
    Nordea Bank ABCredit Suisse Group A.G.
    
    Royal Bank of CanadaHSBC Holdings plc
    
    Société Générale S.A.ING Groep N.V.
    
    Standard Chartered PLCIntesa Sanpaolo S.p.A.
    
    UBS AGItaú Unibanco Banco Múltiplo, S.A.
    
    UniCredit S.p.A.JP Morgan Chase & Co.
    
    Wells Fargo & Co.
 The Obligatory Investment Plan
    
    
    deficient financial performance by Santander during the three-year period,
    
    poor conduct by the participant,
  115




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##### Table of Contents




    
    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
     
    
    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 Mr. Jaramillos legal expenses 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 shall be deemed to be $4,800,000 if, as of the date of
termination, the annual bonus for 2009 has 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
      
    
    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
  117




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##### Table of Contents




    
    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.
 
   Roy J. Lever
   
    
    a payment equal to two times the sum of his current base salary (or his salary
for one of the two immediately preceding years, if greater) and the greater of
the target bonus in the year of termination or the highest bonus paid with
respect to one of the three prior years; and
 
    
    continuation of health and medical benefits for the two-year period following
the termination date.
    
    
    a covenant not to compete with us for three months following such termination; and
    
    a covenant not to solicit our customers for six months following such termination.
  
    
    commission of an act constituting a misdemeanor involving moral turpitude, fraud, or misrepresentation or a felony;
    
    a violation of any laws, rules, or regulations applicable to us;
    
    commission of an act constituting a breach of fiduciary duty, gross negligence, or willful misconduct;
 
    
    a violation of any internal policies or procedures or the commission of an act
of fraud, dishonesty, or misrepresentation that is detrimental to the business,
reputation, character, or standing of us;
 
    
    a conflict of interest or self-dealing; or
    
    a material breach by Mr. Lever of the letter agreement or a failure to perform duties.
  118




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##### Table of Contents



Patrick J. Sullivan
   
    
    a payment equal to two times the sum of his current base salary (or his salary
for one of the two immediately preceding years, if greater) and the greater of
the target bonus in the year of termination or the highest bonus paid with
respect to one of the three prior years; and
 
    
    continuation of health and medical benefits for the two-year period following
the termination date.
      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.
 
    119




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##### Table of Contents



Paul A. Perrault
      
    
    three times his base salary for 2009;
    
    three times his target bonus for 2009; and
    
    a pro-rata annual bonus based on the number of days employed during the calendar year and our actual performance).
    Kirk W. Walters
   
    
    a payment equal to three times his current base salary;
 
    
    a payment equal to three times the greater of the prior years annual bonus
amount or the average of the prior three years annual bonus amounts (or if not
applicable, the target bonus);
 
    
    a pro-rata annual bonus based on the number of days employed during the calendar year and our actual performance; and
    
    continuation of health and medical benefits for the three-year period following the termination date.
     120




---



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Salvatore J. Rinaldi
    
    
    his base salary for 2009; and
    
    his target bonus for 2009.
    Nonqualified Deferred Compensation  2009
 AggregateExecutive
    
    
    
    
    
    
    Aggregate
    
    
    
    
    
    
    BalanceContributions
    
    
    Contributions
    
    
    Earnings
    
    
    Aggregate
    
    
    At Last Fiscalin Last
    
    
    in Last
    
    
    in Last Fiscal
    
    
    Withdrawals/
    
    
    YearFiscal Year
    
    
    Fiscal Year
    
    
    Year
    
    
    Distributions
    
    
    EndName
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Salvatore J. RinaldiBonus Deferral Program
    
    $
    0
    
    
    $
    0
    
    
    $
    (5,180
    )
    
    $
    (12,736
    )
    
    $
    01998 ESOP Allocation
Arrangement
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    (16,783
    )
    
    $
    0Total
    
    $
    0
    
    
    $
    0
    
    
    $
    (5,180
    )
    
    $
    (29,519
    )
    
    $
    0Patrick J. SullivanBonus Deferral Program
    
    $
    0
    
    
    $
    0
    
    
    $
    (9,437
    )
    
    $
    (23,195
    )
    
    $
    0Guillermo SabaterSistema de Previsión
para Directivos
    
    $
    0
    
    
    $
    29,196
    
    
    $
    
    
    
    $
    0
    
    
    $
    148,304
  Deferred Compensation Plan
   
    
    The Deferred Compensation Plan permits participants to 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.
  121




---



##### Table of Contents




    
    We distribute all account balances in cash.
 
    
    We no longer make matching contributions on the deferred amounts.
 
    
    Distribution events will be only as permitted under Code Section 409A.
 
    
    Participants are always 100% vested in the amounts deferred.
 
    
    We now permit directors of SHUSA and Sovereign Bank to defer receipt of cash fees
received for service as a director.
  
    
    We permitted selected executive team members to defer annually receipt of 25% to 50%
of his or her cash bonus for a given year.
 
    
    We placed the deferred amount in a grantor trust and invested it in our common stock
(which is now invested in Santander American Depositary Shares), which the trusts
independent trustee purchased on the open market. We made a 100% matching contribution
to the trust on behalf of the participant and invested it in our common stock.
 
    
    A participant became 100% vested in the aggregate of each years deferral, match, and
earnings five years after the initial funding of such years contributions to the trust.
 
    
    A participant also vested in his or her account balance in the event of termination
of employment due to death, disability, retirement, involuntary termination, or the
occurrence of a change in control.
 
    
    Termination for cause or voluntary termination of employment prior to the expiration
of the five-year vesting period generally resulted in the forfeiture of the entire
account balance, including the amounts deferred by the participant.
 
    
    We paid the vested account balances in stock, in accordance with a participants
prior election.
  Other Arrangements
   Potential Payments upon Termination or Change in Control
   122




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##### Table of Contents



Termination
    
    
    Involuntary
    
    
    Voluntaryfor Death or
    
    
    Termination not for
    
    
    TerminationDisability
    
    
    Cause
    
    
    for Good ReasonGabriel Jaramillo
    
    Severance:-Base Salary
    
    $
    0
    
    
    $
    2,013,000
    
    
    $
    2,013,000-Last Annual Bonus
    
    $
    0
    
    
    $
    4,800,000
    
    
    $
    4,800,000-Pro-Rata Last Annual Bonus
    
    $
    4,392,329
    
    
    $
    4,392,329
    
    
    $
    4,392,329Continuation of Health Benefits
    
    $
    0
    
    
    $
    6,574
    
    
    $
    6,574Relocation Expenses (1)
    
    $
    10,591
    
    
    $
    10,591
    
    
    $
    10,591Vesting of Restricted Stock Units (2)
    
    $
    897,045
    
    
    $
    897,045
    
    
    $
    897,045Total
    
    $
    5,289,374
    
    
    $
    12,108,947
    
    
    $
    12,108,947Guillermo Sabater
    
    Vesting of Restricted Stock Units (2)
    
    $
    181,885
    
    
    $
    181,885
    
    
    $
    181,885Total
    
    $
    181,885
    
    
    $
    181,885
    
    
    $
    181,885Roy J. Lever
    
    Severance:-Pro-Rata Annual Bonus
    
    $
    0
    
    
    $
    300,000
    
    
    $
    0Continuation of Health Benefits (3)
    
    $
    0
    
    
    $
    37,592
    
    
    $
    0Total
    
    $
    0
    
    
    $
    337,592
    
    
    $
    0Patrick J. Sullivan
    
    Severance:-Pro-Rata Annual Bonus
    
    $
    0
    
    
    $
    272,077
    
    
    $
    0-Retention Bonus (3)
    
    $
    0
    
    
    $
    65,000
    
    
    $
    65,000Continuation of Health Benefits (3)
    
    $
    0
    
    
    $
    37,592
    
    
    $
    0Total
    
    $
    0
    
    
    $
    374,669
    
    
    $
    65,000Nuno Matos
    
    Vesting of Restricted Stock Units (2)
    
    $
    512,584
    
    
    $
    512,584
    
    
    $
    512,584Total
    
    $
    512,584
    
    
    $
    512,584
    
    
    $
    512,584Kirk W. Walters
    
    Severance:-Pro-Rata Annual Bonus
    
    $
    0
    
    
    $
    650,000
    
    
    $
    0Continuation of Health Benefits (3)(4)
    
    $
    0
    
    
    $
    48,142
    
    
    $
    48,142Total
    
    $
    0
    
    
    $
    698,142
    
    
    $
    48,142
 (1)
    
    Estimated based on the actual cost of relocating Mr. Jaramillo and his family from his country
of origin to the United States.(2)
    
    Represents dollar value of pro-rated number of shares payable under I-10 Plan and I-11 Plan
upon termination assuming that Santander achieves the highest relative TSR and EPS(3)
    
    Assumes no increase in the cost of health benefits during the continuation period.(4)
    
    Payments made or benefits provided upon a resignation by the named executive officer for any
reason. Director Compensation in Fiscal Year 2009
  
    
    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.
  123




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Changein PensionValueandFees
    
    
    NonqualifiedEarned
    
    
    Deferredor Paid
    
    
    Compensationin Cash
    
    
    Earnings
    
    
    TotalName (1)
    
    ($) (2)
    
    
    ($) (3)
    
    
    ($)P. Michael Ehlerman
    
    $
    97,333
    
    
    $
    0
    
    
    $
    97,333Brian Hard
    
    $
    59,000
    
    
    $
    0
    
    
    $
    59,000Marian L. Heard
    
    $
    190,667
    
    
    $
    0
    
    
    $
    190,667Gonzalo de Las Heras
    
    $
    53,583
    
    
    $
    0
    
    
    $
    53,583Andrew C. Hove, Jr.
    
    $
    55,667
    
    
    $
    0
    
    
    $
    55,667William J. Moran
    
    $
    55,667
    
    
    $
    0
    
    
    $
    55,667Nuno Matos
    
    $
    0
    
    
    $
    0
    
    
    $
    0Keith Morgan
    
    $
    0
    
    
    $
    0
    
    
    $
    0Maria Fiorini Ramirez
    
    $
    55,667
    
    
    $
    17,129
    
    
    $
    72,796Alberto Sánchez
    
    $
    4,369
    
    
    $
    0
    
    
    $
    4,369Wolfgang Schoellkopf
    
    $
    174,167
    
    
    $
    0
    
    
    $
    174,167Anthony Terracciano
    
    $
    206,250
    
    
    $
    0
    
    
    $
    206,250Cameron C. Troilo, Sr.
    
    $
    47,333
    
    
    $
    0
    
    
    $
    47,333Kirk W. Walters
    
    $
    0
    
    
    $
    0
    
    
    $
    0Ralph V. Whitworth
    
    $
    64,000
    
    
    $
    0
    
    
    $
    64,000Juan Andres Yanes
    
    $
    0
    
    
    $
    0
    
    
    $
    0
 Footnotes:1
    
    Messrs. Ehlerman, Hard, Hove, Moran, Troilo, and Whitworth and Ms. Ramirez resigned from the
Board effective February 1, 2009. Mr. Morgan resigned from the Board effective July 1, 2009.2
    
    Reflects amounts paid in 2009 for the fourth quarter of 2008 and the first three quarters of
2009. Messrs. Matos, Sánchez, Walters, and Yanes did not receive compensation for service on
the Board for 2009. (Amounts set forth in the table for Mr. Sánchez reflect payments made in
2009 for service in the fourth quarter of 2008.) We set forth Mr. Jaramillos compensation
for serving as a director of SHUSA and Sovereign Bank before he began serving as our Chairman,
President, and Chief Executive Officer in the Summary Compensation Table.3
    
    Includes the above market or preferential earnings on fees deferred under the Deferred
Compensation Plan. Director Plan
  
    
    $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 director who serves as the chair of the
Audit Committee; plus
 
    
    $5,000 in cash annually for each other Board committee for which such non-executive
director serves as chair.
  124




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
    
    $100,000; plus
 
    
    $35,000 if such director served as Lead Director or as chair of the Audit Committee;
plus
 
    
    $25,000 for each Board committee (other than the Audit Committee) for which the director
serves as chair; plus
 
    
    $125,000 if such director served as the non-executive Chairman of the Board; plus
 
    
    An additional $25,000 to Mr. Moran for his service during 2009 as the Audit Committees
audit committee financial expert (as such term is defined by SEC rules and regulations).
   Directors Retirement Plan
     Name
    
    AmountP. Michael Ehlerman
    
    $
    355,853Brian Hard
    
    $
    857,293Andrew C. Hove, Jr.
    
    $
    357,773Cameron C. Troilo, Sr.
    
    $
    894,432
 Directors Participation in Deferred Compensation Plan
    125




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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
   
 Item 13  Related Party Transactions
 Explanatory Note
  Certain Relationships and Related Transactions
  Santander Relationship
         126




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
    
    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 2009, the highest balance outstanding and the principal
balance as of December 31, 2009 were $1,606,203,019, all of which was for confirmation of
standby letters of credit. Sovereign Bank paid $6,690,702 in fees to Santander in 2009
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 2009, the highest balance outstanding
(and the balance as of December 31, 2009) was $890 million. The Company did not pay any
interest on this line of credit for 2009.
 
    
    In December of 2009 the Company borrowed $250 million from Santander Overseas Bank,
Inc. For 2009, the highest outstanding balance on the line (and the balance as of
December 31, 2009) was $250 million. The Company did not pay any interest to Santander
Overseas Bank, Inc. with respect to this line in 2009.
 
    
    In 2009 Santanders New York Branch provided a $2,055,054 letter of credit on behalf
of Sovereign Bank. Sovereign Bank paid Santander $9,119 in fees for the letter of
credit in 2009.
 
    
    SCUSA has established a $1 billion line of credit with Santanders New York branch
for letters of credit. For 2009, the highest balance outstanding under this line was
$613,300 and the balance as of December 31, 2009 was $523.7 million. In 2009, SCUSA
paid $7,427,903 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 2009, the line was fully
utilized. In 2009, SCUSA paid Benelux $917,865 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 2009 was $150
million. The outstanding balance of the line as of December 31, 2009 was $117 million.
In 2009, SCUSA paid Benelux $918,251 in interest on this line of credit.
 
    
    SCUSA has a $200 million unsecured loan from Santanders New York branch. This loan
is can be cancelled by either SCUSA or Santander at any time and can be replaced by
SCUSA at any time. The highest balance on the line during 2009 was $200 million. The
outstanding balance, as of December 31, 2009, was $28 million. In 2009, SCUSA paid
$4,861,955 in interest on this line of credit.
 
    
    SCUSA has established a $500 million warehouse line of credit with Santanders New
York branch. This line of credit can be cancelled by either SCUSA or Santander at any
time and can be replaced by SCUSA at any time. The highest outstanding balance for 2009
was $500 million. As of December 31, 2009 the balance was $500 million. In 2009, SCUSA
paid $7,183,337 in interest on this line of credit.
 
    
    SCUSA has established a $1.7 billion warehouse line of credit with Abby National
Bank. This line of credit can be cancelled by either SCUSA or Abby at any time and can
be replaced by SCUSA at any time. The highest outstanding balance of the line in 2009
was $1,699,994,051. As of December 31, 2009, the outstanding balance on the line was
$1,682,966,903. In 2009, SCUSA paid $36,451,274 in interest on this line of credit.
 
    
    Santander Consumer Receivables 2 LLC (a subsidiary of SCUSA) has a $2.25 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 the Santander Consumer Receivables 2 LLC at any time. The highest
outstanding balance of the line in 2009 was $1,890,000,000. As of December 31, 2009,
the balance of the line was $1,848,300,000. In 2009, Santander Consumer Receivables 2
LLC paid $19,690,394 in interest on this line of credit.
  
    
    Nw Services Co., a Santander affiliate doing business as Aquanima, is under contract
with Sovereign Bank to provide procurement services, with fees paid in 2009 in the
amount of $2,000,000.
 
    
    Geoban, S.A., a Santander affiliate, is under contract with Sovereign Bank to provide
services in the form debit card disputes and claims support, and consumer and mortgage
loan set-up and review. 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 2009 in the amount of $5,720,133.
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
    
    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 2009 in the amount of $3,397,601.
 
    
    Santander Back-Offices Globales Mayoristas S.A., a Santander affiliate, is under
contract with Sovereign Bank to provide logistical support for Sovereign Banks
derivative and hedging transactions and programs. 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, with fees paid in 2009 in the amount
of $505,279.
 
    
    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. There were no fees
paid to SGF in 2009 with respect to this agreement.
 
    
    SCUSA is under contract with Sovereign Bank for Sovereign Bank to provide to SCUSA
consulting services, fair lending consultant support and specialized technology
resources for fair lending risk mitigation. The agreement was finalized at the end of
2009 and, as such, no fees were paid to Sovereign Bank in 2009 in connection with this
agreement.
 
    
    SCUSA is under contract with Sovereign Bank to service Sovereign Banks retail auto
loan portfolio. In 2009 Sovereign Bank paid $18,330,642 to SCUSA with respect to this
agreement.
 Cameron C. Troilo, Sr.
 
    
    Lease Rental Relationships. As of December 31, 2009, Mr. Troilo or his affiliates
leased seven commercial properties to Sovereign Bank. In 2009, Sovereign Bank paid
total rental payments of $619,442 ($566,342 of actual rental payments and $53,100 of
pass-through expenses and other adjustments) to Mr. Troilo for one location. Sovereign
Bank paid 6th & Bay Group, LLC, an entity in which Mr. Troilo owns a 50%
equity interest, total rental payments of $115,267 ($89,232 of actual rental payments
and $26,035 of pass-through expenses).
 
    
    Commercial Banking Relationships. As of December 31, 2009, Mr. Troilo and affiliated
entities had eight separate direct loans (some of which were the subject of refinancings
during the year), in the aggregate original amount of $29,622,000, with an outstanding
balance of $25,255,427. The high outstanding aggregate balance of the loans for 2009
was $25,272,427. The total amount of interest paid to Sovereign Bank by Mr. Troilo (and
his affiliated entities) in 2009 was $667,873 and the principal amortization on the
loans was $344,757. In addition to scheduled amortization, in 2009, principal payments
made to Sovereign Bank were approximately $7.154 million and principal advanced was
approximately $10.519 million (some of which related to the refinancing of certain of
the facilities). The loans were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with persons not related to SHUSA, and did
not involve more than the normal risk of collectibility or present other unfavorable
features.
 Loans to Directors and Executive Officers
  (1)
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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.   
 Item 14. Principal Accounting Fees and Services.
 PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Fees of the Independent Auditor
  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
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Fiscal Year Ended December 31, 2008
 December 31, 2008Audit Fees
    
    $
    4,878,000Audit-Related Fees
    
    
    298,500Tax Fees
    
    
    115,017All Other Fees
    
    
    0Total Fees
    
    $
    5,291,517
    Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services by Independent Auditor
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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 Sovereign Bancorp, Inc. and
Banco Santander, S.A. (Incorporated by reference to Exhibit 2.1 to Sovereigns Current Report
on Form 8-K filed October 16, 2008)(3.1
    )
    
    Amended and Restated Articles of Incorporation of Sovereign Bancorp, Inc. (Incorporated by
reference to Exhibit 3.1 to Sovereigns Current Report on Form 8-K filed January 30, 2009)(3.2
    )
    
    Articles of Amendment to the Articles of Incorporation of Sovereign Bancorp, Inc.
(Incorporated by reference to Exhibit 3.1 to Sovereigns Current Report on Form 8-K filed
March 27, 2009)(3.3
    )
    
    Articles of Amendment to the Articles of Incorporation of Sovereign Bancorp, Inc.
(Incorporated by reference to Exhibit 3.1 to Sovereigns Current Report on Form 8-K filed
February 5, 2010)(3.4
    )
    
    Amended and Restated Bylaws of Sovereign Bancorp, Inc. (Incorporated by reference to Exhibit
3.2 to Sovereigns Current Report on Form 8-K filed January 30, 2009)(16.1
    )
    
    Letter from Ernst & Young LLP, dated March 27, 2009 (Incorporated by reference to Exhibit
16.1 to Sovereign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
Sovereigns Current Report on Form 8-K filed April 9, 2009)(4.1
    )
    
    Sovereign Bancorp, 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 Sovereign Bancorp, 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. Sovereign
Bancorp, 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
Sovereigns Current Report on Form 8-K filed December 22, 2008)(4.3
    )
    
    Fiscal Agency Agreement dated December 22, 2008 between Sovereign Bancorp, Inc. and The Bank
of New York Mellon Trust Company, N.A., as fiscal agent (Incorporated by reference to Exhibit
4.2 to Sovereigns Current Report on Form 8-K filed December 22, 2008)(10.1
    )
    
    Form of Letter Agreement, dated May 9, 2008, by and between Sovereign Bancorp, Inc. and
Banco Santander, S.A. (incorporated by referenced to Exhibit 10.1 to Sovereigns Current
Report on Form 8-K filed May 12, 2008)(10.2
    )
    
    Form of Shareholder Agreement, dated October 13, 2008, between Banco Santander, S.A. and the
shareholder signatory thereto (Incorporated by reference to Exhibit 4.1 to Sovereigns Current
Report on Form 8-K filed October 16, 2008)(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
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Signatures
  SANTANDER HOLDINGS USA, INC.
(Registrant)By:
    /s/ Gabriel JaramilloName:
    Gabriel JaramilloTitle:
    Chairman of the Board, Chief Executive Officer   Signature
    
    Title
    
    Date/s/ Gabriel Jaramillo

Gabriel Jaramillo
    
    Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
    
    February 26, 2010/s/ Guillermo Sabater

Guillermo Sabater
    
    Senior Executive Vice President
Chief Financial Officer
Chief Administration Officer
(Principal Financial Officer)
    
    February 26, 2010
  132